CONCEPTS AND SOURCES OF

OBLIGATION
 LEUNG BEN VS. P. J. O’BRIEN
G.R. No. L-13602 April 6, 1918
Street, J.

FACTS:

On December 12, 1917, an action was instituted in the Court of First

Instance of Manila by P.J. O’Brien to recover of Leung Ben the sum of
P15,000, all alleged to have been lost by the plaintiff to the defendant in a
series of gambling, banking, and percentage games conducted during the
two or three months prior to the institution of the suit. The plaintiff asked for
an attachment against the property of the defendant, on the ground that the
latter was about to depart from the Philippines with intent to defraud his
creditors. This attachment was issued. The provision of law under which
this attachment was issued requires that there should be a cause of action
arising upon contract, express or implied. The contention of the petitioner is
that the statutory action to recover money lost at gaming is not such an
action as is contemplated in this provision, and he insists that the original
complaint shows on its face that the remedy of attachment is not available
in aid thereof; that the Court of First Instance acted in excess of its
jurisdiction in granting the writ of attachment; that the petitioner has no
plain, speedy, and adequate remedy by appeal or otherwise; and that
consequently the writ of certiorari supplies the appropriate remedy for this
relief.

ISSUE: Whether or not the statutory obligation to restore money won at

gaming is an obligation arising from contract, express or implied.

RULING: Yes. In permitting the recovery money lost at play, Act No. 1757
has introduced modifications in the application of Articles 1798, 1801, and
1305 of the Civil Code.

The first two of these articles relate to gambling contracts, while article
1305 treats of the nullity of contracts proceeding from a vicious or illicit
consideration. Taking all these provisions together, it must be apparent that
the obligation to return money lost at play has a decided affinity to
contractual obligation; and the Court believes that it could, without violence
to the doctrines of the civil law, be held that such obligations is an
innominate quasi-contract.
It is however, unnecessary to place the decision on this ground. In the
opinion of the Court, the cause of action stated in the complaint in the court
below is based on a contract, express or implied, and is therefore of such
nature that the court had authority to issue the writ of attachment. The
application for the writ of certiorari must therefore be denied and the
proceedings dismissed.

Pengson vs. IAC

G.R. No. L-3489, September 7, 1907
Torres, J.

Facts:

Pacific Merchandising Corp (PMC) owning shares in the Aluminum Product

(Alpro) up to 96% share. PMC indebted to Reynold’s Corp more than
800,000, because of such PMC pledged with Reynolds his shares in Alpro
as collateral. Because PMC needs money, it decided to sell its shares with
Alpro to plaintiff Pengson as evidenced by a Deed of Sale. Plaintiff
assumed the obligation of PMC to Reynold which was reduced to 500,000.
The consent of Reynolds was obtained since the certificate covering the
share was pledged to him. Pengson paid the debt in installment and as a
security he mortgaged a parcel of land. Upon failure to pay despite the
demands, the mortgage was foreclosed by Reynolds. Plaintiff filed a suit for
the declaration of nullity and inefficacy of sale or rescission of sale and
mortgage with damages. Trial Court rendered judgment in favor of the
plaintiff because of the refusal of Reynold to deliver the certificate subject
of sale which renders the deed of sale ineffective. CA reversed upon
appeal.

Issue: W/o there is an existing obligation between plaintiff and Reynolds in

returning the certificate of stocks in order not to invalidate the sale.

Held: No. Reynold was not a party of the contract between PMC and
plaintiff having no obligation on the strength of such contract. While plaintiff
undertook the obligation of PMC to Reynolds, the latter and the former has
no reciprocal obligations. Reynold has no obligation to return the certificate
of stocks pledged by PMC because there was no absolute agreement by
Reynold to that effect in the consent it gave to the sale by PMC of the said
shares in favor of the plaintiff. Furthermore, SC ordered the case to be
returned to IAC to make a complete findings of the facts.

Gonzales vs. Philippine National Bank

GR L-33320, 30 May 1983
Plana, J.

Facts:

Ramon A. Gonzales initially instituted several cases in the Supreme Court

questioning different transactions entered into by the Bank with other
parties. First among them is Civil Case 69345 filed on 27 April 1967, by
Gonzales as a taxpayer versus Sec. Antonio Raquiza of Public Works and
Communications, the Commissioner of Public Highways, the Bank,
Continental Ore Phil., Inc., Continental Ore, Huber Corporation, Allis
Chalmers and General Motors Corporation. In the course of the hearing of
said case on 3 August 1967, the personality of Gonzales to sue the bank
and question the letters of credit it has extended for the importation by the
Republic of the Philippines of public works equipment intended for the
massive development program of the President was raised. In view thereof,
he expressed and made known his intention to acquire one share of stock
from Congressman Justiniano Montano which, on the following day, 30
August 1967, was transferred in his name in the books of the Bank.
Subsequent to his aforementioned acquisition of one share of stock of the
Bank, Gonzales, in his dual capacity as a taxpayer and stockholder, filed
the following cases involving the bank or the members of its Board of
Directors to wit: (1) On 18 October 1967, Civil Case 71044 versus the
Board of Directors of the Bank; the National Investment and Development
Corp., Marubeni Iida Co., Ltd., and Agro-Inc. Dev. Co. or Saravia; (2) On 11
May 1968, Civil Case 72936 versus Roberto Benedicto and other Directors
of the Bank, Passi (Iloilo) Sugar Central, Inc., Calinog-Lambunao Sugar Mill
Integrated Farming, Inc., Talog sugar Milling Co., Inc., Safary Central, Inc.,
and Batangas Sugar Central Inc.; and (3) On 8 May 1969, Civil Case
76427 versus Alfredo Montelibano and the Directors of both the PNB and
DBP.

On 11 January 1969, however, Gonzales addressed a letter to the

President of the Bank, requesting submission to look into the records of its
transactions covering the purchase of a sugar central by the Southern
Negros Development Corp. to be financed by Japanese suppliers and
financiers; its financing of the Cebu-Mactan Bridge to be constructed by
V.C. Ponce, Inc. and the construction of the Passi Sugar Mills in Iloilo. On
January 23, 1969, the Asst. Vice President and Legal Counsel of the Bank
answered petitioner's letter denying his request for being not germane to
his interest as a one share stockholder and for the cloud of doubt as to his
real intention and purpose in acquiring said share. In view of the Bank's
refusal, Gonzales instituted the petition for mandamus. The Court of First
Instance of Manila denied the prayer of Gonzales that he be allowed to
examine and inspect the books and records of PNB regarding the
transactions mentioned on the grounds that the right of a stockholder to
inspect the record of the business transactions of a corporation granted
under Section 51 of the former Corporation Law (Act No. 1459, as
amended) is not absolute, but is limited to purposes reasonably related to
the interest of the stockholder, must be asked for in good faith for a specific
and honest purpose and not gratify curiosity or for speculative or vicious
purposes; that such examination would violate the confidentiality of the
records of the bank as provided in Section 16 of its charter, RA 1300, as
amended; and that Gonzales has not exhausted his administrative
remedies. Gonzales filed the petition for review.

Issue:
1. Whether Gonzales' can ask for an examination of the books and
records of PNB, in light of his ownership of one share in the bank.
2. Whether the inspection sought to be exercised by Gonzales would be
violative of the provisions of PNB's charter.
Held:

1. The unqualified provision on the right of inspection previously contained

in Section 51, Act No. 1459, as amended, no longer holds true under the
provisions of the present law. The argument of Gonzales that the right
granted to him under Section 51 of the former Corporation Law should not
be dependent on the propriety of his motive or purpose in asking for the
inspection of the books of PNB loses whatever validity it might have had
before the amendment of the law. If there is any doubt in the correctness of
the ruling of the trial court that the right of inspection granted under Section
51 of the old Corporation Law must be dependent on a showing of proper
motive on the part of the stockholder demanding the same, it is now
dissipated by the clear language of the pertinent provision contained in
Section 74 of Batas Pambansa Bilang 68. Although Gonzales has claimed
that he has justifiable motives in seeking the inspection of the books of the
PNB, he has not set forth the reasons and the purposes for which he
desires such inspection, except to satisfy himself as to the truth of
published reports regarding certain transactions entered into by the
respondent bank and to inquire into their validity. The circumstances under
which he acquired one share of stock in the PNB purposely to exercise the
right of inspection do not argue in favor of his good faith and proper
motivation. Admittedly he sought to be a stockholder in order to pry into
transactions entered into by the PNB even before he became a
stockholder. His obvious purpose was to arm himself with materials which
he can use against the PNB for acts done by the latter when Gonzales was
a total stranger to the same. He could have been impelled by a laudable
sense of civic consciousness, but it could not be said that his purpose is
germane to his interest as a stockholder.

2. Section 15 of the PNB's Charter (RA 1300, as amended) provides that

"Inspection by Department of Supervision and Examination of the Central
Bank. — The National Bank shall be subject to inspection by the
Department of Supervision and Examination of the Central Bank." Section
16 thereof providest that "Confidential information. — The Superintendent
of Banks and the Auditor General, or other officers designated by law to
inspect or investigate the condition of the National Bank, shall not reveal to
any person other than the President of the Philippines, the Secretary of
Finance, and the Board of Directors the details of the inspection or
investigation, nor shall they give any information relative to the funds in its
custody, its current accounts or deposits belonging to private individuals,
corporations, or any other entity, except by order of a Court of competent
jurisdiction." On the other hand, Section 30 of the same provides that
"Penalties for violation of the provisions of this Act. — Any director, officer,
employee, or agent of the Bank, who violates or permits the violation of any
of the provisions of this Act, or any person aiding or abetting the violations
of any of the provisions of this Act, shall be punished by a fine not to
exceed ten thousand pesos or by imprisonment of not more than five years,
or both such fine and imprisonment." The Philippine National Bank is not an
ordinary corporation. Having a charter of its own, it is not governed, as a
rule, by the Corporation Code of the Philippines. The provision of Section
74 of Batas Pambansa Blg. 68 of the new Corporation Code with respect to
the right of a stockholder to demand an inspection or examination of the
books of the corporation may not be reconciled with the above quoted
provisions of the charter of the PNB. It is not correct to claim, therefore, that
the right of inspection under Section 74 of the new Corporation Code may
apply in a supplementary capacity to the charter of the PNB

Philippine School of Business Administration vs. CA

205 SCRA 729 GR No. 84698. February 4, 1942
Ladd, J.

Facts:

A 3rd year commerce student named Carlitos Bautista was stabbed to

death while on the 2nd floor premises of PSBA. This prompt the parents of
the deceased to file a suit in the RTC of Manila for damages against PSBA
and its corporate officers. It was established that his assailants were not
members of the school’s academic community but were elements from the
outside. The plaintiffs (private respondents) alleged that the defendants
(petitioners) liable for the victim’s death due to their negligence,
recklessness and lack of security precautions before, during and after the
attack. The defendants sought for its dismissal since they are presumably
sued under Art. 2180 of the Civil code, the complaint states no cause of
action and as it is not within the scope of the provision of Art 2180 since it is
an academic institution. Respondent court overruled petitioner’s contention
and denied their motion to dismiss. Motion for reconsideration was denied
and the appellant court affirmed the decision, hence the appeal.

Issue:

Whether the decision of the appellate court primarily anchored on the law
of quasi-delicts is valid.

Held:

Although the Supreme Court agreed to the decision of the Court of

Appeals to deny the petition of motion to dismiss by the PSBA, they do not
agree to the premises of the appellate court’s ruling. Article 2180, in
conjunction with Article 2176 of the Civil Code, establishes the rule in in
loco parentis. Article 2180 provides that the damage should have been
caused or inflicted by pupils or students of the educational institution
sought to be held liable for the acts of its pupils or students while in its
custody. However, this material situation does not exist in the present case
for, as earlier indicated, the assailants of Carlitos were not students of the
PSBA, for whose acts the school could be made liable. But it does not
necessarily follow that PSBA is absolved form liability. When an academic
institution accepts students for enrollment, there is established a contract
between them, resulting in bilateral obligations which both parties is bound
to comply with. For its part, the school undertakes to provide the student
with an education that would presumably suffice to equip him with the
necessary tools and skills to pursue higher education or a profession. This
includes ensuring the safety of the students while in the school premises.
On the other hand, the student covenants to abide by the school’s
academic requirements and observe its rules and regulations. Because the
circumstances of the present case evince a contractual relation between
the PSBA and Carlitos Bautista, the rules on quasi-delict do not really
govern. A perusal of Article 2176 shows that obligations arising from quasi-
delicts or tort, also known as extra-contractual obligations, arise only
between parties not otherwise bound by contract, whether express or
implied. The SC dismissed the petition and the case was remanded to the
trail court to determine if the school neglected its obligation to perform
based on the contractual relation of them and the students

Picart vs. Smith, Jr.

G.R. No. L-12219, March 15, 1918
Street, J.

Facts:

On 12 December 1912, plaintiff (appellant) was riding on his pony over said
bridge Carlatan Bridge, at San Fernando, La Union. Before he had gotten
half way across, approached from the opposite direction in an automobile
going at the rate of about 10 or 12 miles per hour. As defendant (appellee)
neared the bridge he saw a horseman on it and blew his horn to
give warning of his approach. It appeared to him that the man on
horseback before him was not observing the rule of the road. Plaintiff saw
the automobile coming and heard the warning signals. However, being
perturbed by the novelty of the apparition or the rapidity of the approach, he
pulled the pony closely up against the railing on the right side of the bridge
instead of going to the left. As the automobile approached, defendant
guided it toward his left, that being the proper side of the road for the
machine. The pony had not as yet exhibited fright, and the rider had made
no sign for the automobile to stop. Seeing that the pony was apparently
quiet, defendant, instead of veering to the right while yet some distance
away or slowing down, continued to approach directly toward the horse
without diminution of speed. When the defendant had gotten quite near,
there being then no possibility of the horse getting across to the other side,
defendant quickly turned his car sufficiently to the right to escape hitting the
horse alongside of the railing where it was then standing; but in so doing
the automobile passed in such close proximity to the animal that it became
frightened and turned its body across the bridge with its head toward the
railing. In so doing, it was struck on the hock of the left hind leg by the
flange of the car and the limb was broken. The horse fell and its rider was
thrown off with some violence. As a result of its injuries the horse died.
Plaintiff received contusions which caused temporary unconsciousness and
required medical attention for several days. CFI of La Union rendered
judgment absolving defendant from liability hence the appeal.

ISSUE:

WON the defendant was guilty of negligence such as to give rise to a civil
obligation to repair the damage done

Held:

YES the defendant was guilty. The test by which to determine the
existence of negligence in a particular case may be stated as follows: Did
the defendant in doing the alleged negligent act use that person would
have used in the same situation? If not, then he is guilty of negligence. The
question is as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Stated in
these terms, the proper criterion for determining the existence of
negligence in a given case is this: Conduct is said to be negligent when a
prudent man in the position of the tortfeasor would have foreseen that an
effect harmful to another was sufficiently probable to warrant his foregoing
conduct or guarding against its consequences.
Applying this test to the conduct of the defendant in the present case we
think that negligence is clearly established. A prudent man, placed in the
position of the defendant, would in our opinion, have recognized that the
course which he was pursuing was fraught with risk, and would therefore
have foreseen harm to the horse and the rider as reasonable consequence
of that course. Under these circumstances the law imposed on the
defendant the duty to guard against the threatened harm. It goes without
saying that the plaintiff himself was not free from fault, for he was guilty of
antecedent negligence in planting himself on the wrong side of the road.
But as we have already stated, Smith was also negligent; and in such case
the problem always is to discover which agent is immediately and directly
responsible. It will be noted that the negligent acts of the two parties were
not contemporaneous, since the negligence of the defendant succeeded
the negligence of the plaintiff by an appreciable interval. Under these
circumstances the law is that the person who has the last fair chance to
avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other party.