(vi) Kinds of delay

(A) mora solvendi, NCC 1169

PAGE 57 of the book:

Mora solvendi or the delay of the obligor or debtor to perform his obligation. This delay is called
mora solvendi ex re when the obligation is an obligation to give or mora solvendi ex persona
when the obligation is an obligation to do.

Abella v. Gonzaga

FACTS:

- The plaintiff Cirilo Abella (tenant) demands specific performance of the contract entered into
with the defendant Mariano Gonzaga (land owner) on April 15, 1921

- The defendant contends in his answer that the plaintiff's right to compel him to make the transfer
of the land in question is not absolute, but conditional; that the conditions have not been complied
with, but violated by the plaintiff, who made the last payment over a year after the obligation had
become due, that is, on March 27, 1927, instead of March 5, 1926.

- This case was heard in the Court of First Instance of Rizal; both parties adduced evidence and
the court entered a decision in favor of the plaintiff (Abella) ordering the defendant to execute
deed of transfer, pay the plaintiff the sum of 21,000 and to pay he costs of the action

- The defendant appealed from this judgment

ISSUE: W/N the plaintiff (Abella) can demand the defendant (Gonzaga) to execute the proper
deed of transfer of the full ownership of the subject property

RULING:
YES

- The decision of this case depends upon the interpretation of the contract. The plaintiff contends
that it is a contract of sale on installments, while the defendant holds that it is really a contract of
lease. If the contract is a lease, it is plain that the plaintiff has no right to the relief he seeks; but
if the contract is a sale on installments and the plaintiff has paid all the installments, it is obvious
he has a right to demand that the defendant execute the proper deed to transfer the ownership to
him.
- trial court held in its judgment that the contract in question is clearly a sale on installments and
we (CA?) believe it was quite right in so holding

- The document, is entitled "Special Contract of Lease," and the special quality consists in the
stipulation of the sum of P1,392.92 which the plaintiff had just paid to the defendant, and of his
promise to pay the rental of the remaining 19 quarters within the time stipulated, the owner bound
himself at the termination of said contract to transfer to the tenant free of charge the full ownership
of the property leased, provided the said tenant has paid all those installments. If the contract were
really a lease, we are at a loss to explain how such a clause was inserted therein.

- The land in question was a part of the estate denominated the Mandaluyong Estate. The
defendant-appellant had an understanding with the owners to purchase a large tract of it including
the land now in question.

- Since the plaintiff has fulfilled his obligations under that contract of sale called "Special Contract
of Lease," we are of the opinion that he may compel the defendant to execute the proper deed of
transfer of the full ownership of the property in question.

Having agreed that the selling price (even supposing it was a contract of sale) would be
paid not later than December, 1928, and in view of the fact that the vendor executed said
contract in order to pay off with the proceeds thereof certain obligations which fell due in
the same month of December, it is held that the time fixed for the payment of the selling
price was essential in the transaction, and, therefore, the vendor, under article 1124 of the
Civil Code, is entitled to resolve the contract for failure to pay the price within the time
specified.

(Heto nakalagay sa reviewer na nakita ko and hindi ko sure yung issue  pa modify nalang
according to your understanding DISCLAIMER huhu para matanong pa natin sa iba)
Foundation v Santos

FACTS:

- Santos Ventura Hocorma Foundation Inc (SVHFI) and Ernesto Santos executed a Compromise
Agreement on October 26, 1990.
- The agreement was judicially approved on September 30, 1991.
- The agreement stipulated that:
1) SVHFI shall pay Santos P1.5 Million immediately upon the execution of the agreement, and
the balance of P13 Million shall be paid within a period of not more than 2 years from the
execution of the agreement;
2) Immediately upon the execution of the agreement Santos shall cause the dismissal with
prejudice of Civil Cases and for the immediate lifting of the various notices of lis pendens
on the real properties; provided, however, that in the event that defendant Foundation shall
sell or dispose of any of the lands previously subject of lis pendens, the proceeds of any
such sale shall be partially devoted to the payment of the Foundation’s obligations.
- SVHFI sold two real properties, which were previously subjects of lis pendens.
- Discovering the disposition made by the SVHFI, Santos sent a letter to the petitioner demanding
the payment of the remaining P13 million, which SVFHI ignored.
- Santos applied with the RTC for the issuance of a writ of execution of its compromise judgment.
- The RTC of Makati granted the writ.
- On November 22, 1994, petitioner’s real properties located in Mabalacat, Pampanga were
auctioned (to pay the balance of 13 million since no response from petitioner)
- Santos filed a Complaint for Declaratory Relief and Damages alleging that there was delay on
the part of petitioner in paying the balance of P13 million.
- TC dismissed petition. CA reversed and ordered SVHFI to pay legal interest on the principal
amount of P13 million at the rate of 12% per annum from the date of demand on October
28, 1992 up to the date of actual payment of the whole obligation.

ISSUE:
WON Santos is entitled to legal interest.

HELD:
YES.
 - When the petitioner failed to pay its due obligation after the demand was made, it incurred
delay. Interest as damages is generally allowed as a matter of right. Santos has been deprived of
funds to which he is entitled by virtue of their compromise agreement.

The goal of compensation requires that the complainant be compensated for the loss of use of those
funds. This compensation is in the form of interest.
 - Article 1169 of the New Civil Code
provides: Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extra-judicially demands from them the fulfillment of their obligation.
 - In order for
the debtor to be in default, it is necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3)
that the creditor requires the performance judicially or extra-judicially.

- The compromise agreement as a consensual contract became binding between the parties
upon its execution and not upon its court approval. From the time a compromise is validly
entered into, it becomes the source of the rights and obligations of the parties thereto.

The two-year period must be counted from October 26, 1990 (date of execution of the compromise
agreement, not on the judicial approval on September 30, 1991). When Santos wrote a demand
letter on October 28, 1992, the obligation was already due and demandable.

Therefore 3 requisites present:

1) The obligation was already due and demandable after the lapse of the two-year period from
the execution of the contract. The obligation is liquidated because the debtor knows
precisely how much he is to pay and when he is to pay it.

2) Petitioner delayed in the performance. It was able to fully settle its outstanding balance
only on February 8, 1995. (entered into by the parties on October 26, 1990

3) The demand letter sent to the petitioner was in accordance with an extra-judicial demand
contemplated by law.

Verily, the petitioner is liable for damages for the delay in the performance of its obligation. This
is provided for in Article 1170 25 of the New Civil Code.

When the debtor knows the amount and period when he is to pay, interest as damages is generally
allowed as a matter of right.
Vasquez v. Ayala Corp

Keywords: Dispute on completion of Ayala Alabang lots

Facts:

- On April 1981 Sps. Vasquez and Ayala Corp. entered into a MOA for the latter to acquire all of
the former’s shares in Conduit Development Inc., which owns a 49.9 hectare property in Ayala
Alabang. This property was being developed by GP Construction and Development Corp for
Conduit

- The MOA stated that:
 Ayala was to develop the whole area as a first‐class subdivision, with its
Phase 1 to be completed in 3 years

- The spouses will retain a 18,736 sqm. area with a first‐option to purchase 4 developed adjacent
lots at the prevailing price at the time. (The development plan mentioned is not by Conduit but by
Ayala, which was still pending during the MOA signing.)

- Sellers would disclose any liability the property may have (Inclusion of the Audited Financial
Statements in the documents handed over)

- Buyer would be responsible for all liabilities of Conduit’s contractor GP and the advances made
by Dr. Vasquez Conduit has no other liabilities whether accrued, absolute, contingent or otherwise

- After the MOA was executed, Mr. del Rosario of Lancer General Builder Corporation, the sub‐
contractor of GP, sent a letter to Ayala, claiming 1,509,558.80 (Both Lancer and GP filed suits in
order to enjoin Ayala but the latter entered into a settlement to dismiss the petitions - 1982‐1987)

- RTC judgment is rendered in favor of plaintiffs and against defendant ordering defendant to
sell to plaintiffs the relevant lots described in the Complaint

- The spouses sent “Reminder” letters to Ayala within the first 3 years but no Demand Letter was
sent to Ayala by April 1984, when the 3 year period will end
 - The whole project was completed
in 1990, when Ayala offered the lots to the spouses but the latter wanted the lots to be priced at
1984 market prices.

- Appeal by Ayala. CA revered RTC decision

- Anent the question of delay, the Court of Appeals ruled that there was no delay as petitioners
never made a demand for Ayala Corporation to sell the subject lots to them.
Issue/s:

WON there was default/delay in the fulfillment of the obligation by Ayala to the Vasquez spouses
as stipulated in the MOA (promise to offer the lots after 3 years from signing)

Ruling:

No, as all of the requisites for mora solvendi were not present in the case.

Ratio:

- Requisites for mora solvendi: 1) the obligation be demandable and already liquidated; 2) the
debtor delays performance; and 3) the Creditor requires the performance judicially or extra‐
judicially.

- Demandable and Liquidated: Under Art. 1193 of the Civil Code, “obligations for whose
fulfillment a day certain has been fixed shall be demandable only when that day comes.” In the
present case, there was no certain day fixed in the MOA in the development of the subject lots.
The period only covered the development of the 1st phase, which did not include the subject lots.
Therefore, the petitioners cannot demand the performance of the same without having asked the
courts to fix the period in accordance with Art. 1197

-Demand by Petitioner: Assuming that the subject lots were fixed to be delivered after 3 years,
demand from the petitioners were still not made in order to say that Ayala defaulted. The letters
that the spouses and their heirs sent to Ayala did not constitute a demand as these did not
categorically demand the specific performance but only articulated their desire to exercise their
option.
SPOUSES DEO AGNER AND MARICON AGNER V. BPI FAMILY SAVINGS BANK
INC.

TOPIC:
ON PAYMENT: One who pleads payment has the burden of proving it; the burden rests on
defendant to prove payment, rather than on the plaintiff to prove non-payment. When the creditor
is in possession of the document of credit, proof of non-payment is not needed for it is presumed.
ON INTEREST: Stipulated interest of 3 % per month and higher are excessive, iniquitous,
unconscionable, and exorbitant.
ON DEMAND: Article 1169 of the NCC provides that one incurs in delay or is in default from
the time the obligor demands the fulfillment of the obligation from the obligee. However, the law
expressly provides that demand is not necessary under certain circumstances, and one of these
circumstances is when the parties expressly waive demand.

FACTS:

Spouses Agner obtained a 800 K loan from CITIMOTORS. Spouses executed a promissory note
with chattel mortgage over a Mitsubishi vehicle in favor of Citimotors, Inc. The contract stated
that the spouses would make a monthly payment of 17K and that 6% interest per month shall be
imposed for failure to pay each installment. The PN also stated that in case of failure to pay, the
entire amount shall be due and payable without need of prior notice or demand.

Citimotors assigned all its interests in the PN to ABN AMRO BANK, which assigned the same to
BPI FAMILY.

Spouses defaulted in payment. BPI sent a demand letter to petitioners, declaring the entire
obligation as due and demandable, and requiring them to pay 570K or the surrender of the
mortgaged vehicle. As the demand was unheeded, BPI filed an action for REPLEVIN and
DAMAGES before MANILA RTC. A writ of Replevin was issued; however, the vehicle was not
seized. THE RTC and CA ruled for BPI.

ISSUE: w/n petitioners could be considered to have defaulted in payment for lack of competent
proof that they received the demand letter. (YES)

HELD:
Both verbal and written demands were in fact made by respondents prior to the institution of the
case against petitioners. Even assuming, that no demand letter was sent by BPI, there is really no
need for it because petitioner waived the necessity of notice or demand in the PN. The Civil Code
in Article 1169 provides that one incurs in delay or is in default from the time the obligor demands
the fulfillment of the obligation from the obligee. However, the law expressly provides that
demand is not necessary under certain circumstances, and one of these circumstances is when the
parties expressly waive demand.

BPI’s possession of the evidence of debt is proof that the debt has not been discharged by payment.
One who pleads payment has the burden of proving it; the burden rests on defendant to prove
payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession of
the document of credit, proof of non-payment is not needed for it is presumed.

Spouses should be considered in default. However, the interest of 6% per month should be
equitably reduced to one percent per month or 12 % per year. Settled is the principle which this
Court has affirmed in a number of cases that stipulated interest rates of three percent (3%) per
month and higher are excessive, iniquitous, unconscionable, and exorbitant.

Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and severally,
respondent BPI Family Savings Bank, Inc. (1) the remaining outstanding balance of their auto loan
obligation as of May 15, 2002 with interest at one percent (1%) per month from May 16, 2002
until fully paid; and (2) costs of suit.

WOODHOUSE v HALILI
Legal Doctrine: In order for fraud to vitiate consent it should be the CAUSAL, not just the incidental
inducement of the making of the contract.

Facts:

Pertinent provisions of written agreement entered into by petitioner and respondent state that they shall
organize a partnership for the bottling & distribution of Mission softdrinks where:

Woodhouse(plaintiff) shall:
1. be the industrial manager 

2. be in charge of operations & 
 development of bottling plant 

3. secure the franchise 

4. receive 30 % of the net profits 

Halili (defendant) shall:
1. provide the capital 

2. decide on matters of general policies regarding the business 

Prior to formal agreement, plaintiff requested Missions Dry Corporation (L.A.), in order that he may close
the deal with defendant, that the right to bottle and distribute be granted to him (plaintiff) for a limited time
under the condition that it will finally be transferred to the corporation. Pursuant for this request, plaintiff
was given "a thirty-days" option on exclusive bottling and distribution rights for the Philippines. 


Dec 3, 1947: contract signed. 
 Dec 10, 1947: franchise agreement was entered into the Mission Dry
Corp. and Halili and/or Woodhouse, it granted HALILI (defendant) the exclusive right, license and
authority to produce, bottle, distribute and sell Mission Beverages in the Phils. 


When bottling plant was already in operation, plaintiff demanded that the partnership papers be executed.
Nothing definite was coming. Defendant refused to give allowance to Woodhouse. A settlement was first
attempted & since none could be arrived at, the present action was instituted.

Defendant counter-argued that there was FALSE REPRESENTATION on the part of the plaintiff in
claiming that he was the owner or was about to be the owner of an exclusive bottling franchise when in
fact he was not. The franchise was given to the defendant himself during their transaction with Mission
Dry Corp in the US. Thus the plaintiff failed in carrying out his undertakings by failing to contribute the
franchise into the partnership.

CFI Ruling

1. Accounting of profits and to pay plaintiff 15 % of the profits

2. Execution of contract cannot be enforced upon parties
3. Fraud wasn’t proved

Issue/s:

1. WON defendant had falsely represented that he held an exclusive franchise to bottle Mission
beverages.
2. WON such false representation/fraud annuls the agreement to form a partnership.

Held/Ratio:

1. YES. There was representation on the part of the plaintiff i.e., that he was the holder of the exclusive
franchise.

It was improbable for Woodhouse to have disclosed that (1) he had the OPTION to the exclusive
franchise for 30 days and (2) that the said option has already EXPIRED at the time of the signing the
formal agreement. Either could have had his bargaining power and authority destroyed an probably lost
the deal itself.

Moreover in par. 3 of the contract:

xxx and the manager is ready and willing to allow the capitalists (defendant) to use the exclusive
contract xxx

and par 11 of the agreement

in the event of the dissolution or termination of the partnership the franchise from Mission Dry Corp
shall be reassigned to the manager.

Thus the defendant was led to believe that the plaintiff had the franchise.

2. NO. It does not amount to fraud that will vitiate the contract. So contract is not null and void.

Fraud can be either of the ff:

a. Causal fraud (dolo causante): resulting to the annulment of the contract.

b. Incidental fraud (dolo incidente): renders the party who employs fraud liable for damages

In order for fraud to vitiate consent it should be the causal not just the incidental inducement of the
making of the contract.

In this case Woodhouse was guilty of a false representation but this was not the causal consideration or
the principal inducement that led Halili to enter into the partnership agreement. The alleged possession of
the rights to the franchise induced the defendant to give 30% of the net profit to plaintiff when plaintiff has
minimal knowledge pertaining to bottling (thus incidental fraud).

GERALDEZ V CA

Legal Doctrine: Dolo causante are deceptions or misrepresentations without which a party would not
have entered into the contract, while dolo incidente is of minor character, without which a party will still
enter the contract.

Facts:
Petitioner (Lydia Geraldezz), with her sister, availed of a 22-day tour of Europe for US$2,990 (equivalent
to Php190,000 during 1989) offered by private respondent (Kenstar Travel Corp.) Out of four, she chose
the tour package denominated as “Volare 3” with the following features, above all:

 European Tour Manager knowledgeable and experienced in European destinations

 First-class hotel accommodations 

 Trip to the UGC Leather Factory as one of the 
 main highlights of the tour. 

However, no European Tour Manager appeared in the entirety of the tour but a first-timer Filipino lady
tour guide- first time in performing the duties and responsibilities of a tour guide in Europe, thus lacking in
experience and expertise in said trade. They were booked and lodged to two-, three- , or four-star hotels
far off the way of the tour itinerary and with substandard (with respect to first-class hotels in Manila and in
Europe) amenities. Some even lack towels and soaps. Also, the trip to the UGC Leather Factory was a
flop which cannot be considered a tour at all. They arrived too late when the place was already closed
and the tourists could no longer avail of the discounted merchandise as promised by private respondent.
These happenings, especially the UGC Leather Factory fiasco brought respondent anxiety and distress.



RTC: granted a writ
 of preliminary attachment against private respondent on the ground that
respondent committed fraud in contracting an obligation (as per petitioner’s motion) but said writ
was also lifted upon filing a counter bond of Php 990k
 - Lydia also filed other complaints at the
Department of Tourism and the Securities and Exchange Commission which fined the respondent
Php 5k and Php 10k respectively.
 -
RTC awarded moral damages, nominal damages, exemplary damages, and for attorney’s fees to
Lydia Geraldez worth Php 500k, Php 200k, Php 300k and Php 50k respectively. Respondent also
had to pay for the costs of the suit.
 -
CA: modified the RTC’s decision since they found no malice could be imputed against Kenstar
Travel Corporation.

Issue: WON private respondent is guilty of causal fraud (dolo causante) or incidental fraud (dolo
incidente).


 Held: Yes. CA decision SET ASIDE. Moral and exemplary damages and attorney’s fees awarded to
petitioner. Nominal damages deleted. 



 Under dolo causante or causal fraud (in NCC Art. 1338) are deceptions or misrepresentations of a party
to a 
 contract without which the other party/parties would not have entered into the contract. The fraud
was employed in order to secure the consent of the defrauded party, thus existing before and during
creation of the contract. The fraud itself is the essential source of the consent. Its effects are nullity of the
contract and indemnification of damages.

On the other hand, dolo incidente or incidental fraud (in NCC Arts. 1170 and 1344) is of minor character,
without which the other party will still enter the contract. The fraud refers only to some particular or
accident of the obligation. Since the fraud did not vitiate consent of the party while entering in the
contract, said contract is valid. The party who committed dolo incidente is liable for damages as well.

Private respondent committed fraud in the inducement (or dolo causante), with promising the attendance
of a European tour manager that would take care of her and her sister during the entirety of the tour. The
other breaches of contract committed by private respondent, whether considered as dolo causante or
dolo incidente, likewise will bring about to said respondent the obligation to pay moral and exemplary
damages.

METROPOLITAN v PROSPERITY

(sorry mahaba talaga to)

FACTS:

Metropolitan Fabrics Inc. (MFI) owned a 5.8 ha industrial compound in Quezon City. Pursuant to a P2M,
10-year loan agreement with Manpil Investment Corporation (Manpil) dated April 6, 1963, the lot was
subdivided into 11 lots, with Manpil retaining four lots as mortgage security while the remaining seven lots
were released to MFI.

In July 1984, MFI obtained a loan from PCRI in the amount of P3.5M, represented by herein respondents
Domingo and Caleb Ang.

The blank loan forms had no entries specifying the rate of interest and schedules of amortization. In order
to return the trust and gesture of early release of the loan by the respondents, herein petitioner Enrique
Ang, together with his daughter Vicky Ang, entrusted to the respondents their seven (7) titles covering an
aggregate area of 3.36 ha and left it to said respondents to choose from among the 7 titles those which
would be sufficient to secure the P3.5M loan.

An appraisal report put the value of four(4) of the said properties at P6.8M. Vicky also stated that it was
agreed that once PCRI had chosen the lots to be covered by the mortaged, the respondents would return
the remaining titles to the petitioners.

Thereafter, twenty-four(24) checks, bearning no dates and amounts and signed in blank by Enrique and
Natividad, were deliverd to PCRI to cover the amortization payments.

In September 1984, the first amortization check bounced for insufficient fund due to MFI’s continuing losses.
It was then that the petitioners learned that PCRI had filled up the said checks with dates and amounts
reflected at 35% interest rate per annum, instead of just 24%, and a two-year repayment period, instead of
10 years.

It was only upon such time that PCRI finally furnished MFI with its copy of the loan documents. Petitioners
found the terms to be prohibitive, burdensome, and unconscionable, and further averred that had they
known them they would have either negotiated or rejected the terms of the loan and withdrew the
application.

Due to losses, petitioners’ business operations stopped. An offsetting agreement was executed by the
parties to cover the loan obligation amounting to P4.1M.

Thereafter, Vicky furnished respondents a copy of the appraisal report prepared by Integrated Appraisal
Corporation. However, PCRI’s statement showed that all seven(7) titles were placed as collateral for their
P3.5M loan. Petitioners averred that as per the appraisal report, the value of the properties covered by the
said titles were largely in excess of the loan obligation.

On September 1986, petitioner Enrique received a Notice of Sherriff’s Sale announcing the auction of the
seven lots due to an unpaid indebtedness of P10.5M.
Vicky insisted that prior to the notice, they never received any statement or demand letter from the
defendants to pay the said amount, nor did the respondents inform them of the intended foreclosure.

The auction was then reset to a later date after petitioners assured PCRI that they had found a serious
buyer for the lots.

In the meeting held between the parties and the said buyer, Winston Wang, it was agreed that the mortgage
was to be released upon payment of P3.5M with an initial down-payment of P500,000.00 to be paid by MFI
to PCRI as partial settlement of the P3.5M loan.

Thereafter, Winston Wang confronted Vicky about the sale agreement and PCRI’s refusal to accept the
P3M payment because according to the respondent Caleb, the three lots had been foreclosed.

However, the said foreclosure was executed before the lapse of the agreed 60-day period for the payment
of the balance.

At the auction, PCRI was the sole bidder. Subsequent agreements were further held for the release of the
disputed three lots involving all three parties.

Upon failure to raise the required money for the payments on account of such agreements, MFI was
ultimately forced to vacate the lots. The RTC ruled in favour of the petitioners. However, the CA reversed
the decision and dismissed the complaint.

ISSUE: WON respondents committed fraud when the officers of Metropolitan were made to sign the deed
of real estate mortgage in blank.

HELD: No.

The contested deed of real estate mortgage was a public document by virtue of its being
acknowledged before notary public Atty. Noemi Ferrer. As a notarized document, the deed carried the
evidentiary weight conferred upon it with respect to its due execution, and had in its favor the presumption
of regularity. Hence, it was admissible in evidence without further proof of its authenticity, and was entitled
to full faith and credit upon its face. To rebut its authenticity and genuineness, the contrary evidence must
be clear, convincing and more than merely preponderant; otherwise, the deed should be upheld.

Petitioners undeniably failed to adduce clear and convincing evidence against the genuineness
and authenticity of the deed. Instead, their actuations even demonstrated that their transaction with
respondents had been regular and at arms–length, thereby belying the intervention of fraud.

To start with, the evidence adduced by Vicky Ang, the lone witness for petitioners, tried to cast
doubt on the contents and due execution of the deed of real estate mortgage by pointing to certain
irregularities. But she could not be effective for the purpose because she had not been among the
signatories of the deed. The signatories were her late father Enrique Ang, her mother Natividad Africa, and
her brother Edmundo Ang, none of whom came forward to testify against the deed, or otherwise to assail
the genuineness and due execution of the deed by any other means. They would have been in the better
position than Vicky Ang to substantiate the allegation of fraud if that was the case. Their silence reflected
the inanity of the allegation of fraud by Vicky Ang.
 It does seem that the three signatories did not join Vicky Ang in impugning the authenticity and
genuineness of the deed of real estate mortgage. As Vicky Ang admitted during her cross–examination,
she had no evidence to show that the signatories ever assailed the deed,

Secondly, petitioners freely and voluntarily surrendered to respondents the seven transfer
certificates of title (TCTs) of their lots. Such surrender of the TCTs evinced their intention to offer the lots
as collateral for the performance of their obligations contracted with respondents. They thereby confirmed
the genuineness and due execution of the deed of real estate mortgage. Surely, they would not have
surrendered the TCTs had their intention been otherwise.

Thirdly, another circumstance belying the commission of fraud by respondents was petitioners’
pleading with respondents for the resetting of foreclosure sale of the properties after receiving the notice of
the impending sale. As a result, the sale was reset thrice. Had the mortgage and its foreclosure been
unreasonable or fraudulent, petitioners should have instead resolutely contested respondents’ move to
foreclose.

Fourthly, even after their properties were eventually sold as the consequence of the foreclosure,
petitioners negotiated with respondents on the partial redemption of three of the seven lots. They also took
the trouble of finding a buyer (Mr. Winston Wang of Asia Cotton) of some of the lots. Had the mortgage
been fraudulent, they could have instead instituted a complaint to nullify the real estate mortgage and the
foreclosure sale.

Lastly, Vicky Ang’s own letters to respondents had an apologetic tenor, and was seeking leniency
from them. Such tenor and tone of her communications were antithetical to her allegation of having been
the victim of their fraudulent acts.

These circumstances tended to indicate that fraud was not attendant during the transactions between the
parties. Verily, as between the duly executed real estate mortgage and the unsubstantiated allegations of
fraud, the Court affords greater weight to the former.

INTERNATIONAL CORPORATE BANK v GUECO

FACTS:

The respondents Gueco Spouses obtained a loan from petitioner International Corporate Bank (now
Union Bank of the Philippines) to purchase a car, a Nissan Sentra 1600 4DR, 1989 Model. In consideration
thereof, the Spouses executed promissory notes which were payable in monthly installments and chattel
mortgage over the car to serve as security for the notes.

The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7, 1995
a civil action docketed as Civil Case No. 658-95 for Sum of Money with Prayer for a Writ of Replevin before
the Metropolitan Trial Court of Pasay City, Branch 45.[On August 25, 1995, Dr. Francis Gueco was served
summons and was fetched by the sheriff and representative of the bank for a meeting in the bank premises.
Desi Tomas, the Banks Assistant Vice President demanded payment of the amount of P184,000.00 which
represents the unpaid balance for the car loan. After some negotiations and computation, the amount was
lowered to P154,000.00, However, as a result of the non-payment of the reduced amount on that date, the
car was detained inside the banks compound.

On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support, Auto
Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of
the outstanding loan to P150,000.00.

On August 29, 1995, Dr. Gueco delivered a managers check in the amount of P150,000.00 but the
car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the contention of the
Gueco spouses and their counsel that Dr. Gueco need not sign the motion for joint dismissal considering
that they had not yet filed their Answer. Petitioner, however, insisted that the joint motion to dismiss is
standard operating procedure in their bank to effect a compromise and to preclude future filing of claims,
counterclaims or suits for damages.

After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City, Branch 33.
The Metropolitan Trial Court dismissed the complaint for lack of merit. On appeal to the Regional Trial
Court, Branch 227 of Quezon City, the decision of the Metropolitan Trial Court was reversed. In its decision,
the RTC held that there was a meeting of the minds between the parties as to the reduction of the amount
of indebtedness and the release of the car but said agreement did not include the signing of the joint motion
to dismiss as a condition sine qua non for the effectivity of the compromise. The court further ordered the
bank:

1. to return immediately the subject car to the appellants in good working condition; Appellee may deposit
the Managers check the proceeds of which have long been under the control of the issuing bank in favor
of the appellee since its issuance, whereas the funds have long been paid by appellants to secure said
Managers Check, over which appellants have no control;

2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as exemplary damages,
and P25,000.00 as attorneys fees, and

3. to pay the cost of suit.

In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby AFFIRMED

The case was elevated to the Court of Appeals, which denied the petition and affirmed RTC.

RATIO ON FRAUD:

The lower court's finding of fraud which became the basis of the award of damages was likewise
sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines, as amended is the
deliberate and intentional evasion of the normal fulfillment of obligation When petitioner refused to release
the car despite respondent's tender of payment in the form of a manager's check, the former intentionally
evaded its obligation and thereby became liable for moral and exemplary damages, as well as attorneys
fees.

We disagree.

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in Article 1170 of the Civil Code is the
deliberate and intentional evasion of the normal fulfillment of obligation. We fail to see how the act of the
petitioner bank in requiring the respondent to sign the joint motion to dismiss could constitute as fraud.
True, petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to dismiss
is a standard operating procedure of petitioner bank. However, this can not in anyway have prejudiced Dr.
Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner
against it before the lower court would be dismissed with prejudice. The whole point of the parties entering
into the compromise agreement was in order that Dr. Gueco would pay his outstanding account and in
return petitioner would return the car and drop the case for money and replevin before the Metropolitan
Trial Court. The joint motion to dismiss was but a natural consequence of the compromise agreement and
simply stated that Dr. Gueco had fully settled his obligation, hence, the dismissal of the case. Petitioner's
act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate attempt on
the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted
that in cases of breach of contract, moral damages may only be awarded when the breach was attended
by fraud or bad faith The law presumes good faith. Dr. Gueco failed to present an iota of evidence to
overcome this presumption. In fact, the act of petitioner bank in lowering the debt of Dr. Gueco from
P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to settle the case. If respondent
did suffer any damage, as a result of the withholding of his car by petitioner, he has only himself to blame.
Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be
characterized as wanton, fraudulent, reckless, oppressive or malevolent.