Special Project

in
Obligations and Contracts
(BLWO1)

Submitted to: Atty. Dante Dela Cruz

Submitted by: Pauline Birosel

PART 1: CASE DIGEST IN RELATION TO

OBLIGATIONS AND CONTRACTS
(8 CASES)

Case no. 1: Fortuitous Events

College Assurance Plan Phil. Inc., vs. Belfrant Development Inc.
G. R. No. 155604/ 538 SCRA 41
November 22, 2007
Facts:
Company A leased the second and third floors of its building to Company B. Fire destroyed the
parts of the building, including the third floor units being occupied by Company B. The cause of the fire
was identified to be an overheated coffee percolator located in the leased premises of Company B.
Company A demanded Company B to pay for actual damages caused by the fire. However,
Company B disclaimed liability, alleging that the fire was a fortuitous event for which they could not be
held liable.
Issue:
Whether or not the fire which destroyed Company As building is a fortuitous event.
Held:
Fortuitous events are those events which could not be foreseen or which though foreseen, were
inevitable. In this case, it was the fault and negligence of Company B in using the coffee percolator that
caused the fire. If the negligence or fault of the obligor coincided with the occurrence of the fortuitous
event, and caused the loss or damage or the aggravation thereof, the fortuitous event cannot shield the
obligor from liability for his negligence

Case no. 2: Penal Clause

Gobonseng vs. Unibancard Corporation
G. R. No. 160026/ 539 SCRA 561
December 10, 2007
Facts:
Gobonseng applied with Unibancard for the issuance of a credit card with a credit limit of
P10,000 per month. In case of default, the following are required to be paid: 3% interest per month;
penalties at 5% of the amount due for every month and 25% of the amount due as attorneys fees.
Gobonsengs purchases accumulated to P179,638.74. He defaulted in his monthly payments
and was required to pay the principal amount and interest, penalties and attorneys fees based on the
aforementioned terms.
Issue:
Whether or not the penalty of 5% per month violates Article 1226 of the Civil Code, which states
that in obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interest in case of noncompliance.
Held:
Article 1226 of the Civil Code states that in obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is
no stipulation to the contrary. In this case, there is a stipulation for the payment of penalties apart from
the payment of interest.
Thus, unless the stipulated amounts are unconscionable, the court will sustain the amounts
agreed upon by the parties because obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.

Case no. 3: Mutuality of Contracts

Equitable PCI Bank vs. Ng SheungNgor
G. R. No. 171545
December 19, 2007
Facts:
Ng SheungNgor, Ken Appliance Division Inc., and Benjamin Go availed of Equitable PCI Banks
peso and a dollar credit facility because of the latters low interest rates. They signed the banks preprinted promissory notes on various dates. However, they were not aware that the bank has the
authority to increase interest rates without their consent because of the escalation clauses that the
promissory notes contained.
Equitable claimed that the respondents were aware of their terms and conditions and accepted
the same knowingly and they continued to avail of the banks credit facilities for five years.
Issue:
Whether or not the escalation clause violated the principle of mutuality of contracts?
Held:
An escalation clause, which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement is void. Clauses of that nature violate the principle of mutuality of
contracts. According to Article 1308 of the Civil Code, a contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.

Case 4: Voidable Contracts

Spouses Viloria vs. Continental Airlines Inc.
G. R. No. 188288/663 SCRA 57
January 16, 2012
Facts:
Fernando and Lourdes Viloria wanted to travel to New Jersey so they purchased tickets from
Continental Airlines after being informed that there were no available seats at Amtrak. Because of this,
Fernando requested Mager, the attendant, to reschedule their flight to an earlier date. However, only
more expensive tickers via Frontier Air were available, so Fernando opted to ask for a refund.
Unfortunately, Mager informed him that the tickets were nonrefundable.
Later on, Fernando found out that there were still tickets available at Amtrak. He went back to
Mager and accused her of misleading him into buying tickets. He demanded for a refund on the ground
that there was fraud on the part of Mager that tricked him into buying the tickets. He was informed
that the tickets are really nonrefundable but was told that the same may be used as a form of payment
for another ticket. He tried to purchase a ticket for Los Angeles for himself but he could not transfer the
other ticket, which was supposedly for his wife. He again demanded for another refund but his request
was denied.
Issue:
Whether or not As exercise of his right to use the tickets to purchase new ones is an implied
ratification of the supposedlyvoidable contract.
Held:
Even if Magers representation was causal fraud, the spouses pursuit of the remedy of
rescission is equivalent to impliedly admitting the validity of their contracts, forfeiting their right to
demand annulment. A party cannot rely on the contract and claim rights or obligations under it and at
the same time impugn its existence or validity.

Case5: Novation
Heirs of Servando Franco vs. Spouses Gonzales
G. R. No. 159709
June 27, 2012
Facts:
Franco and Medel procured loans from Gonzales on three different dates. They failed to pay all
of their debts on their maturity dates. Because of this, they executed a promissory note in July 1986
wherein all of their previous unpaid loans were consolidated. Again, they failed to pay upon maturity,
constraining Gonzales to file a complaint for collection of money against A and B. The court ruled in
Gonzaless favor. However, according to Franco, there was another agreement between him and
Gonzales entered into on February 1992, evidenced by a receipt, which novated the promissory note.
Issue:
Whether or not the February 1992 receipts novated the July 1986 promissory note?
Held:
There was no novation. An obligation to pay a sum of money is not novated by an instrument
that expressly recognizes the old, or changes only the terms of payment, or adds other obligations not
incompatible with the old ones, or the new contract merely supplements the old one. A new contract
that is a mere reiteration, acknowledgment or ratification of the old contract with slight modifications or
alterations as to the cause or object or principal conditions can stand together with the former one, and
there can be no incompatibility between them.

PART II: Multiple Questions