G.R. No.

182356
December 4, 2013
DRA, LEILA A DELA LLANO, Petitioner,
vs.
REBECCA BIONG, doing business under the name and style of Pongkay Trading, Respondent.
DECISION
BRION, J.:
Very case essentially turns on two basic questions: questions of fact and questions of law. Questions
of fact are the parties and their counsel to respond to, based on what supporting facts the legal
questions require; the court can only draw conclusion from the facts or evidence adduced. When the
facts are lacking because of the deficiency of presented evidence, then the court can only draw one
conclusion: that the cause must fail for lack of evidentiary support.
The present case is one such case as Dra. Leila A dela Llanas(petitioner) petition for review on
certorari1 challenging the February 11, 2008 Decision 2 and the March 31, 2008 resolution 3 of the Court
of Appeals (CA) in CA-G.R. CV No. 89163.
The Factual Antecedents
On March 30, 2000, at around 11:00 p.m., Juan dela Llana was driving a 1997 Toyota Corolla car
along North Avenue, Quezon City.4
His sister, Dra. dela Llana, was seated at the front passenger seat while a certain Calimlim was at the
backseat.5
Juan stopped the car across the Veterans Memorial Hospital when the signal light turned red. A few
seconds after the car halted, a dump truck containing gravel and sand suddenly rammed the cars rear
end, violently pushing the car forward. Due to the impact, the cars rear end collapsed and its rear
windshield was shattered. Glass splinters flew, puncturing Dra. dela Llana. Apart from these minor
wounds, Dra. dela Llana did not appear to have suffered from any other visible physical injuries.6
The traffic investigation report dated March 30, 2000 identified the truck driver as Joel Primero. It
stated that Joel was recklessly imprudent in driving the truck.7
Joel later revealed that his employer was respondent Rebecca Biong, doing business under the name
and style of "Pongkay Trading" and was engaged in a gravel and sand business.8
In the first week of May 2000, Dra. dela Llana began to feel mild to moderate pain on the left side of
her neck and shoulder. The pain became more intense as days passed by. Her injury became more
severe. Her health deteriorated to the extent that she could no longer move her left arm. On June 9,
2000, she consulted with Dr. Rosalinda Milla, a rehabilitation medicine specialist, to examine her
condition. Dr. Milla told her that she suffered from a whiplash injury, an injury caused by the
compression of the nerve running to her left arm and hand. Dr. Milla required her to undergo physical
therapy to alleviate her condition. Dra. dela Llanas condition did not improve despite three months of
extensive physical therapy.9
She then consulted other doctors, namely, Drs. Willie Lopez, Leonor Cabral-Lim and Eric Flores, in
search for a cure. Dr. Flores, a neuro-surgeon, finally suggested that she undergo a cervical spine
surgery to release the compression of her nerve. On October 19, 2000, Dr. Flores operated on her
spine and neck, between the C5 and the C6 vertebrae.10
The operation released the impingement of the nerve, but incapacitated Dra. dela Llana from the
practice of her profession since June 2000 despite the surgery.11
Dra. dela Llana, on October 16, 2000, demanded from Rebecca compensation for her injuries, but
Rebecca refused to pay.12

Thus, on May 8, 2001, Dra. dela Llana sued Rebecca for damages before the Regional Trial Court of
Quezon City (RTC). She alleged that she lost the mobility of her arm as a result of the vehicular
accident and claimed P150,000.00 for her medical expenses (as of the filing of the complaint) and an
average monthly income of P30,000.00 since June 2000. She further prayed for actual, moral, and
exemplary damages as well as attorneys fees.13
In defense, Rebecca maintained that Dra. dela Llana had no cause of action against her as no
reasonable relation existed between the vehicular accident and Dra. dela Llanas injury. She pointed
out that Dra. dela Llanas illness became manifest one month and one week from the date of the
vehicular accident. As a counterclaim, she demanded the payment of attorneys fees and costs of the
suit.14
At the trial, Dra. dela Llana presented herself as an ordinary witness15 and Joel as a hostile witness.16
Dra. dela Llana reiterated that she lost the mobility of her arm because of the vehicular accident. To
prove her claim, she identified and authenticated a medical certificate dated November 20, 2000
issued by Dr. Milla. The medical certificate stated that Dra. dela Llana suffered from a whiplash injury.
It also chronicled her clinical history and physical examinations.17
Meanwhile, Joel testified that his truck hit the car because the trucks brakes got stuck.18
In defense, Rebecca testified that Dra. dela Llana was physically fit and strong when they met several
days after the vehicular accident. She also asserted that she observed the diligence of a good father
of a family in the selection and supervision of Joel. She pointed out that she required Joel to submit a
certification of good moral character as well as barangay, police, and NBI clearances prior to his
employment. She also stressed that she only hired Primero after he successfully passed the driving
skills test conducted by Alberto Marcelo, a licensed driver-mechanic.19
Alberto also took the witness stand. He testified that he checked the truck in the morning of March 30,
2000. He affirmed that the truck was in good condition prior to the vehicular accident. He opined that
the cause of the vehicular accident was a damaged compressor. According to him, the absence of air
inside the tank damaged the compressor.20
RTC Ruling
The RTC ruled in favor of Dra. dela Llana and held that the proximate cause of Dra. dela Llanas
whiplash injury to be Joels reckless driving.21
It found that a whiplash injury is an injury caused by the sudden jerking of the spine in the neck area. It
pointed out that the massive damage the car suffered only meant that the truck was over-speeding. It
maintained that Joel should have driven at a slower pace because road visibility diminishes at night.
He should have blown his horn and warned the car that his brake was stuck and could have prevented
the collision by swerving the truck off the road. It also concluded that Joel was probably sleeping when
the collision occurred as Joel had been driving for fifteen hours on that fateful day. The RTC further
declared that Joels negligence gave rise to the presumption that Rebecca did not exercise the
diligence of a good father of a family in Joel's selection and supervision of Joel. Rebecca was
vicariously liable because she was the employer and she personally chose him to drive the truck. On
the day of the collision, she ordered him to deliver gravel and sand to Muoz Market, Quezon City.
The Court concluded that the three elements necessary to establish Rebeccas liability were present:
(1) that the employee was chosen by the employer, personally or through another; (2) that the services
were to be rendered in accordance with orders which the employer had the authority to give at all
times; and (3) that the illicit act of the employee was on the occasion or by reason of the functions
entrusted to him. The RTC thus awarded Dra. dela Llana the amounts of P570,000.00 as actual
damages, P250,000.00 as moral damages, and the cost of the suit.22

CA Ruling
In a decision dated February 11, 2008, the CA reversed the RTC ruling. It held that Dra. dela Llana
failed to establish a reasonable connection between the vehicular accident and her whiplash injury by
preponderance of evidence. Citing Nutrimix Feeds Corp. v. Court of Appeals, 23 it declared that courts
will not hesitate to rule in favor of the other party if there is no evidence or the evidence is too slight to
warrant an inference establishing the fact in issue. It noted that the interval between the date of the
collision and the date when Dra. dela Llana began to suffer the symptoms of her illness was lengthy. It
concluded that this interval raised doubts on whether Joels reckless driving and the resulting collision
in fact caused Dra. dela Llanas injury. It also declared that courts cannot take judicial notice that
vehicular accidents cause whiplash injuries. It observed that Dra. dela Llana did not immediately visit a
hospital to check if she sustained internal injuries after the accident. Moreover, her failure to present
expert witnesses was fatal to her claim. It also gave no weight to the medical certificate. The medical
certificate did not explain how and why the vehicular accident caused the injury.24
The Petition
Dra. dela Llana points out in her petition before this Court that Nutrimix is inapplicable in the present
case. She stresses that Nutrimix involved the application of Article 1561 and 1566 of the Civil Code,
provisions governing hidden defects. Furthermore, there was absolutely no evidence in Nutrimix that
showed that poisonous animal feeds were sold to the respondents in that case. As opposed to the
respondents in Nutrimix, Dra. dela Llana asserts that she has established by preponderance of
evidence that Joels egligent act was the proximate cause of her whiplash injury. First, pictures of her
damaged car show that the collision was strong. She posits that it can be reasonably inferred from
these pictures that the massive impact resulted in her whiplash injury. Second, Dr. Milla categorically
stated in the medical certificate that Dra. dela Llana suffered from whiplash injury. Third, her testimony
that the vehicular accident caused the injury is credible because she was a surgeon.
Dra. dela Llana further asserts that the medical certificate has probative value. Citing several cases,
she posits that an uncorroborated medical certificate is credible if uncontroverted.25
She points out that expert opinion is unnecessary if the opinion merely relates to matters of common
knowledge. She maintains that a judge is qualified as an expert to determine the causation between
Joels reckless driving and her whiplash injury. Trial judges are aware of the fact that whiplash injuries
are common in vehicular collisions.
The Respondents Position
In her Comment,26 Rebecca points out that Dra. dela Llana raises a factual issue which is beyond the
scope of a petition for review on certiorari under Rule 45 of the Rules of Court. She maintains that the
CAs findings of fact are final and conclusive. Moreover, she stresses that Dra. dela Llanas arguments
are not substantial to merit this Courts consideration.
The Issue
The sole issue for our consideration in this case is whether Joels reckless driving is the proximate
cause of Dra. dela Llanas whiplash injury.
Our Ruling We find the petition unmeritorious.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings
of fact by the lower courts are conflicting
The issue before us involves a question of fact and this Court is not a trier of facts. As a general rule,
the CAs findings of fact are final and conclusive and this Court will not review them on appeal. It is not

the function of this Court to examine, review or evaluate the evidence in a petition for review on
certiorari under Rule 45 of the Rules of Court. We can only review the presented evidence, by way of
exception, when the conflict exists in findings of the RTC and the CA.27
We see this exceptional situation here and thus accordingly examine the relevant evidence presented
before the trial court.
Dra. dela Llana failed to establish her case by preponderance of evidence
Article 2176 of the Civil Code provides that "[w]hoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is a quasi-delict." Under this provision,
the elements necessary to establish a quasi-delict case are:
(1) damages to the plaintiff;
(2) negligence, by act or omission, of the defendant or by some person for whose acts the defendant
must respond, was guilty; and
(3) the connection of cause and effect between such negligence and the damages.28
These elements show that the source of obligation in a quasi-delict case is the breach or omission of
mutual duties that civilized society imposes upon its members, or which arise from non-contractual
relations of certain members of society to others.29
Based on these requisites, Dra. dela Llana must first establish by preponderance of evidence the
three elements of quasi-delict before we determine Rebeccas liability as Joels employer.
She should show the chain of causation between Joels reckless driving and her whiplash injury.
Only after she has laid this foundation can the presumption - that Rebecca did not exercise the
diligence of a good father of a family in the selection and supervision of Joel arise.30
Once negligence, the damages and the proximate causation are established, this Court can then
proceed with the application and the interpretation of the fifth paragraph of Article 2180 of the Civil
Code.31
Under Article 2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, "an action
predicated on an employees act or omission may be instituted against the employer who is held liable
for the negligent act or omission committed by his employee."32
The rationale for these graduated levels of analyses is that it is essentially the wrongful or negligent
act or omission itself which creates the vinculum juris in extra-contractual obligations.33
In civil cases, a party who alleges a fact has the burden of proving it.
He who alleges has the burden of proving his allegation by preponderance of evidence or greater
weight of credible evidence.34
The reason for this rule is that bare allegations, unsubstantiated by evidence, are not equivalent to
proof.
In short, mere allegations are not evidence.35
In the present case, the burden of proving the proximate causation between Joels negligence and
Dra. dela Llanas whiplash injury rests on Dra. dela Llana. She must establish by preponderance of
evidence that Joels negligence, in its natural and continuous sequence, unbroken by any efficient
intervening cause, produced her whiplash injury, and without which her whiplash injury would not have
occurred.36
Notably, Dra. dela Llana anchors her claim mainly on three pieces of evidence:
(1) the pictures of her damaged car,
(2) the medical certificate dated November 20, 2000, and

(3) her testimonial evidence. However, none of these pieces of evidence show the causal relation
between the vehicular accident and the whiplash injury. In other words,
Dra. dela Llana, during trial, did not adduce the factum probans or the evidentiary facts by which the
factum probandum or the ultimate fact can be established, as fully discussed below.37
A.
The pictures of the damaged
car only demonstrate the
impact of the collision
Dra. dela Llana contends that the pictures of the damaged car show that the massive impact of the
collision caused her whiplash injury. We are not persuaded by this bare claim. Her insistence that
these pictures show the causation grossly belies common logic. These pictures indeed demonstrate
the impact of the collision. However, it is a far-fetched assumption that the whiplash injury can also be
inferred from these pictures.
B.
The medical certificate cannot be
considered because it was
not admitted in evidence
Furthermore, the medical certificate, marked as Exhibit "H" during trial, should not be considered in
resolving this case for the reason that it was not admitted in evidence by the RTC in an order dated
September 23, 2004.38
Thus, the CA erred in even considering this documentary evidence in its resolution of the case. It is a
basic rule that evidence which has not been admitted cannot be validly considered by the courts in
arriving at their judgments.
However, even if we consider the medical certificate in the disposition of this case, the medical
certificate has no probative value for being hearsay. It is a basic rule that evidence, whether oral or
documentary, is hearsay if its probative value is not based on the personal knowledge of the witness
but on the knowledge of another person who is not on the witness stand.39
Hearsay evidence, whether objected to or not, cannot be given credence 40 except in very unusual
circumstance that is not found in the present case. Furthermore, admissibility of evidence should not
be equated with weight of evidence. The admissibility of evidence depends on its relevance and
competence, while the weight of evidence pertains to evidence already admitted and its tendency to
convince and persuade. Thus, a particular item of evidence may be admissible, but its evidentiary
weight depends on judicial evaluation within the guidelines provided by the Rules of Court.41
During trial, Dra. dela Llana testified:
"Q: Did your physician tell you, more or less, what was the reason why you were feeling that pain in
your left arm?
A: Well, I got a certificate from her and in that certificate, she stated that my condition was due to a
compression of the nerve, which supplied my left arm and my left hand.
Court: By the way, what is the name of this physician, Dra.?
Witness: Her name is Dra. Rosalinda Milla. She is a Rehabilitation Medicine Specialist. Atty. Yusingco:
You mentioned that this Dra. Rosalinda Milla made or issued a medical certificate. What relation does
this medical certificate, marked as Exhibit H have to do with that certificate, you said was made by
Dra. Milla?
Witness: This is the medical certificate that Dra. Milla made out for me.
Atty. Yusingco: Your Honor, this has been marked as Exhibit H.
Atty. Yusingco: What other medical services were done on you, Dra. dela Llana, as a result of that
feeling, that pain that you felt in your left arm?
Witness: Well, aside from the medications and physical therapy, a re-evaluation of my condition after
three months indicated that I needed surgery.
Atty. Yusingco: Did you undergo this surgery?

Witness: So, on October 19, I underwent surgery on my neck, on my spine.

Atty. Yusingco: And, what was the result of that surgical operation?
Witness: Well, the operation was to relieve the compression on my nerve, which did not resolve by the
extensive and prolonged physical therapy that I underwent for more than three months." 42(emphasis
ours)
Evidently, it was Dr. Milla who had personal knowledge of the contents of the medical certificate.
However, she was not presented to testify in court and was not even able to identify and affirm the
contents of the medical certificate. Furthermore, Rebecca was deprived of the opportunity to crossexamine Dr. Milla on the accuracy and veracity of her findings. We also point out in this respect that
the medical certificate nonetheless did not explain the chain of causation in fact between Joels
reckless driving and Dra. dela Llanas whiplash injury. It did not categorically state that the whiplash
injury was a result of the vehicular accident. A perusal of the medical certificate shows that it only
attested to her medical condition, i.e., that she was suffering from whiplash injury. However, the
medical certificate failed to substantially relate the vehicular accident to Dra. dela Llanas whiplash
injury. Rather, the medical certificate only chronicled
her medical history and physical examinations.
C.
Dra. dela Llanas opinion that
Joels negligence caused her
whiplash injury has no probative value
Interestingly, the present case is peculiar in the sense that Dra. dela Llana, as the plaintiff in this quasidelict case, was the lone physician-witness during trial. Significantly, she merely testified as an
ordinary witness before the trial court. Dra. dela Llana essentially claimed in her testimony that Joels
reckless driving caused her whiplash injury. Despite the fact that Dra. dela Llana is a physician and
even assuming that she is an expert in neurology, we cannot give weight to her opinion that Joels
reckless driving caused her whiplash injury without violating the rules on evidence. Under the Rules of
Court, there is a substantial difference between an ordinary witness and an expert witness. The
opinion of an ordinary witness may be received in evidence regarding:
(a) the identity of a person about whom he has adequate knowledge;
(b) a handwriting with which he has sufficient familiarity; and
(c) the mental sanity of a person with whom he is sufficiently acquainted. Furthermore, the witness
may also testify on his impressions of the emotion, behavior, condition or appearance of a person.43
On the other hand, the opinion of an expert witness may be received in evidence on a matter requiring
special knowledge, skill, experience or training which he shown to possess.44
However, courts do not immediately accord probative value to an admitted expert testimony, much
less to an unobjected ordinary testimony respecting special knowledge. The reason is that the
probative value of an expert testimony does not lie in a simple exposition of the expert's opinion.
Rather, its weight lies in the assistance that the expert witness may afford the courts by demonstrating
the facts which serve as a basis for his opinion and the reasons on which the logic of his conclusions
is founded.45
In the present case, Dra. dela Llanas medical opinion cannot be given probative value for the reason
that she was not presented as an expert witness. As an ordinary witness, she was not competent to
testify on the nature, and the cause and effects of whiplash injury. Furthermore, we emphasize that
Dra. dela Llana, during trial, nonetheless did not provide a medical explanation on the nature as well
as the cause and effects of whiplash injury in her testimony.
The Supreme Court cannot take

judicial notice that vehicular

accidents cause whiplash injuries.
Indeed, a perusal of the pieces of evidence presented by the parties before the trial court shows that
Dra. Dela Llana did not present any testimonial or documentary evidence that directly shows
the causal relation between the vehicular accident and Dra. Dela Llanas injury. Her claim that
Joels negligence causes her whiplash injury was not established because of the deficiency of the
presented evidence during trial. We point out in this respect that courts cannot take judicial notice that
vehicular ccidents cause whiplash injuries. This proportion is not public knowledge, or is capable of
unquestionable demonstration, or ought to be known to judges because of their judicial functions.46 We
have no expertise in the field of medicine. Justices and judges are only tasked to apply and interpret
the law on the basis of the parties pieces of evidence and their corresponding legal arguments.
In sum, Dra. dela Llana miserably failed to establish her cause by preponderance of evidence. While
we commiserate with her, our solemn duty to independently and impartially assess the merits of the
case binds us to rule against Dra. dela Llanas favor. Her claim, unsupported by prepondernace of
evidence, is merely a bare assertion and has no leg to stand on.
WHEREFORE, presmises considered, the assailed Decision dated February 11, 2008 and Resolution
dated March 31, 2008 of the Court of Appeals are hereby AFFIRMED and the petition is hereby
DENIED for lack of merit.
SO ORDERED.
G.R. No. 102007 September 2, 1994
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
ROGELIO BAYOTAS y CORDOVA, accused-appellant.
The Solicitor General for plaintiff-appellee.
Public Attorney's Office for accused-appellant.
ROMERO, J.:
In Criminal Case No. C-3217 filed before Branch 16, RTC Roxas City, Rogelio Bayotas y Cordova was
charged with Rape and eventually convicted thereof on June 19, 1991 in a decision penned by Judge
Manuel E. Autajay. Pending appeal of his conviction, Bayotas died on February 4, 1992 at
the National Bilibid Hospital due to cardio respiratory arrest secondary to hepatic encephalopathy
secondary to hipato carcinoma gastric malingering. Consequently, the Supreme Court in its Resolution
of May 20, 1992 dismissed the criminal aspect of the appeal. However, it required the Solicitor
General to file its comment with regard to Bayotas' civil liability arising from his commission of the
offense charged.
In his comment, the Solicitor General expressed his view that the death of accused-appellant did not
extinguish his civil liability as a result of his commission of the offense charged. The Solicitor General,
relying on the case of People v. Sendaydiego 1 insists that the appeal should still be resolved for the
purpose of reviewing his conviction by the lower court on which the civil liability is based.
Counsel for the accused-appellant, on the other hand, opposed the view of the Solicitor General
arguing that the death of the accused while judgment of conviction is pending appeal extinguishes
both his criminal and civil penalties. In support of his position, said counsel invoked the ruling of the
Court of Appeals in People v. Castillo and Ocfemia 2 which held that the civil obligation in a criminal
case takes root in the criminal liability and, therefore, civil liability is extinguished if accused should die
before final judgment is rendered.

We are thus confronted with a single issue: Does death of the accused pending appeal of his
conviction extinguish his civil liability?
In the aforementioned case of People v. Castillo, this issue was settled in the affirmative. This same
issue posed therein was phrased thus: Does the death of Alfredo Castillo affect both his criminal
responsibility and his civil liability as a consequence of the alleged crime?
It resolved this issue thru the following disquisition:
Article 89 of the Revised Penal Code is the controlling statute. It reads, in part:
Art. 89. How criminal liability is totally extinguished. Criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to the pecuniary penalties
liability therefor is extinguished only when the death of the offender occurs before final
judgment;
With reference to Castillo's criminal liability, there is no question. The law is plain. Statutory
construction is unnecessary. Said liability is extinguished.
The civil liability, however, poses a problem. Such liability is extinguished only when the death of the
offender occurs before final judgment. Saddled upon us is the task of ascertaining the legal import of
the term "final judgment." Is it final judgment as contradistinguished from an interlocutory order? Or, is
it a judgment which is final and executory?
We go to the genesis of the law. The legal precept contained in Article 89 of the Revised Penal Code
heretofore transcribed is lifted from Article 132 of the Spanish El Codigo Penal de 1870 which, in part,
recites:
La responsabilidad penal se extingue.
1. Por la muerte del reo en cuanto a las penas personales siempre, y respecto a las
pecuniarias, solo cuando a su fallecimiento no hubiere recaido sentencia firme.
xxx xxx xxx
The code of 1870 . . . it will be observed employs the term "sentencia firme." What is "sentencia firme"
under the old statute?
XXVIII Enciclopedia Juridica Espaola, p. 473, furnishes the ready answer: It says:
SENTENCIA FIRME. La sentencia que adquiere la fuerza de las definitivas por no haberse utilizado
por las partes litigantes recurso alguno contra ella dentro de los terminos y plazos legales concedidos
al efecto.
"Sentencia firme" really should be understood as one which is definite. Because, it is only when
judgment is such that, as Medina y Maranon puts it, the crime is confirmed "en condena
determinada;" or, in the words of Groizard, the guilt of the accused becomes "una verdad legal."
Prior thereto, should the accused die, according to Viada, "no hay legalmente, en tal caso, ni reo, ni
delito, ni responsabilidad criminal de ninguna clase." And, as Judge Kapunan well explained, when a
defendant dies before judgment becomes executory, "there cannot be any determination by final
judgment whether or not the felony upon which the civil action might arise exists," for the simple
reason that "there is no party defendant." (I Kapunan, Revised Penal Code, Annotated, p. 421.
Senator Francisco holds the same view. Francisco, Revised Penal Code, Book One, 2nd ed., pp. 859860)
The legal import of the term "final judgment" is similarly reflected in the Revised Penal Code. Articles
72 and 78 of that legal body mention the term "final judgment" in the sense that it is already
enforceable. This also brings to mind Section 7, Rule 116 of the Rules of Court which states that a

judgment in a criminal case becomes final "after the lapse of the period for perfecting an appeal or
when the sentence has been partially or totally satisfied or served, or the defendant has expressly
waived in writing his right to appeal."
By fair intendment, the legal precepts and opinions here collected funnel down to one positive
conclusion: The term final judgment employed in the Revised Penal Code means judgment beyond
recall. Really, as long as a judgment has not become executory, it cannot be truthfully said that
defendant is definitely guilty of the felony charged against him.
Not that the meaning thus given to final judgment is without reason. For where, as in this case, the
right to institute a separate civil action is not reserved, the decision to be rendered must, of necessity,
cover "both the criminal and the civil aspects of the case." People vs. Yusico (November 9, 1942), 2
O.G., No. 100, p. 964. See also: People vs. Moll, 68 Phil., 626, 634; Francisco, Criminal Procedure,
1958 ed., Vol. I, pp. 234, 236. Correctly, Judge Kapunan observed that as "the civil action is based
solely on the felony committed and of which the offender might be found guilty, the death of the
offender extinguishes the civil liability." I Kapunan, Revised Penal Code, Annotated, supra.
Here is the situation obtaining in the present case: Castillo's criminal liability is out. His civil liability is
sought to be enforced by reason of that criminal liability. But then, if we dismiss, as we must, the
criminal action and let the civil aspect remain, we will be faced with the anomalous situation whereby
we will be called upon to clamp civil liability in a case where the source thereof criminal liability
does not exist. And, as was well stated in Bautista, et al. vs. Estrella, et al., CA-G.R.
No. 19226-R, September 1, 1958, "no party can be found and held criminally liable in a civil suit,"
which solely would remain if we are to divorce it from the criminal proceeding."
This ruling of the Court of Appeals in the Castillo case 3 was adopted by the Supreme Court in the
cases of People of the Philippines v. Bonifacio Alison, et al., 4 People of the Philippines v. Jaime Jose,
et al. 5 and People of the Philippines v. Satorre 6 by dismissing the appeal in view of the death of the
accused pending appeal of said cases.
As held by then Supreme Court Justice Fernando in the Alison case:
The death of accused-appellant Bonifacio Alison having been established, and considering that there
is as yet no final judgment in view of the pendency of the appeal, the criminal and civil liability of the
said accused-appellant Alison was extinguished by his death (Art. 89, Revised Penal Code; Reyes'
Criminal Law, 1971 Rev. Ed., p. 717, citing People v. Castillo and Ofemia C.A., 56 O.G. 4045);
consequently, the case against him should be dismissed.
On the other hand, this Court in the subsequent cases of Buenaventura Belamala v. Marcelino Polinar
7 and Lamberto Torrijos v. The Honorable Court of Appeals 8 ruled differently. In the former, the issue
decided by this court was: Whether the civil liability of one accused of physical injuries who died
before final judgment is extinguished by his demise to the extent of barring any claim therefore against
his estate. It was the contention of the administrator-appellant therein that the death of the accused
prior to final judgment extinguished all criminal and civil liabilities resulting from the offense, in view of
Article 89, paragraph 1 of the Revised Penal Code. However, this court ruled therein:
We see no merit in the plea that the civil liability has been extinguished, in view of the provisions of the
Civil Code of the Philippines of 1950 (Rep. Act No. 386) that became operative eighteen years after
the revised Penal Code. As pointed out by the Court below, Article 33 of the Civil Code establishes a
civil action for damages on account of physical injuries, entirely separate and distinct from the criminal
action.

Art. 33. In cases of defamation, fraud, and physical injuries, a civil action for damages, entirely
separate and distinct from the criminal action, may be brought by the injured party. Such civil action
shall proceed independently of the criminal prosecution, and shall require only a preponderance of
evidence.
Assuming that for lack of express reservation, Belamala's civil action for damages was to be
considered instituted together with the criminal action still, since both proceedings were terminated
without final adjudication, the civil action of the offended party under Article 33 may yet be enforced
separately.
In Torrijos, the Supreme Court held that:
xxx xxx xxx
It should be stressed that the extinction of civil liability follows the extinction of the criminal liability
under Article 89, only when the civil liability arises from the criminal act as its only basis. Stated
differently, where the civil liability does not exist independently of the criminal responsibility, the
extinction of the latter by death, ipso facto extinguishes the former, provided, of course, that death
supervenes before final judgment. The said principle does not apply in instant case wherein the civil
liability springs neither solely nor originally from the crime itself but from a civil contract of purchase
and sale. (Emphasis ours)
xxx xxx xxx
In the above case, the court was convinced that the civil liability of the accused who was charged with
estafa could likewise trace its genesis to Articles 19, 20 and 21 of the Civil Code since said accused
had swindled the first and second vendees of the property subject matter of the contract of sale. It
therefore concluded: "Consequently, while the death of the accused herein extinguished his criminal
liability including fine, his civil liability based on the laws of human relations remains."
Thus it allowed the appeal to proceed with respect to the civil liability of the accused, notwithstanding
the extinction of his criminal liability due to his death pending appeal of his conviction.
To further justify its decision to allow the civil liability to survive, the court relied on the following
ratiocination: Since Section 21, Rule 3 of the Rules of Court 9 requires the dismissal of all money
claims against the defendant whose death occurred prior to the final judgment of the Court of First
Instance (CFI), then it can be inferred that actions for recovery of money may continue to be heard on
appeal, when the death of the defendant supervenes after the CFI had rendered its judgment. In such
case, explained this tribunal, "the name of the offended party shall be included in the title of the case
as plaintiff-appellee and the legal representative or the heirs of the deceased-accused should be
substituted as defendants-appellants."
It is, thus, evident that as jurisprudence evolved from Castillo to Torrijos, the rule established was that
the survival of the civil liability depends on whether the same can be predicated on sources of
obligations other than delict. Stated differently, the claim for civil liability is also extinguished together
with the criminal action if it were solely based thereon, i.e., civil liability ex delicto.
However, the Supreme Court in People v. Sendaydiego, et al. 10 departed from this long-established
principle of law. In this case, accused Sendaydiego was charged with and convicted by the lower court
of malversation thru falsification of public documents. Sendaydiego's death supervened during the
pendency of the appeal of his conviction.
This court in an unprecedented move resolved to dismiss Sendaydiego's appeal but only to the extent
of his criminal liability. His civil liability was allowed to survive although it was clear that such claim
thereon was exclusively dependent on the criminal action already extinguished. The legal import of
such decision was for the court to continue exercising appellate jurisdiction over the entire appeal,

passing upon the correctness of Sendaydiego's conviction despite dismissal of the criminal action, for
the purpose of determining if he is civilly liable. In doing so, this Court issued a Resolution of July 8,
1977 stating thus:
The claim of complainant Province of Pangasinan for the civil liability survived Sendaydiego because
his death occurred after final judgment was rendered by the Court of First Instance of Pangasinan,
which convicted him of three complex crimes of malversation through falsification and ordered him to
indemnify the Province in the total sum of P61,048.23 (should be P57,048.23).
The civil action for the civil liability is deemed impliedly instituted with the criminal action in the
absence of express waiver or its reservation in a separate action (Sec. 1, Rule 111 of the Rules of
Court). The civil action for the civil liability is separate and distinct from the criminal action (People and
Manuel vs. Coloma, 105 Phil. 1287; Roa vs. De la Cruz, 107 Phil. 8).
When the action is for the recovery of money and the defendant dies before final judgment in the
Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in
Rule 87 of the Rules of Court (Sec. 21, Rule 3 of the Rules of Court).
The implication is that, if the defendant dies after a money judgment had been rendered against him
by the Court of First Instance, the action survives him. It may be continued on appeal (Torrijos vs.
Court of Appeals, L-40336, October 24, 1975; 67 SCRA 394).
The accountable public officer may still be civilly liable for the funds improperly disbursed although he
has no criminal liability (U.S. vs. Elvina, 24 Phil. 230; Philippine National Bank vs. Tugab, 66 Phil.
583).
In view of the foregoing, notwithstanding the dismissal of the appeal of the deceased Sendaydiego
insofar as his criminal liability is concerned, the Court Resolved to continue exercising appellate
jurisdiction over his possible civil liability for the money claims of the Province of Pangasinan arising
from the alleged criminal acts complained of, as if no criminal case had been instituted against him,
thus making applicable, in determining his civil liability, Article 30 of the Civil Code . . . and, for that
purpose, his counsel is directed to inform this Court within ten (10) days of the names and addresses
of the decedent's heirs or whether or not his estate is under administration and has a duly appointed
judicial administrator. Said heirs or administrator will be substituted for the deceased insofar as the
civil action for the civil liability is concerned (Secs. 16 and 17, Rule 3, Rules of Court).
Succeeding cases 11 raising the identical issue have maintained adherence to our ruling in
Sendaydiego; in other words, they were a reaffirmance of our abandonment of the settled rule that a
civil liability solely anchored on the criminal (civil liability ex delicto) is extinguished upon dismissal of
the entire appeal due to the demise of the accused.
But was it judicious to have abandoned this old ruling? A re-examination of our decision in
Sendaydiego impels us to revert to the old ruling.
To restate our resolution of July 8, 1977 in Sendaydiego: The resolution of the civil action impliedly
instituted in the criminal action can proceed irrespective of the latter's extinction due to death of the
accused pending appeal of his conviction, pursuant to Article 30 of the Civil Code and Section 21,
Rule 3 of the Revised Rules of Court.
Article 30 of the Civil Code provides:
When a separate civil action is brought to demand civil liability arising from a criminal offense, and no
criminal proceedings are instituted during the pendency of the civil case, a preponderance of evidence

shall likewise be sufficient to prove the act complained of.

Clearly, the text of Article 30 could not possibly lend support to the ruling in Sendaydiego. Nowhere in
its text is there a grant of authority to continue exercising appellate jurisdiction over the accused's civil
liability ex delicto when his death supervenes during appeal. What Article 30 recognizes is an
alternative and separate civil action which may be brought to demand civil liability arising from a
criminal offense independently of any criminal action. In the event that no criminal proceedings are
instituted during the pendency of said civil case, the quantum of evidence needed to prove the criminal
act will have to be that which is compatible with civil liability and that is, preponderance of evidence
and not proof of guilt beyond reasonable doubt. Citing or invoking Article 30 to justify the survival of
the civil action despite extinction of the criminal would in effect merely beg the question of whether civil
liability ex delicto survives upon extinction of the criminal action due to death of the accused during
appeal of his conviction. This is because whether asserted in the criminal action or in a separate civil
action, civil liability ex delicto is extinguished by the death of the accused while his conviction is on
appeal. Article 89 of the Revised Penal Code is clear on this matter:
Art. 89. How criminal liability is totally extinguished. Criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability
therefor is extinguished only when the death of the offender occurs before final judgment;
xxx xxx xxx
However, the ruling in Sendaydiego deviated from the expressed intent of Article 89. It allowed claims
for civil liability ex delicto to survive by ipso facto treating the civil action impliedly instituted with the
criminal, as one filed under Article 30, as though no criminal proceedings had been filed but merely a
separate civil action. This had the effect of converting such claims from one which is dependent on the
outcome of the criminal action to an entirely new and separate one, the prosecution of which does not
even necessitate the filing of criminal proceedings. 12 One would be hard put to pinpoint the statutory
authority for such a transformation. It is to be borne in mind that in recovering civil liability ex delicto,
the same has perforce to be determined in the criminal action, rooted as it is in the court's
pronouncement of the guilt or innocence of the accused. This is but to render fealty to the intendment
of Article 100 of the Revised Penal Code which provides that "every person criminally liable for a
felony is also civilly liable." In such cases, extinction of the criminal action due to death of the accused
pending appeal inevitably signifies the concomitant extinction of the civil liability. Mors Omnia Solvi.
Death dissolves all things.
In sum, in pursuing recovery of civil liability arising from crime, the final determination of the criminal
liability is a condition precedent to the prosecution of the civil action, such that when the criminal
action is extinguished by the demise of accused-appellant pending appeal thereof, said civil action
cannot survive. The claim for civil liability springs out of and is dependent upon facts which, if true,
would constitute a crime. Such civil liability is an inevitable consequence of the criminal liability and is
to be declared and enforced in the criminal proceeding. This is to be distinguished from that which is
contemplated under Article 30 of the Civil Code which refers to the institution of a separate civil action
that does not draw its life from a criminal proceeding. The Sendaydiego resolution of July 8, 1977,
however, failed to take note of this fundamental distinction when it allowed the survival of the civil
action for the recovery of civil liability ex delicto by treating the same as a separate civil action referred
to under Article 30. Surely, it will take more than just a summary judicial pronouncement to authorize
the conversion of said civil action to an independent one such as that contemplated under Article 30.
Ironically however, the main decision in Sendaydiego did not apply Article 30, the resolution of July 8,
1977 notwithstanding. Thus, it was held in the main decision:
Sendaydiego's appeal will be resolved only for the purpose of showing his criminal liability which is the
basis of the civil liability for which his estate would be liable. 13

In other words, the Court, in resolving the issue of his civil liability, concomitantly made a
determination on whether Sendaydiego, on the basis of evidenced adduced, was indeed guilty beyond
reasonable doubt of committing the offense charged. Thus, it upheld Sendaydiego's conviction and
pronounced the same as the source of his civil liability. Consequently, although Article 30 was not
applied in the final determination of Sendaydiego's civil liability, there was a reopening of the criminal
action already extinguished which served as basis for Sendaydiego's civil liability. We reiterate: Upon
death of the accused pending appeal of his conviction, the criminal action is extinguished inasmuch as
there is no longer a defendant to stand as the accused; the civil action instituted therein for recovery of
civil liability ex delicto is ipso facto extinguished, grounded as it is on the criminal.
Section 21, Rule 3 of the Rules of Court was also invoked to serve as another basis for the
Sendaydiego resolution of July 8, 1977. In citing Sec. 21, Rule 3 of the Rules of Court, the Court made
the inference that civil actions of the type involved in Sendaydiego consist of money claims, the
recovery of which may be continued on appeal if defendant dies pending appeal of his conviction by
holding his estate liable therefor. Hence, the Court's conclusion:
"When the action is for the recovery of money" "and the defendant dies before final judgment in the
court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided" in
Rule 87 of the Rules of Court (Sec. 21, Rule 3 of the Rules of Court).
The implication is that, if the defendant dies after a money judgment had been rendered against him
by the Court of First Instance, the action survives him. It may be continued on appeal.
Sadly, reliance on this provision of law is misplaced. From the standpoint of procedural law, this
course taken in Sendaydiego cannot be sanctioned. As correctly observed by Justice Regalado:
xxx xxx xxx
I do not, however, agree with the justification advanced in both Torrijos and Sendaydiego which,
relying on the provisions of Section 21, Rule 3 of the Rules of Court, drew the strained implication
therefrom that where the civil liability instituted together with the criminal liabilities had already passed
beyond the judgment of the then Court of First Instance (now the Regional Trial Court), the Court of
Appeals can continue to exercise appellate jurisdiction thereover despite the extinguishment of the
component criminal liability of the deceased. This pronouncement, which has been followed in the
Court's judgments subsequent and consonant to Torrijos and Sendaydiego, should be set aside and
abandoned as being clearly erroneous and unjustifiable.
Said Section 21 of Rule 3 is a rule of civil procedure in ordinary civil actions. There is neither authority
nor justification for its application in criminal procedure to civil actions instituted together with and as
part of criminal actions. Nor is there any authority in law for the summary conversion from the latter
category of an ordinary civil action upon the death of the offender. . . .
Moreover, the civil action impliedly instituted in a criminal proceeding for recovery of civil liability ex
delicto can hardly be categorized as an ordinary money claim such as that referred to in Sec. 21, Rule
3 enforceable before the estate of the deceased accused.
Ordinary money claims referred to in Section 21, Rule 3 must be viewed in light of the provisions of
Section 5, Rule 86 involving claims against the estate, which in Sendaydiego was held liable for
Sendaydiego's civil liability. "What are contemplated in Section 21 of Rule 3, in relation to Section 5 of
Rule 86, 14 are contractual money claims while the claims involved in civil liability ex delicto may
include even the restitution of personal or real property." 15 Section 5, Rule 86 provides an exclusive
enumeration of what claims may be filed against the estate. These are: funeral expenses, expenses
for the last illness, judgments for money and claim arising from contracts, expressed or implied. It is
clear that money claims arising from delict do not form part of this exclusive enumeration. Hence,
there could be no legal basis in (1) treating a civil action ex delicto as an ordinary contractual money

claim referred to in Section 21, Rule 3 of the Rules of Court and (2) allowing it to survive by filing a
claim therefor before the estate of the deceased accused. Rather, it should be extinguished upon
extinction of the criminal action engendered by the death of the accused pending finality of his
conviction.
Accordingly, we rule: if the private offended party, upon extinction of the civil liability ex delicto desires
to recover damages from the same act or omission complained of, he must subject to Section 1, Rule
111 16 (1985 Rules on Criminal Procedure as amended) file a separate civil action, this time predicated
not on the felony previously charged but on other sources of obligation. The source of obligation upon
which the separate civil action is premised determines against whom the same shall be enforced.
If the same act or omission complained of also arises from quasi-delict or may, by provision of law,
result in an injury to person or property (real or personal), the separate civil action must be filed
against the executor or administrator 17 of the estate of the accused pursuant to Sec. 1, Rule 87 of the
Rules of Court:
Sec. 1. Actions which may and which may not be brought against executor or administrator. No
action upon a claim for the recovery of money or debt or interest thereon shall be commenced against
the executor or administrator; but actions to recover real or personal property, or an interest therein,
from the estate, or to enforce a lien thereon, and actions to recover damages for an injury to person or
property, real or personal, may be commenced against him.
This is in consonance with our ruling in Belamala 18 where we held that, in recovering damages for
injury to persons thru an independent civil action based on Article 33 of the Civil Code, the same must
be filed against the executor or administrator of the estate of deceased accused and not against the
estate under Sec. 5, Rule 86 because this rule explicitly limits the claim to those for funeral expenses,
expenses for the last sickness of the decedent, judgment for money and claims arising from contract,
express or implied. Contractual money claims, we stressed, refers only to purely personal obligations
other than those which have their source in delict or tort.
Conversely, if the same act or omission complained of also arises from contract, the separate civil
action must be filed against the estate of the accused, pursuant to Sec. 5, Rule 86 of the Rules of
Court.
From this lengthy disquisition, we summarize our ruling herein:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability as well
as the civil liability based solely thereon. As opined by Justice Regalado, in this regard, "the death of
the accused prior to final judgment terminates his criminal liability and only the civil liability directly
arising from and based solely on the offense committed, i.e., civil liability ex delicto in senso
strictiore."
2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the same
may also be predicated on a source of obligation other than delict. 19 Article 1157 of the Civil Code
enumerates these other sources of obligation from which the civil liability may arise as a result of
the same act or omission:
a) Law 20
b) Contracts
c) Quasi-contracts
d) . . .
e) Quasi-delicts
3. Where the civil liability survives, as explained in Number 2 above, an action for recovery
therefor may be pursued but only by way of filing a separate civil action and subject to Section 1,
Rule 111 of the 1985 Rules on Criminal Procedure as amended. This separate civil action may be

enforced either against the executor/administrator or the estate of the accused, depending on the
source of obligation upon which the same is based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil
action by prescription, in cases where during the prosecution of the criminal action and prior to its
extinction, the private-offended party instituted together therewith the civil action. In such case, the
statute of limitations on the civil liability is deemed interrupted during the pendency of the criminal
case, conformably with provisions of Article 1155 21 of the Civil Code, that should thereby avoid any
apprehension on a possible privation of right by prescription. 22
Applying this set of rules to the case at bench, we hold that the death of appellant Bayotas
extinguished his criminal liability and the civil liability based solely on the act complained of, i.e., rape.
Consequently, the appeal is hereby dismissed without qualification.
WHEREFORE, the appeal of the late Rogelio Bayotas is DISMISSED with costs de oficio.
SO ORDERED.
G.R. No. 82562 April 11, 1997
LYDIA VILLEGAS, MA TERESITA VILLEGAS, ANTONIO VILLEGAS, JR., and ANTONIETTE
VILLEGAS, petitioners,
vs.
THE COURT OF APPEALS, PEOPLE OF THE PHILIPPINES and ANTONIO V. RAQUIZA,
respondents.
G.R. No. 82592 April 11, 1997
ANTONIO V. RAQUIZA, petitioner,
vs.
COURT OF APPEALS, LYDIA A. VILLEGAS, ANTONIO VILLEGAS, JR., MA. ANTONETTE
VILLEGAS, MA. LYDIA VILLEGAS and ESTATE OF ANTONIO J. VILLEGAS, respondents.
ROMERO, J.:
This case originated from a libel suit filed by then Assemblyman Antonio V. Raquiza against then
Manila Mayor Antonio J. Villegas, who allegedly publicly imputed to him acts constituting violations of
the Anti-Graft and Corrupt Practices Act. He did this on several occasions in August 1968 through (a) a
speech before the Lion's Club of Malasiqui, Pangasinan on August 10; (b) public statements in Manila
on August 13 and in Davao on August 17, which was coupled with a radio-TV interview; and (c) a
public statement shortly prior to his appearance before the Senate Committee on Public Works (the
Committee) on August 20 to formally submit a letter-complaint implicating Raquiza, among other
government officials.
The Committee, however, observed that all the allegations in the complaint were based mainly on the
uncorroborated testimony of a certain Pedro U. Fernandez, whose credibility turned out to be highly
questionable. Villegas also failed to submit the original copies of his documentary evidence. Thus,
after thorough investigation, Raquiza was cleared of all charges by the Committee. 1 All these acts of
political grandstanding received extensive media coverage.
On July 25, 1969, an information for libel was filed by the Office of the City Fiscal of Manila with the
then Court of First Instance of Manila against Villegas who denied the charge. After losing in the 1971
elections, Villegas left for the United States where he stayed until his death on November 16, 1984.
Nevertheless, trial proceeded on absentia by the time of his death the in 1984, the prosecution had
already rested its case Two months after notice of his death, the court issued an order dismissing the
crimal aspect of the case but reserving the right to resolve its civil aspect. No memorandum was ever
filed in his behalf.

Judge Marcelo R. Obien 2 rendered judgment on March 7, 1985, the dispositive portion of which was
amended on March 26 to read as follows:
WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered as follows:
1. The dismissal of the criminal case against Antonio J. Vlllegas, on account of his death on
November 16, 1984. is hereby reiterated.
2. Ordenng the estate of Antonio J. Villegas, represented herein by his legal heirs, namely: Lydia
A Villegas, Ma. Teresita Villegas, Antonio Villegas, Jr., Ma. Anton(i)ette Villegas, and Ma. Lydia
Villegas (sic), to pay plaintiff Antonio V. Raquiza Two Hundred Million Pesos
(P200,000,000.00), itemized as follows:
a) One Hundred Fifty Million Pesos (P150.000.000.00) as moral damages:
b) Two Hundred Thousand Pesos (P200.000.00) as actual damages:
c) Forty-nine Million Eight Hundred Thousand Pesos (P49,800,000.00) as exemplary
damages; and
d)
The cost of suit.
SO ORDERED. 3 (Amendments underscored)
The heirs of Villegas (the Heirs), through their father's counsel, Atty. Norberto, Quisumbing appealed
the decision on these three main grounds:
1. Whether the trial court, three months after notice of the death of the accused and before his counsel
could file a memorandum in his behalf, could velidly render judgment in the case?
2. Whether in the absence of formal substitution of parties, the trial court could validly render judgment
against the heirs and estate of a deceased accused?
3 Whether, under the facts of the instant case, deceased Villegas was liable for libel, and assuming he
was, whether the damages awarded by the trial court were just and reasonable?
On March 15, 1988, the Court of Appeals rendered a decision affirming the trial court's judgment
modified only with respect to the award of damages which was reduced to P2 million representing
P1.5 million, P300,000.00, and P200,000.00 in moral exemplary and actual damages, respectively.
Both parties elevated said decision to this Court for review
In their petition (G.R. No. 82562), the Heirs once again raise the very same issues brought before the
Court of Appeals, albeit reworded. On the other hand, petitioner Requiza (G.R. No. 82592) questions
the extensions of time to file appellant's brief granted by the appellate court to the Heirs, as well as the
drastic reduction in the award of damages.
It is immediately apparent that the focal issue in these petitions is the effect of the death of Villegas
before the case was decided by the trial court. Stated otherwise, did the death of the accused before
final judgment extinguish his civil liability?
Fortunately, this Court has already settled this issue with the promulgation of the case of People v.
Bayotas (G.R. No. 102007) on September 2, 1994, 4 viz.:
It is thus evident that as jurisprudence evolved from Castillo 5 to Torrijos, 6 the rule established was
that the survival of the civil liability depends on whether the same can be predicated on sources of
obligations other than delict. Stated differently, the claim for civil liability is also extinguished together
with the criminal action if it were solely based thereon, i.e., civil liability ex delicto.
xxx xxx xxx

(I)n recovering damages for injury to persons thru an independent civil action based on Article 33 of
the Civil Code, the same must be filed against the executor or administrator of the estate of deceased
accused (undet Sec. 1, Rule 87, infra.) and not against the estate under Sec. 5, Rule 86 because this
rule explicitly limits the claim to those for funeral expenses, expenses for the last sickness of the
decedent, judgment for money and claims arising from contract, express or implied. 7
xxx xxx xxx
From this lengthy dlsquisition, we summarize our ruling herein:
1 Death of the accused pending appeal of his conviction extinguishes his criminal liability as well as
the civil liability based solely thereon As opined by Justice Regalado, in this regard, "the death of the
accused prior to final judgment terminates his criminal liability and only the civil liability directly arising
from and based solely on the offense committed, i.e., civil liability ex delicto in senso strictiore."
2 Corollarily the claim for civil liability survives notwithstanding the death of (the) accused, if the same
may also be predicated on a source of obligation other than delict. Article 1157 of the Civil Code
enumerates these other sources of obligation from which the civil liability may arise as a result of the
same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) x x x x x x x x x
e) Quasi-delicts
3.
Where the civil liability survives, as explained in Number 2 above, an action for recovery
therefor may be pursued but only by way of filing a separate civil action and subject to Section 1, Rule
111 of the 1985 Rules on Criminal Procedure as amended. 8 This separate civil action may be
enforced either against the executor/administrator o(f) the estate of the accused, depending on the
source of obligation upon which the same is based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil
action by prescription, in cases where during the prosecution of the criminal action and prior to its
extinction, the private offended party instituted together therewith the civil action. In such case, the
statute of limitations on the civil liability is deemed interrupted during the pendency of the criminal
case, conformably with (the) provisions of Article 1155 of the Civil Code, that should thereby avoid any
apprehension on a possible privation of right by prescription. (Emphasis supplied).
The source of Villegas' civil liability in the present case is the felonious act of libel he allegedly
committed. Yet, this act could also be deemed a quasi-delict within the purview of Article 33 9 in
relation to Article 1157 of the Civil Code. If the Court ruled in Bayotas that the death of an accused
during the pendency of his appeal extinguishes not only his criminal but also his civil liability unless the
latter can be predicated on a source of obligation other than the act or omission complained of, with
more reason should it apply to the case at bar where the accused died shortly after the prosecution
had rested its case and before he was able to submit his memorandum and all this before any
decision could even be reached by the trial court.
The Bayotas ruling, however, makes the enforcement of a deceased accused's civil liability dependent
on two factors, namely, that it be pursued by filing a separate civil action and that it be made subject to
Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, as amended. Obviously, in the case at
bar, the civil action was deemed instituted with the criminal. There was no waiver of the civil action and
no reservation of the right to institute the same, nor was it instituted prior to the criminal action. What
then is the recourse of the private offended party in a criminal case such as this which must be

dismissed in accordance with the Bayotas doctrine, where the civil action was impliedly instituted with
it?
The answer is likewise provided in Bayatas, thus:
Assuming that for lack of express reservation, Belamala's civil civil for damages was to be considered
instituted together with the crinimal action still, since both proceedings were terminated without finals
adjudication the civil action of the offended party under Article 33 may yet be enforced separately 10
(Emphasis supplied)
Hence, logically, the court a quo should have dismissed both actions against Vilegas which dismissal
will not, however, bar Raquiza as the private offended party from pursuing his claim for damages
against the executor or administrator of the former's estate, notwitnstanding the fact that he did not
reserve the right to institute a civil separate civil action based on Article 33 of the Civil Code.
It cannot be argued either that to follow Bayotas would result in further delay in this protracted
litigation. This is because the resolution of the civil aspect of the case after the dismissal of the main
criminal action by the trial court was technically defective There was no proper substitution of parties,
as correctly pointed out by the Heirs and repeatedly put in issue by Atty. Quisumbing. What should
have been followed by the court a quo was the procedure laid down in the Rules of Court, specifically,
Section 17, Rule 3, in connection with Section 1, Rule 87. The pertinent provisions state as follws:
Rule 3
Sec.17. Death of party. After a party dies and the claim is not there extinguished, the court shall
order upon proper notice the legal representative of the deceased to appear and to be substituted for
the deceased, within a period of thirty (30) days, or within such time as may begranted. . . . The heirs
of the deceased may be allowed to be for the deceased, without requiring the appointment of an
executor or administrator and the court may appoint guardian ad litem for the minor heirs.
Rule 87
Sec. 1. Actions which may and which may not be brought against or executor or administrator. No
action upon a claim for the recovery of money or debt or interest thereon shall be commenced against
the executor or administrator; but actions to recover real or personal property, or an interest therein,
from the estate, or to enforce a lien thereon, and actions to recover damages for an injury to person or
property, real or personal may be commenced against him.
Accordingly, the Court sees no more necessity in resolving the other issues used by both parties in
these petitions.
WHEREFORE, the petition in G.R. No. 82562 is GRANTED and the petition in G.R. No. 82592 is
DENIED. The decisions of the Court of Appeals in CA-G.R. CR No. 82186 dated March 15, 1988, and
of the Manila Regional Trial Court, Branch 44, dated March 7, 1985, as amended, are hereby
REVERSED and SET ASIDE, without prejudice to the right of the private offended party Antonio V.
Raquiza, to file the appropriate civil action for damages against the executor or administrator of the
estate or the heirs of the late Antonto J. Villegas in accordance with the foregoing procedure.
SO ORDERED.
G.R. No. 183204
January 13, 2014
THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum,1 must be paid upon demand by the
depositor.2
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails the April 2, 2008
Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized
and existing under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the
owner of China Golden Bridge Travel Services, 7 a travel agency.8 Respondent Yo Yuk To is the mother
of respondent Rosales.9
In 2000, respondents opened a Joint Peso Account 10 with petitioners Pritil-Tondo Branch.11 As of
August 4, 2004, respondents Joint Peso Account showed a balance of P2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
applying for a retirees visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioners branch in Escolta to open a savings account, as required by the PLRA. 13 Since Liu Chiu
Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint Dollar Account 15
with an initial deposit of US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against respondents accounts.17
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre,
filed before the Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-25014, 18 against
respondent Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fangs
dollar account with petitioners Escolta Branch.20 Petitioner alleged that on February 5, 2003, its
branch in Escolta received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioners Escolta Branch
to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash;22 that Gutierrez told respondent Rosales to come back the following day
because the bank did not have enough dollars;23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the bank; 24 that the impostor was able to
withdraw Liu Chiu Fangs dollar deposit in the amount of US$75,000.00; 25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank later discovered that the serial
numbers of the dollar notes deposited by respondents in the amount of US$11,800.00 were the same
as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from
the dollar account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on
February 5, 2003.28 Neither did she inform Gutierrez that Liu Chiu Fang was going to close her
account.29 Respondent Rosales further claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her.30 Respondent Rosales version of the events that transpired thereafter
is as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the
bank to close her account.31 At noon of the same day, respondent Rosales went to the bank to make a
transaction.32 While she was transacting with the teller, she caught a glimpse of a woman seated at

the desk of the Branch Operating Officer, Melinda Perez (Perez). 33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu Chiu Fang had closed her account
and had already left.34 Perez then gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from Liu Chiu Fang
inquiring about the extension of her PLRA Visa and her dollar account. 36 It was only then that Liu Chiu
Fang found out that her account had been closed without her knowledge. 37 Respondent Rosales then
went to the bank to inform Gutierrez and Perez of the unauthorized withdrawal. 38 On June 23, 2003,
respondent Rosales and Liu Chiu Fang went to the PLRA Office, where they were informed that the
Withdrawal Clearance was issued on the basis of a Special Power of Attorney (SPA) executed by Liu
Chiu Fang in favor of a certain Richard So. 39 Liu Chiu Fang, however, denied executing the SPA. 40 The
following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to
discuss the unauthorized withdrawal.41 During the conference, the bank officers assured Liu Chiu Fang
that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the
criminal case for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No.
04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they attempted
several times to withdraw their deposits but were unable to because petitioner had placed their
accounts under "Hold Out" status.45 No explanation, however, was given by petitioner as to why it
issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that they be
allowed to withdraw their deposits.47 They likewise prayed for actual, moral, and exemplary damages,
as well as attorneys fees.48
Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing
the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of US$75,000.00 50 and to file a criminal complaint
for Estafa against respondent Rosales.51
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint. 52 An
Information, docketed as Criminal Case No. 05-236103,53 was then filed charging respondent Rosales
with Estafa before Branch 14 of the RTC of Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision 55 finding petitioner liable for damages for breach
of contract.56 The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the
act of withdrawal of a bank deposit is an act of demand by the creditor.57 The RTC also said that the
recourse of petitioner is against its negligent employees and not against respondents. 58 The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner]
METROPOLITAN BANK & TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO
YUK TO to withdraw their Savings and Time Deposits with the agreed interest, actual damages of
P50,000.00, moral damages of P50,000.00, exemplary damages of P30,000.00 and 10% of the
amount due [respondents] as and for attorneys fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages
because "the basis for [respondents] claim for such damages is the professional fee that they paid to
their legal counsel for [respondent] Rosales defense against the criminal complaint of [petitioner] for
estafa before the Office of the City Prosecutor of Manila and not this case."60 Thus, the CA disposed of
the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21,
Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual
damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANGS FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEYS FEES.63
Petitioners Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application
and Agreement for Deposit Account.64 It posits that the said clause applies to any and all kinds of
obligation as it does not distinguish between obligations arising ex contractu or ex delictu. 65 Petitioner
also contends that the fraud committed by respondent Rosales was clearly established by evidence; 66
thus, it was justified in issuing the "Hold-Out" order.67 Petitioner likewise denies that its employees
were negligent in releasing the dollars.68 It claims that it was the deception employed by respondent
Rosales that caused petitioners employees to release Liu Chiu Fangs funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorneys fees. It
insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive
or malevolent manner.70
Respondents Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their
deposits because they have no monetary obligation to petitioner.71 They insist that petitioner miserably
failed to prove its accusations against respondent Rosales. 72 In fact, no documentary evidence was
presented to show that respondent Rosales participated in the unauthorized withdrawal. 73 They also
question the fact that the list of the serial numbers of the dollar notes fraudulently withdrawn on
February 6, 2003, was not signed or acknowledged by the alleged impostor. 74 Respondents likewise
maintain that what was established during the trial was the negligence of petitioners employees as
they allowed the withdrawal of the funds without properly verifying the identity of the depositor. 75
Furthermore, respondents contend that their deposits are in the nature of a loan; thus, petitioner had

the obligation to return the deposits to them upon demand. 76 Failing to do so makes petitioner liable to
pay respondents moral and exemplary damages, as well as attorneys fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with
respondents, and (2) if so, whether it is liable for damages. The issue of whether petitioners
employees were negligent in allowing the withdrawal of Liu Chiu Fangs dollar deposits has no bearing
in the resolution of this case. Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply to the instant case.
Petitioner claims that it did not breach its contract with respondents because it has a valid reason for
issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents deposits on the
Application and Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all
monies, properties or securities of the Depositor now in or which may hereafter come into the
possession or under the control of the Bank, whether left with the Bank for safekeeping or otherwise,
or coming into the hands of the Bank in any way, for so much thereof as will be sufficient to pay any or
all obligations incurred by Depositor under the Account or by reason of any other transactions between
the same parties now existing or hereafter contracted, to sell in any public or private sale any of such
properties or securities of Depositor, and to apply the proceeds to the payment of any Depositors
obligations heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a
lien on any balance of the Account and apply all or any part thereof against any indebtedness,
matured or unmatured, that may then be owing to the Bank by any or all of the Depositors. It is
understood that if said indebtedness is only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account answer for the said indebtedness
to the extent of the equal share of the debtor in the amount credited to the Account.78
Petitioners reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is
misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the
sources of obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasicontracts, delict, and quasi-delict. In this case, petitioner failed to show that respondents have an
obligation to it under any law, contract, quasi-contract, delict, or quasi-delict. And although a criminal
case was filed by petitioner against respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner issued
the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner
to issue the "Hold Out" order. Accordingly, we agree with the findings of the RTC and the CA that the
"Hold Out" clause does not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably
refused to release respondents deposit despite demand. Having breached its contract with
respondents, petitioner is liable for damages.
Respondents are entitled to moral and exemplary damages and attorneys fees.1wphi1
In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals
that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued without any
legal basis. Second, petitioner did not inform respondents of the reason for the "Hold Out."82 Third, the
order was issued prior to the filing of the criminal complaint. Records show that the "Hold Out" order
was issued on July 31, 2003,83 while the criminal complaint was filed only on September 3, 2003. 84 All
these taken together lead us to conclude that petitioner acted in bad faith when it breached its contract
with respondents. As we see it then, respondents are entitled to moral damages.
As to the award of exemplary damages, Article 2229 85 of the Civil Code provides that exemplary
damages may be imposed "by way of example or correction for the public good, in addition to the
moral, temperate, liquidated or compensatory damages." They are awarded only if the guilty party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner when it refused to release the deposits of respondents without any legal basis. We
need not belabor the fact that the banking industry is impressed with public interest. 87 As such, "the
highest degree of diligence is expected, and high standards of integrity and performance are even
required of it."88 It must therefore "treat the accounts of its depositors with meticulous care and always
to have in mind the fiduciary nature of its relationship with them." 89 For failing to do this, an award of
exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil
Code.
In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from
fraud or suspicions of fraud, the exercise of his right should be done within the bounds of the law and
in accordance with due process, and not in bad faith or in a wanton disregard of its contractual
obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30,
2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.
G.R. No. 107737 October 1, 1999
JUAN L. PEREZ, LUIS KEH, CHARLIE LEE and ROSENDO G. TANSINSIN, JR., petitioners,
vs.
COURT OF APPEALS, LUIS CRISOSTOMO and VICENTE ASUNCION, respondents.
GONZAGA-REYES, J.:
This is a petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the decision
of the Regional Trial Court of Bulacan, Branch 9 2 that disposed of Civil Case No. 5610-M (Luis
Crisostomo v. Luis Keh, Juan Perez, Charlie Kee and Atty. Rosendo G. Tansinsin, Jr.) as follows:
WHEREFORE, premises considered, judgment is hereby rendered:

a) directing defendant JUAN PEREZ to allow plaintiff LUIS CRISOSTOMO to occupy and operate the
"Papaya Fishpond" for a period of 5 1/2 years at the rental rates of P150,000.00 for the first six
months and P175,000.00 for the remaining five years (the same rates provided for in Exh. 4);
b) ordering defendants LUIS KEH, CHARLIE LEE, JUAN PEREZ and Atty. ROSENDO TANSINSIN,
JR. to pay unto the plaintiff the amounts of P150,000.00 as actual damages; P20,000.00 as moral
damages; P20,000.00 as exemplary damages; and P10,000.00 as attorney's fees, plus the costs of
the suit;
c) directing the release, delivery or payment directly to plaintiff LUIS CRISOSTOMO of the amounts of
P128,572.00 and P123,993.85, including the interests which may have already accrued thereon,
deposited with the Paluwagan ng Bayan Savings Bank (Paombong, Bulacan Branch) in the name of
the Clerk of Court and/or Deputy Clerk of Court Rodrigo C. Libunao under this Court's Order dated
February 14, 1980; however, the plaintiff is required to pay defendant Perez the corresponding rental
on the fishpond for the period June 1979-January 1980 based on the rate of P150,000.00 per annum,
deducting therefrom the amount of P21,428.00 already paid to and received by then co-usufructuary
Maria Perez (Exh. E);
d) dismissing the defendants' separate counter-claims for damages, for lack of merit; and
e) dismissing the Pleading in Intervention Pro Interesse Suo filed by VICENTE ASUNCION on the
ground of lis pendens.
SO ORDERED.
The facts upon which the Court of Appeals based its Decision are the following:
Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and Vicente Asuncion,
petitioner Juan Perez is a usufructuary of a parcel of land popularly called the "Papaya Fishpond."
Covered by Transfer Certificate of Title No. 8498 of the Registry of Deeds for the Province of Bulacan,
the fishpond is located in Sto. Rosario, Hagonoy, Bulacan and has an area of around 110 hectares. On
June 5, 1975, the usufructuaries entered into a contract leasing the fishpond to Luis Keh for a period
of five (5) years and renewable for another five (5) years by agreement of the parties, under the
condition that for the first five-year period the annual rental would be P150,000.00 and for the next five
years, P175,000.00. Paragraph 5 of the lease contract states that the lessee "cannot sublease" the
fishpond "nor assign his rights to anyone." 3
Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman engaged in
the operation of fishponds. On September 20, 1977, while he was at his fishpond in Almazar,
Hermosa, Bataan, his bosom friend named Ming Cosim arrived with petitioner Charlie Lee. The two
persuaded private respondent to take over the operation of "Papaya Fishpond" as petitioner Lee and
his partner, petitioner Luis Keh, were allegedly losing money in its operation. Private respondent
having acceded to the proposal, sometime in December of that year, he and petitioners Lee and Keh
executed a written agreement denominated as "pakiao buwis" whereby private respondent would take
possession of the "Papaya Fishpond" from January 6, 1978 to June 6, 1978 in consideration of the
amount of P128,000.00 broken down as follows: P75,000.00 as rental, P50,000.00 for the value of
milkfish in the fishpond and P3,000 for labor expenses. Private respondent paid the P75,000.00 to
petitioner Keh at the house of petitioner Lee in Sta. Cruz, Hagonoy, Bulacan in the presence of Lee's
wife, brother-in-law and other persons. He paid the balance to petitioner Lee sometime in February or
March 1978 because he was uncertain as to the right of petitioners Keh and Lee to transfer
possession over the fishpond to him. Private respondent made that payment only after he had
received a copy of a written agreement dated January 9, 1978 4 whereby petitioner Keh ceded,
conveyed and transferred all his "rights and interests" over the fishpond to petitioner Lee, "up to June
1985." From private respondent's point of view, that document assured him of continuous possession
of the property for as long as he paid the agreed rentals of P150,000.00 until 1980 and P.175,000.00

until 1985.1wphi1.nt
For the operation of the fishpond from June 1978 to May 1979, private respondent, accompanied by
Ming Cosim and Ambrocio Cruz, paid the amount of P150,000.00 at the Malabon, Metro Manila office
of petitioner Keh. The following receipt was issued to him:
RECEIPT
June 6, 1978
P150.000,00
Received from Mr. LUIS KEH the sum of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00),
Philippine Currency, as full payment of the yearly leased rental of the Papaya Fishpond for the year
beginning June 1978 and ending on May 1979. The next payment shall be made on June 6, 1979.
Said sum was paid in Producers Bank of the Philippines Check No. (illegible) 164595 dated June 6,
1978.
Mr. Luis Keh has not transferred his rights over the fishpond to any person.
Caloocan City, June 6, 1978.
JUAN L. PEREZ ET AL.
By:
(Sgd.)
Rosendo G. Tansinsin, Jr.
CONFORME TO THE ABOVE:
(Sgd.)
LUIS KEH
Handwritten below that receipt but above the signature of petitioner Charlie Lee, are the following:
"Rec'd from Luis Crisostomo sum of one hundred fifty-four thousand P154,000.00 for above payment.
5

Private respondent incurred expenses for repairs in and improvement of the fishpond in the total
amount of P486,562.65. 6 However, sometime in June 1979, petitioners Tansinsin and Juan Perez, in
the company of men bearing armalites, went to the fishpond and presented private respondent with a
letter dated June 7, 1979 showing that petitioner Luis Keh had surrendered possession of the fishpond
to the usufructuaries.
Because of the threat to deprive him of earnings of around P700,000.00 that the 700,000 milkfish in
the fishpond would yield, and the refusal of petitioners Keh, Juan Perez and Lee to accept the rental
for June 5, 1979 to June 6, 1980, private respondent filed on June 14, 1979 with the then Court of
First Instance of Bulacan an action for injunction and damages. He prayed for the issuance of a
restraining order enjoining therein defendants Keh, Perez and Lee from entering the premises and
taking possession of the fishpond. He also prayed for actual damages of P50,000.00, moral damages
of P20,000.00, exemplary damages in an amount that the court might award, and attorney's fees of
P10,000.00. 7
That same day, June 14, 1979, the lower court granted the prayer for a restraining order. On
November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez (who died in 1984), the
amount of P21,428.00 as her 1/7 share of the annual rental of the fishpond for 1979-80. Maria Perez
issued a notarized receipt for that amount. 8
On January 11, 1980, the court lifted the restraining order thereby effectively depriving private
respondent of possession over the fishpond. On February 14, 1980, the parties submitted a partial
compromise agreement with the following stipulations:

1. The amount of P128,572.00 that private respondent deposited as rental with the Office of the Clerk
of Court under O.R. No. 21630 dated November 15, 1979 be withdrawn from that office and deposited
with the Paluwagan ng Bayan Savings & Loan Association, Inc. (Paombong, Bulacan branch) and
which deposit shall not be withdrawn unless authorized by the court; and
2. The plaintiff could personally harvest milkfish "with commercial value" in the presence of Perez and
under the supervision of the deputy clerk of court within the appointed period and that the net
proceeds of the sale (P123,993.85 per the Report dated March 4, 1980 of the deputy clerk of court) be
deposited in the name of the deputy clerk of court of Branch 6 of the then Court of First Instance of
Bulacan with the same branch of the Paluwagan ng Bayan Savings & Loan Association, Inc. and
which deposit shall not be withdrawn unless upon order of the court after hearing.
The court approved that agreement on that same date.
Thereafter, the usufructuaries entered into a contract of lease with Vicente Raymundo and Felipe
Martinez for the six-year period of June 1, 1981 to May 30, 1987 in consideration of the annual rentals
of P550,000.00 for the first two years and P400,000.00 for the next four years. Upon expiration of that
lease, the same property was leased to Pat Laderas for P1 million a year.
The complaint was later amended to include petitioner Tansinsin, the alleged administrator of the
fishpond, as one of the defendants. 9 Except in the joint answer that the defendants had filed,
petitioners Keh and Lee did not appear before the court. Neither did they testify.
In their defense, petitioners Juan Perez and Tansinsin presented evidence to prove that they had
negotiated for the lease of the property with Benito Keh in 1975. However, they averred, for reasons
unknown to petitioner Perez, in the contract of lease that petitioner Tansinsin prepared, petitioner Luis
Keh was named as lessee. Petitioner Perez had never met Keh or Lee but according to petitioner
Tansinsin, petitioner Luis Keh was substituted for Benito Keh because the latter was preoccupied with
his other businesses. Sometime in 1979, petitioner Keh's agent named Catalino Alcantara relayed to
petitioner Perez, Keh's intention to surrender possession of the fishpond to the usufructuaries.
Because petitioner Perez demanded that said intention should be made in writing, on June 5, 1979,
Perez received from Keh a letter to that effect.
When private respondent received a copy of that letter of petitioner Keh, he took the position that
petitioner Perez had no right to demand possession of the fishpond from him because Perez had no
contract with him. Private respondent was allowed four (4) months within which to vacate the premises
but he immediately filed the complaint for injunction and damages. Thereafter, private respondent's
counsel, Atty. Angel Cruz and other persons tried to prevail upon petitioner Perez to allow private
respondent to occupy the property for three (3) more years. Petitioner Perez declined that proposition.
On September 6, 1989, the lower court rendered the aforesaid decision. It arrived at the conclusion
that the defendants therein "conspired with one another to exploit the plaintiff's naivete and
educational inadequacies and, in the process, to defraud him by inducing him into taking possession
of the "Papaya Fishpond" in their fond hope that, as soon as the plaintiff applying his known
expertise as a successful fishpond operator shall have considerably improved the fishpond, they
will regain possession of the premises and offer the lease thereof to other interested parties at much
higher rental rates as laid bare by supervening realities." That conclusion was founded on the
following:
1. The plaintiffs (private respondent Crisostomo's) testimony bears the "hallmarks of truth: candid,
straightforward and uncontrived." He had proven himself a "much more credible witness than his
opponents."

2. The notarized receipt of Maria Perez of her share as a usufructuary in the rental for 1979-80 is a
"clear avowal of plaintiffs legitimate operation of the "Papaya Fishpond" as assignee or transferee
thereof." It was impossible for the other usufructuaries, especially Juan Perez who was residing in the
same locality and actively involved in the "affairs of the fishpond," not to have known that plaintiff
occupied the fishpond for one and a half years as assignee of Keh and Lee. It was unbelievable that
both Tansinsin and Perez would only perceive the plaintiff as a mere encargado of Keh and Lee.
3. The receipt whereby Tansinsin acknowledged payment of P150,000.00 as rental for June 1978-May
1979 bears "tell-tale signs" of the conspiracy. Firstly, the statement "Mr. Luis Keh has not transferred
his rights over the fishpond to any person" is entirely irrelevant to that receipt unless it was intended
"to preempt plaintiff's claim of rights and interests over the said property as either sub-lessee or
assignee." Secondly, Keh's having signified "Conforme to the above" is a gratuitous notation as it
actually indicates that the money came from the plaintiff. Thirdly, Atty. Tansinsin's receipt of the
amount for and in behalf of "JUAN L. PEREZ ET AL." illustrates his "active and dominant role in the
affairs" of the fishpond whether as administrator thereof or as beneficiary of a share from its fruits.
4. Service upon plaintiff of Keh's letter surrendering possession of the fishpond implied that
defendants knew that plaintiff was in possession thereof. That they resorted to the intimidating
presence of armed men is proof that they expected the plaintiff to refuse to give up possession of the
property. These circumstances "completely belie the protestations of Perez and Tansinsin of lack of
knowledge of the contract entered into" between the plaintiff, and Lee and Keh.
5. The nonpresentation of Lee and Keh on the witness stand by Atty. Tansinsin "can very well be
construed as a smart maneuver to cover up the sinister cabal for deception inferrable from the
attendant facts and circumstances." In their joint answer, Keh and Lee tried to relieve Perez of any
liability in favor of the plaintiff. That is understandable "because, should the Court disregard the
reliance of Perez on the prohibition against sub-lease or assignment of the "Papaya Fishpond", then
all the defendants shall have exposed themselves to unavoidable liability for the acts complained of by
the plaintiff."
6. Atty. Tansinsin was the common legal counsel of all the defendants and, by his testimony, even the
plaintiff. Atty. Tansinsin's denial that he was plaintiffs counsel was his way of "deflecting plaintiffs
imputations of professional improprieties against him." Plaintiff must have assumed that Atty. Tansinsin
was also his lawyer considering that they were "on very friendly terms" and therefore Atty. Tansinsin
might have been instrumental in dispelling whatever fears plaintiff had entertained as regards the
business transactions involved.
7. The fact that the fishpond was subsequently rented out for astronomical amounts is proof that the
plaintiff had considerably improved the fishpond. 10
The lower court added:
Bluntly yet succinctly put, the foregoing circumstances when viewed collectively with other cogent
aspects of the instant case inexorably lead to the Court's well-considered view that the defendants
tempted by the bright prospect of a lucrative business coup embarked themselves in an egregious
scheme to take undue advantage of the gullibility of the plaintiff who, as borne by ensuing events,
proved himself an ideal victim to prey upon: pathetically unsuspecting yet only too eager to invest his
material resources and self-acquired technical know-how to redeem what was then a dwindling
business enterprise from total collapse. Plaintiffs impressive performance, alas, only redounded
ultimately to the supreme benefit exclusively of the defendants. A classic case of "ako ang nagsaing,
iba ang kumain!"
The defendants elevated the case to the Court of Appeals which, as earlier mentioned, affirmed the
decision of the trial court and disposed of the appeal on February 18, 1992 as follows:

WHEREFORE, in view of all the foregoing, judgment appealed from, is hereby AFFIRMED.
However, intervenor-appellant is hereby declared co-usufructuary of the Papaya fishpond, and is,
therefore, entitled to all rights and interest due to the usufructuaries of the said fishpond.
SO ORDERED.
On the defendant-appellants' contention that the principle of res judicata should be applied because
the Court of Appeals had ruled on the issue of possession in CA-G.R. No. 10415-R, a petition for
certiorari and injunction with preliminary mandatory injunction, the Court of Appeals held that said
principle was unavailing. The petition in CA-G.R. No. 10415-R involved a writ of injunction "which
presupposes the pendency of a principal or main action." Moreover, the decision in that case did not
resolve the issue of who should be in possession of the Papaya Fishpond as findings of fact of the trial
court cannot be reviewed in a certiorari proceeding.1wphi1.nt
The Court of Appeals ruled further that appellee Crisostomo "cannot be considered a possessor in bad
faith, considering that he took possession of the fishpond when appellants Keh and Lee assigned to
him appellant Keh's leasehold right." It held that appellant Perez knew of the transfer of possession of
the fishpond to appellee and that the receipt evidencing payment of the 1978-1979 rental even bears
an expressed admission by Lee that the payment came from appellee Crisostomo.
Agreeing with the court a quo that "defendants-appellants employed fraud to the damage and
prejudice of plaintiff-appellee," the Court of Appeals held that appellants should be held liable for
damages. As regards the intervention pro interesse suo, the appellate court ruled that the same
should be allowed because, even if the litigation would not be technically binding upon him,
complications might arise that would prejudice his rights. Pointing out that a usufruct may be
transferred, assigned or disposed of, the Court of Appeals ruled that the intervenor cannot be
excluded as a usufructuary because he had acquired his right as such from a sale in execution of the
share of Jorge Lorenzo, one of the usufructuaries of the fishpond.
Herein petitioners filed a motion for the reconsideration of that Decision of the Court of Appeals. They
alleged that the Decision was premature because it was rendered when they had not yet even
received a copy of the intervenor's brief wherein assignments of errors that directly affected their rights
and interests were made. They insisted that the principle of res judicata was applicable because in
G.R. No. 64354, this Court upheld the Decision of the Court of Appeals in CA-G.R. No. 10415. They
added that appellee Crisostomo was guilty of forum shopping because the issue of possession had
been "squarely decided" in CA-G.R. No. 10415. They stressed that the contract of lease between Keh
and the usufructuaries prohibited subleasing of the fishpond; that by the receipt dated June 6, 1978, it
was Keh who paid the rental; that appellee Crisostomo was a perjured witness because in the
notebook showing his expenses, the amount of P150,000.00 for rentals does not appear; that the term
of the contract had expired and there was no renewal thereof, and that the consideration of
P150,000.00 was grossly inadequate. They averred that the Court of Appeals erred in awarding
damages that were not prayed for in the second amended complaint and that amounts not specified in
the complaint were awarded as damages. They disclaimed that Atty. Tansinsin was the administrator
of the fishpond.
On October 30, 1992, the Court of Appeals denied the motion for reconsideration for lack of merit. It
ruled that the Decision was not prematurely promulgated "considering that the intervention proceeding
is solely between intervenor and defendants-appellants, which is completely separable and has
nothing to do with the merits of the appeal."
In the instant petition for review on certiorari, petitioners raise six (6) grounds for giving due course to
it. 11 Those grounds may be distilled into the following: (a) the applicability of the principle of res
judicata; (b) the premature promulgation of the Decision of the Court of Appeals, and (c) private

respondent was not a sublesee of the fishpond under the law.

In arguing that the principle of res judicata applies in this case, petitioners rely on the portion of the
Decision 12 of the Court of Appeals in CA-G.R. No. 10415 that states:
We find no basis for declaring respondent Judge guilty of grave abuse of discretion on this regard. The
trial court's finding that petitioner does not appear entitled to any contract or law to retain possession
of the fishpond in question since he is neither an assignee or sub-lessee and, therefore, merely a
stranger to the contract of lease is a finding of fact review of which is not proper in a certiorari
proceedings. Not only is petitioner not a party to the lease agreement over the fishpond in question but
also the very authority upon which he predicates his possession over the fishpond that the
leasehold right of Luis Keh had been assigned to him undoubtedly lacks basis for the very contract
between Luis Keh and the lessors expressly provides
That the lessee cannot sub-lease above-described fishpond nor assign his rights to anyone.
xxx xxx xxx
(Emphasis supplied by petitioners.) 13
Petitioners assert that said Decision of the Court of Appeals which was in effect upheld by this Court
when it denied the petition for review on certiorari in G.R. No. 64354 (Luis Crisostomo v. Intermediate
Appellate Court), 14 is "res judicata to the issue of possession in this case." 15 However, as expressed
in that quoted portion of the Decision in CA-G.R. No. 10415, the issue of whether private respondent
is an assignee or a sub-lessee "is a finding of fact review of which is not proper in a certiorari
proceeding" or the proceeding in that case.
CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining order previously
issued by the trial court on June 14, 1979. Private respondent filed a special civil action of certiorari
and injunction with preliminary mandatory injunction and/or mandatory restraining order to question
the order of January 11, 1980. Thus, the issue in that petition was whether or not the trial court gravely
abused its discretion in lifting the restraining order. The statement in that Decision of the Court of
Appeals that a writ of preliminary injunction may be denied "if the party applying for it has insufficient
title or interest to sustain it and no claim to an ultimate relief (is) sought" by no means resolved the
issue of who is entitled to possess the fishpond. In denying the petition for certiorari, the Court of
Appeals was simply saying that there was no reason to restore private respondent to the possession
of the fishpond pursuant to the restraining order that he had earlier obtained. The issue of possession
was collaterally discussed only to resolve the propriety of the lifting of the restraining order based on
evidence available at that time. Hence, there was no judgment on the merits in the main case or in
Civil Case No. 5610-M. Simply put, the Decision in CA-G.R. No. 10415 involves an interlocutory order
on the propriety of the lifting of the restraining order and not a judgment on the merits of Civil Case No.
5610-M.
For res judicata to apply, the following requisites must concur: (a) the former judgment must be final;
(b) the court which rendered it had jurisdiction over the subject matter and the parties; (c) the
judgment must be on the merits, and (d) there must be between the first and second actions identity of
parties, subject matter and causes of action. 16 The Decision in CA-G.R. No. 10415 having resolved
only an interlocutory matter, the principle of res judicata cannot be applied in this case. There can be
no res judicata where the previous order in question was not an order or judgment determinative of an
issue of fact pending before the court but was only an interlocutory order because it required the
parties to perform certain acts for final adjudication. 17 In this case, the lifting of the restraining order
paved the way for the possession of the fishpond on the part of petitioners and/or their representatives
pending the resolution of the main action for injunction. In other words, the main issue of whether or
not private respondent may be considered a sublessee or a transferee of the lease entitled to possess
the fishpond under the circumstances of the case had yet to be resolved when the restraining order
was lifted.

Petitioners assail the Court of Appeals' Decision as "premature" and therefore null and void, because
prior to the promulgation of that Decision, private respondent-intervenor Vicente Asuncion failed to
furnish them with a copy of his brief the assignment of errors of which allegedly "directly" affected their
rights and interests. 18 While it is true that petitioners were deprived of the opportunity to contravene
the allegations of the intervenor in his brief, that fact can not result in the nullity of the Decision of the
Court of Appeals. 19 Vicente Asuncion intervened pro interesse suo or "according to his interest." 20
Intervention pro interessse suo is a mode of intervention in equity wherein a stranger desires to
intervene for the purpose of asserting a property right in the res, or thing, which is the subject matter of
the litigation, without becoming a formal plaintiff or defendant, and without acquiring control over the
course of a litigation, which is conceded to the main actors therein. 21 In this case, intervenor Vicente
Asuncion aimed to protect his right as a usufructuary. Inasmuch as he has the same rights and
interests as petitioner Juan Perez, any judgment rendered in the latter's favor entitled him to assert his
right as such usufructuary against his co-usufructuary. Should said intervenor claim his share in the
usufruct, no rights of the petitioners other than those of Juan Perez would be prejudiced thereby.
Worth noting is the fact that after the trial court had allowed Vicente Asuncion's intervention pro
interesse suo, petitioner Juan Perez filed a petition for certiorari docketed as CA-G.R. No. 13519 to
set aside the order denying his motion to dismiss the pleading in intervention. In its Decision of
January 27, 1988, the Seventh Division of the Court of Appeals 22 denied the petition for certiorari for
lack of merit. It upheld the trial court's ruling to allow the intervention pro interesse suo to protect
Vicente Asuncion's right as a co-usufructuary in the distribution or disposition of the amounts
representing the rentals that were deposited with the court. That Vicente Asuncion had filed Civil Case
No. 8215-M seeking recovery of his alleged share in the fruits of the Papaya Fishpond from 1978
would not be a reason for the dismissal of the motion for intervention pursuant to Rule 16, Sec. 1 (e) of
the Rules of Court. 23 The Court of Appeals explained as follows:
Indeed, if by means of intervention a stranger to a lawsuit is permitted to intervene without thereby
becoming a formal plaintiff or defendant (Joaquin v. Herrera, 37 Phil. 705, 723 [1918]), then there is in
the case at bar no identity of parties to speak of. Lis pendens as a ground for a motion to dismiss
requires as a first element identity of parties in the two cases.
Nor is there an identity of relief sought. Civil Case No. 8295-M seeks an accounting of the proceeds of
the fishpond while Civil Case No. 5610-M is for injunction to prevent the petitioner from retaking the
fishpond from Luis Crisostomo. The herein private respondent sought to intervene in the latter case
simply to protect his right as usufructuary in the money deposited in the court by the plaintiff Luis
Crisostomo. We hold that in allowing the intervention in this case the trial court acted with prudence
and exercised its discretion wisely. 24
Unconvinced by the Court of Appeals' Decision in CA-G.R. SP No. 13519, petitioner Juan Perez filed a
petition for review on certiorari with this Court under G.R. No. 82096. On May 9, 1988, this Court
denied the petition on the grounds that the issues raised are factual and that there is no sufficient
showing that the findings of the respondent court are not supported by substantial evidence or that the
court had committed any reversible error in the questioned judgment. 25 The Resolution of the Court
dated May 9, 1988 became final and executory on August 26, 1988. 26
Moreover, granting that the intervention be considered as Vicente Asuncion's "appeal," a litigant's
failure to furnish his opponent with a copy of his appeal does not suffice to warrant dismissal of that
appeal. In such an instance, all that is needed is for the court to order the litigant to furnish his
opponent with a copy of his appeal. 27 This is precisely what happened in this case. On May 13, 1992,
the Court of Appeals issued a Resolution directing counsel for intervenor to furnish herein petitioners
with a copy of intervenor Vicente Asuncion's brief within a 10-day period. It also granted petitioners an
opportunity to file a reply-brief or memorandum and the intervenor, a reply to said memorandum. 28

That Resolution is proper under the premises because, by the nature of an intervention pro interesse
suo, it can proceed independently of the main action. Thus, in the Resolution of October 30, 1992, in
resolving the issue of the alleged prematurity of its Decision, the Court of Appeals held that "the
proceeding is solely between intervenor and defendants-appellants, which is completely separable
and has nothing to do with the merits of the appeal." 29
At the hearing of Civil Case No. 5610-M, petitioner Juan Perez attempted to establish the death on
October 14, 1979 of Jorge Lorenzo, 30 the usufructuary from whom Vicente Asuncion derived his right
to intervene pro interesse suo. Since under Article 603 of the Civil Code a usufruct is extinguished "by
the death of the usufructuary, unless a contrary intention clearly appears," there is no basis by which
to arrive at the conclusion that the usufruct originally exercised by Jorge Lorenzo has indeed been
extinguished or, on the contrary, has survived Lorenzo's demise on account of provisions in the
document constituting the usufruct. That matter is best addressed in Civil Case No. 8215-M wherein
Vicente Asuncion seeks his share as a transferee of the usufruct established for Jorge Lorenzo. All
that is discussed here is the matter of intervention pro interesse suo vis-a-vis the issue of prematurity
of the Decision of the Court of Appeals.
Petitioners' principal argument against the Court of Appeals' Decision in favor of private respondent
Crisostomo is that he could not have been an assignee or sub-lessee of the fishpond because no
contract authorized him to be so. Petitioners' argument is anchored on factual issues that, however,
have no room for discussion before this Court. It is well-entrenched doctrine that questions of fact are
not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal
is confined to questions of law. 31 Factual findings of the Court of Appeals are conclusive on the parties
and carry even more weight when said court affirms the factual findings of the trial court. 32
Accordingly, this review shall be limited to questions of law arising from the facts as found by both the
Court of Appeals and the trial court.
Admittedly, the contract between the usufructuaries and petitioner Keh has a provision barring the
sublease of the fishpond. However, it was petitioner Keh himself who violated that provision in offering
the operation of the fishpond to private respondent. Apparently on account of private respondent's
apprehensions as regards the right of petitioners Keh and Lee to transfer operation of the fishpond to
him, on January 9, 1978, petitioner Keh executed a document ceding and transferring his rights and
interests over the fishpond to petitioner Lee. That the same document might have been a ruse to
inveigle private respondent to agree to their proposal that he operate the fishpond is of no moment.
The fact is, petitioner Keh did transfer his rights as a lessee to petitioner Lee in writing and that, by
virtue of that document, private respondent acceded to take over petitioner Keh's rights as a lessee of
the fishpond.
Although no written contract to transfer operation of the fishpond to private respondent was offered in
evidence, 33 the established facts further show that petitioner Juan Perez and his counsel, petitioner
Tansinsin, knew of and acquiesced to that arrangement by their act of receiving from the private
respondent the rental for 1978-79. By their act of receiving rental from private respondent through the
peculiarly written receipt dated June 6, 1978, petitioners Perez and Tansinsin were put in estoppel to
question private respondent's right to possess the fishpond as a lessee. Estoppel in pais arises when
one, by his acts, representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to
deny the existence of such facts. 34
Nevertheless, we hesitate to grant private respondent's prayer that he should be restored to the
possession of the fishpond as a consequence of his unjustified ejectment therefrom. To restore
possession of the fishpond to him would entail violation of contractual obligations that the
usufructuaries have entered into over quite a long period of time now. Supervening events, such as

the devaluation of the peso as against the dollar as well as the addition of improvements in the
fishpond that the succeeding lessees could have introduced, have contributed to the increase in rental
value of the property. To place private respondent in the same position he was in before the lifting of
the restraining order in 1980 when he was deprived the right to operate the fishpond under the
contract that already expired in 1985 shall be to sanction injustice and inequity. This Court, after all,
may not supplant the right of the usufructuaries to enter into contracts over the fishpond through this
Decision. Nonetheless, under the circumstances of the case, it is but proper that private respondent
should be properly compensated for the improvements he introduced in the fishpond.1wphi1.nt
Art. 1168 of the Civil Code provides that when an obligation "consists in not doing and the obligor does
what has been forbidden him, it shall also be undone at his expense." The lease contract prohibited
petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into the agreement for
pakiao-buwis with private respondent, not to mention the apparent artifice that was his written
agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly what was prohibited of
him under the contract to sublease the fishpond to a third party. That the agreement for pakiaobuwis was actually a sublease is borne out by the fact that private respondent paid petitioners Luis
Keh and Juan Perez, through petitioner Tansinsin the amount of annual rental agreed upon in the
lease contract between the usufructuaries and petitioner Keh. Petitioner Keh led private respondent to
unwittingly incur expenses to improve the operation of the fishpond. By operation of law, therefore,
petitioner Keh shall be liable to private respondent for the value of the improvements he had made in
the fishpond or for P486,562.65 with interest of six percent (6%) per annum from the rendition of the
decision of the trial court on September 6, 1989. 35
The law supports the awards of moral and exemplary damages in favor of private respondent and
against the petitioners. Their conspiratorial scheme to utilize private respondent's expertise in the
operation of fishponds to bail themselves out of financial losses has been satisfactorily established to
warrant a ruling that they violated Article 21 of the Civil Code and therefore private respondent should
be entitled to an award of moral damages. Article 21 states that "(a)ny person who wilfully causes loss
or injury to another in a manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage." Exemplary damages shall likewise be awarded pursuant to
Article 2229 of the Civil Code. 36 Because private respondent was compelled to litigate to protect his
interest, attorney's fees shall also be awarded. 37
WHEREFORE, in light of the foregoing premises, the decision of the Court of Appeals is AFFIRMED
insofar as it (a) directs the release to private respondent of the amounts of P128,572.00 and
P123,993.85 deposited with the Paluwagan ng Bayan Savings Bank in Paombong, Bulacan and (b)
requires private respondent Crisostomo to pay petitioner Juan Perez the rental for the period June
1979 to January 1980 at the rate of P150,000.00 per annum less the amount of P21,428.00 already
paid to usufructuary Maria Perez. It should, however, be subject to the MODIFICATIONS that:
1. Petitioner Luis Keh shall pay private respondent Luis Crisostomo in the amount of P486,562.25 with
legal interest from the rendition of the judgment in Civil Case No. 5610-M or on September 6, 1989,
and
2. Petitioners be made liable jointly and severally liable for moral damages of P50,000.00, exemplary
damages of P20,000 and attorney's fees of P10,000.00.
No costs.
SO ORDERED.
G.R. No. 81551 April 27, 1989
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,
vs.
PHILIPPINE NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) AND NICOLAS
SACEDA, respondents.

Apolo, Anasco & Associates for petitioner.

The Solicitor General for public respondent.
Citizens Legal Assistance Office for private respondent.
GRIO-AQUINO, J.:
Assailed in this petition for certiorari is the resolution promulgated on November 16, 1987 by the
NLRC in POEA CASE NO. (L) 84-07-660 affirming the decision of the POEA Officer-In-Charge,
Honesto Cueva, who granted private respondent Nicolas Saceda's claims for stand-by pay and
withheld allotments. The following undisputed facts were lifted from the Solicitor General's Comment
on the petition:
1. In the first week of December, 1981, petitioner Philippine National Construction Corporation
(hereinafter called PNCC), a duly registered construction company, through its predecessor-in-interest
Construction and Development Corporation of the Philippines (CDCP), hired private respondent
Nicolas L. Saceda as HT Driver I (Actg. Scraper Operator) for its Suyallil North Port road project in the
Kingdom of Saudi Arabia. Respondent Saceda was hired at an hourly rate of US$1.55 for 24 months
contract period to be effective upon his departure. He left the Philippines on January 8, 1982.
2. On January 8, 1984, private respondent Saceda completed his two (2) years overseas contract.
However, it was extended by petitioner up to January 27, 1984.
3. On February 9,1984,private respondent was dispatched to Jeddah, Saudi Arabia for immediate
repatriation to the Philippines. He was first booked for departure on February 21, 1984.
4. However, private respondent refused to depart because he wanted to await the final disposition on
the complaint he filed against petitioner PNCC for payment of his completion bonus, unused
vacation/sick leave and unpaid wages from December 1, 1983 up to January 27, 1984. The decision
of the Saudi labor authorities which was favorable to private respondent was rendered on March 24,
1984. Private respondent agreed to be repatriated on March 27, 1984, after petitioner PNCC paid him
the award granted by the Saudi labor authorities.
5. Upon his arrival in the Philippines, private respondent Saceda found out that the allotment
representing 70% of his salary for the period November 16,1983 to January 15,1984, amounting to
$408.00 was not paid by petitioner PNCC to bis designated beneficiary in the Philippines. Despite
repeated demands, petitioner failed to pay said claim without justifiable reason.
6. On August l6,1984,private respondent Saceda filed a complaint with the Workers Adjudication and
Assistance Office, Philippine Overseas Employment Administration (POEA), docketed as POEA Case
No. L-84- 07-660, for non-payment of withheld salary/allotment and stand-by pay corresponding to the
period January 27, 1984 to March 27,1984 in the sum of US$744.00. He claimed that he was not
repatriated soon upon the termination of his contract but was made to wait and remain Idle for two
months. (pp. 27-29, Rollo.)
On April 30, 1986, Honesto Cueva, officer-in-charge of the POEA, rendered a decision, the dispositive
portion of which reads as follows:
WHEREFORE, in view of the foregoing considerations, this Office hereby ordered herein respondent
Philippine National Construction Corporation (PNCC) to pay herein complainant Nicolas Saceda the
peso equivalent based on the prevailing exchange rate at the time of actual payment of the following
amounts:
1. US$206.40 representing stand-by pay for the period covered from January 27, 1984 to February 21,
1984;

2. US$408.00 representing the withheld allotment within ten (10) calendar days upon receipt of this
DECISION." (Annex A, pp. 8, 13, Rollo.)
As mentioned earlier, the NLRC affirmed the above decision of the POEA in toto.
In its petition for certiorari, the petitioner questions only the award of stand- by pay to Saceda for being
allegedly devoid of legal basis.
The petition has no merit.
The legal basis of the NLRC's award of "stand-by" pay to Saceda during the period that he was made
to wait while his employer worked for the ticketing, booking and processing of his exit visa and travel
documents for his return trip to the Philippines, is the employment contract. Under the contract, the
PNCC was obliged to notify the employee "two months before the end of the term of the contract"
whether his contract would be extended or he would be repatriated. Within that two-month period, the
employer, which keeps in its possession the employee's passport and travel documents for the
duration of his employment, is supposed to work for the ticketing and processing of the employee's
travel documents so that he may immediately return to the Philippines upon the expiration of his
contract.
Petitioner alleged that it takes at least one month to have travel papers processed by the Saudi
Arabian authorities. Clearly, the two-month period stipulated in the contract is more than enough for
the purpose. Hence, petitioner alone is to blame for its failure to obtain Saceda's travel papers within
the two-month period before his contract came to an end. Since it was through its fault that Saceda's
departure was delayed, it must give him stand-by pay.
The stand-by compensation which the employer is required to pay the employee while the latter waits
for his travel papers, is actually the damages caused to him by the employer's delay in getting his
travel papers ready. As correctly pointed out by the Solicitor General in his Comment, the basis of the
employer's liability for such damages is Article 1170 of the Civil Code which provides:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
As it was the petitioners obligation to get Saceda's travel documents ready for his repatriation to the
Philippines upon the termination of his overseas contract, the petitioner must answer in damages for
the delay in Saceda's departure which compelled him to "stand-by," idle and jobless in a foreign land,
while waiting for his employer to hand him his ticket and travel papers for his trip home. The measure
of those damages is the income he could have earned if he were repatriated promptly in order that he
could work again in his country.
The fact that Saceda refused to depart on February 21, 1984 because he wanted to wait for the
outcome of the complaint which he filed against petitioner for the payment of his completion bonus,
unused vacation/sick leaves, and unpaid wages from December 1, 1983 up to January 27, 1984
(when his extended contract of employment expired) does not shift to him the blame for his delayed
departure, for, as it turned out, his suit was justified. The decision promulgated by the Saudi Labor
Authorities on March 24,1984 upheld his claims.
Since Saceda was compelled to litigate by reason of the petitioner's unjust refusal to pay his valid and
demandable claims, the petitioner is answerable for the damages he suffered by having to stay on to
see his case through. The petitioner should, therefore, pay him stand-by compensation from January
28, 1984 up to March 27, 1984 when he was repatriated after the petitioner paid the judgment in his
favor.

WHEREFORE, the petition is dismissed. As above modified, We affirm the decision of the NLRC in
POEA Case No. (L) 84-07-660, with costs against the petitioner.
SO ORDERED.
G.R. No. 98695 January 27, 1993
JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and
ANTHONY C. SYQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC.,
respondents.
Pacis & Reyes Law Offices for petitioners.
Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.
CAMPOS, JR., J.:
Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and
Anthony Syquia, were the parents and siblings, respectively, of the deceased Vicente Juan Syquia. On
March 5, 1979, they filed a complaint 1 in the then Court of First Instance against herein private
respondent, Manila Memorial Park Cemetery, Inc. for recovery of damages arising from breach of
contract and/or quasi-delict. The trial court dismissed the complaint.
The antecedent facts, as gathered by the respondent Court, are as follows:
On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants
herein, filed a complaint for damages against defendant-appellee, Manila Memorial Park Cemetery,
Inc.
The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated
August 27, 1969 and Interment Order No. 7106 dated July 21, 1978 executed between plaintiffappellant Juan J. Syquia and defendant-appellee, the former, father of deceased Vicente Juan J.
Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the Manila
Memorial Park Cemetery in the morning of July 25, 1978 conformably and in accordance with
defendant-appellant's (sic) interment procedures; that on September 4, 1978, preparatory to
transferring the said remains to a newly purchased family plot also at the Manila Memorial Park
Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche
underground with the assistance of certain employees of defendant-appellant (sic); that as the
concrete vault was being raised to the surface, plaintiffs-appellants discovered that the concrete vault
had a hole approximately three (3) inches in diameter near the bottom of one of the walls closing out
the width of the vault on one end and that for a certain length of time (one hour, more or less), water
drained out of the hole; that because of the aforesaid discovery, plaintiffs-appellants became agitated
and upset with concern that the water which had collected inside the vault might have risen as it in fact
did rise, to the level of the coffin and flooded the same as well as the remains of the deceased with ill
effects thereto; that pursuant to an authority granted by the Municipal Court of Paraaque, Metro
Manila on September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians and
certain personnel of defendant-appellant (sic) caused the opening of the concrete vault on September
15, 1978; that upon opening the vault, the following became apparent to the plaintiffs-appellants: (a)
the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin was entirely
damaged by water, filth and silt causing the wooden parts to warp and separate and to crack the
viewing glass panel located directly above the head and torso of the deceased; (c) the entire lining of
the coffin, the clothing of the deceased, and the exposed parts of the deceased's remains were
damaged and soiled by the action of the water and silt and were also coated with filth.
Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver
a defect-free concrete vault designed to protect the remains of the deceased and the coffin against the

elements which resulted in the desecration of deceased's grave and in the alternative, because of
defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in failing to
seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee
to pay plaintiffs-appellants P30,000.00 for actual damages, P500,000.00 for moral damages,
exemplary damages in the amount determined by the court, 20% of defendant-appellee's total liability
as attorney's fees, and expenses of litigation and costs of suit. 2
In dismissing the complaint, the trial court held that the contract between the parties did not guarantee
that the cement vault would be waterproof; that there could be no quasi-delict because the defendant
was not guilty of any fault or negligence, and because there was a pre-existing contractual relation
between the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also noted
that the father himself, Juan Syquia, chose the gravesite despite knowing that said area had to be
constantly sprinkled with water to keep the grass green and that water would eventually seep through
the vault. The trial court also accepted the explanation given by defendant for boring a hole at the
bottom side of the vault: "The hole had to be bored through the concrete vault because if it has no
hole the vault will (sic) float and the grave would be filled with water and the digging would caved (sic)
in the earth, the earth would caved (sic) in the (sic) fill up the grave." 3
From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the
contract allowed the flooding of the vault; that there was no desecration; that the boring of the hole
was justifiable; and in not awarding damages.
The Court of Appeals in the Decision 4 dated December 7, 1990 however, affirmed the judgment of
dismissal. Petitioner's motion for reconsideration was denied in a Resolution dated April 25, 1991. 5
Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege
herein that the Court of Appeals committed the following errors when it:
1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of
the vault and the entrance thereto of filth and silt;
2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of
desecration was committed;
3. overlooked and refused to consider relevant, undisputed facts, such as those which have been
stipulated upon by the parties, testified to by private respondent's witnesses, and admitted in the
answer, which could have justified a different conclusion;
4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence;
and
5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and
exemplary damages, and attorney's fees.
At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of
the deceased kin of the bereaved petitioners. The latter allege that such act was either a breach of
private respondent's contractual obligation to provide a sealed vault, or, in the alternative, a negligent
act which constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of negligence
private respondent has committed, the latter is liable for desecrating the grave of petitioners' dead.
In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery,
Inc., breached its contract with petitioners; or, alternatively, whether private respondent was guilty of a
tort.
We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are

more inclined to answer the foregoing questions in the negative. There is not enough ground, both in
fact and in law, to justify a reversal of the decision of the respondent Court and to uphold the pleas of
the petitioners.
With respect to herein petitioners' averment that private respondent has committed culpa aquiliana,
the Court of Appeals found no negligent act on the part of private respondent to justify an award of
damages against it. Although a pre-existing contractual relation between the parties does not preclude
the existence of a culpa aquiliana, We find no reason to disregard the respondent's Court finding that
there was no negligence.
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict . . . . (Emphasis supplied).
In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc.,
entered into a contract entitled "Deed of Sale and Certificate of Perpetual Care" 6 on August 27, 1969.
That agreement governed the relations of the parties and defined their respective rights and
obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park
Cemetery, Inc., it would be held liable not for a quasi-delict or culpa aquiliana, but for culpa contractual
as provided by Article 1170 of the Civil Code, to wit:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.
The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the
interment. Rule 17 of the Rules and Regulations of private respondent provides that:
Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone,
brick or concrete, the actual installment of which shall be made by the employees of the Association. 7
Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day
before the interment, and was, on the same day, installed by private respondent's employees in the
grave which was dug earlier. After the burial, the vault was covered by a cement lid.
Petitioners however claim that private respondent breached its contract with them as the latter held
out in the brochure it distributed that the . . . lot may hold single or double internment (sic)
underground in sealed concrete vault." 8 Petitioners claim that the vault provided by private respondent
was not sealed, that is, not waterproof. Consequently, water seeped through the cement enclosure
and damaged everything inside it.
We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and
in the Rules and Regulations of the Manila Memorial Park Cemetery, Inc. that the vault would be
waterproof. Private respondent's witness, Mr. Dexter Heuschkel, explained that the term "sealed"
meant "closed." 9 On the other hand, the word "seal" is defined as . . . any of various closures or
fastenings . . . that cannot be opened without rupture and that serve as a check against tampering or
unauthorized opening." 10 The meaning that has been given by private respondent to the word
conforms with the cited dictionary definition. Moreover, it is also quite clear that "sealed" cannot be
equated with "waterproof". Well settled is the rule that when the terms of the contract are clear and
leave no doubt as to the intention of the contracting parties, then the literal meaning of the stipulation
shall control. 11 Contracts should be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. 12 As ruled by the respondent Court:
When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the
attached Rules and Regulations (Exhibit "1"), it can be assumed that he has accepted defendant-

appellee's undertaking to merely provide a concrete vault. He can not now claim that said concrete
vault must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of
their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of
Appeals, et al. 178 SCRA 739). Where there is nothing in the contract which is contrary to law, morals,
good customs, public order, or public policy, the validity of the contract must be sustained (Phil.
American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting
party cannot incur a liability more than what is expressly specified in his undertaking. It cannot be
extended by implication, beyond the terms of the contract (Rizal Commercial Banking Corporation vs.
Court of Appeals, supra). And as a rule of evidence, where the terms of an agreement are reduced to
writing, the document itself, being constituted by the parties as the expositor of their intentions, is the
only instrument of evidence in respect of that agreement which the law will recognize, so long as its
(sic) exists for the purpose of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68
cited in Francisco, Revised Rules of Court in the Phil. p. 153, 1973 Ed.). And if the terms of the
contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning
of its stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank
& Trust Co. vs. Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13
We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias.
While this may be so, can private respondent be liable for culpa aquiliana for boring the hole on the
vault? It cannot be denied that the hole made possible the entry of more water and soil than was
natural had there been no hole.
The law defines negligence as the "omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of the time and of the place." 14 In
the absence of stipulation or legal provision providing the contrary, the diligence to be observed in the
performance of the obligation is that which is expected of a good father of a family.
The circumstances surrounding the commission of the assailed act boring of the hole negate the
allegation of negligence. The reason for the act was explained by Henry Flores, Interment Foreman,
who said that:
Q It has been established in this particular case that a certain Vicente Juan Syquia was interred on
July 25, 1978 at the Paraaque Cemetery of the Manila Memorial Park Cemetery, Inc., will you please
tell the Hon. Court what or whether you have participation in connection with said internment (sic)?
A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning
a vault was taken and placed in the grave and when the vault was placed on the grave a hole was
placed on the vault so that water could come into the vault because it was raining heavily then
because the vault has no hole the vault will float and the grave would be filled with water and the
digging would caved (sic) in and the earth, the earth would (sic) caved in and fill up the grave. 15
(Emphasis ours)
Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall,
from the above-mentioned explanation, private respondent has exercised the diligence of a good
father of a family in preventing the accumulation of water inside the vault which would have resulted in
the caving in of earth around the grave filling the same with earth.
Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award
damages in favor of petitioners.
In the light of the foregoing facts, and construed in the language of the applicable laws and
jurisprudence, We are constrained to AFFIRM in toto the decision of the respondent Court of Appeals
dated December 7, 1990. No costs.
SO ORDERED.

G.R. No. 96505 July 1, 1993

LEGASPI OIL CO., INC., petitioner,
vs.
THE COURT OF APPEALS and BERNARD OSERAOS, respondent.
Duran, Lanuzo & Associates for petitioner.
Leovigildo Mijares III for private respondent.
MELO, J.:
The petition for review on certiorari before us seeks to set aside the decision dated March 23, 1990 of
the Court of Appeals in CA-G.R. CV No. 05828, penned by the Honorable Justice Abelardo Dayrit with
whom Justices Javellana and Kalalo concurred, which dismissed petitioner's complaint for damages
(p. 48, Rollo).
Petitioner does not dispute the facts of the case, as found by respondent Court of Appeals. The
findings of the respondent Court are thus adopted, to wit:
From the evidence presented by the plaintiff-appellee [now petitioner Legaspi Oil Company, Inc.], it
appears that defendant-appellant [now private respondent Bernard Oseraos] acting through his
authorized agents, had several transactions with appellee Legaspi Oil Co. for the sale of copra to the
latter. The price at which appellant sells the copra varies from time to time, depending on the
prevailing market price when the contract is entered into. One of his authorized agents, Jose Llover,
had previous transactions with appellee for the sale and delivery of copra. The records show that he
concluded a sale for 70 tons of copra at P95.00 per 100 kilos on May 27, 1975 (Exhibit G-5) and
another sale for 30 tons of P102.00 per 100 kilos on September 23, 1975 (Exhibit G-3). Subsequently,
on November 6, 1975, another designated agent signed a contract in behalf of appellant for the sale of
100 tons of copra at P79.00 per 100 kilos with the delivery terms of 25 days effective December 15,
1975 (Exhibit G-2). At this point, it must be noted that the price of copra had been fluctuating (going up
and down), indicating its unsteady position in the market.
On February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for the sale of 100 tons
of copra at P82.00 per 100 kilos with delivery terms of 20 days effective March 8, 1976 (Exhibit G, for
the plaintiff). As compared to appellant's transaction on November 6, 1975, the current price agreed
upon is slightly higher than the last contract. In all these contracts though, the selling price had always
been stated as "total price" rather than per 100 kilos. However, the parties had understood the same
to be per 100 kilos in their previous transactions.
After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance
of 53,666 kilos as per running account card (Exhibit "F"). Accordingly, demands were made upon
appellant to deliver the balance with a final warning embodied in a letter dated October 6, 1976, that
failure to deliver will mean cancellation of the contract, the balance to be purchased at open market
and the price differential to be charged against appellant. On October 22, 1976, since there was still
no compliance, appellee exercised its option under the contract and purchased the undelivered
balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of
P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.
(pp. 43-44, Rollo)
On November 3, 1976, petitioner filed a complaint against private respondent for breach of a contract
and for damages.
After trial, the then Court of First Instance (now Regional Trial Court) of Albay in Civil Case No. 5529
rendered a decision holding herein private respondent (then defendant) Oseraos liable for damages in
the amount of P48,152.76, attorney's fees (P2,000), and litigation costs.

Oseraos appealed to respondent Court which thereafter rendered a reversal decision on March 23,
1990, ordering the dismissal of the complaint.
Hence, the instant petition for review on certiorari.
The sole issued posed by the petition is whether or not private respondent Oseraos is liable for
damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by
the parties.
After a review of the case, we believe and thus hold, that private respondent is guilty of fraud in the
performance of his obligation under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976. However within the
delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving an undelivered
balance of 53,666 kilograms. Petitioner made repeated demands upon private respondent to comply
with his contractual undertaking to deliver the balance of 53,666 kilograms but private respondent
elected to ignore the same. In a letter dated October 6, 1976, petitioner made a final demand with a
warning that, should private respondent fail to complete delivery of the balance of 53,666 kilograms of
copra, petitioner would purchase the balance at the open market and charge the price differential to
private respondent. Still private respondent failed to fulfill his contractual obligation to deliver the
remaining 53,666 kilograms of copra. On October 22, 1976, since there was still no compliance by
private respondent, petitioner exercised its right under the contract and purchased 53,666 kilograms of
copra, the undelivered balance, at the open market at the then prevailing price of P168.00 per 100
kilograms, a price differential of P86.00 per 100 kilograms or a total price differential of P46,152.76.
Under the foregoing undisputed circumstances, the actuality of private respondent's fraud cannot be
gainsaid. In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull
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 of the Philippines is the deliberate and
intentional evasion of the normal fulfillment of obligation; it is distinguished from negligence by the
presence of deliberate intent, which is lacking in the latter (Tolentino's Civil Code of the Philippines,
Vol. IV, p. 110). The conduct of private respondent clearly manifests his deliberate fraudulent intent to
evade his contractual obligation for the price of copra had in the meantime more than doubled from
P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines, those who
in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages. Pursuant to said article, private
respondent is liable for damages.
The next point of inquiry, therefore, is the amount of damages which private respondent is liable to pay
petitioner. As aforementioned, on account of private respondent's deliberate breach of his contractual
obligation, petitioner was compelled to buy the balance of 53,666 kilos of copra in the open market at
the then prevailing price of P168 per 100 kilograms thereby paying P46,152.76 more than he would
have paid had private respondent completed delivery of the copra as agreed upon. Thus, private
respondent is liable to pay respondent the amount of P46,152.76 as damages. In case of fraud, bad
faith, malice, or wanton attitude, the guilty party is liable for all damages which may be reasonably
attributed to the non performance of the obligation (Magat vs. Medialdea, 121 SCRA 418 [1983]).
Article 1101 of the old Civil Code, later to be reproduced as Article 1170 of our present Civil Code, was
the basis of our decision in an old case, Acme Films, Inc. vs. Theaters Supply Corporation, (63 Phil,
657 [1936]), wherein we held:
It is not denied that the plaintiff company failed to supply the defendant with the cinematographic films
which were the subject matter of the contracts entered into on March 20, 1934 (Exhibits 1 and 2), and
two films under the contract of March 24, 1934 (Exhibit 3), one of said films being a serial entitled
"Whispering Shadow". Guillermo Garcia Bosque testified that because the plaintiff company had failed

to supply said films, the defendants had to resort to the Universal Pictures Corporation and ask for
films to replace those which said plaintiff had failed to supply under the contract, having had to pay
therefor five per cent more than for those films contracted with said plaintiff Acme Films, Inc., and that
the total cost thereof, including the printing of programs, posters paraded through the streets with
bands of music to announce the showing of the films which the plaintiff company failed to supply,
amount to from P400 to P550. The plaintiff company did not submit evidence to rebut the testimony of
said witness and the fact that the estimate of the expenses is approximate does not make said
estimate inadmissible. It was incumbent upon the plaintiff company to submit evidence in rebuttal, or
at least ascertain the amount of the different items in cross-examination. There being no evidence to
the contrary, it is logical to admit that the defendant company spent at least the sum of P400.
Inasmuch as the plaintiff company had failed to comply with a part of its booking contract, and as the
defendant company had suffered damages as a result thereof, the former is liable to indemnify the
damages caused to the latter, in accordance with the provisions of Article 1101 of the Civil Code.
(at page 663.)
WHEREFORE, the instant petition is hereby GRANTED. The decision of the respondent Court of
Appeals in CA-G.R. CV No. 05828 is ANNULLED and SET ASIDE and the decision of the trial court in
Civil Case No. 5529 REINSTATED, with costs against private respondent.
SO ORDERED.
G.R. No. 190601
February 7, 2011
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, Petitioners,
vs.
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the name of
SHANGRI-LA HOTEL MANILA, Respondent.
DECISION
CARPIO MORALES, J.:
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and Anna Hernandez-Guanio
(petitioners) booked at the Shangri-la Hotel Makati (the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent) scheduled an initial food
tasting. Petitioners claim that they requested the hotel to prepare for seven persons the two of them,
their respective parents, and the wedding coordinator. At the scheduled food tasting, however,
respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns and angel hair pasta with
wild mushroom sauce for the main course which cost P1,000.00 per person. They were, however,
given an option in which salmon, instead of king prawns, would be in the menu at P950.00 per person.
They in fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver that the salmon served
was half the size of what they were served during the initial food tasting; and when queried about it,
the hotel quoted a much higher price (P1,200.00) for the size that was initially served to them. The
parties eventually agreed on a final price P1,150 per person.
A day before the event or on July 27, 2001, the parties finalized and forged their contract.1
Petitioners claim that during the reception, respondents representatives, Catering Director Bea
Marquez and Sales Manager Tessa Alvarez, did not show up despite their assurance that they would;
their guests complained of the delay in the service of the dinner; certain items listed in the published
menu were unavailable; the hotels waiters were rude and unapologetic when confronted about the

delay; and despite Alvarezs promise that there would be no charge for the extension of the reception
beyond 12:00 midnight, they were billed and paid P8,000 per hour for the three-hour extension of the
event up to 4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with their open bar
arrangement, but these were not served to the guests who were forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and Resort, Inc. (respondent)
and received an apologetic reply from Krister Svensson, the hotels Executive Assistant Manager in
charge of Food and Beverage. They nevertheless filed a complaint for breach of contract and
damages before the Regional Trial Court (RTC) of Makati City.
In its Answer, respondent claimed that petitioners requested a combination of king prawns and
salmon, hence, the price was increased to P1,200.00 per person, but discounted at P1,150.00; that
contrary to petitioners claim, Marquez and Alvarez were present during the event, albeit they were not
permanently stationed thereat as there were three other hotel functions; that while there was a delay
in the service of the meals, the same was occasioned by the sudden increase of guests to 470 from
the guaranteed expected minimum number of guests of 350 to a maximum of 380, as stated in the
Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service Director, in fact relayed the
delay in the service of the meals to petitioner Luigis father, Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed it to the insistence of
petitioners wedding coordinator that certain guests be served first.
On Svenssons letter, respondent, denying it as an admission of liability, claimed that it was meant to
maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered judgment in favor of
petitioners, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against
the defendant ordering the defendants to pay the plaintiff the following:
1) The amount of P350,000.00 by way of actual damages;
2) The amount of P250,000.00 for and as moral damages;
3) The amount of P100,000.00 as exemplary damages;
4) The amount of P100,000.00 for and as attorneys fees.
With costs against the defendant.
SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of Svensson which is partly quoted
below:
Upon receiving your comments on our service rendered during your reception here with us, we are in
fact, very distressed. Right from minor issues pappadums served in the soup instead of the creutons,
lack of valet parkers, hard rolls being too hard till a major one slow service, rude and arrogant
waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received were unacceptable and definitely
not up to our standards. We understand that it is our job to provide excellent service and in this
instance, we have fallen short of your expectations. We ask you please to accept our profound
apologies for causing such discomfort and annoyance. 4 (underscoring supplied)
The trial court observed that from "the tenor of the letter . . . the defendant[-herein respondent] admits

that the services the plaintiff[-herein petitioners] received were unacceptable and definitely not up to
their standards."5
On appeal, the Court of Appeals, by Decision of July 27, 2009, 6 reversed the trial courts decision, it
holding that the proximate cause of petitioners injury was an unexpected increase in their guests:
x x x Hence, the alleged damage or injury brought about by the confusion, inconvenience and disarray
during the wedding reception may not be attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to plaintiffs-appellants, set the
chain of events which resulted in the alleged inconveniences, to the plaintiffs-appellants. Given the
circumstances that obtained, only the Sps. Guanio may bear whatever consequential damages that
they may have allegedly suffered.7 (underscoring supplied)
Petitioners motion for reconsideration having been denied by Resolution of November 19, 2009, the
present petition for review was filed.
The Court finds that since petitioners complaint arose from a contract, the doctrine of proximate cause
finds no application to it:
The doctrine of proximate cause is applicable only in actions for quasi-delicts, not in actions involving
breach of contract. x x x The doctrine is a device for imputing liability to a person where there is no
relation between him and another party. In such a case, the obligation is created by law itself. But,
where there is a pre-existing contractual relation between the parties, it is the parties themselves who
create the obligation, and the function of the law is merely to regulate the relation thus created. 8
(emphasis and underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence or delay,
and those who in any manner contravene the tenor thereof, are liable for damages.
RCPI v. Verchez, et al. 9 enlightens:
In culpa contractual x x x the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force
of contracts, will not permit a party to be set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers
upon the injured party a valid cause for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that may include his "expectation interest,"
which is his interest in having the benefit of his bargain by being put in as good a position as he would
have been in had the contract been performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made; or his "restitution interest," which is his interest
in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless they are made the basis for action. The
effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has
been injured by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability. (emphasis and underscoring in the original;
capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the minimum guaranteed
number of persons contracted for, regardless of under attendance or non-appearance of the expected
number of guests, except where the ENGAGER cancels the Function in accordance with its Letter of

Confirmation with the HOTEL. Should the attendance exceed the minimum guaranteed attendance,
the ENGAGER shall also be billed at the actual rate per cover in excess of the minimum guaranteed
attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before the scheduled date
and time of the Function of any change in the minimum guaranteed covers. In the absence of such
notice, paragraph 4.3 shall apply in the event of under attendance. In case the actual number of
attendees exceed the minimum guaranteed number by ten percent (10%), the HOTEL shall not
in any way be held liable for any damage or inconvenience which may be caused thereby. The
ENGAGER shall also undertake to advise the guests of the situation and take positive steps to
remedy the same.10 (emphasis, italics and underscoring supplied)
Breach of contract is defined as the failure without legal reason to comply with the terms of a contract.
It is also defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole
or part of the contract.11
The appellate court, and even the trial court, observed that petitioners were remiss in their obligation
to inform respondent of the change in the expected number of guests. The observation is reflected in
the records of the case. Petitioners failure to discharge such obligation thus excused, as the abovequoted paragraph 4.5 of the parties contract provide, respondent from liability for "any damage or
inconvenience" occasioned thereby.
As for petitioners claim that respondent departed from its verbal agreement with petitioners, the same
fails, given that the written contract which the parties entered into the day before the event, being the
law between them.
Respecting the letter of Svensson on which the trial court heavily relied as admission of respondents
liability but which the appellate court brushed aside, the Court finds the appellate courts stance in
order. It is not uncommon in the hotel industry to receive comments, criticisms or feedback on the
service it delivers. It is also customary for hotel management to try to smooth ruffled feathers to
preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an
opponent whose admissions have been offered against him may offer any evidence which serves as
an explanation for his former assertion of what he now denies as a fact.
Respondents Catering Director, Bea Marquez, explained the hotels procedure on receiving and
processing complaints, viz:
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of the concern and that there was-the
first letter there was an acknowledgment of the concern and an apology, not necessarily indicating that
such or admitting fault?
A Yes.
Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001, previously marked as plaintiffs exhibits,
Your Honor. What is the procedure of the hotel with respect to customer concern?
A Upon receipt of the concern from the guest or client, we acknowledge receipt of such concern, and
as part of procedure in service industry particularly Makati Shangri-la we apologize for whatever
inconvenience but at the same time saying, that of course, we would go through certain investigation
and get back to them for the feedback with whatever concern they may have.
Q Your Honor, I just like at this point mark the exhibits, Your Honor, the letter dated August 4, 2001

identified by the witness, Your Honor, to be marked as Exhibit 14 and the signature of Mr. Krister
Svensson be marked as Exhibit 14-A.13
xxxx
Q In your opinion, you just mentioned that there is a procedure that the hotel follows with respect to
the complaint, in your opinion was this procedure followed in this particular concern?
A Yes, maam.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the concern of the client in this case and
we did emphatize from the client and apologized, and at the same time got back to them in whatever
investigation we have.
Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in the service industry, it is a practice
that we apologize if there is any inconvenience, so the purpose for apologizing is mainly to show
empathy and to ensure the client that we are hearing them out and that we will do a better
investigation and it is not in any way that we are admitting any fault.14 (underscoring supplied)
To the Court, the foregoing explanation of the hotels Banquet Director overcomes any presumption of
admission of breach which Svenssons letter might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent could have managed the
"situation" better, it being held in high esteem in the hotel and service industry. Given respondents
vast experience, it is safe to presume that this is not its first encounter with booked events exceeding
the guaranteed cover. It is not audacious to expect that certain measures have been placed in case
this predicament crops up. That regardless of these measures, respondent still received complaints as
in the present case, does not amuse.1avvphil
Respondent admitted that three hotel functions coincided with petitioners reception. To the Court, the
delay in service might have been avoided or minimized if respondent exercised prescience in
scheduling events. No less than quality service should be delivered especially in events which
possibility of repetition is close to nil. Petitioners are not expected to get married twice in their
lifetimes.
In the present petition, under considerations of equity, the Court deems it just to award the amount of
P50,000.00 by way of nominal damages to petitioners, for the discomfiture that they were subjected to
during to the event.15 The Court recognizes that every person is entitled to respect of his dignity,
personality, privacy and peace of mind.16 Respondents lack of prudence is an affront to this right.
WHEREFORE, the Court of Appeals Decision dated July 28, 2009 is PARTIALLY REVERSED.
Respondent is, in light of the foregoing discussion, ORDERED to pay the amount of P50,000.00 to
petitioners by way of nominal damages.
SO ORDERED.
G.R. No. 34840
September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez.San Agustin and Roxas for other appellants.Ramon
Diokno for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a result of
an automobile accident. On judgment being rendered as prayed for by the plaintiff, both sets of

defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality of Las
Pias, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and was owned by
Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age,
and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the
collision, the father was not in the car, but the mother, together will several other members of the
Gutierrez family, seven in all, were accommodated therein. A passenger in the autobus, by the name
of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between the bus
and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical
attendance for a considerable period of time, and which even at the date of the trial appears not to
have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The difference between
the parties is that, while the plaintiff blames both sets of defendants, the owner of the passenger truck
blames the automobile, and the owner of the automobile, in turn, blames the truck. We have given
close attention to these highly debatable points, and having done so, a majority of the court are of the
opinion that the findings of the trial judge on all controversial questions of fact find sufficient support in
the record, and so should be maintained. With this general statement set down, we turn to consider
the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be
explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive
rate of speed, and that, on approaching the bridge and the truck, he lost his head and so contributed
by his negligence to the accident. The guaranty given by the father at the time the son was granted a
license to operate motor vehicles made the father responsible for the acts of his son. Based on these
facts, pursuant to the provisions of article 1903 of the Civil Code, the father alone and not the minor or
the mother, would be liable for the damages caused by the minor.
We are dealing with the civil law liability of parties for obligations which arise from fault or negligence.
At the same time, we believe that, as has been done in other cases, we can take cognizance of the
common law rule on the same subject. In the United States, it is uniformly held that the head of a
house, the owner of an automobile, who maintains it for the general use of his family is liable for its
negligent operation by one of his children, whom he designates or permits to run it, where the car is
occupied and being used at the time of the injury for the pleasure of other members of the owner's
family than the child driving it. The theory of the law is that the running of the machine by a child to
carry other members of the family is within the scope of the owner's business, so that he is liable for
the negligence of the child because of the relationship of master and servant. (Huddy On Automobiles,
6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of
the truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract
which, we think, has been sufficiently demonstrated by the allegations of the complaint, not
controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court
concerning the position of the truck on the bridge, the speed in operating the machine, and the lack of
care employed by the chauffeur. While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the trial
judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and give the right of way to the other, with the
inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed contributory negligence on the
part of the plaintiff, consisting principally of his keeping his foot outside the truck, which occasioned his
injury. In this connection, it is sufficient to state that, aside from the fact that the defense of contributory

negligence was not pleaded, the evidence bearing out this theory of the case is contradictory in the
extreme and leads us far afield into speculative matters.
The last subject for consideration relates to the amount of the award. The appellee suggests that the
amount could justly be raised to P16,517, but naturally is not serious in asking for this sum, since no
appeal was taken by him from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures and damages for the injury
to the leg of the plaintiff, which may cause him permanent lameness, in connection with other
adjudications of this court, lead us to conclude that a total sum for the plaintiff of P5,000 would be fair
and reasonable. The difficulty in approximating the damages by monetary compensation is well
elucidated by the divergence of opinion among the members of the court, three of whom have inclined
to the view that P3,000 would be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo Velasco,
and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of both instances.
Avancea, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.
G.R. No. L-14335
January 28, 1920
MANUEL DE GUIA, plaintiff-appellant,
vs.
THE MANILA ELECTRIC RAILROAD & LIGHT COMPANY, defendant-appellant.
Sumulong and Estrada, Crossfield and O'Brien and Francisco A. Delgado for plaintiff-appellant.
Lawrence and Ross for defendant-appellant.
STREET, J.:
This is an appeal prosecuted both by the plaintiff and the defendant from a judgment of the Court of
First Instance of the City of Manila, whereby the plaintiff was awarded the sum of P6,100, with interest
and costs, as damages incurred by him in consequence of physical injuries sustained while riding on
one of the defendant's car.
The accident which gave rise to the litigation occurred on September 4, 1915, near the end of the
street-car line in Caloocan, Rizal, a northern suburb of the city of Manila. It appears that, at about 8
o'clock p.m., of the date mentioned, the plaintiff Manuel de Guia, a physician residing in Caloocan,
boarded a car at the end of the line with the intention of coming to the city. At about 30 meters from the
starting point the car entered a switch, the plaintiff remaining on the back platform holding the handle
of the right-hand door. Upon coming out of the switch, the small wheels of the rear truck left the track,
ran for a short distance along the macadam filling, which was flush with the rails, and struck a
concrete post at the left of the tract. The post was shattered; and as the car stopped the plaintiff was
thrown against the door with some violence, receiving bruises and possibly certain internal injuries, the
extent of which is a subject of dispute.
The trial court found that the motorman of the derailed car was negligent in having maintained too
rapid a speed. This inference appears to be based chiefly upon the results of the shock, involving the
shattering of the post and the bending of the kingpost of the car. It is insisted for the defendant
company that the derailment was due to the presence of a stone, somewhat larger than a goose egg,
which had become accidentally lodged between the rails at the juncture of the switch and which was
unobserved by the motorman. In this view the derailment of the car is supposed to be due to casus
fortuitos and not chargeable to the negligence of the motorman.
Even supposing that the derailment of the car was due to the accidental presence of such a stone as
suggested, we do not think that the existence of negligence is disproved. The motorman says that

upon approaching the switch he reduced the electrical energy to the point that the car barely entered
the switch under its own momentum, and this operation was repeated as he passed out. Upon getting
again on the straight tract he put the control successively at points one, two, three and lastly at point
four. At the moment when the control was placed at point four he perceived that the rear wheels were
derailed and applied the brake; but at the same instant the car struck the post, some 40 meters distant
from the exit of the switch. One of the defendant's witnesses stated in court that the rate of a car
propelled by electricity with the control at point "four" should be about five or 6 miles per hour. There
was some other evidence to the effect that the car was behind schedule time and that it was being
driven after leaving the switch, at a higher rate than would ordinarily be indicated by the control at
point four. This inference is rendered more tenable by the circumstance that the car was practically
empty. On the whole, we are of the opinion that the finding of negligence in the operation of the car
must be sustained, as not being clearly contrary to the evidence; not so much because of excessive
speed as because of the distance which the car was allowed to run with the front wheels of the rear
truck derailed. It seems to us than an experienced and attentive motorman should have discovered
that something was wrong and would have stopped before he had driven the car over the entire
distance from the point where the wheels left the track to the place where the post was struck.
The conclusion being accepted that there was negligence on the part of the motorman in driving the
car, it results that the company is liable for the damage resulting to the plaintiff as a consequence of
that negligence. The plaintiff had boarded the car as a passenger for the city of Manila and the
company undertook to convey him for hire. The relation between the parties was, therefore, of a
contractual nature, and the duty of the carrier is to be determined with reference to the principles of
contract law, that is, the company was bound to convey and deliver the plaintiff safely and securely
with reference to the degree of care which, under the circumstances, is required by law and custom
applicable to the case (art. 1258, Civil Code). Upon failure to comply with that obligation the company
incurred the liability defined in articles 1103-1107 of the Civil Code. (Cangco vs. Manila Railroad
Company, 38 Phil. Rep., 768; Manila Railroad Company vs. Compaia Transatlantica, and Atlantic,
Gulf & Pacific Co., 38 Phil. Rep., 875.)
From the nature of the liability thus incurred, it is clear that the defendant company can not avail itself
of the last paragraph of article 1903 of the Civil Code, since that provision has reference to liability
incurred by negligence in the absence of contractual relation, that is, to the culpa aquiliana of the civil
law. It was therefore irrelevant for the defendant company to prove, as it did, that the company had
exercised due care in the selection and instruction of the motorman who was in charge of its car and
that he was in fact an experienced and reliable servant.
At this point, however, it should be observed that although in case like this the defendant must answer
for the consequences of the negligence of its employee, the court has the power to moderate liability
according to the circumstances of the case (art. 1103, Civ. Code): Furthermore, we think it obvious
that an employer who has in fact displayed due diligence in choosing and instructing his servants is
entitled to be considered a debtor in good faith, within the meaning of article 1107 of the same Code.
Construing these two provisions together, applying them to the facts of this case, it results that the
defendant's liability is limited to such damages as might, at the time of the accident, have been
reasonably foreseen as a probable consequence of the physical injuries inflicted upon the plaintiff and
which were in fact a necessary result of those injuries. There is nothing novel in this proposition, since
both the civil and the common law are agreed upon the point that the damages ordinarily recoverable
for the breach of a contractual obligation, against a person who has acted in good faith, are such as
can reasonably be foreseen at the time the obligation is contracted. In Daywalt vs. Corporacion de PP.
Agustinos Recoletos (39 Phil., 587), we said: "The extent of the liability for the breach of a contract
must be determined in the light of the situation in existence at the time the contract is made; and the
damages ordinarily recoverable are in all events limited to such as might be reasonably foreseen in
the light of the facts then known to the contracting parties."

This brings us to consider the amount which may be awarded to the plaintiff as damages. Upon this
point the trial judge found that, as a result of the physical and nervous derangement resulting from the
accident, Dr. De Guia was unable properly to attend to his professional labors for three months and
suspended his practice for that period. It was also proved by the testimony of the plaintiff that his
customary income, as a physician, was about P300 per month. The trial judge accordingly allowed
P900, as damages for loss of professional earnings. This allowance is attacked upon appeal by the
defendant as excessive both as to the period and rate of allowance. Upon examining the evidence we
fell disinclined to disturb this part of the judgment, though it must be conceded that the estimate of the
trial judge on this point was liberal enough to the plaintiff.
Another item allowed by the trial judge consists of P3,900, which the plaintiff is supposed to have lost
by reason of his inability to accept a position as district health officer in Occidental Negros. It appears
in this connection that Mr. Alunan, representative from Occidental Negros, had asked Dr. Montinola,
who supposedly had the authority to make the appointment, to nominate the plaintiff to such position.
The job was supposed to be good for two years, with a salary of P1,600 per annum, and possibility of
outside practice worth P350. Accepting these suggestions as true, it is evident that the damages thus
incurred are too speculative to be the basis of recovery in a civil action. This element of damages must
therefore be eliminated. It goes without saying that damage of this character could not, at the time of
the accident, have been foreseen by the delinquent party as a probable consequence of the injury
inflicted a circumstance which makes applicable article 1107 of the Civil Code, as already
expounded.
The last element of damages to be considered is the item of the plaintiff's doctor's bills, a subject
which we momentarily pass for discussion further on, since the controversy on this point can be more
readily understood in connection with the question raised by the plaintiff's appeal.
The plaintiff alleges in the complaint that the damages incurred by him as a result of the injuries in
question ascend to the amount of P40,000. Of this amount the sum of P10,000 is supposed to
represent the cost of medical treatment and other expenses incident to the plaintiff's cure, while the
remainder (P30,000) represents the damage resulting from the character of his injuries, which are
supposedly such as to incapacitate him for the exercise of the medical profession in the future. In
support of these claims the plaintiff introduced evidence, consisting of his own testimony and that of
numerous medical experts, tending to show that as a result of the injuries in question he had
developed infarct of the liver and traumatic neurosis, accompanied by nervousness, vertigo, and other
disturbing symptoms of a serious and permanent character, it being claimed that these manifestations
of disorder rendered him liable to a host of other dangerous diseases, such as pleuresy, tuberculosis,
pneumonia, and pulmonary gangrene, and that restoration to health could only be accomplished, if at
all, after long years of complete repose. The trial judge did not take these pretensions very seriously,
and, as already stated, limited the damages to the three items of professional earnings, expenses of
medical treatment, and the loss of the appointment as medical treatment, and the loss of the
appointment as medical inspector in Occidental Negros. As the appeal of the plaintiff opens the whole
case upon the question of damages, it is desirable to present a somewhat fuller statement than that
already given with respect to extent and character of the injuries in question.
The plaintiff testified that, at the time the car struck against the concrete post, he was standing on the
rear platform, grasping the handle of the right-hand door. The shock of the impact threw him forward,
and the left part of his chest struck against the door causing him to fall. In falling, the plaintiff says, his
head struck one of the seats and he became unconscious. He was presently taken to his home which
was only a short distance away, where he was seen at about 10 o'clock p. m., by a physician in the
employment of the defendant company. This physician says that the plaintiff was then walking about
and apparently suffering somewhat from bruises on his chest. He said nothing about his head being
injured and refused to go to a hospital. Later, during the same night Dr. Carmelo Basa was called in to
see the plaintiff. This physician says that he found Doctor De Guia lying in bed and complaining of a

severe pain in the side. During the visit of Doctor Basa the plaintiff several times spit up blood, a
manifestation no doubt due to the effects of the bruises received in his side. The next day Doctor De
Guia went into Manila to consult another physician, Doctor Miciano, and during the course of a few
weeks he called into consultation other doctors who were introduced as witnesses in his behalf at the
trial of this case. According to the testimony of these witnesses, as well as that of the plaintiff himself,
the symptoms of physical and nervous derangement in the plaintiff speedily developed in portentous
degree.
Other experts were introduced by the defendant whose testimony tended to show that the plaintiff's
injuries, considered in their physical effects, were trivial and that the attendant nervous derangement,
with its complicated train of ailments, was merely simulated.
Upon this question the opposing medical experts ventilated a considerable mass of professional
learning with reference to the nature and effects of the baffling disease known as traumatic neurosis,
or traumatic hysteria a topic which has been the occasion of much controversy in actions of this
character in the tribunals of Europe and America. The subject is one of considerable interest from a
medico-legal point of view, but we deem it unnecessary in this opinion to enter upon a discussion of its
voluminous literature. It is enough to say that in our opinion the plaintiff's case for large damages in
respect to his supposed incapacitation for future professional practice is not made out. Of course in
this jurisdiction damages can not be assessed in favor of the plaintiff as compensation for the physical
or mental pain which he may have endured (Marcelo vs. Velasco, 11 Phil. Rep. 287); and the evidence
relating to the injuries, both external and internal, received by him must be examined chiefly in its
bearing upon his material welfare, that is, in its results upon his earning capacity and the expenses
incurred in restoration to the usual condition of health.
The evidence before us shows that immediately after the accident in question Doctor De Guia,
sensing in the situation a possibility of profit, devoted himself with great assiduity to the promotion of
this litigation; and with the aid of his own professional knowledge, supplemented by suggestions
obtained from his professional friends and associates, he enveloped himself more or less
unconsciously in an atmosphere of delusion which rendered him incapable of appreciating at their true
value the symptoms of disorder which he developed. The trial court was in our opinion fully justified in
rejecting the exaggerated estimate of damages thus created.
We now pass to the consideration of the amount allowed to the plaintiff by the trial judge as the
expense incurred for medical service. In this connection Doctor Montes testified that he was first called
to see the plaintiff upon September 14, 1915, when he found him suffering from traumatic neurosis.
Three months later he was called upon to treat the same patient for an acute catarrhal condition,
involving disturbance in the pulmonary region. The treatment for this malady was successful after two
months, but at the end of six months the same trouble recurred and required further treatment. In
October of the year 1916, or more than a year after the accident in question occurred, Doctor Montes
was called in consultation with Doctor Guerrero to make an examination of the plaintiff. Doctor Montes
says that his charges altogether for services rendered to the plaintiff amount to P350, of which the
sum of P200 had been paid by the plaintiff upon bills rendered from time to time. This physician
speaks in the most general terms with respect to the times and extent of the services rendered; and it
is by no means clear that those services which were rendered many months, or year, after the
accident had in fact any necessary or legitimate relation to the injuries received by the plaintiff. In view
of the vagueness and uncertainty of the testimony relating to Doctor Montes' services, we are of the
opinion that the sum of P200, or the amount actually paid to him by the plaintiff, represents the extent
of the plaintiff's obligation with respect to treatment for said injuries.
With regard to the obligation supposedly incurred by the plaintiff to three other physicians, we are of
the opinion that they are not a proper subject of recovery in this action; and this for more than one
reason. In the first place, it does not appear that said physicians have in fact made charges for those

services with the intention of imposing obligations on the plaintiff to pay for them. On the contrary it
would seem that said services were gratuitously rendered out of courtesy to the plaintiff as a member
of the medical profession. The suggestions made on the stand by these physicians to the effect that
their services were worth the amounts stated by them are not sufficient to proved that the plaintiff had
incurred the obligation to pay those amounts. In the second place, we are convinced that in employing
so many physicians the plaintiff must have had in view of the successful promotion of the issue of this
lawsuit rather than the bona fide purpose of effecting the cure of his injuries. In order to constitute a
proper element of recovery in an action of this character, the medical service for which reimbursement
is claimed should not only be such as to have created a legal obligation upon the plaintiff but such as
was reasonably necessary in view of his actual condition. It can not be permitted that a litigant should
retain an unusual and unnecessary number of professional experts with a view to the successful
promotion of a lawsuit and expect to recover against his adversary the entire expense thus incurred.
His claim for medical services must be limited to such expenditures as were reasonably suited to the
case.
The second error assigned in the brief of the defendant company presents a question of practice
which, though not vital to the solution of this case, is of sufficient general importance to merit notice. It
appears that four of the physicians examined as witnesses for the plaintiff had made written
statements at various dates certifying the results of their respective examinations into the condition of
the plaintiff. When these witnesses were examined in court the identified their respective signatures to
these certificates and the trial judge, over the defendant's objection, admitted the documents as
primary evidence in the case. This was undoubtedly erroneous. A document of this character is not
primary evidence in any sense, since it is fundamentally of a hearsay nature; and the only legitimate
use to which one of these certificates could be put, as evidence for the plaintiff, was to allow the
physician who issued it to refer thereto to refresh his memory upon details which he might have
forgotten. In Zwangizer vs. Newman (83 N. Y. Supp., 1071) which was also an action to recover
damages for personal injury, it appeared that a physician, who had been sent by one of the parties to
examine the plaintiff, had made at the time a written memorandum of the results of the examination;
and it was proposed to introduce this document in evidence at the trial. It was excluded by the trial
judge, and it was held upon appeal that this was proper. Said the court: "There was no failure or
exhaustion of the memory, and no impeachment of the memorandum on cross-examination; and the
document was clearly incompetent as evidence in chief."
It results from the foregoing that the judgment appealed from must be modified by reducing the
amount of the recovery to eleven hundred pesos (1,100), with legal interest from November 8, 1916.
As thus modified the judgment is affirmed, without any special pronouncement as to costs of this
instance. So ordered.
G.R. No. L-29462
March 7, 1929
IGNACIO DEL PRADO, plaintiff-appellee,
vs.
MANILA ELECTRIC CO., defendant-appellant.
Ross, Lawrence and Selph and Antonio T. Carrascoso, jr., for appellant.Vicente Sotto for appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Manila by Ignacio del Prado to recover
damages in the amount of P50,000 for personal injuries alleged to have been caused by the
negligence of te defendant, the Manila Electric Company, in the operation of one of its street cars in
the City of Manila. Upon hearing the cause the trial court awarded to the plaintiff the sum of P10,000,
as damages, with costs of suit, and the defendant appealed.
The appellant, the Manila Electric Company, is engaged in operating street cars in the City for the
conveyance of passengers; and on the morning of November 18, 1925, one Teodorico Florenciano, as

appellant's motorman, was in charge of car No. 74 running from east to west on R. Hidalgo Street, the
scene of the accident being at a point near the intersection of said street and Mendoza Street. After
the car had stopped at its appointed place for taking on and letting off passengers, just east of the
intersection, it resumed its course at a moderate speed under the guidance of the motorman. The car
had proceeded only a short distance, however, when the plaintiff, Ignacio del Prado, ran across the
street to catch the car, his approach being made from the left. The car was of the kind having entrance
and exist at either end, and the movement of the plaintiff was so timed that he arrived at the front
entrance of the car at the moment when the car was passing.
The testimony of the plaintiff and of Ciriaco Guevara, one of his witnesses, tends to shows that the
plaintiff, upon approaching the car, raised his hand as an indication to the motorman of his desire to
board the car, in response to which the motorman eased up a little, without stopping. Upon this the
plaintiff seized, with his hand, the front perpendicular handspot, at the same time placing his left foot
upon the platform. However, before the plaintiff's position had become secure, and even before his
raised right foot had reached the flatform, the motorman applied the power, with the result that the car
gave a slight lurch forward. This sudden impulse to the car caused the plaintiff's foot to slip, and his
hand was jerked loose from the handpost, He therefore fell to the ground, and his right foot was
caught and crushed by the moving car. The next day the member had to be amputated in the hospital.
The witness, Ciriaco Guevara, also stated that, as the plaintiff started to board the car, he grasped the
handpost on either side with both right and left hand. The latter statement may possibly be incorrect as
regards the use of his right hand by the plaintiff, but we are of the opinion that the finding of the trial
court to the effect that the motorman slowed up slightly as the plaintiff was boarding the car that the
plaintiff's fall was due in part at lease to a sudden forward movement at the moment when the plaintiff
put his foot on the platform is supported by the evidence and ought not to be disturbed by us.
The motorman stated at the trial that he did not see the plaintiff attempting to board the car; that he did
not accelerate the speed of the car as claimed by the plaintiff's witnesses; and that he in fact knew
nothing of the incident until after the plaintiff had been hurt and some one called to him to stop. We are
not convinced of the complete candor of this statement, for we are unable to see how a motorman
operating this car could have failed to see a person boarding the car under the circumstances
revealed in this case. It must be remembered that the front handpost which, as all witness agree, was
grasped by the plaintiff in attempting to board the car, was immediately on the left side of the
motorman.
With respect to the legal aspects of the case we may observe at the outset that there is no obligation
on the part of a street railway company to stop its cars to let on intending passengers at other points
than those appointed for stoppage. In fact it would be impossible to operate a system of street cars if a
company engage in this business were required to stop any and everywhere to take on people who
were too indolent, or who imagine themselves to be in too great a hurry, to go to the proper places for
boarding the cars. Nevertheless, although the motorman of this car was not bound to stop to let the
plaintiff on, it was his duty to do act that would have the effect of increasing the plaintiff's peril while he
was attempting to board the car. The premature acceleration of the car was, in our opinion, a breach
of this duty.
The relation between a carrier of passengers for hire and its patrons is of a contractual nature; and in
failure on the part of the carrier to use due care in carrying its passengers safely is a breach of duty
(culpa contructual) under articles 1101, 1103 and 1104 of the Civil Code. Furthermore, the duty that
the carrier of passengers owes to its patrons extends to persons boarding the cars as well as to those
alighting therefrom. The case of Cangco vs. Manila Railroad Co. (38 Phil., 768), supplies an instance
of the violation of this duty with respect to a passenger who was getting off of a train. In that case the
plaintiff stepped off of a moving train, while it was slowing down in a station, and at the time when it
was too dark for him to see clearly where he was putting his feet. The employees of the company had
carelessly left watermelons on the platform at the place where the plaintiff alighted, with the result that

his feet slipped and he fell under the car, where his right arm badly injured. This court held that the
railroad company was liable for breach positive duty (culpa contractual), and the plaintiff was awarded
damages in the amount of P2,500 for the loss of his arm. In the opinion in that case the distinction is
clearly drawn between a liability for negligence arising from breach of contructual duty and that arising
articles 1902 and 1903 of the Civil Code (culpa aquiliana).
The distiction between these two sorts of negligence is important in this jurisdiction, for the reason that
where liability arises from a mere tort (culpa aquiliana), not involving a breach of positive obligation, an
employer, or master, may exculpate himself, under the last paragraph of article 1903 of the Civil Code,
by providing that he had exercised due degligence to prevent the damage; whereas this defense is not
available if the liability of the master arises from a breach of contrauctual duty (culpa contractual). In
the case bfore us the company pleaded as a special defense that it had used all the deligence of a
good father of a family to prevent the damage suffered by the plaintiff; and to establish this contention
the company introduced testimony showing that due care had been used in training and instructing the
motorman in charge of this car in his art. But this proof is irrelevant in view of the fact that the liability
involved was derived from a breach of obligation under article 1101 of the Civil Code and related
provisions. (Manila Railroad Co. vs. Compana Transatlantica and Atlantic, Gulf & Pacific Co., 38 Phil.,
875, 887; De Guia vs. Manila Electric Railroad & Light Co., 40 Phil., 706, 710.)
Another practical difference between liability for negligence arising under 1902 of the Civil Code and
liability arising from negligence in the performance of a positive duty, under article 1101 and related
provisions of the Civil Code, is that, in dealing with the latter form of negligence, the court is given a
discretion to mitigate liability according to the circumstances of the case (art 1103). No such general
discretion is given by the Code in dealing with liability arising under article 1902; although possibly the
same end is reached by courts in dealing with the latter form of liability because of the latitude of the
considerations pertinent to cases arising under this article.
As to the contributory negligence of the plaintiff, we are of the opinion that it should be treated, as in
Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359), as a mitigating circumstance under article 1103
of the Civil Code. It is obvious that the plaintiff's negligence in attempting to board the moving car was
not the proximate cause of the injury. The direct and proximate cause of the injury was the act of
appellant's motorman in putting on the power prematurely. A person boarding a moving car must be
taken to assume the risk of injury from boarding the car under the conditions open to his view, but he
cannot fairly be held to assume the risk that the motorman, having the situation in view, will increase
his peril by accelerating the speed of the car before he is planted safely on the platform. Again, the
situation before us is one where the negligent act of the company's servant succeeded the negligent
act of the plaintiff, and the negligence of the company must be considered the proximate cause of the
injury. The rule here applicable seems to be analogous to, if not identical with that which is sometimes
referred to as the doctrine of "the last clear chance." In accordance with this doctrine, the contributory
negligence of the party injured will not defeat the action if it be shown that the defendant might, by the
exercise of reasonable care and prudence, have avoided the consequences of the negligence of the
injured party (20 R. C. L., p. 139; Carr vs. Interurban Ry. Co., 185 Iowa, 872; 171 N. W., 167). The
negligence of the plaintiff was, however, contributory to the accident and must be considered as a
mitigating circumstance.
With respect to the effect of this injury upon the plaintiff's earning power, we note that, although he lost
his foot, he is able to use an artificial member without great inconvenience and his earning capacity
has probably not been reduced by more than 30 per centum. In view of the precedents found in our
decisions with respect to the damages that ought to be awarded for the loss of limb, and more
particularly Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil., 359); Cangco vs. Manila Railroad Co. (38
Phil., 768); and Borromeo vs. Manila Electric Railroad and Light Co. (44 Phil., 165), and in view of all
the circumstances connected with the case, we are of the opinion that the plaintiff will be adequately
compensated by an award of P2,500.

It being understood, therefore, that the appealed judgment is modified by reducing the recovery to the
sum of P2,500, the judgment, as thus modified, is affirmed. So ordered, with costs against the
appellant.
G.R. No. L-6291
April 29, 1954
THE SAN PEDRO BUS LINE, PAULINO DE LA CRUZ, and TEODOLO LACDAN, doing business
under the name of "THE SAN PEDRO BUS LINE," petitioners,
vs.
NICOLAS NAVARRO, and the HON. ASSOCIATE JUSTICES OF THE FIRST DIVISION, COURT OF
APPEALS, respondents.
Estanislao R. Bayot for petitioners.Antonio Enrile Inton and Camilo V. Pea for respondents.
PARAS, C.J.:
Nicolas Navarro filed a complaint in the court of First Instance of Rizal against the San Pedro Bus
Line, Paulino de la Cruz and Teodulo Lacdan, doing business in the name of the San Pedro Bus Line,
alleging that the plaintiff, on April 21, 1943, rode as a passenger in Manila bound bus No. TPU-7654
owned and operated by the defendants; that while on its way the bus collided with another vehicle,
causing serious physical injuries to the plaintiff, with subsequent post-traumatic psychosis which might
incapacitate him for life; that as a result thereof the plaintiff suffered damages, for actual medical and
hospital expenses and loss of earning power, in the total sum of P4,500 which the plaintiff sought to
recover from the defendants. In their answer the defendants admitted the occurrence of the accident
and the injuries received the plaintiff, but disclaimed responsibility for the accident. After trial, the court
dismissed the complaint on the ground that there was "no proof whatsoever of the relation of the
defendants San Pedro Bus Line and Paulino de la Cruz with the damages claimed by the plaintiff."
The plaintiff appealed to the Court of Appeals which, on part of which reads as follows:
"WHEREFORE, it appearing that the trial court erred as charged, and that the facts and the lawfully
warrant a recovery by the appellant, the judgment appealed in the total sum of P9,500, with interests
thereon from the date this action was commenced. Costs are charged against the appellees." The
defendants have elevated the case by way of a petition for certiorari.
It is contended for the herein petitioners that they cannot be held civilly liable to respondents Nicolas
Navarro, for the reason that the Court of First Instance of Rizal had dismissed the criminal charge
against petitioner Paulino de la Cruz, driver of the bus involved in the accident, citing the case of
Martinez vs. Barredo,* Off. Gaz., 4922. In answer to this contention, it is enough to advert to the
conclusion of the Court of Appeals which is correct that the action was not based on tort or quasi
delict, but was one for breach of a carrier's contract, there being a clear distinction between culpa as a
source and creator of obligations (aquiliana) and culpa in the performance of an already existing
obligation (contractual). As already held in the case of Castro vs. Acro Taxicab Co.** 46 Off. Gaz.,
2023, "para que prosperase la accion del demandante pidiendo indemnizacion de daos y perjuicios
bastaba que probase la existencia del contrato de pasaje esto es, que causo lesiones y daos en el
pasajero. De acuerdo con la doctrina enunciada, para el exito de la accion de daos no era necesario
que se probase la culpa, desuido a negligencia del chofer que guiaba el taximetro No. 962." The case
of Martinez vs. Barredo is not controlling, since it referred to an action based on criminal negligence.
The other contention of the petitioners is that it was erroneous for the Court of Appeals to award in
favor of respondent Navarro damages in the amount of P9,500, his claim in the complaint being only
for P4,500. It appears, however, that the complaint prayed for "such further relief as may be deemed
just and equitable," and this of course warranted the granting in the complaint. Indeed, under section
9, Rule 35, of the Rules of Court, "the judgment shall grant the relief to which the party in whose favor
it is rendered is entitled, even if the party has not demanded such relief in his pleadings."
It is also urged by counsel for the petitioners that the finding of the Court of Appeals that respondent

Navarro is insane, is not supported by any evidence, and that on the other hand, in the motion for new
trial filed by the petitioners, accompanied by the affidavits of Marcelo Legaspi and Ceferino Terello,
respondent Navarro is shown not to be insane, with the result that there is no basis for awarding the
additional amount of P5,000. However, apart from the fact that the finding of the Court of Appeals is
factual and therefore conclusive, the said sum was granted by the Court of Appeals, not only for the
resulting insanity of respondent Navarro but for his pain and suffering in general; and we are not
prepared to hold that the award is excessive as compensation for moral damages.
Wherefore, the decision complained of is affirmed, and it is so ordered with costs against petitioners.
THE CONSOLIDATED BANK and TRUST CORPORATION, petitioner, vs. COURT OF APPEALS
and L.C. DIAZ and COMPANY, CPAs, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review of the Decision [if !supportFootnotes][1][endif] of the Court of Appeals dated 27
October 1998 and its Resolution dated 11 May 1999. The assailed decision reversed the Decision [if !
supportFootnotes][2][endif]
of the Regional Trial Court of Manila, Branch 8, absolving petitioner Consolidated
Bank and Trust Corporation, now known as Solidbank Corporation (Solidbank), of any liability. The
questioned resolution of the appellate court denied the motion for reconsideration of Solidbank but
modified the decision by deleting the award of exemplary damages, attorneys fees, expenses of
litigation and cost of suit.
The Facts
Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private
respondent L.C. Diaz and Company, CPAs (L.C. Diaz), is a professional partnership engaged in the
practice of accounting.
Sometime in March 1976, L.C. Diaz opened a savings account with Solidbank, designated as Savings
Account No. S/A 200-16872-6.
On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya (Macaraya), filled up a
savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed
the messenger of L.C. Diaz, Ismael Calapre (Calapre), to deposit the money with Solidbank.
Macaraya also gave Calapre the Solidbank passbook.
Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The
teller acknowledged receipt of the deposit by returning to Calapre the duplicate copies of the two
deposit slips. Teller No. 6 stamped the deposit slips with the words DUPLICATE and SAVING
TELLER 6 SOLIDBANK HEAD OFFICE. Since the transaction took time and Calapre had to make
another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went
to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed
him that somebody got the passbook.[if !supportFootnotes][3][endif] Calapre went back to L.C. Diaz and reported
the incident to Macaraya.
Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000.
Macaraya, together with Calapre, went to Solidbank and presented to Teller No. 6 the deposit slip and
check. The teller stamped the words DUPLICATE and SAVING TELLER 6 SOLIDBANK HEAD
OFFICE on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No.
6 told Macaraya that someone got the passbook but she could not remember to whom she gave the
passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that

someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.
Teller No. 6 handed to Macaraya a deposit slip dated 14 August 1991 for the deposit of a check for
P90,000 drawn on Philippine Banking Corporation (PBC). This PBC check of L.C. Diaz was a check
that it had long closed.[if !supportFootnotes][4][endif] PBC subsequently dishonored the check because of
insufficient funds and because the signature in the check differed from PBCs specimen signature.
Failing to get back the passbook, Macaraya went back to her office and reported the matter to the
Personnel Manager of L.C. Diaz, Emmanuel Alvarez.
The following day, 15 August 1991, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz (Diaz),
called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new
account.[if !supportFootnotes][5][endif] On the same day, Diaz formally wrote Solidbank to make the same
request. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day
before, 14 August 1991, of P300,000 from its savings account. The withdrawal slip for the P300,000
bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The
signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the
P300,000.
In an Information[if !supportFootnotes][6][endif] dated 5 September 1991, L.C. Diaz charged its messenger,
Emerano Ilagan (Ilagan) and one Roscon Verdazola with Estafa through Falsification of Commercial
Document. The Regional Trial Court of Manila dismissed the criminal case after the City Prosecutor
filed a Motion to Dismiss on 4 August 1992.
On 24 August 1992, L.C. Diaz through its counsel demanded from Solidbank the return of its money.
Solidbank refused.
On 25 August 1992, L.C. Diaz filed a Complaint [if !supportFootnotes][7][endif] for Recovery of a Sum of Money
against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered
on 28 December 1994 a decision absolving Solidbank and dismissing the complaint.
L.C. Diaz then appealed[if !supportFootnotes][8][endif] to the Court of Appeals. On 27 October 1998, the Court of
Appeals issued its Decision reversing the decision of the trial court.
On 11 May 1999, the Court of Appeals issued its Resolution denying the motion for reconsideration of
Solidbank. The appellate court, however, modified its decision by deleting the award of exemplary
damages and attorneys fees.
The Ruling of the Trial Court
In absolving Solidbank, the trial court applied the rules on savings account written on the passbook.
The rules state that possession of this book shall raise the presumption of ownership and any
payment or payments made by the bank upon the production of the said book and entry therein of the
withdrawal shall have the same effect as if made to the depositor personally. [if !supportFootnotes][9][endif]
At the time of the withdrawal, a certain Noel Tamayo was not only in possession of the passbook, he
also presented a withdrawal slip with the signatures of the authorized signatories of L.C. Diaz. The
specimen signatures of these persons were in the signature cards. The teller stamped the withdrawal
slip with the words Saving Teller No. 5. The teller then passed on the withdrawal slip to Genere
Manuel (Manuel) for authentication. Manuel verified the signatures on the withdrawal slip. The
withdrawal slip was then given to another officer who compared the signatures on the withdrawal slip
with the specimen on the signature cards. The trial court concluded that Solidbank acted with care and
observed the rules on savings account when it allowed the withdrawal of P300,000 from the savings
account of L.C. Diaz.

The trial court pointed out that the burden of proof now shifted to L.C. Diaz to prove that the signatures
on the withdrawal slip were forged. The trial court admonished L.C. Diaz for not offering in evidence
the National Bureau of Investigation (NBI) report on the authenticity of the signatures on the
withdrawal slip for P300,000. The trial court believed that L.C. Diaz did not offer this evidence
because it is derogatory to its action.
Another provision of the rules on savings account states that the depositor must keep the passbook
under lock and key.[if !supportFootnotes][10][endif] When another person presents the passbook for withdrawal
prior to Solidbanks receipt of the notice of loss of the passbook, that person is considered as the
owner of the passbook. The trial court ruled that the passbook presented during the questioned
transaction was now out of the lock and key and presumptively ready for a business transaction. [if !
supportFootnotes][11][endif]

Solidbank did not have any participation in the custody and care of the passbook. The trial court
believed that Solidbanks act of allowing the withdrawal of P300,000 was not the direct and proximate
cause of the loss. The trial court held that L.C. Diazs negligence caused the unauthorized withdrawal.
Three facts establish L.C. Diazs negligence: (1) the possession of the passbook by a person other
than the depositor L.C. Diaz; (2) the presentation of a signed withdrawal receipt by an unauthorized
person; and (3) the possession by an unauthorized person of a PBC check long closed by L.C. Diaz,
which check was deposited on the day of the fraudulent withdrawal.
The trial court debunked L.C. Diazs contention that Solidbank did not follow the precautionary
procedures observed by the two parties whenever L.C. Diaz withdrew significant amounts from its
account. L.C. Diaz claimed that a letter must accompany withdrawals of more than P20,000. The
letter must request Solidbank to allow the withdrawal and convert the amount to a managers check.
The bearer must also have a letter authorizing him to withdraw the same amount. Another person
driving a car must accompany the bearer so that he would not walk from Solidbank to the office in
making the withdrawal. The trial court pointed out that L.C. Diaz disregarded these precautions in its
past withdrawal. On 16 July 1991, L.C. Diaz withdrew P82,554 without any separate letter of
authorization or any communication with Solidbank that the money be converted into a managers
check.
The trial court further justified the dismissal of the complaint by holding that the case was a last ditch
effort of L.C. Diaz to recover P300,000 after the dismissal of the criminal case against Ilagan.
The dispositive portion of the decision of the trial court reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered DISMISSING the complaint.
The Court further renders judgment in favor of defendant bank pursuant to its counterclaim the amount
of Thirty Thousand Pesos (P30,000.00) as attorneys fees.
With costs against plaintiff.
SO ORDERED.[if !supportFootnotes][12][endif]
The Ruling of the Court of Appeals
The Court of Appeals ruled that Solidbanks negligence was the proximate cause of the unauthorized
withdrawal of P300,000 from the savings account of L.C. Diaz. The appellate court reached this
conclusion after applying the provision of the Civil Code on quasi-delict, to wit:
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and is governed by the provisions of this chapter.
The appellate court held that the three elements of a quasi-delict are present in this case, namely: (a)

damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for
whose acts he must respond; and (c) the connection of cause and effect between the fault or
negligence of the defendant and the damage incurred by the plaintiff.
The Court of Appeals pointed out that the teller of Solidbank who received the withdrawal slip for
P300,000 allowed the withdrawal without making the necessary inquiry. The appellate court stated
that the teller, who was not presented by Solidbank during trial, should have called up the depositor
because the money to be withdrawn was a significant amount. Had the teller called up L.C. Diaz,
Solidbank would have known that the withdrawal was unauthorized. The teller did not even verify the
identity of the impostor who made the withdrawal. Thus, the appellate court found Solidbank liable for
its negligence in the selection and supervision of its employees.
The appellate court ruled that while L.C. Diaz was also negligent in entrusting its deposits to its
messenger and its messenger in leaving the passbook with the teller, Solidbank could not escape
liability because of the doctrine of last clear chance. Solidbank could have averted the injury suffered
by L.C. Diaz had it called up L.C. Diaz to verify the withdrawal.
The appellate court ruled that the degree of diligence required from Solidbank is more than that of a
good father of a family. The business and functions of banks are affected with public interest. Banks
are obligated to treat the accounts of their depositors with meticulous care, always having in mind the
fiduciary nature of their relationship with their clients. The Court of Appeals found Solidbank remiss in
its duty, violating its fiduciary relationship with L.C. Diaz.
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, premises considered, the decision appealed from is hereby REVERSED and a new
one entered.
1.
Ordering defendant-appellee Consolidated Bank and Trust Corporation to pay plaintiff-appellant
the sum of Three Hundred Thousand Pesos (P300,000.00), with interest thereon at the rate of 12%
per annum from the date of filing of the complaint until paid, the sum of P20,000.00 as exemplary
damages, and P20,000.00 as attorneys fees and expenses of litigation as well as the cost of suit; and
2.
Ordering the dismissal of defendant-appellees counterclaim in the amount of P30,000.00 as
attorneys fees.
SO ORDERED.[if !supportFootnotes][13][endif]
Acting on the motion for reconsideration of Solidbank, the appellate court affirmed its decision but
modified the award of damages. The appellate court deleted the award of exemplary damages and
attorneys fees. Invoking Article 2231[if !supportFootnotes][14][endif] of the Civil Code, the appellate court ruled that
exemplary damages could be granted if the defendant acted with gross negligence. Since Solidbank
was guilty of simple negligence only, the award of exemplary damages was not justified.
Consequently, the award of attorneys fees was also disallowed pursuant to Article 2208 of the Civil
Code. The expenses of litigation and cost of suit were also not imposed on Solidbank.
The dispositive portion of the Resolution reads as follows:
WHEREFORE, foregoing considered, our decision dated October 27, 1998 is affirmed with
modification by deleting the award of exemplary damages and attorneys fees, expenses of litigation
and cost of suit.
SO ORDERED.[if !supportFootnotes][15][endif]
Hence, this petition.
The Issues
Solidbank seeks the review of the decision and resolution of the Court of Appeals on these grounds:

I.
THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER BANK SHOULD
SUFFER THE LOSS BECAUSE ITS TELLER SHOULD HAVE FIRST CALLED PRIVATE
RESPONDENT BY TELEPHONE BEFORE IT ALLOWED THE WITHDRAWAL OF P300,000.00 TO
RESPONDENTS MESSENGER EMERANO ILAGAN, SINCE THERE IS NO AGREEMENT
BETWEEN THE PARTIES IN THE OPERATION OF THE SAVINGS ACCOUNT, NOR IS THERE ANY
BANKING LAW, WHICH MANDATES THAT A BANK TELLER SHOULD FIRST CALL UP THE
DEPOSITOR BEFORE ALLOWING A WITHDRAWAL OF A BIG AMOUNT IN A SAVINGS ACCOUNT.
II.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF LAST CLEAR
CHANCE AND IN HOLDING THAT PETITIONER BANKS TELLER HAD THE LAST OPPORTUNITY
TO WITHHOLD THE WITHDRAWAL WHEN IT IS UNDISPUTED THAT THE TWO SIGNATURES OF
RESPONDENT ON THE WITHDRAWAL SLIP ARE GENUINE AND PRIVATE RESPONDENTS
PASSBOOK WAS DULY PRESENTED, AND CONTRARIWISE RESPONDENT WAS NEGLIGENT IN
THE SELECTION AND SUPERVISION OF ITS MESSENGER EMERANO ILAGAN, AND IN THE
SAFEKEEPING OF ITS CHECKS AND OTHER FINANCIAL DOCUMENTS.
III.
THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE INSTANT CASE IS A LAST
DITCH EFFORT OF PRIVATE RESPONDENT TO RECOVER ITS P300,000.00 AFTER FAILING IN
ITS EFFORTS TO RECOVER THE SAME FROM ITS EMPLOYEE EMERANO ILAGAN.
IV.
THE COURT OF APPEALS ERRED IN NOT MITIGATING THE DAMAGES AWARDED
AGAINST PETITIONER UNDER ARTICLE 2197 OF THE CIVIL CODE, NOTWITHSTANDING ITS
FINDING THAT PETITIONER BANKS NEGLIGENCE WAS ONLY CONTRIBUTORY.[if !supportFootnotes][16]
[endif]

The Ruling of the Court

The petition is partly meritorious.
Solidbanks Fiduciary Duty under the Law
The rulings of the trial court and the Court of Appeals conflict on the application of the law. The trial
court pinned the liability on L.C. Diaz based on the provisions of the rules on savings account, a
recognition of the contractual relationship between Solidbank and L.C. Diaz, the latter being a
depositor of the former. On the other hand, the Court of Appeals applied the law on quasi-delict to
determine who between the two parties was ultimately negligent. The law on quasi-delict or culpa
aquiliana is generally applicable when there is no pre-existing contractual relationship between the
parties.
We hold that Solidbank is liable for breach of contract due to negligence, or culpa contractual.
The contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan.[if !supportFootnotes][17][endif] Article 1980 of the Civil Code expressly provides that x x x savings x x
x deposits of money in banks and similar institutions shall be governed by the provisions concerning
simple loan. There is a debtor-creditor relationship between the bank and its depositor. The bank is
the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees
to pay the depositor on demand. The savings deposit agreement between the bank and the depositor
is the contract that determines the rights and obligations of the parties.
The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 (RA 8791),[if !supportFootnotes][18][endif] which took effect on 13 June 2000, declares that
the State recognizes the fiduciary nature of banking that requires high standards of integrity and
performance.[if !supportFootnotes][19][endif] This new provision in the general banking law, introduced in 2000, is
a statutory affirmation of Supreme Court decisions, starting with the 1990 case of Simex
International v. Court of Appeals,[if !supportFootnotes][20][endif] holding that the bank is under obligation to treat

the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their
relationship.[if !supportFootnotes][21][endif]
This fiduciary relationship means that the banks obligation to observe high standards of integrity and
performance is deemed written into every deposit agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good
father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an
obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good
father of a family.[if !supportFootnotes][22][endif] Section 2 of RA 8791 prescribes the statutory diligence required
from banks that banks must observe high standards of integrity and performance in servicing their
depositors. Although RA 8791 took effect almost nine years after the unauthorized withdrawal of the
P300,000 from L.C. Diazs savings account, jurisprudence [if !supportFootnotes][23][endif] at the time of the
withdrawal already imposed on banks the same high standard of diligence required under RA No.
8791.
However, the fiduciary nature of a bank-depositor relationship does not convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or implied.
Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. [if !
supportFootnotes][24][endif]
The law simply imposes on the bank a higher standard of integrity and performance
in complying with its obligations under the contract of simple loan, beyond those required of non-bank
debtors under a similar contract of simple loan.
The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks
do not accept deposits to enrich depositors but to earn money for themselves. The law allows banks
to offer the lowest possible interest rate to depositors while charging the highest possible interest rate
on their own borrowers. The interest spread or differential belongs to the bank and not to the
depositors who are not cestui que trust of banks. If depositors are cestui que trust of banks, then the
interest spread or income belongs to the depositors, a situation that Congress certainly did not intend
in enacting Section 2 of RA 8791.
Solidbanks Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that responsibility arising from negligence in the performance
of every kind of obligation is demandable. For breach of the savings deposit agreement due to
negligence, or culpa contractual, the bank is liable to its depositor.
Calapre left the passbook with Solidbank because the transaction took time and he had to go to
Allied Bank for another transaction. The passbook was still in the hands of the employees of
Solidbank for the processing of the deposit when Calapre left Solidbank. Solidbanks rules on savings
account require that the deposit book should be carefully guarded by the depositor and kept under
lock and key, if possible. When the passbook is in the possession of Solidbanks tellers during
withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in
safeguarding the passbook.
Likewise, Solidbanks tellers must exercise a high degree of diligence in insuring that they return the
passbook only to the depositor or his authorized representative. The tellers know, or should know, that
the rules on savings account provide that any person in possession of the passbook is presumptively
its owner. If the tellers give the passbook to the wrong person, they would be clothing that person
presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For
failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and
Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the
passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the
defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault
or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant
was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual
obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a
presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to
Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its
employees.
Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the
teller with whom Calapre left the passbook and who was supposed to return the passbook to him. The
record does not indicate that Teller No. 6 verified the identity of the person who retrieved the
passbook. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity
of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented
this procedure in the present case.
Solidbank is bound by the negligence of its employees under the principle of respondeat superior or
command responsibility. The defense of exercising the required diligence in the selection and
supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana.[if !
supportFootnotes][25][endif]

The bank must not only exercise high standards of integrity and performance, it must also insure that
its employees do likewise because this is the only way to insure that the bank will comply with its
fiduciary duty. Solidbank failed to present the teller who had the duty to return to Calapre the
passbook, and thus failed to prove that this teller exercised the high standards of integrity and
performance required of Solidbanks employees.
Proximate Cause of the Unauthorized Withdrawal
Another point of disagreement between the trial and appellate courts is the proximate cause of the
unauthorized withdrawal. The trial court believed that L.C. Diazs negligence in not securing its
passbook under lock and key was the proximate cause that allowed the impostor to withdraw the
P300,000. For the appellate court, the proximate cause was the tellers negligence in processing the
withdrawal without first verifying with L.C. Diaz. We do not agree with either court.
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury and without which the result would not have occurred. [if !
supportFootnotes][26][endif]
Proximate cause is determined by the facts of each case upon mixed considerations
of logic, common sense, policy and precedent.[if !supportFootnotes][27][endif]
L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in
possession of the passbook while it was processing the deposit. After completion of the transaction,
Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized
representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the
passbook to another person.
Solidbanks failure to return the passbook to Calapre made possible the withdrawal of the P300,000 by
the impostor who took possession of the passbook. Under Solidbanks rules on savings account,
mere possession of the passbook raises the presumption of ownership. It was the negligent act of
Solidbanks Teller No. 6 that gave the impostor presumptive ownership of the passbook. Had the
passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened.
Thus, the proximate cause of the unauthorized withdrawal was Solidbanks negligence in not returning
the passbook to Calapre.

We do not subscribe to the appellate courts theory that the proximate cause of the unauthorized
withdrawal was the tellers failure to call up L.C. Diaz to verify the withdrawal. Solidbank did not have
the duty to call up L.C. Diaz to confirm the withdrawal. There is no arrangement between Solidbank
and L.C. Diaz to this effect. Even the agreement between Solidbank and L.C. Diaz pertaining to
measures that the parties must observe whenever withdrawals of large amounts are made does not
direct Solidbank to call up L.C. Diaz.
There is no law mandating banks to call up their clients whenever their representatives withdraw
significant amounts from their accounts. L.C. Diaz therefore had the burden to prove that it is the
usual practice of Solidbank to call up its clients to verify a withdrawal of a large amount of money. L.C.
Diaz failed to do so.
Teller No. 5 who processed the withdrawal could not have been put on guard to verify the withdrawal.
Prior to the withdrawal of P300,000, the impostor deposited with Teller No. 6 the P90,000 PBC check,
which later bounced. The impostor apparently deposited a large amount of money to deflect suspicion
from the withdrawal of a much bigger amount of money. The appellate court thus erred when it
imposed on Solidbank the duty to call up L.C. Diaz to confirm the withdrawal when no law requires this
from banks and when the teller had no reason to be suspicious of the transaction.
Solidbank continues to foist the defense that Ilagan made the withdrawal. Solidbank claims that since
Ilagan was also a messenger of L.C. Diaz, he was familiar with its teller so that there was no more
need for the teller to verify the withdrawal. Solidbank relies on the following statements in the Booking
and Information Sheet of Emerano Ilagan:
xxx Ilagan also had with him (before the withdrawal) a forged check of PBC and indicated the amount
of P90,000 which he deposited in favor of L.C. Diaz and Company. After successfully withdrawing this
large sum of money, accused Ilagan gave alias Rey (Noel Tamayo) his share of the loot. Ilagan then
hired a taxicab in the amount of P1,000 to transport him (Ilagan) to his home province at Bauan,
Batangas. Ilagan extravagantly and lavishly spent his money but a big part of his loot was wasted in
cockfight and horse racing. Ilagan was apprehended and meekly admitted his guilt.[if !supportFootnotes][28][endif]
(Emphasis supplied.)
L.C. Diaz refutes Solidbanks contention by pointing out that the person who withdrew the P300,000
was a certain Noel Tamayo. Both the trial and appellate courts stated that this Noel Tamayo presented
the passbook with the withdrawal slip.
We uphold the finding of the trial and appellate courts that a certain Noel Tamayo withdrew the
P300,000. The Court is not a trier of facts. We find no justifiable reason to reverse the factual finding
of the trial court and the Court of Appeals. The tellers who processed the deposit of the P90,000
check and the withdrawal of the P300,000 were not presented during trial to substantiate Solidbanks
claim that Ilagan deposited the check and made the questioned withdrawal. Moreover, the entry
quoted by Solidbank does not categorically state that Ilagan presented the withdrawal slip and the
passbook.
Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of
one is appreciably later than that of the other, or where it is impossible to determine whose fault or
negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to
do so, is chargeable with the loss.[if !supportFootnotes][29][endif] Stated differently, the antecedent negligence of
the plaintiff does not preclude him from recovering damages caused by the supervening negligence of
the defendant, who had the last fair chance to prevent the impending harm by the exercise of due

diligence.[if !supportFootnotes][30][endif]
We do not apply the doctrine of last clear chance to the present case. Solidbank is liable for breach of
contract due to negligence in the performance of its contractual obligation to L.C. Diaz. This is a case
of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance
to avoid the loss, would exonerate the defendant from liability.[if !supportFootnotes][31][endif] Such contributory
negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by
the plaintiff but does not exculpate the defendant from his breach of contract.[if !supportFootnotes][32][endif]
Mitigated Damages
Under Article 1172, liability (for culpa contractual) may be regulated by the courts, according to the
circumstances. This means that if the defendant exercised the proper diligence in the selection and
supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may
reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing
a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the
liability of Solidbank should be reduced.
In Philippine Bank of Commerce v. Court of Appeals,[if !supportFootnotes][33][endif] where the Court held the
depositor guilty of contributory negligence, we allocated the damages between the depositor and the
bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder
40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the
actual damages.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.
Petitioner Solidbank Corporation shall pay private respondent L.C. Diaz and Company, CPAs only
60% of the actual damages awarded by the Court of Appeals. The remaining 40% of the actual
damages shall be borne by private respondent L.C. Diaz and Company, CPAs. Proportionate costs.
SO ORDERED.
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la Pea, defendantappellant.
J. Lopez Vito, for appellant.Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to
the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate of
Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year he
deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly
thereafter and during the war of the revolution, Father De la Pea was arrested by the military

authorities as a political prisoner, and while thus detained made an order on said bank in favor of the
United States Army officer under whose charge he then was for the sum thus deposited in said bank.
The arrest of Father De la Pea and the confiscation of the funds in the bank were the result of the
claim of the military authorities that he was an insurgent and that the funds thus deposited had been
collected by him for revolutionary purposes. The money was taken from the bank by the military
authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart in
the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Pea's
liability is determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it
with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no one
shall be liable for events which could not be foreseen, or which having been foreseen were inevitable,
with the exception of the cases expressly mentioned in the law or those in which the obligation so
declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby
assume an obligation different from that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at all hazards. If the had been
forcibly taken from his pocket or from his house by the military forces of one of the combatants during
a state of war, it is clear that under the provisions of the Civil Code he would have been exempt from
responsibility. The fact that he placed the trust fund in the bank in his personal account does not add
to his responsibility. Such deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or whether
he was more or less negligent by depositing the money in his personal account than he would have
been if he had deposited it in a separate account as trustee. We regard such discussion as
substantially fruitless, inasmuch as the precise question is not one of negligence. There was no law
prohibiting him from depositing it as he did and there was no law which changed his responsibility be
reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in
duty bound, when he sees events approaching the results of which will be dangerous to his trust, to
take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those
events, we do not feel constrained to hold that, in choosing between two means equally legal, he is
culpably negligent in selecting one whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action was
deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo; that said
money was forcibly taken from the bank by the armed forces of the United States during the war of the
insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
G.R. No. 71049 May 29, 1987
BERNARDINO JIMENEZ, petitioner,
vs.

CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.

PARAS, J.:
This is a petition for review on certiorari of: (1) the decision * of the Intermediate Appellate Court in ACG.R. No. 013887-CV Bernardino Jimenez v. Asiatic Integrated Corporation and City of Manila,
reversing the decision ** of the Court of First Instance of Manila, Branch XXII in Civil Case No. 96390
between the same parties, but only insofar as holding Asiatic Integrated Corporation solely liable for
damages and attorney's fees instead of making the City of Manila jointly and solidarily liable with it as
prayed for by the petitioner and (2) the resolution of the same Appellate Court denying his Partial
Motion for Reconsideration (Rollo, p. 2).
The dispositive portion of the Intermediate Appellate Court's decision is as follows:
WHEREFORE, the decision appealed from is hereby REVERSED. A new one is hereby entered
ordering the defendant Asiatic Integrated Corporation to pay the plaintiff P221.90 actual medical
expenses, P900.00 for the amount paid for the operation and management of a school bus,
P20,000.00 as moral damages due to pains, sufferings and sleepless nights and P l0,000.00 as
attorney's fees.
SO ORDERED. (p. 20, Rollo)
The findings of respondent Appellate Court are as follows:
The evidence of the plaintiff (petitioner herein) shows that in the morning of August 15, 1974 he,
together with his neighbors, went to Sta. Ana public market to buy "bagoong" at the time when the
public market was flooded with ankle deep rainwater. After purchasing the "bagoong" he turned
around to return home but he stepped on an uncovered opening which could not be seen because of
the dirty rainwater, causing a dirty and rusty four- inch nail, stuck inside the uncovered opening, to
pierce the left leg of plaintiff-petitioner penetrating to a depth of about one and a half inches. After
administering first aid treatment at a nearby drugstore, his companions helped him hobble home. He
felt ill and developed fever and he had to be carried to Dr. Juanita Mascardo. Despite the medicine
administered to him by the latter, his left leg swelled with great pain. He was then rushed to the
Veterans Memorial Hospital where he had to be confined for twenty (20) days due to high fever and
severe pain.
Upon his discharge from the hospital, he had to walk around with crutches for fifteen (15) days. His
injury prevented him from attending to the school buses he is operating. As a result, he had to engage
the services of one Bienvenido Valdez to supervise his business for an aggregate compensation of
nine hundred pesos (P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-20).
Petitioner sued for damages the City of Manila and the Asiatic Integrated Corporation under whose
administration the Sta. Ana Public Market had been placed by virtue of a Management and Operating
Contract (Rollo, p. 47).
The lower court decided in favor of respondents, the dispositive portion of the decision reading:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff
dismissing the complaint with costs against the plaintiff. For lack of sufficient evidence, the
counterclaims of the defendants are likewise dismissed. (Decision, Civil Case No. 96390, Rollo, p. 42).
As above stated, on appeal, the Intermediate Appellate Court held the Asiatic Integrated Corporation
liable for damages but absolved respondent City of Manila.
Hence this petition.
The lone assignment of error raised in this petition is on whether or not the Intermediate Appellate
Court erred in not ruling that respondent City of Manila should be jointly and severally liable with

Asiatic Integrated Corporation for the injuries petitioner suffered.

In compliance with the resolution of July 1, 1985 of the First Division of this Court (Rollo, p. 29)
respondent City of Manila filed its comment on August 13, 1985 (Rollo, p. 34) while petitioner filed its
reply on August 21, 1985 (Reno, p. 51).
Thereafter, the Court in the resolution of September 11, 1985 (Rollo, p. 62) gave due course to the
petition and required both parties to submit simultaneous memoranda
Petitioner filed his memorandum on October 1, 1985 (Rollo, p. 65) while respondent filed its
memorandum on October 24, 1985 (Rollo, p. 82).
In the resolution of October 13, 1986, this case was transferred to the Second Division of this Court,
the same having been assigned to a member of said Division (Rollo, p. 92).
The petition is impressed with merit.
As correctly found by the Intermediate Appellate Court, there is no doubt that the plaintiff suffered
injuries when he fell into a drainage opening without any cover in the Sta. Ana Public Market.
Defendants do not deny that plaintiff was in fact injured although the Asiatic Integrated Corporation
tries to minimize the extent of the injuries, claiming that it was only a small puncture and that as a war
veteran, plaintiff's hospitalization at the War Veteran's Hospital was free. (Decision, AC-G.R. CV No.
01387, Rollo, p. 6).
Respondent City of Manila maintains that it cannot be held liable for the injuries sustained by the
petitioner because under the Management and Operating Contract, Asiatic Integrated Corporation
assumed all responsibility for damages which may be suffered by third persons for any cause
attributable to it.
It has also been argued that the City of Manila cannot be held liable under Article 1, Section 4 of
Republic Act No. 409 as amended (Revised Charter of Manila) which provides:
The City shall not be liable or held for damages or injuries to persons or property arising from the
failure of the Mayor, the Municipal Board, or any other City Officer, to enforce the provisions of this
chapter, or any other law or ordinance, or from negligence of said Mayor, Municipal Board, or any
other officers while enforcing or attempting to enforce said provisions.
This issue has been laid to rest in the case of City of Manila v. Teotico (22 SCRA 269-272 [1968])
where the Supreme Court squarely ruled that Republic Act No. 409 establishes a general rule
regulating the liability of the City of Manila for "damages or injury to persons or property arising from
the failure of city officers" to enforce the provisions of said Act, "or any other law or ordinance or from
negligence" of the City "Mayor, Municipal Board, or other officers while enforcing or attempting to
enforce said provisions."
Upon the other hand, Article 2189 of the Civil Code of the Philippines which provides that:
Provinces, cities and municipalities shall be liable for damages for the death of, or injuries suffered by
any person by reason of defective conditions of roads, streets, bridges, public buildings and other
public works under their control or supervision.
constitutes a particular prescription making "provinces, cities and municipalities ... liable for damages
for the death of, or injury suffered by any person by reason" specifically "of the defective
condition of roads, streets, bridges, public buildings, and other public works under their control or
supervision." In other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising from negligence, in
general, regardless of the object, thereof, while Article 2189 of the Civil Code governs liability due to
"defective streets, public buildings and other public works" in particular and is therefore decisive on
this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is not

necessary for the liability therein established to attach, that the defective public works belong to the
province, city or municipality from which responsibility is exacted. What said article requires is that the
province, city or municipality has either "control or supervision" over the public building in question.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management and
Operating Contract between respondent City and Asiatic Integrated Corporation remained under the
control of the former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the SECOND PARTY shall start the painting,
cleaning, sanitizing and repair of the public markets and talipapas and within ninety (90) days thereof,
the SECOND PARTY shall submit a program of improvement, development, rehabilitation and
reconstruction of the city public markets and talipapas subject to prior approval of the FIRST PARTY.
(Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas shall be retained by the SECOND
PARTY as long as their services remain satisfactory and they shall be extended the same rights and
privileges as heretofore enjoyed by them. Provided, however, that the SECOND PARTY shall have the
right, subject to prior approval of the FIRST PARTY to discharge any of the present employees for
cause. (Rollo, p. 45).
VII
That the SECOND PARTY may from time to time be required by the FIRST PARTY, or his duly
authorized representative or representatives, to report, on the activities and operation of the City
public markets and talipapas and the facilities and conveniences installed therein, particularly as to
their cost of construction, operation and maintenance in connection with the stipulations contained in
this Contract. (lbid)
The fact of supervision and control of the City over subject public market was admitted by Mayor
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and Operating Contract entered into
on December 28, 1972 by and between the City of Manila and the Asiatic Integrated Corporation,
whereby in consideration of a fixed service fee, the City hired the services of the said corporation to
undertake the physical management, maintenance, rehabilitation and development of the City's public
markets and' Talipapas' subject to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of these powers vis-a-vis the existence
of the contract, inasmuch as the City retains the power of supervision and control over its public
markets and talipapas under the terms of the contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p.
75).
In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary
duty is to take direct supervision and control of that particular market, more specifically, to check the
safety of the place for the public.
Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City of Manila
testified as follows:
Court This market master is an employee of the City of Manila?

Mr. Ymson Yes, Your Honor.

Q What are his functions?
A Direct supervision and control over the market area assigned to him."(T.s.n.,pp. 41-42, Hearing of
May 20, 1977.)
xxx xxx xxx
Court As far as you know there is or is there any specific employee assigned with the task of seeing to
it that the Sta. Ana Market is safe for the public?
Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has its own market master. The primary
duty of that market master is to make the direct supervision and control of that particular market, the
check or verifying whether the place is safe for public safety is vested in the market master. (T.s.n., pp.
2425, Hearing of July 27, 1977.) (Emphasis supplied.) (Rollo, p. 76).
Finally, Section 30 (g) of the Local Tax Code as amended, provides:
The treasurer shall exercise direct and immediate supervision administration and control over public
markets and the personnel thereof, including those whose duties concern the maintenance and
upkeep of the market and ordinances and other pertinent rules and regulations. (Emphasis supplied.)
(Rollo, p. 76)
The contention of respondent City of Manila that petitioner should not have ventured to go to Sta. Ana
Public Market during a stormy weather is indeed untenable. As observed by respondent Court of
Appeals, it is an error for the trial court to attribute the negligence to herein petitioner. More specifically
stated, the findings of appellate court are as follows:
... The trial court even chastised the plaintiff for going to market on a rainy day just to buy bagoong. A
customer in a store has the right to assume that the owner will comply with his duty to keep the
premises safe for customers. If he ventures to the store on the basis of such assumption and is injured
because the owner did not comply with his duty, no negligence can be imputed to the customer.
(Decision, AC-G. R. CV No. 01387, Rollo, p. 19).
As a defense against liability on the basis of a quasi-delict, one must have exercised the diligence of a
good father of a family. (Art. 1173 of the Civil Code).
There is no argument that it is the duty of the City of Manila to exercise reasonable care to keep the
public market reasonably safe for people frequenting the place for their marketing needs.
While it may be conceded that the fulfillment of such duties is extremely difficult during storms and
floods, it must however, be admitted that ordinary precautions could have been taken during good
weather to minimize the dangers to life and limb under those difficult circumstances.
For instance, the drainage hole could have been placed under the stalls instead of on the passage
ways. Even more important is the fact, that the City should have seen to it that the openings were
covered. Sadly, the evidence indicates that long before petitioner fell into the opening, it was already
uncovered, and five (5) months after the incident happened, the opening was still uncovered. (Rollo,
pp. 57; 59). Moreover, while there are findings that during floods the vendors remove the iron grills to
hasten the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17), there is no showing that
such practice has ever been prohibited, much less penalized by the City of Manila. Neither was it
shown that any sign had been placed thereabouts to warn passersby of the impending danger.
To recapitulate, it appears evident that the City of Manila is likewise liable for damages under Article
2189 of the Civil Code, respondent City having retained control and supervision over the Sta. Ana
Public Market and as tort-feasor under Article 2176 of the Civil Code on quasi-delicts
Petitioner had the right to assume that there were no openings in the middle of the passageways and
if any, that they were adequately covered. Had the opening been covered, petitioner could not have

fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury suffered, the
City is therefore liable for the injury suffered by the peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the
City of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221.90 actual
medical expenses, P900.00 for the amount paid for the operation and management of the school bus,
P20,000.00 as moral damages due to pain, sufferings and sleepless nights and P10,000.00 as
attorney's fees.
SO ORDERED.
G.R. No. 112160

February 28, 2000

OSMUNDO S. CANLAS and ANGELINA CANLAS, petitioner,

vs.
COURT OF APPEALS, ASIAN SAVINGS BANK, MAXIMO C. CONTRARES and VICENTE
MAOSCA, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to review and
set aside the Decision1 of the Court of Appeals in CA-G.R. CV No. 25242, which reversed the
Decision2 of Branch 59 of the Regional Trial Court of Makati City in Civil Case No. M-028; the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE and a new one is
hereby entered DISMISSING the complaint of the spouses Osmundo and Angelina Canlas. On the
counterclaim of defendant Asian Savings Bank, the plaintiffs Canlas spouses are hereby ordered to
pay the defendant Asian Savings Bank the amount of P50,000.00 as moral and exemplary damages,
plus P15,000.00 as and for attorney's fees.
With costs against appellees.
SO ORDERED.3
The facts that matter:
Sometime in August, 1982, the petitioner, Osmundo S. Canlas, and private respondent, Vicente
Maosca, decided to venture in business and to raise the capital needed therefor. The former then
executed a Special Power of Attorney authorizing the latter to mortgage two parcels of land situated in
San Dionisio, (BF Homes) Paranaque, Metro Manila, each lot with semi-concrete residential house
existing thereon, and respectively covered by Transfer Certificate of Title No. 54366 in his
(Osmundo's) name and Transfer Certificate of Title No. S-78498 in the name of his wife Angelina
Canlas.
Subsequently, Osmundo Canlas agreed to sell the said parcels of land to Vicente Maosca, for and in
consideration of P850,000.00, P500,000.00 of which payable within one week, and the balance of
P350,000.00 to serve as his (Osmundo's) investment in the business. Thus, Osmundo Canlas
delivered to Vicente Maosca the transfer certificates of title of the parcels of land involved. Vicente
Maosca, as his part of the transaction, issued two postdated checks in favor of Osmundo Canlas in
the amounts of P40,000.00 and P460,000.00, respectively, but it turned out that the check covering
the bigger amount was not sufficiently funded.4

On September 3, 1982, Vicente Maosca was able to mortgage the same parcels of land for
P100,000.00 to a certain Attorney Manuel Magno, with the help of impostors who misrepresented
themselves as the spouses, Osmundo Canlas and Angelina Canlas.5
On September 29, 1982, private respondent Vicente Maosca was granted a loan by the respondent
Asian Savings Bank (ASB) in the amount of P500,000.00, with the use of subject parcels of land as
security, and with the involvement of the same impostors who again introduced themselves as the
Canlas spouses.6 When the loan it extended was not paid, respondent bank extrajudicially foreclosed
the mortgage.
On January 15, 1983, Osmundo Canlas wrote a letter informing the respondent bank that the
execution of subject mortgage over the two parcels of land in question was without their (Canlas
spouses) authority, and request that steps be taken to annul and/or revoke the questioned mortgage.
On January 18, 1983, petitioner Osmundo Canlas also wrote the office of Sheriff Maximo O.
Contreras, asking that the auction sale scheduled on February 3, 1983 be cancelled or held in
abeyance. But respondents Maximo C. Contreras and Asian Savings Bank refused to heed petitioner
Canlas' stance and proceeded with the scheduled auction sale.7
Consequently, on February 3, 1983 the herein petitioners instituted the present case for annulment of
deed of real estate mortgage with prayer for the issuance of a writ of preliminary injunction; and on
May 23, 1983, the trial court issued an Order restraining the respondent sheriff from issuing the
corresponding Certificate of Sheriff's Sale.8
For failure to file his answer, despite several motions for extension of time for the filing thereof, Vicente
Maosca was declared in default.9
On June 1, 1989, the lower court a quo came out with a decision annulling subject deed of mortgage
and disposing, thus:
Premises considered, judgment is hereby rendered as follows.1wphi1.nt
1. Declaring the deed of real estate mortgage (Exhibit "L") involving the properties of the plaintiffs as
null and void;
2. Declaring the public auction sale conducted by the defendant Sheriff, involving the same properties
as illegal and without binding effect;
3. Ordering the defendants, jointly and severally, to pay the plaintiffs the sum of P20,000.00
representing attorney's fees;
4. On defendant ASB's crossclaim: ordering the cross-defendant Vicente Maosca to pay the
defendant ASB the sum of P350,000.00, representing the amount which he received as proceeds of
the loan secured by the void mortgage, plus interest at the legal rate, starting February 3, 1983, the
date when the original complaint was filed, until the amount is fully paid;
5. With costs against the defendants.
SO ORDERED.10
From such Decision below, Asian Savings Bank appealed to the Court of Appeals, which handed down
the assailed judgment of reversal, dated September 30, 1983, in CA-G.R. CV No. 25242. Dissatisfied
therewith, the petitioners found their way to this Court via the present Petition; theorizing that:
I
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT THE MORTGAGE OF THE
PROPERTIES SUBJECT OF THIS CASE WAS VALID.
II

RESPONDENT COURT OF APPEALS ERRED IN HIOLDING THAT PETITIONERS ARE NOT

ENTITLED TO RELIEF BECAUSE THEY WERE NEGLIGENT AND THEREFORE MUST BEAR THE
LOSS.
III
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB EXERCISED
DUE DILIGENCE IN GRANTING THE LOAN APPLICATION OF RESPONDENT.
IV
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT ASB DID NOT
ACT WITH BAD FAITH IN PROCEEDING WITH THE FORECLOSURE SALE OF THE PROPERTIES.
V
RESPONDENT COURT OF APPEALS ERRED IN AWARDING RESPONDENT ASB MORAL
DAMAGES.11
The Petition is impressed with merit.
Art. 1173 of the Civil Code, provides:
Art. 1173. The fault or negligence of the obligor consist in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the
time and of the place. When negligence shows bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required. (1104)
The degree of diligence required of banks is more than that of a good father of a family; 12 in keeping
with their responsibility to exercise the necessary care and prudence in dealing even on a registered
or titled property. The business of a bank is affected with public interest, holding in trust the money of
the depositors, which bank deposits the bank should guard against loss due to negligence or bad faith,
by reason of which the bank would be denied the protective mantle of the land registration law,
accorded only to purchasers or mortgagees for value and in good faith.13
In the case under consideration, from the evidence on hand it can be gleaned unerringly that
respondent bank did not observe the requisite diligence in ascertaining or verifying the real identity of
the couple who introduced themselves as the spouses Osmundo Canlas and Angelina Canlas. It is
worthy to note that not even a single identification card was exhibited by the said impostors to show
their true identity; and yet, the bank acted on their representations simply on the basis of the residence
certificates bearing signatures which tended to match the signatures affixed on a previous deed of
mortgage to a certain Atty. Magno, covering the same parcels of land in question. Felizado Mangubat,
Assistant Vice President of Asian Savings Bank, thus testified inter alia:
xxx

xxx

xxx

Q:
According to you, the basis for your having recommended for the approval of MANASCO's
(sic) loan particularly that one involving the property of plaintiff in this case, the spouses OSMUNDO
CANLAS and ANGELINA CANLAS, the basis for such approval was that according to you all the
signatures and other things taken into account matches with that of the document previously executed
by the spouses CANLAS?
Q:
That is the only basis for accepting the signature on the mortgage, the basis for the
recommendation of the approval of the loan are the financial statement of MAOSCA?
A:
Yes; among others the signature and TAX Account Number, Residence Certificate appearing
on the previous loan executed by the spouses CANLAS, I am referring to EXHIBIT 5, mortgage to

ATTY. MAGNO, those were made the basis.

A:
That is just the basis of accepting the signature, because at that time the loan have been
approved already on the basis of the financial statement of the client the Bank Statement. Wneh (sic)
it was approved we have to base it on the Financial statement of the client, the signatures were
accepted only for the purpose of signing the mortgage not for the approval, we don't (sic) approve
loans on the signature.
ATTY. CLAROS:
Would you agree that as part of ascertaining the identify of the parties particularly the mortgage, you
don't consider also the signature, the Residence Certificate, the particular address of the parties
involved.
A:

I think the question defers (sic) from what you asked a while ago.

Q:

Among others?

A:
We have to accept the signature on the basis of the other signatures given to us it being a
public instrument.
ATTY. CARLOS:
You mean to say the criteria of ascertaining the identity of the mortgagor does not depend so much on
the signature on the residence certificate they have presented.
A:
xxx

We have to accept that.

xxx

xxx

A:
We accepted the signature on the basis of the mortgage in favor of ATTY. MAGNO duly
notarized which I have been reiterrting (sic) entitled to full faith considering that it is a public
instrument.
ATTY. CARLOS:
What other requirement did you take into account in ascertaining the identification of the parties
particularly the mortgagor in this case.
A:

Residence Certificate.

Q:

Is that all, is that the only requirement?

A:
We requested for others but they could not produce, and because they presented to us the
Residence Certificate which matches on the signature on the Residence Certificate in favor of Atty.
Magno.14
Evidently, the efforts exerted by the bank to verify the identity of the couple posing as Osmundo
Canlas and Angelina Canlas fell short of the responsibility of the bank to observe more than the
diligence of a good father of a family. The negligence of respondent bank was magnified by the fact
that the previous deed of mortgage (which was used as the basis for checking the genuineness of the
signatures of the supposed Canlas spouses) did not bear the tax account number of the spouses, 15 as
well as the Community Tax Certificate of Angelina Canlas. 16 But such fact notwithstanding, the bank
did not require the impostors to submit additional proof of their true identity.
Under the doctrine of last clear chance, which is applicable here, the respondent bank must suffer the
resulting loss. In essence, the doctrine of last clear chance is to the effect that where both parties are
negligent but the negligent act of one is appreciably later in point of time than that of the other, or
where it is impossible to determine whose fault or negligence brought about the occurrence of the
incident, the one who had the last clear opportunity to avoid the impending harm but failed to do so, is
chargeable with the consequences arising therefrom. Stated differently, the rule is that the antecedent

negligence of a person does not preclude recovery of damages caused by the supervening negligence
of the latter, who had the last fair chance to prevent the impending harm by the exercise of due
diligence.17
Assuming that Osmundo Canlas was negligent in giving Vicente Maosca the opportunity to
perpetrate the fraud, by entrusting to latter the owner's copy of the transfer certificates of title of
subject parcels of land, it cannot be denied that the bank had the last clear chance to prevent the
fraud, by the simple expedient of faithfully complying with the requirements for banks to ascertain the
identity of the persons transacting with them.
For not observing the degree of diligence required of banking institutions, whose business is
impressed with public interest, respondent Asian Savings Bank has to bear the loss sued upon.
In ruling for respondent bank, the Court of Appeals concluded that the petitioner Osmundo Canlas was
a party to the fraudulent scheme of Maosca and therefore, estopped from impugning the validity of
subject deed of mortgage; ratiocinating thus:
xxx

xxx

xxx

Thus, armed with the titles and the special power of attorney, Maosca went to the defendant bank
and applied for a loan. And when Maosca came over to the bank to submit additional documents
pertinent to his loan application, Osmundo Canlas was with him, together with a certain Rogelio Viray.
At that time, Osmundo Canlas was introduced to the bank personnel as "Leonardo Rey".
When he was introduced as "Leonardo Rey" for the first time Osmundo should have corrected
Maosca right away. But he did not. Instead, he even allowed Maosca to avail of his (Osmundo's)
membership privileges at the Metropolitan Club when Maosca invited two officers of the defendant
bank to a luncheon meeting which Osmundo also attended. And during that meeting, Osmundo did not
say who he really is, but even let Maosca introduced him again as "Leonardo Rey", which all the
more indicates that he connived with Maosca in deceiving the defendant bank.
Finally after the loan was finally approved, Osmundo accompanied Maosca to the bank when the
loan was released. At that time, a manger's check for P200,000.00 was issued in the name of Oscar
Motorworks, which Osmundo admits he owns and operates.
Collectively, the foregoing circumstances cannot but conjure to a single conclusion that Osmundo
active participated in the loan application of defendant Asian Savings Bank, which culminated in his
receiving a portion of the process thereof:18
A meticulous and painstaking scrutiny of the Records on hand, reveals, however, that the findings
arrived at by the Court of Appeals are barren of any sustainable basis. For instance, the execution of
the deeds of mortgages constituted by Maosca on subject pieces of property of petitioners were
made possible not by the Special Power of Attorney executed by Osmundo Canlas in favor of
Maosca but through the use of impostors who misrepresented themselves as the spouses Angelina
Canlas and Osmundo Canlas. It cannot be said therefore, that the petitioners authorized Vicente
Maosca to constitute the mortgage on their parcels of land.
What is more, Osmundo Canlas was introduced as "Leonardo Rey" by Vicente Maosca, only on the
occasion of the luncheon meeting at the Metropolitan Club.19 Thereat, the failure of Osmundo Canlas
to rectify Maosca's misrepresentations could not be taken as a fraudulent act. As well explained by
the former, he just did not want to embarrass Maosca, so that he waited for the end of the meeting to
correct Maosca.20
Then, too, Osmundo Canlas recounted that during the said luncheon meeting, they did not talk about
the security or collateral for the loan of Maosca with ASB. 21 So also, Mrs. Josefina Rojo, who was the
Account Officer of Asian Savings Bank when Maosca applied for subject loan, corroborated the
testimony of Osmundo Canlas, she testified:

xxx

xxx

QUESTION:
Makati?

xxx
Now could you please describe out the lunch conference at the Metro Club in

ANSWER:
Mr. Mangubat, Mr. Maosca and I did not discuss with respect to the loan application
and discuss primarily his business.
xxx

xxx

QUESTION:

xxx
So, what is the main topic of your discussion during the meeting?

ANSWER:
The main topic war then, about his business although, Mr. Leonardo Rey, who
actually turned out as Mr. Canlas, supplier of Mr. Maosca.
QUESTION:
discussed?
ANSWER:

YES.

QUESTION:
ANSWER:
xxx

I see . . . other than the business of Mr. Maosca, were there any other topic

And what was the topic:

General Economy then.

xxx

x x x22

Verily, Osmundo Canlas was left unaware of the illicit plan of Maosca, explaining thus why he
(Osmundo) did not bother to correct what Maosca misrepresented and to assert ownership over the
two parcels of land in question.
Not only that; while it is true that Osmundo Canlas was with Vicente Maosca when the latter
submitted the documents needed for his loan application, and when the check of P200,000.00 was
released, the former did not know that the collateral used by Maosca for the said loan were their
(Canlas spouses') properties. Osmundo happened to be with Maosca at the time because he wanted
to make sure that Maosca would make good his promise to pay the balance of the purchase price of
the said lots out of the proceeds of the loan.23
The receipt by Osmundo Canlas of the P200,000.00 check from ASB could not estop him from
assailing the validity of the mortgage because the said amount was in payment of the parcels of land
he sold to Maosca.24
What is decisively clear on record is that Maosca managed to keep Osmundo Canlas uninformed of
his (Maosca's) intention to use the parcels of land of the Canlas spouses as security for the loan
obtained from Asian Savings Bank. Since Vicente Maosca showed Osmundo Canlas several
certificates of title of lots which, according to Maosca were the collaterals, Osmundo Canlas was
confident that their (Canlases') parcels of land were not involved in the loan transactions with the
Asian Savings Bank.25 Under the attendant facts and circumstances, Osmundo Canlas was
undoubtedly negligent, which negligence made them (petitioners) undeserving of an award of
attorney's fees.
Settled is the rule that a contract of mortgage must be constituted only by the absolute owner on the
property mortgaged;26 a mortgage, constituted by an impostor is void. 27 Considering that it was
established indubitably that the contract of mortgage sued upon was entered into and signed by
impostors who misrepresented themselves as the spouses Osmundo Canlas and Angelina Canlas,
the Court is of the ineluctible conclusion and finding that subject contract of mortgage is a complete
nullity.
WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals, dated September
30, 1993, in CA-G.R. CV No. 25242 SET ASIDE. The Decision of Branch 59 of the Regional Trial
Court of Makati City in Civil Case No. M-028 is hereby REINSTATED. No pronouncement as to costs.

SO ORDERED.1wphi1.nt
G.R. No. 165622

October 17, 2008

MERCURY DRUG CORPORATION and AURMELA GANZON, petitioners,

vs.
RAUL DE LEON, respondents.
DECISION
REYES, R.T., J.:
IN REALITY, for the druggist, mistake is negligence and care is no defense. 1 Sa isang parmasyutika,
ang pagkakamali ay kapabayaan at ang pagkalinga ay hindi angkop na dipensa.
This is a petition for review on certiorari2 of two Resolutions3 of the Court of Appeals (CA). The first
Resolution granted respondents motion to dismiss while the second denied petitioners motion for
reconsideration.
The Facts
Respondent Raul T. De Leon was the presiding judge of Branch 258, Regional Trial Court (RTC) in
Paraaque.4 On October 17, 1999, he noticed that his left eye was reddish. He also had difficulty
reading.5 On the same evening, he met a friend for dinner at the Foohyui Restaurant. The same friend
happened to be a doctor, Dr. Charles Milla, and had just arrived from abroad.6
Aside from exchanging pleasantries, De Leon consulted Dr. Milla about his irritated left eye. 7 The latter
prescribed the drugs "Cortisporin Opthalmic" and "Ceftin" to relieve his eye problems. 8 Before heading
to work the following morning, De Leon went to the Betterliving, Paraaque, branch of Mercury Drug
Store Corporation to buy the prescribed medicines. 9 He showed his prescription to petitioner Aurmela
Ganzon, a pharmacist assistant.10 Subsequently, he paid for and took the medicine handed over by
Ganzon.11
At his chambers, De Leon requested his sheriff to assist him in using the eye drops. 12 As instructed,
the sheriff applied 2-3 drops on respondents left eye. 13 Instead of relieving his irritation, respondent
felt searing pain.14 He immediately rinsed the affected eye with water, but the pain did not subside. 15
Only then did he discover that he was given the wrong medicine, "Cortisporin Otic Solution."16
De Leon returned to the same Mercury Drug branch, with his left eye still red and teary. 17 When he
confronted Ganzon why he was given ear drops, instead of the prescribed eye drops, 18 she did not
apologize and instead brazenly replied that she was unable to fully read the prescription. 19 In fact, it
was her supervisor who apologized and informed De Leon that they do not have stock of the needed
Cortisporin Opthalmic.20
De Leon wrote Mercury Drug, through its president, Ms. Vivian K. Askuna, about the days incident. 21 It
did not merit any response.22 Instead, two sales persons went to his office and informed him that their
supervisor was busy with other matters. 23 Having been denied his simple desire for a written apology
and explanation,24 De Leon filed a complaint for damages against Mercury Drug.25
Mercury Drug denied that it was negligent and therefore liable for damages. 26 It pointed out that the
proximate cause of De Leons unfortunate experience was his own negligence. 27 He should have first
read and checked to see if he had the right eye solution before he used any on his eye. 28 He could
have also requested his sheriff to do the same before the latter applied the medicine on such a
delicate part of his body.29
Also, Mercury Drug explained that there is no available medicine known as "Cortisporin Opthalmic" in

the Philippine market.30 Furthermore, what was written on the piece of paper De Leon presented to
Ganzon was "Cortisporin Solution."31 Accordingly, she gave him the only available "Cortisporin
Solution" in the market.
Moreover, even the piece of paper De Leon presented upon buying the medicine can not be
considered as proper prescription.32 It lacked the required information concerning the attending
doctors name and license number.33 According to Ganzon, she entertained De Leons purchase
request only because he was a regular customer of their branch.34
RTC Disposition
On April 30, 2003, the RTC rendered judgment in favor of respondent, the dispositive portion of which
reads:
WHEREFORE, the court finds for the plaintiff.
For pecuniary loss suffered, Mercury Drug Store is to pay ONE HUNDRED FIFTY-THREE PESOS
AND TWENTY-FIVE CENTAVOS (Php 153.25), the value of the medicine.
As moral damages defendants is (sic) ordered to pay ONE HUNDRED THOUSAND PESOS (Php
100,000.00).
To serve as a warning to those in the field of dispensing medicinal drugs discretion of the highest
degree is expected of them, Mercury Drug Store and defendant Aurmila (sic) Ganzon are ordered to
pay plaintiff the amount of THREE HUNDRED THOUSAND PESOS (Php 300,000.00) as exemplary
damages.
Due to defendants callous reaction to the mistake done by their employee which forced plaintiff to
litigate, Defendant (sic) Mercury Drug Store is to pay plaintiff attorneys fees of P50,000.00 plus
litigation expenses.
SO ORDERED.35
In ruling in favor of De Leon, the RTC ratiocinated:
The proximate cause of the ill fate of plaintiff was defendant Aurmila (sic) Ganzons negligent exercise
of said discretion. She gave a prescription drug to a customer who did not have the proper form of
prescription, she did not take a good look at said prescription, she merely presumed plaintiff was
looking for Cortisporin Otic Solution because it was the only one available in the market and she
further presumed that by merely putting the drug by the counter wherein plaintiff looked at it, paid and
took the drug without any objection meant he understood what he was buying.36
The RTC ruled that although De Leon may have been negligent by failing to read the medicines label
or to instruct his sheriff to do so, Mercury Drug was first to be negligent. 37 Ganzon dispensed a drug
without the requisite prescription.38 Moreover, she did so without fully reading what medicine was
exactly being bought.39 In fact, she presumed that since what was available was the drug Cortisporin
Otic Solution, it was what De Leon was attempting to buy.40 Said the court:
When the injury is caused by the negligence of a servant or employee, there instantly arises a
presumption of law that there was negligence on the part of the employer or employer either in the
selection of the servant or employee, or in the supervision over him after the selection or both.
xxxx
The theory bases the responsibility of the master ultimately on his own negligence and not on that of
his servant.41
Dissatisfied with the RTC ruling, Mercury Drug and Ganzon elevated the matter to the CA.
Accordingly, they filed their respective briefs. Raising technical grounds, De Leon moved for the
appeals dismissal.

CA Disposition
On July 4, 2008, the CA issued a resolution which granted De Leons motion and dismissed the
appeal. Said the appellate court:
As pointed out by the plaintiff-appellee, the Statement of Facts, Statement of the Case, Assignment of
Errors/issues, Arguments/ Discussions in the Brief make no references to the pages of the records.
We find this procedural lapse justify the dismissal of the appeal, pursuant to Section 1(f), Rule 50 of
the 1997 Rules of Civil Procedure x x x.42
xxxx
"The premise that underlies all appeals is that they are merely rights which arise form a statute;
therefore, they must be exercised in the manner prescribed by law. It is to this end that rules governing
pleadings and practice before the appellate court were imposed. These rules were designed to assist
the appellate court in the accomplishment of its tasks, and overall, to enhance the orderly
administration of justice."
xxxx
x x x If the statement of fact is unaccompanied by a page reference to the record, it may be stricken or
disregarded all together.43
On October 5, 2004, the CA denied Mercury Drugs and Ganzons joint motion for reconsideration.
Although mindful that litigation is not a game of technicalities, 44 the CA found no persuasive reasons to
relax procedural rules in favor of Mercury Drug and Ganzon.45 The CA opined:
In the case under consideration, We find no faithful compliance on the part of the movants that will call
for the liberal application of the Rules. Section 1(f) of Rule 50 of the 1997 Rules of Civil Procedure
explicitly provides that an appeal may be dismissed by the Court of Appeals, on its own motion or on
that of the appellee, for want of page references to the records as required in Section 13 of Rule 44 of
the same rules46
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS APPEAL BASED
ON THE CASES OF DE LIANA VS. CA (370 SCRA 349) AND HEIRS OF PALOMINIQUE VS. CA (134
SCRA 331).
II
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
DISMISSING PETITIONERS APPEAL DESPITE SUBSTANTIAL COMPLIANCE WITH SECTION
1(F), RULE 60 AND SECTION 13, RULE 44 OF THE RULES OF COURT.
III
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAVORED MERE TECHNICALITY
OVER SUBSTANTIAL JUSTICE WHICH WILL CERTAINLY CAUSE GRAVE INJUSTICE AND GREAT
PREJUDICE TO PETITIONER CONSIDERING THAT THE ASSAILED DECISION ON APPEAL IS
CLUSTERED WITH ERRORS AND IN CONTRAST with the DECISIONS OF THIS HONORABLE
SUPREME COURT.47 (Underscoring supplied)
Our Ruling
The appeal succeeds in part.

Dismissal of an appeal under Rule 50 is discretionary.

In several cases,48 this Court stressed that the grounds for dismissal of an appeal under Section 1 of
Rule 5049 are discretionary upon the appellate court. The very wording of the rule uses the word "may"
instead of "shall." This indicates that it is only directory and not mandatory.50 Sound discretion must be
exercised in consonance with the tenets of justice and fair play, keeping in mind the circumstances
obtaining in each case.51
The importance of an appellants brief cannot be gainsaid. Its purpose is two-fold: (1) to present to the
court in coherent and concise form the point and questions in controversy; and (2) to assist the court
in arriving at a just and proper conclusion.52 It is considered a vehicle of counsel to convey to the court
the essential facts of a clients case, a statement of the questions of law involved, the law to be
applied, and the application one desires of it by the court.53
The absence of page reference to the record is a ground for dismissal. It is a requirement intended to
ultimately aid the appellate court in arriving at a just and proper conclusion of the case. 54 However, as
earlier discussed, such dismissal is not mandatory, but discretionary on the part of the appellate court.
This Court has held that the failure to properly cite reference to the original records is not a
fatal procedural lapse.55 When citations found in the appellants brief enable the court to
expeditiously locate the portions of the record referred to, there is substantial compliance with
the requirements of Section 13(c), (d), and (f) of Rule 44.56
In De Leon v. CA,57 this Court ruled that the citations contained in the appellants brief sufficiently
enabled the appellate court to expeditiously locate the portions of the record referred to. They were in
substantial compliance with the rules. The Court said:
Nothing in the records indicate that it was exercised capriciously, whimsically, or with a view of
permitting injury upon a party litigant. For the same reasons, we hold that the respondent Court of
Appeals did not err when it did not dismiss the appeal based on the allegation that appellants brief
failed to comply with the internal rules of said court.58
Similar to the instant case, the appellants brief in Yuchengco v. Court of Appeals 59 contained
references to Exhibits and Transcript of Stenographic Notes and attachments. These were found to
have substantially complied with the requirements of Section 13(c) and (d) of Rule 44.
x x x The Appellants brief may not have referred to the exact pages of the records, however, the same
is not fatal to their cause since the references they made enabled the appellate court to expeditiously
locate the portions referred to. x x x60
It is true that in De Liano v. Court of Appeals,61 this Court held that a statement of facts
unaccompanied by a page reference to the record may be presumed to be without support in the
record and may be stricken or disregarded altogether. However, the instant case is not on all fours
with De Liano.
In De Liano, the appellants brief lacked a Subject Index and a Table of Cases and Authorities.62
Moreover, the Statement of the Case, Statements of Facts, and Statements of Arguments had no
page references to the record.63 When notified of such defects, defendants-appellants failed to amend
their brief to conform to the rules.64 Instead, they continued to argue that their errors were harmless. 65
All these omissions and non-compliance justified the dismissal of the appeal by the CA.66
In the case under review, although there were no page references to the records, Mercury Drug and
Ganzon referred to the exhibits, TSN, and attachments of the case. Despite its deficiencies, the brief is
sufficient in form and substance as to apprise the appellate court of the essential facts, nature of the
case, the issues raised, and the laws necessary for the disposition of the same.
Reliance on Heirs of Palomique v. Court of Appeals67 is likewise misplaced. In Heirs of Palomique, the
appellants brief did not at all contain a separate statement of facts. 68 This critical omission, together

with the failure to make page references to the record to support the factual allegations, justified the
dismissal of the appeal.69
Rules of procedure are intended to promote, not to defeat, substantial justice. They should not be
applied in a very rigid and technical sense.70 For reasons of justice and equity, this Court has allowed
exceptions to the stringent rules governing appeals.71 It has, in the past, refused to sacrifice justice for
technicality.72
However, brushing aside technicalities, petitioners are still liable. Mercury Drug and Ganzon
failed to exercise the highest degree of diligence expected of them.
Denying that they were negligent, Mercury Drug and Ganzon pointed out that De Leons own
negligence was the proximate cause of his injury. They argued that any injury would have been
averted had De Leon exercised due diligence before applying the medicine on his eye. Had he
cautiously read the medicine bottle label, he would have known that he had the wrong medicine.
Mercury Drug and Ganzon can not exculpate themselves from any liability. As active players in the
field of dispensing medicines to the public, the highest degree of care and diligence is expected of
them.73 Likewise, numerous decisions, both here and abroad, have laid salutary rules for the
protection of human life and human health. 74 In the United States case of Tombari v. Conners,75 it was
ruled that the profession of pharmacy demands care and skill, and druggists must exercise care of a
specially high degree, the highest degree of care known to practical men. In other words, druggists
must exercise the highest practicable degree of prudence and vigilance, and the most exact and
reliable safeguards consistent with the reasonable conduct of the business, so that human life may not
constantly be exposed to the danger flowing from the substitution of deadly poisons for harmless
medicines.76
In Fleet v. Hollenkemp,77 the US Supreme Court ruled that a druggist that sells to a purchaser or sends
to a patient one drug for another or even one innocent drug, calculated to produce a certain effect, in
place of another sent for and designed to produce a different effect, cannot escape responsibility, upon
the alleged pretext that it was an accidental or innocent mistake. His mistake, under the most
favorable aspect for himself, is negligence. And such mistake cannot be countenanced or tolerated, as
it is a mistake of the gravest kind and of the most disastrous effect.78
Smiths Admrx v. Middelton79 teaches Us that one holding himself out as competent to handle drugs,
having rightful access to them, and relied upon by those dealing with him to exercise that high degree
of caution and care called for by the peculiarly dangerous nature of the business, cannot be heard to
say that his mistake by which he furnishes a customer the most deadly of drugs for those
comparatively harmless, is not in itself gross negligence.80
In our own jurisdiction, United States v. Pineda81 and Mercury Drug Corporation v. Baking are
illustrative.82 In Pineda, the potassium chlorate demanded by complainant had been intended for his
race horses. When complainant mixed with water what he thought and believed was potassium
chlorate, but which turned out to be the potently deadly barium chlorate, his race horses died of
poisoning only a few hours after.
The wisdom of such a decision is unquestionable. If the victims had been human beings instead of
horses, the damage and loss would have been irreparable.83
In the more recent Mercury Drug, involving no less than the same petitioner corporation, Sebastian
Baking went to the Alabang branch of Mercury Drug 84 and presented his prescription for Diamicron,
which the pharmacist misread as Dormicum. 85 Baking was given a potent sleeping tablet, instead of
medicines to stabilize his blood sugar.86 On the third day of taking the wrong medicine, Baking figured
in a vehicular accident.87 He fell asleep while driving.88
This Court held that the proximate cause of the accident was the gross negligence of the pharmacist
who gave the wrong medicine to Baking. The Court said:

x x x Considering that a fatal mistake could be a matter of life and death for a buying patient, the said
employee should have been very cautious in dispensing medicines. She should have verified whether
the medicine she gave respondent was indeed the one prescribed by his physician. The care required
must be commensurate with the danger involved, and the skill employed must correspond with the
superior knowledge of the business which the law demands.89
This Court once more reiterated that the profession of pharmacy demands great care and skill. It
reminded druggists to exercise the highest degree of care known to practical men.
In cases where an injury is caused by the negligence of an employee, there instantly arises a
presumption of law that there has been negligence on the part of the employer, either in the
selection or supervision of ones employees. This presumption may be rebutted by a clear
showing that the employer has exercised the care and diligence of a good father of the family.90
Mercury Drug failed to overcome such presumption.91
Petitioners Mercury Drug and Ganzon have similarly failed to live up to high standard of diligence
expected of them as pharmacy professionals. They were grossly negligent in dispensing ear drops
instead of the prescribed eye drops to De Leon. Worse, they have once again attempted to shift the
blame to their victim by underscoring his own failure to read the label.
As a buyer, De Leon relied on the expertise and experience of Mercury Drug and its employees in
dispensing to him the right medicine. 92 This Court has ruled that in the purchase and sale of drugs, the
buyer and seller do not stand at arms length. 93 There exists an imperative duty on the seller or the
druggist to take precaution to prevent death or injury to any person who relies on ones absolute
honesty and peculiar learning.94 The Court emphasized:
x x x The nature of drugs is such that examination would not avail the purchaser anything. It would be
idle mockery for the customer to make an examination of a compound of which he can know nothing.
Consequently, it must be that the druggist warrants that he will deliver the drug called for.95
Mercury Drug and Ganzons defense that the latter gave the only available Cortisporin solution in the
market deserves scant consideration. Ganzon could have easily verified whether the medicine she
gave De Leon was, indeed, the prescribed one or, at the very least, consulted her supervisor. Absent
the required certainty in the dispensation of the medicine, she could have refused De Leons purchase
of the drug.
The award of damages is proper and shall only be reduced considering the peculiar facts of
the case. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the proximate result
of defendants wrongful act or omission.96
Moral damages are not intended to impose a penalty to the wrongdoer or to enrich the claimant at the
expense of defendant.97 There is no hard and fast rule in determining what would be a fair and
reasonable amount of moral damages since each case must be governed by its peculiar
circumstances.98 However, the award of damages must be commensurate to the loss or injury
suffered.99
Taking into consideration the attending facts of the case under review, We find the amount awarded by
the trial court to be excessive. Following the precedent case of Mercury Drug, We reduce the amount
from P100,000.00 to P50,000.00 only.100 In addition, We also deem it necessary to reduce the award
of exemplary damages from the exorbitant amount of P300,000.00 to P25,000.00 only.
This Court explained the propriety of awarding exemplary damages in the earlier Mercury Drug case:
x x x Article 2229 allows the grant of exemplary damages by way of example or correction for the
public good. As mentioned earlier, the drugstore business is affected by public interest. Petitioner
should have exerted utmost diligence in the selection and supervision of its employees. On the part of

the employee concerned, she should have been extremely cautious in dispensing pharmaceutical
products. Due to the sensitive nature of its business, petitioner must at all times maintain a high level
of meticulousness. Therefore, an award of exemplary damages in the amount of P25,000.00 is in
order.101 (Emphasis supplied)
It is generally recognized that the drugstore business is imbued with public interest. This can not be
more real for Mercury Drug, the countrys biggest drugstore chain. This Court can not tolerate any
form of negligence which can jeopardize the health and safety of its loyal patrons. Moreover, this Court
will not countenance the cavalier manner it treated De Leon. Not only does a pharmacy owe a
customer the duty of reasonable care, but it is also duty-bound to accord one with respect.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decisions of the CA and the RTC in
Paraaque City are AFFIRMED WITH MODIFICATION, in that the award of moral and exemplary
damages is reduced to P50,000.00 and P25,000.00, respectively.
SO ORDERED.
G.R. No. 148582

January 16, 2002

FAR EAST BANK AND TRUST COMPANY, petitioner,

vs.
ESTRELLA O. QUERIMIT, respondent.
MENDOZA, J.:
This is a petition for review on certiorari seeking review of the decision, dated March 6, 2001, and
resolution, dated June 19, 2001, of the Court of Appeals 1 in CA-G.R. CV No. 67147, entitled "Estrella
O. Querimit v. Far East Bank and Trust Company," which affirmed with modification the decision of the
Regional Trial Court, Branch 38, Manila, 2 ordering petitioner Far East Bank and Trust Co. (FEBTC) to
allow respondent Estrella O. Querimit to withdraw her time deposit with the FEBTC.
The facts are as follows:
Respondent Estrella O. Querimit worked as internal auditor of the Philippine Savings Bank (PSB) for
19 years, from 1963 to 1992. 3 On November 24, 1986, she opened a dollar savings account in
petitioner's Harrison Plaza branch,4 for which she was issued four (4) Certificates of Deposit (Nos.
79028, 79029, 79030, and 79031), each certificate representing the amount of $15,000.00, or a total
amount of $60,000.00. The certificates were to mature in 60 days, on January 23, 1987, and were
payable to bearer at 4.5% interest per annum. The certificates bore the word "accrued," which meant
that if they were not presented for encashment or pre-terminated prior to maturity, the money
deposited with accrued interest would be "rolled over" by the bank and annual interest would
accumulate automatically.5 The petitioner bank's manager assured respondent that her deposit would
be renewed and earn interest upon maturity even without the surrender of the certificates if these were
not indorsed and withdrawn.6 Respondent kept her dollars in the bank so that they would earn interest
and so that she could use the fund after she retired.7
In 1989, respondent accompanied her husband Dominador Querimit to the United States for medical
treatment. She used her savings in the Bank of the Philippine Islands (BPI) to pay for the trip and for
her husband's medical expenses.8 In January 1993, her husband died and Estrella returned to the
Philippines. She went to petitioner FEBTC to withdraw her deposit but, to her dismay, she was told
that her husband had withdrawn the money in deposit.9 Through counsel, respondent sent a demand
letter to petitioner FEBTC. In another letter, respondent reiterated her request for updating and
payment of the certificates of deposit, including interest earned. 10 As petitioner FEBTC refused
respondent's demands, the latter filed a complaint, joining in the action Edgardo F. Blanco, Branch
Manager of FEBTC Harrison Plaza Branch, and Octavio Espiritu, FEBTC President.11

Petitioner FEBTC alleged that it had given respondent's late husband Dominador an "accommodation"
to allow him to withdraw Estrella's deposit. 12 Petitioner presented certified true copies of documents
showing that payment had been made, to wit:
1. Four FEBTC Harrison Plaza Branch Dollar Demand Drafts Nos. 886694903, 886694904,
886694905 and 886694906 for US$15,110.96 each, allegedly issued by petitioner to respondent's
husband Dominador after payment on the certificates of deposit;13
2. A letter of Alicia de Bustos, branch cashier of FEBTC at Harrison Plaza, dated January 23, 1987,
which was sent to Citibank, N.A., Citibank Center, Paseo de Roxas, Makati, Metro Manila, informing
the latter that FEBTC had issued the four drafts and requesting Citibank New York to debit from
petitioner's account $60,443.84, the aggregate value of the four drafts;14
3. "Citicorp Remittance Service: Daily Summary and Payment Report" dated January 23, 1987;15
4. Debit Ticket dated January 23, 1987, showing the debit of US$60,443.84 or its equivalent at the
time of P1,240,912.04 from the FEBTC Harrison Plaza Branch;16 and
5. An Interbranch Transaction Ticket Register or Credit Ticket dated January 23, 1987 showing that
US$60,443.84 or P1,240,912.04 was credited to petitioner's International Operation Division (IOD).17
On May 6, 2000, the trial court rendered judgment for respondent. The dispositive portion of the
decision stated:
WHEREFORE, judgment is hereby rendered in favor of plaintiff [Estrella O. Querimit] and against
defendants [FEBTC et al.]:
1. ORDERING defendants to allow plaintiff to withdraw her U.S.$ Time Deposit of $60,000.00 plus
accrued interests;
2. ORDERING defendants to pay moral damages in the amount of P50,000.00;
3. ORDERING defendants to pay exemplary damages in the amount of P50,000.00;
4. ORDERING defendants to pay attorney's fees in the amount of P100,000.00 plus P10,000.00 per
appearance of counsel; and
5. ORDERING defendants to pay the costs of the suit.
SO ORDERED.18
On May 15, 2000, petitioner appealed to the Court of Appeals which, on March 6, 2001, affirmed
through its Fourteenth Division the decision of the trial court, with the modification that FEBTC was
declared solely liable for the amounts adjudged in the decision of the trial court. The appeals court
stated that petitioner FEBTC failed to prove that the certificates of deposit had been paid out of its
funds, since "the evidence by the [respondent] stands unrebutted that the subject certificates of
deposit until now remain unindorsed, undelivered and unwithdrawn by [her]." 19 But the Court of
Appeals held that the individual defendants, Edgardo F. Blanco, FEBTC-Harrison Plaza Branch
Manager, and Octavio Espiritu, FEBTC President, could not be held solidarily liable with the FEBTC
because the latter has a personality separate from its officers and stockholders.20
Hence this appeal.
As stated by the Court of Appeals, the main issue in this case is whether the subject certificates of
deposit have already been paid by petitioner.21 Petitioner contends thatI. Petitioner is not liable to respondent for the value of the four (4) Certificates of Deposit, including the
interest thereon as well as moral and exemplary damages, attorney's and appearance fees.
II. The aggregate value - both principal and interest earned at maturity - of the four (4) certificates of
deposit was already paid to or withdrawn at maturity by the late Dominador Querimit who was the

respondent's deceased husband.

III. Respondent is guilty of laches since the four (4) certificates of deposit were all issued on 24
November 1986 but she attempted to withdraw their aggregate value on 29 July 1996 only on or after
the lapse of more than nine (9) years and eight (8) months.
IV. Respondent is not liable to petitioner for attorney's fees.22
After reviewing the records, we find the petition to be without merit.
First. Petitioner bank failed to prove that it had already paid Estrella Querimit, the bearer and lawful
holder of the subject certificates of deposit. The finding of the trial court on this point, as affirmed by
the Court of Appeals, is that petitioner did not pay either respondent Estrella or her husband the
amounts evidenced by the subject certificates of deposit. This Court is not a trier of facts and generally
does not weigh anew the evidence already passed upon by the Court of Appeals. 23 The finding of
respondent court which shows that the subject certificates of deposit are still in the possession of
Estrella Querimit and have not been indorsed or delivered to petitioner FEBTC is substantiated by the
record and should therefore stand.24
A certificate of deposit is defined as a written acknowledgment by a bank or banker of the receipt of a
sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of
the depositor, or to some other person or his order, whereby the relation of debtor and creditor
between the bank and the depositor is created. The principles governing other types of bank deposits
are applicable to certificates of deposit,25 as are the rules governing promissory notes when they
contain an unconditional promise to pay a sum certain of money absolutely. 26 The principle that
payment, in order to discharge a debt, must be made to someone authorized to receive it is applicable
to the payment of certificates of deposit. Thus, a bank will be protected in making payment to the
holder of a certificate indorsed by the payee, unless it has notice of the invalidity of the indorsement or
the holder's want of title.27 A bank acts at its peril when it pays deposits evidenced by a certificate of
deposit, without its production and surrender after proper indorsement. 28 As a rule, one who pleads
payment has the burden of proving it. Even where the plaintiff must allege non-payment, the general
rule is that the burden rests on the defendant to prove payment, rather than on the plaintiff to prove
payment. The debtor has the burden of showing with legal certainty that the obligation has been
discharged by payment.29
In this case, the certificates of deposit were clearly marked payable to "bearer," which means, to "[t]he
person in possession of an instrument, document of title or security payable to bearer or indorsed in
blank."30 Petitioner should not have paid respondent's husband or any third party without requiring the
surrender of the certificates of deposit.
Petitioner claims that it did not demand the surrender of the subject certificates of deposit since
respondent's husband, Dominador Querimit, was one of the bank's senior managers. But even long
after respondent's husband had allegedly been paid respondent's deposit and before his retirement
from service, the FEBTC never required him to deliver the certificates of deposit in question. 31
Moreover, the accommodation given to respondent's husband was made in violation of the bank's
policies and procedures.32
Petitioner FEBTC thus failed to exercise that degree of diligence required by the nature of its
business.33 Because the business of banks is impressed with public interest, the degree of diligence
required of banks is more than that of a good father of the family or of an ordinary business firm. The
fiduciary nature of their relationship with their depositors requires them to treat the accounts of their
clients with the highest degree of care. 34 A bank is under obligation to treat the accounts of its
depositors with meticulous care whether such accounts consist only of a few hundred pesos or of
millions of pesos. Responsibility arising from negligence in the performance of every kind of obligation
is demandable.35 Petitioner failed to prove payment of the subject certificates of deposit issued to the
respondent and, therefore, remains liable for the value of the dollar deposits indicated thereon with
accrued interest.

Second. The equitable principle of laches is not sufficient to defeat the rights of respondent over the
subject certificates of deposit.
Laches is the failure or neglect, for an unreasonable length of time, to do that which, by exercising due
diligence, could or should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it
or declined to assert it.36
There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances. The question of laches is addressed to the
sound discretion of the court and, being an equitable doctrine, its application is controlled by equitable
considerations. It cannot be used to defeat justice or perpetrate fraud and injustice. Courts will not be
guided or bound strictly by the statute of limitations or the doctrine of laches when to do so, manifest
wrong or injustice would result.37
In this case, it would be unjust to allow the doctrine of laches to defeat the right of respondent to
recover her savings which she deposited with the petitioner. She did not withdraw her deposit even
after the maturity date of the certificates of deposit precisely because she wanted to set it aside for her
retirement. She relied on the bank's assurance, as reflected on the face of the instruments
themselves, that interest would "accrue" or accumulate annually even after their maturity.38
Third. Respondent is entitled to moral damages because of the mental anguish and humiliation she
suffered as a result of the wrongful refusal of the FEBTC to pay her even after she had delivered the
certificates of deposit.39 In addition, petitioner FEBTC should pay respondent exemplary damages,
which the trial court imposed by way of example or correction for the public good. 40 Finally, respondent
is entitled to attorney's fees since petitioner's act or omission compelled her to incur expenses to
protect her interest, making such award just and equitable. 41 However, we find the award of attorney's
fees to be excessive and accordingly reduce it to P20,000.00.42
WHEREFORE, premises considered, the present petition is hereby DENIED and the Decision in CAG.R. CV No. 67147 AFFIRMED, with the modification that the award of attorney's fees is reduced to
P20,000.00.
SO ORDERED.
G.R. No. 143403

January 22, 2003

FILONILA O. CRUZ, petitioner,

vs.
HON. CELSO D. GANGAN, DIR. MARCELINO HANOPOL, AUDITOR GLENDA MANLAPAZ, AND
THE COMMISSION ON AUDIT, respondents.
PANGANIBAN, J.:
While we commend the Commission on Audit for its diligence in safeguarding State properties, we
nonetheless rule that a government employee who has not been proven to be culpable or negligent
should not be held accountable for the loss of a cellular phone stolen from her while she was riding the
Light Railway Transit (LRT). On the other hand, the dogged persistence of petitioner in fighting for her
rights, honor, respect and dignity has not been lost on this Court. She has been true to her calling as
an educator and a role model for our young people.
The Case
For review on certiorari under Rule 64 is Decision No. 2000-1041 dated March 28, 2000, issued by the
Commission on Audit (COA), requiring Dr. Filonila O. Cruz to pay the book value of a lost governmentissued Nokia 909 analog cellular phone. The decretal portion of the Decision reads as follows:

"Premises considered, and conformably to the adverse recommendations of the Director, NGAO II and
the Auditor, TESDA-NCR in the letter and 2nd Indorsement dated July 13, 1999 and February 26,
1999, respectively, it is regretted that the instant request for relief is DENIED for want of merit. This
being so, the herein petitioner should be required to pay the book value of the lost government-issued
cellular phone."2
The Facts
On Friday afternoon of January 15, 1999, petitioner went to the Regional Office of the Technological
Education and Skills Development Authority (TESDA) in Taguig, Metro Manila for consultation with the
regional director.3 After the meeting, petitioner went back to her official station in Caloocan City, where
she was the then Camanava district director of the TESDA, by boarding the Light Railway Transit
(LRT) from Sen. Gil Puyat Avenue to Monumento. On board the LRT, her handbag was slashed and
its contents stolen by an unidentified person. Among the items taken from her were her wallet and the
government-issued cellular phone, which is the subject of the instant case. That same day, she
reported the incident to police authorities who immediately conducted an investigation. However, all
efforts to locate the thief and to recover the phone proved futile.
Three days after, on January 18, 1999, petitioner reported the theft to the regional director of TESDANCR. She did so through a Memorandum, in which she requested relief from accountability of the
subject property. In a 1st Indorsement dated January 19, 1999, the regional director, in turn, indorsed
the request to the resident auditor.
Under a 2nd Indorsement dated February 26, 1999, the resident auditor 4 denied the request of
petitioner on the ground that the latter lacked the diligence required in the custody of government
properties. Thus, petitioner was ordered to pay the purchase value of the cell phone (P3,988) and that
of its case (P250), a total of P4,238. The auditors action was sustained by the director of the National
Government Audit Office II (NGAO II). The matter was then elevated to the Commission on Audit.
Ruling of the Commission on Audit
On appeal, the COA found no sufficient justification to grant the request for relief from accountability. It
explained as follows:
"x x x While it may be true that the loss of the cellular phone in question was due to robbery (bag
slashing), this however, cannot be made as the basis in granting the herein request for relief from
accountability since the accountable officer, Dr. Cruz, failed to exercise that degree of diligence
required under the circumstances to prevent/avoid the loss. When Dr. Cruz opted to take the LRT
which undeniably, was almost always packed and overcrowded and considering further the day and
time she boarded said train which was at about 2:00 to 2:30 P.M. of Friday, she exposed herself to the
danger and the possibility of losing things such as the subject cellular phone to pickpockets. As an
accountable officer, she was under obligation to exercise proper degree of care and diligence in
safeguarding the property, taking into account what a reasonable and prudent man would have done
under the circumstances. Dr. Cruz could have reasonably foreseen the danger that would befall her
and took precautions against its mischievous result. Therefore, having been remiss in her obligation in
the keeping or use of the subject government issued cellular phone, she has to answer for its loss as
required under Section 105 of PD 1445. Additionally, to be exempt from liability because of fortuitous
event as invoked by petitioner Dr. Cruz has no bearing to the case at bar considering that Article 1174
of the New Civil Code which supports said contention applies only if the actor is free from any
negligence or misconduct by which the loss/damage may have been occasioned. Further, in Nakpil vs.
CA, 144 SCRA 596, one who creates a dangerous condition cannot escape liability although an act of
God may have intervened. Thus, there being a positive showing of negligence on the part of the
petitioner in the keeping of the subject cellular phone, then, such negligence militates against the grant
of herein request for relief."5
Hence, this Petition.6

Issues
In her Memorandum, petitioner faults the COA with the following alleged errors:
I.
"The Commission Proper committed grave abuse of discretion amounting to excess of jurisdiction in
finding that petitioner failed to exercise that degree of diligence required to prevent the loss of the
government-issued cellular phone when she opted to take the light railway transit (LRT) in going to her
official station in CAMANAVA District, Caloocan City Hall, Caloocan City[; and]
II.
"The Commission Proper committed grave abuse of discretion when it applied the case of Nakpil vs.
CA, 144 SCRA 596 and disregarded Article 1174 of the New Civil Code in denying petitioners request
for relief from accountability[.]"7
In the main, the issues in this case are: (1) whether petitioner was negligent in the care of the
government-issued cellular phone, and (2) whether she should be held accountable for its loss.
We note that in its Manifestation and Motion dated October 24, 2000, reiterated in a similar pleading
dated March 28, 2001, the Office of the Solicitor General (OSG) sided with petitioner and prayed for
the granting of the Petition. Hence, the COA was herein represented by its general counsel, Atty.
Santos M. Alquisalas.
The Courts Ruling
The Petition is meritorious.
First Issue:
Required Degree of Diligence
The crucial question to ask is whether petitioner should be deemed negligent when, on that fateful
afternoon, she opted to board the LRT where the cellular phone was stolen.
We answer in the negative. Riding the LRT cannot per se be denounced as a negligent act; more so
under the circumstances in this case, in which petitioners mode of transit was influenced by time and
money considerations.
Petitioner boarded the LRT to be able to arrive in Caloocan in time for her 3:00 p.m. meeting. Any
prudent or rational person under similar circumstances can reasonably be expected to do the same.
Possession of a cellular phone would not and should not hinder one from boarding an LRT coach as
petitioner did. After all, whether she took a bus or a jeepney, the risk of theft would have also been
present. Because of her relatively low position and pay, she was not expected to have her own vehicle
or to ride a taxicab. Neither had the government granted her the use of any vehicle.
"Negligence is the omission to do something which a reasonable man, guided upon those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of
something which a prudent man and reasonable man would not do.8
"Negligence is want of care required by the circumstances.9
"The diligence with which the law requires the individual at all times to govern his conduct varies with
the nature of the situation in which he is placed, and the importance of the act which he is to
perform."10 (Emphasis supplied)
The Rules11 provide that property for official use and purpose shall be utilized with the diligence of a
good father of a family. Extra-ordinary measures are not called for in taking care of a cellular phone
while in transit. Placing it in a bag away from covetous eyes and holding on to that bag, as done by
petitioner, is ordinarily sufficient care of a cellular phone while travelling on board the LRT. The records

do not show any specific act of negligence on her part. It is a settled rule that negligence cannot be
presumed;12 it has to be proven. In the absence of any shred of evidence thereof, respondents gravely
abused their discretion in finding petitioner negligent.
Granting that the presence or the absence of negligence is a factual matter, the consistent ruling of
this Court is that findings of fact of an administrative agency must be respected, so long as they are
supported by substantial evidence.13 But lacking support, the factual finding of the COA on the
existence of negligence cannot stand on its own and is therefore not binding on the Court.
While we commend the Commission on Audit for its diligence in safeguarding State properties, we
nonetheless hold that a government employee who has not been proven to be culpable or negligent
should not be held accountable for the loss of a cellular phone, which was stolen from her while she
was riding on the LRT.
Second Issue:
Accountability
The assailed COA Decision directly attributed the loss of the cellular phone to a "robbery (bag
slashing)." However, it denies the request of petitioner for relief from accountability, because it found
her to be negligent. Earlier, we have already ruled that the finding of negligence had no factual or legal
basis and was therefore invalid. What now remains to be resolved is whether petitioner observed the
proper procedure for notifying the government of the loss.
Within thirty days of the loss,14 petitioner applied for relief from accountability. We hold that such
application be deemed as the notification of the loss of the subject cellular phone. She has also done
her part in proving that the loss was due to theft or robbery. The resident auditor 15 concerned and the
COA itself have accepted that the robbery or theft had actually taken place. Necessarily, in the
absence of evidence showing negligence on her part, credit for the loss of the cellular phone is proper
under the law.16 It also stands to reason that P4,238 should now be refunded to her. That was the
amount she had to pay on June 3, 1999, upon her retirement from government service at age 65.
Her dogged persistence in pursuing this appeal has not been lost on this Court. We agree that, in
fighting for her rights, she must have spent more than the value of the lost cellular phone. Hence, we
can only applaud her for being true to her calling as an educator and a role model for our young
people. Honor, respect and dignity are the values she has pursued. May her tribe increase!
WHEREFORE, the Petition is GRANTED. The assailed Decision of the Commission on Audit is
REVERSED and SET ASIDE. The request of Petitioner Filonila O. Cruz for relief from accountability
for the lost Nokia 909 analog cellular phone is GRANTED, and the amount of P4,238 paid under
Official Receipt No. 6606743 is ordered to be REFUNDED to her upon finality of this Decision. No
costs.
SO ORDERED.
G.R. No. 185891

June 26, 2013

CATHAY PACIFIC AIRWAYS, Petitioner,

vs.
JUANITA REYES, WILFREDO REYES, MICHAEL ROY REYES, SIXTA LAPUZ, and SAMPAGUITA
TRAVEL CORP., Respondents.
DECISION
PEREZ, J.:

Assailed in this petition for review are the Decision 1 dated 22 October 2008 in CA-G.R. CV. No. 86156
and the 6 January 2009 Resolution2 in the same case of the Court of Appeals.
This case started as a complaint for damages tiled by respondents against Cathay Pacific Airways
(Cathay Pacific) and Sampaguita Travel Corp. (Sampaguita Travel), now joined as a respondent. The
factual backdrop leading to the filing of the complaint is as follows:
Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his familys trip to Adelaide, Australia scheduled from 12 April 1997 to 4 May
1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was
issued four (4) Cathay Pacific round-trip airplane tickets for Manila-HongKong-Adelaide-HongKongManila with the following record locators:
1wphi1
Name of Passenger

PNR OR RECORD LOCATOR NOS.3

Reyes, Wilfredo

J76TH

Reyes, Juanita

HDWC3

Reyes, Michael Roy

H9VZF

Lapuz, Sixta

HTFMG4

On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy Reyes
(Michael) and mother-in-law Sixta Lapuz (Sixta), flew to Adelaide, Australia without a hitch.
One week before they were scheduled to fly back home, Wilfredo reconfirmed his familys return flight
with the Cathay Pacific office in Adelaide. They were advised that the reservation was "still okay as
scheduled."
On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the airport on
time. When the airport check-in counter opened, Wilfredo was informed by a staff from Cathay Pacific
that the Reyeses did not have confirmed reservations, and only Sixtas flight booking was confirmed.
Nevertheless, they were allowed to board the flight to HongKong due to adamant pleas from Wilfredo.
When they arrived in HongKong, they were again informed of the same problem. Unfortunately this
time, the Reyeses were not allowed to board because the flight to Manila was fully booked. Only Sixta
was allowed to proceed to Manila from HongKong. On the following day, the Reyeses were finally
allowed to board the next flight bound for Manila.
Upon arriving in the Philippines, Wilfredo went to Sampaguita Travel to report the incident. He was
informed by Sampaguita Travel that it was actually Cathay Pacific which cancelled their bookings.
On 16 June 1997, respondents as passengers, through counsel, sent a letter to Cathay Pacific
advising the latter of the incident and demanding payment of damages.
After a series of exchanges and with no resolution in sight, respondents filed a Complaint for damages
against Cathay Pacific and Sampaguita Travel and prayed for the following relief: a) P1,000,000.00 as
moral damages; b) P300,000.00 as actual damages; c) P100,000.00 as exemplary damages; and d)
P100,000.00 as attorneys fees.5
In its Answer, Cathay Pacific alleged that based on its computerized booking system, several and
confusing bookings were purportedly made under the names of respondents through two (2) travel
agencies, namely: Sampaguita Travel and Rajah Travel Corporation. Cathay Pacific explained that
only the following Passenger Name Records (PNRs) appeared on its system: PNR No. H9V15, PNR
No. HTFMG, PNR No. J9R6E, PNR No. J76TH, and PNR No. H9VSE. Cathay Pacific went on to
detail each and every booking, to wit:
1. PNR No. H9V15

Agent: Sampaguita Travel Corp.

Party: Ms. J Reyes, Mr. M R Reyes, Mr. W Reyes
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR.
The itinerary listed above was confirmed booking. However, the itinerary did not include booking for
the return flights. From information retrieved from ABACUS (the booking system used by agents), the
agent has, on 10 April, added segments CX104/CX905 ADL/HKG/MNL 04 MAY on MK status, which
was not a confirmed booking. MK function is used for synchronizing records or for ticketing purposes
only. It does not purport to be a real booking. As a result, no booking was transmitted into CPAs
system.
2. PNR No. HTFMG
Agent: Sampaguita Travel Corp.
Party: Mrs. Sixta Lapuz
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR, CX104/CX907 ADL/HKG/MNL 04/05 MAY.
The above itinerary is the actual itinerary that the passenger has flown. However, for the return sector,
HKG/MNL, the original booking was on CX905 of 04 May. This original booking was confirmed on 21
Mar. and ticketed on 11 Apr.
This booking was cancelled on 04 May at 9:03 p.m. when CX905 was almost scheduled to leave at
the behest of the passenger and she was re-booked on CX907 of 05 May at the same time.
3. PNR No. J9R6E
Agent: Rajah Travel Corp.
Party: Mrs. Julieta Gaspar, Mrs. Sixta Lapuz, Mrs. Juanita Reyes,
Mr. Michael Roy Reyes, Mr. Wilfredo Reyes.
Itinerary: CX900 & CX902 MNL/HKG 12 APR, CX105 HKG/ADL 12 APR, CX104/CX905
ADL/HKG/MNL 04 MAY & 07 MAY
The party was confirmed initially on CX900/12 Apr, CX105/12 Apr, CX104/CX9095 07 May and on
waiting list for CX902/12 Apr, CX104/CX905 04 May.
However, on 31 Mar., the booking was cancelled by the agent.
4. PNR No. J76TH
Agent: Sampaguita Travel Corp.
Party: Mr. W Reyes
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
The booking on the above itinerary was confirmed initially. When the agent was asked for the ticket
number as the flight CX905 04 May was very critical, the agent has inputted the ticket number on 10
Apr. but has removed the record on 11 April. Since the booking was reflected as not ticketed, the
booking was cancelled on 18 Apr. accordingly.
This PNR was split from another PNR record, H9VSE.
5. PNR No. H9VSE
Agent: Sampaguita Travel Corp.
Party: Ms. R Lapuz, Mr. R Lapuz, Mr. A Samson, originally Mr. W Reyes was included in this party as

well
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
The booking was confirmed initially but were not ticketed by 11 Apr. and was cancelled accordingly.
However, the PNR of Mr. W Reyes who was originally included in this party was split to a separate
record of J76TH.6
Cathay Pacific asserted that in the case of Wilfredo with PNR No. J76TH, no valid ticket number was
inputted within a prescribed period which means that no ticket was sold. Thus, Cathay Pacific had the
right to cancel the booking. Cathay Pacific found that Sampaguita Travel initially inputted a ticket
number for PNR No. J76TH and had it cancelled the following day, while the PNR Nos. HDWC3 and
HTFMG of Juanita and Michael do not exist.
The Answer also contained a cross-claim against Sampaguita Travel and blamed the same for the
cancellation of respondents return flights. Cathay Pacific likewise counterclaimed for payment of
attorneys fees.
On the other hand, Sampaguita Travel, in its Answer, denied Cathay Pacifics claim that it was the
cause of the cancellation of the bookings. Sampaguita Travel maintained that it made the necessary
reservation with Cathay Pacific for respondents trip to Adelaide. After getting confirmed bookings with
Cathay Pacific, Sampaguita Travel issued the corresponding tickets to respondents. Their confirmed
bookings were covered with the following PNRs:
PASSENGER NAME

PNR No.

Lapuz, Sixta

H9V15/ J76TH

Reyes, Wilfredo

H9V15/HDWC3

Reyes, Michael Roy

H9V15/H9VZF

Reyes, Juanita

HTFMG7

Sampaguita Travel explained that the Reyeses had two (2) PNRs each because confirmation from
Cathay Pacific was made one flight segment at a time. Sampaguita Travel asserted that it only issued
the tickets after Cathay Pacific confirmed the bookings. Furthermore, Sampaguita Travel exonerated
itself from liability for damages because respondents were claiming for damages arising from a breach
of contract of carriage. Sampaguita Travel likewise filed a cross-claim against Cathay Pacific and a
counterclaim for damages.
During the pre-trial, the parties agreed on the following stipulation of facts:
1. That the plaintiffs did not deal directly with Cathay Pacific Airways;
2. That the plaintiffs did not make their bookings directly with Cathay Pacific Airways;
3. That the plaintiffs did not purchase and did not get their tickets from Cathay Pacific Airways;
4. That Cathay Pacific Airways has promptly replied to all communications sent by the plaintiffs
through their counsel;
5. That the plane tickets issued to plaintiffs were valid, which is why they were able to depart from
Manila to Adelaide, Australia and that the reason why they were not able to board their return flight
from Adelaide was because of the alleged cancellation of their booking by Cathay Pacific Airways at
Adelaide, save for that of Sixta Lapuz whose booking was confirmed by Cathay Pacific Airways;
6. That several reservations and bookings for the plaintiffs were done by defendant Sampaguita Travel
Corporation through the computer reservation system and each of such request was issued a PNR;
7. That, as a travel agent, defendant Sampaguita Travel Corporation merely acts as a

booking/sales/ticketing arm for airline companies and it has nothing to do with the airline operations;
8. That in the travel industry, the practice of reconfirmation of return flights by passengers is coursed
or done directly with the airline company and not with the travel agent, which has no participation,
control or authority in making such reconfirmations.
9. That in the travel industry, the practice of cancellation of flights is within the control of the airline and
not of the travel agent, unless the travel agent is requested by the passengers to make such
cancellations; and,
10. That defendant Cathay Pacific Airways has advertised that "there is no need to confirm your flight
when travelling with us", although Cathay Pacific Airways qualifies the same to the effect that in some
cases there is a need for reconfirmations.8
After trial on the merits, the Regional Trial Court (RTC) rendered a Decision, 9 the dispositive part of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendants and
against the herein plaintiff. Accordingly, plaintiffs complaint is hereby ordered DISMISSED for lack of
merit. Defendants counterclaims and cross-claims are similarly ordered dismissed for lack of merit. No
pronouncement as to cost.10
The trial court found that respondents were in possession of valid tickets but did not have confirmed
reservations for their return trip to Manila. Additionally, the trial court observed that the several PNRs
opened by Sampaguita Travel created confusion in the bookings. The trial court however did not find
any basis to establish liability on the part of either Cathay Pacific or Sampaguita Travel considering
that the cancellation was not without any justified reason. Finally, the trial court denied the claims for
damages for being unsubstantiated.
Respondents appealed to the Court of Appeals. On 22 October 2008, the Court of Appeals ordered
Cathay Pacific to pay P25,000.00 each to respondents as nominal damages.
Upon denial of their motion for reconsideration, Cathay Pacific filed the instant petition for review
assigning the following as errors committed by the Court of Appeals:
A.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN HOLDING THAT CATHAY PACIFIC AIRWAYS IS LIABLE FOR NOMINAL DAMAGES FOR ITS
ALLEGED INITIAL BREACH OF CONTRACT WITH THE PASSENGERS EVEN THOUGH CATHAY
PACIFIC AIRWAYS WAS ABLE TO PROVE BEYOND REASONABLE DOUBT THAT IT WAS NOT AT
FAULT FOR THE PREDICAMENT OF THE RESPONDENT PASSENGERS.
B.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN RELYING ON MATTERS NOT PROVED DURING THE TRIAL AND NOT SUPPORTED BY THE
EVIDENCE AS BASIS FOR HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL
DAMAGES.
C.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL DAMAGES TO RESPONDENT
SIXTA LAPUZ.
D.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN NOT HOLDING SAMPAGUITA TRAVEL CORP. LIABLE TO CATHAY PACIFIC AIRWAYS FOR

WHATEVER DAMAGES THAT THE AIRLINE

RESPONDENT PASSENGERS.

COMPANY WOULD BE ADJUDGED THE

E.
ALTERNATIVELY, WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR WHEN IT FAILED TO APPLY THE DOCTRINE OF STARE DECISIS IN
FIXING THE AMOUNT OF NOMINAL DAMAGES TO BE AWARDED.11
Cathay Pacific assails the award of nominal damages in favor of respondents on the ground that its
action of cancelling the flight bookings was justifiable. Cathay Pacific reveals that upon investigation,
the respondents had no confirmed bookings for their return flights. Hence, it was not obligated to
transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith in accommodating the
respondents despite holding unconfirmed bookings.
Cathay Pacific also scores the Court of Appeals in basing the award of nominal damages on the
alleged asthmatic condition of passenger Michael and old age of Sixta. Cathay Pacific points out that
the records, including the testimonies of the witnesses, did not make any mention of Michaels
asthma. And Sixta was in fact holding a confirmed booking but she refused to take her confirmed seat
and instead stayed in HongKong with the other respondents.
Cathay Pacific blames Sampaguita Travel for negligence in not ensuring that respondents had
confirmed bookings for their return trips.
Lastly, assuming arguendo that the award of nominal damages is proper, Cathay Pacific contends that
the amount should be reduced to P5,000.00 for each passenger.
At the outset, it bears pointing out that respondent Sixta had no cause of action against Cathay Pacific
or Sampaguita Travel. The elements of a cause of action consist of: (1) a right existing in favor of the
plaintiff, (2) a duty on the part of the defendant to respect the plaintiffs right, and (3) an act or
omission of the defendant in violation of such right. 12 As culled from the records, there has been no
violation of any right or breach of any duty on the part of Cathay Pacific and Sampaguita Travel. As a
holder of a valid booking, Sixta had the right to expect that she would fly on the flight and on the date
specified on her airplane ticket. Cathay Pacific met her expectations and Sixta was indeed able to
complete her flight without any trouble. The absence of any violation to Sixtas right as passenger
effectively deprived her of any relief against either Cathay Pacific or Sampaguita Travel.
With respect to the three remaining respondents, we rule as follows:
The determination of whether or not the award of damages is correct depends on the nature of the
respondents contractual relations with Cathay Pacific and Sampaguita Travel. It is beyond dispute that
respondents were holders of Cathay Pacific airplane tickets and they made the booking through
Sampaguita Travel.
Respondents cause of action against Cathay Pacific stemmed from a breach of contract of carriage. A
contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to another for a fixed price. 13 Under
Article 1732 of the Civil Code, this "persons, corporations, firms, or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air, for
compensation, offering their services to the public" is called a common carrier.
Respondents entered into a contract of carriage with Cathay Pacific. As far as respondents are
concerned, they were holding valid and confirmed airplane tickets. The ticket in itself is a valid written
contract of carriage whereby for a consideration, Cathay Pacific undertook to carry respondents in its
airplane for a round-trip flight from Manila to Adelaide, Australia and then back to Manila. In fact,
Wilfredo called the Cathay Pacific office in Adelaide one week before his return flight to re-confirm his
booking. He was even assured by a staff of Cathay Pacific that he does not need to reconfirm his
booking.

In its defense, Cathay Pacific posits that Wilfredos booking was cancelled because a ticket number
was not inputted by Sampaguita Travel, while bookings of Juanita and Michael were not honored for
being fictitious. Cathay Pacific clearly blames Sampaguita Travel for not finalizing the bookings for the
respondents return flights. Respondents are not privy to whatever misunderstanding and confusion
that may have transpired in their bookings. On its face, the airplane ticket is a valid written contract of
carriage. This Court has held that when an airline issues a ticket to a passenger confirmed on a
particular flight, on a certain date, a contract of carriage arises, and the passenger has every right to
expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a
suit for breach of contract of carriage.14
As further elucidated by the Court of Appeals:
Now, Article 1370 of the Civil Code mandates that "if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control."
Under Section 9, Rule 130 of the Rules of Court, once the terms of an agreement have been reduced
to writing, it is deemed to contain all the terms agreed upon by the parties and no evidence of such
terms other than the contents of the written agreement shall be admissible. The terms of the
agreement of appellants and appellee Cathay Pacific embodied in the tickets issued by the latter to
the former are plain appellee Cathay Pacific will transport appellants to Adelaide, Australia from
Manila via Hongkong on 12 April 1991 and back to Manila from Adelaide, Australia also via Hongkong
on 4 May 1997. In addition, the tickets reveal that all appellants have confirmed bookings for their
flight to Adelaide, Australia and back to Manila as manifested by the words "Ok" indicated therein.
Arlene Ansay, appellee Cathay Pacifics Reservation Supervisor, validated this fact in her testimony
saying that the return flights of all appellants to the Philippines on 4 May 1997 were confirmed as
appearing on the tickets. Indubitably, when appellee Cathay Pacific initially refused to transport
appellants to the Philippines on 4 May 1997 due to the latters lack of reservation, it has, in effect,
breached their contract of carriage. Appellants, however, were eventually accommodated and
transported by appellee Cathay Pacific to Manila.15
Cathay Pacific breached its contract of carriage with respondents when it disallowed them to board the
plane in Hong Kong going to Manila on the date reflected on their tickets. Thus, Cathay Pacific opened
itself to claims for compensatory, actual, moral and exemplary damages, attorneys fees and costs of
suit.
In contrast, the contractual relation between Sampaguita Travel and respondents is a contract for
services. The object of the contract is arranging and facilitating the latters booking and ticketing. It
was even Sampaguita Travel which issued the tickets.
Since the contract between the parties is an ordinary one for services, the standard of care required of
respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.16
There was indeed failure on the part of Sampaguita Travel to exercise due diligence in performing its
obligations under the contract of services. It was established by Cathay Pacific, through the generation
of the PNRs, that Sampaguita Travel failed to input the correct ticket number for Wilfredos ticket.
Cathay Pacific even asserted that Sampaguita Travel made two fictitious bookings for Juanita and
Michael.
The negligence of Sampaguita Travel renders it also liable for damages.
For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a
reasonable degree of certainty, premised upon competent proof and the best evidence obtainable by
the injured party. To justify an award of actual damages, there must be competent proof of the actual

amount of loss. Credence can be given only to claims which are duly supported by receipts.17
We echo the findings of the trial court that respondents failed to show proof of actual damages.
Wilfredo initially testified that he personally incurred losses amounting to P300,000.00 which
represents the amount of the contract that he was supposedly scheduled to sign had his return trip not
been cancelled. During the cross-examination however, it appears that the supposed contract-signing
was a mere formality and that an agreement had already been hatched beforehand. Hence, we cannot
fathom how said contract did not materialize because of Wilfredos absence, and how Wilfredo
incurred such losses when he himself admitted that he entered into said contract on behalf of Parsons
Engineering Consulting Firm, where he worked as construction manager. Thus, if indeed there were
losses, these were losses suffered by the company and not by Wilfredo. Moreover, he did not present
any documentary evidence, such as the actual contract or affidavits from any of the parties to said
contract, to substantiate his claim of losses. With respect to the remaining passengers, they likewise
failed to present proof of the actual losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of
contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. 18 What the
law considers as bad faith which may furnish the ground for an award of moral damages would be bad
faith in securing the contract and in the execution thereof, as well as in the enforcement of its terms, or
any other kind of deceit. In the same vein, to warrant the award of exemplary damages, defendant
must have acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.19
In the instant case, it was proven by Cathay Pacific that first, it extended all possible accommodations
to respondents.1wphi1 They were promptly informed of the problem in their bookings while they were
still at the Adelaide airport. Despite the non-confirmation of their bookings, respondents were still
allowed to board the Adelaide to Hong Kong flight. Upon arriving in Hong Kong, they were again
informed that they could not be accommodated on the next flight because it was already fully booked.
They were however allowed to board the next available flight on the following day. Second, upon
receiving the complaint letter of respondents, Cathay Pacific immediately addressed the complaint and
gave an explanation on the cancellation of their flight bookings.
The Court of Appeals is correct in stating that "what may be attributed to x x x Cathay Pacific is
negligence concerning the lapses in their process of confirming passenger bookings and reservations,
done through travel agencies. But this negligence is not so gross so as to amount to bad faith." 20
Cathay Pacific was not motivated by malice or bad faith in not allowing respondents to board on their
return flight to Manila. It is evident and was in fact proven by Cathay Pacific that its refusal to honor
the return flight bookings of respondents was due to the cancellation of one booking and the two other
bookings were not reflected on its computerized booking system.
Likewise, Sampaguita Travel cannot be held liable for moral damages. True, Sampaguita Travel was
negligent in the conduct of its booking and ticketing which resulted in the cancellation of flights. But its
actions were not proven to have been tainted with malice or bad faith. Under these circumstances,
respondents are not entitled to moral and exemplary damages.1wphi1 With respect to attorneys
fees, we uphold the appellate courts finding on lack of factual and legal justification to award
attorneys fees.
We however sustain the award of nominal damages in the amount of P25,000.00 to only three of the
four respondents who were aggrieved by the last-minute cancellation of their flights. Nominal damages
are recoverable where a legal right is technically violated and must be vindicated against an invasion
that has produced no actual present loss of any kind or where there has been a breach of contract and
no substantial injury or actual damages whatsoever have been or can be shown. 21 Under Article 2221
of the Civil Code, nominal damages may be awarded to a plaintiff whose right has been violated or
invaded by the defendant, for the purpose of vindicating or recognizing that right, not for indemnifying
the plaintiff for any loss suffered.
Considering that the three respondents were denied boarding their return flight from HongKong to

Manila and that they had to wait in the airport overnight for their return flight, they are deemed to have
technically suffered injury. Nonetheless, they failed to present proof of actual damages. Consequently,
they should be compensated in the form of nominal damages.
The amount to be awarded as nominal damages shall be equal or at least commensurate to the injury
sustained by respondents considering the concept and purpose of such damages. The amount of
nominal damages to be awarded may also depend on certain special reasons extant in the case.22
The amount of such damages is addressed to the sound discretion of the court and taking into
account the relevant circumstances,23 such as the failure of some respondents to board the flight on
schedule and the slight breach in the legal obligations of the airline company to comply with the terms
of the contract, i.e., the airplane ticket and of the travel agency to make the correct bookings. We find
the award of P25,000.00 to the Reyeses correct and proper.
Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the bookings which
led to the erroneous cancellation of respondents bookings. Their negligence is the proximate cause of
the technical injury sustained by respondents. Therefore, they have become joint tortfeasors, whose
responsibility for quasi-delict, under Article 2194 of the Civil Code, is solidary.
Based on the foregoing, Cathay Pacific and Sampaguita Travel are jointly and solidarily liable for
nominal damages awarded to respondents Wilfredo, Juanita and Michael Roy.
WHEREFORE, the Petition is DENIED. The 22 October 2008 Decision of the Court of Appeals is
AFFIRMED with MODIFICATION that Sampaguita Travel is held to be solidarily liable with Cathay
Pacific in the payment of nominal damages of ~25,000.00 each for Wilfredo Reyes, Juanita Reyes,
and Michael Rox Reyes. The complaint of respondent Sixta
Lapuz is DISMISSED for lack of cause of action.
SO ORDERED.
G.R. No. 181163

July 24, 2013

ASIAN TERMINALS, INC., Petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Respondent.
x-----------------------x
G.R. No. 181262
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN TERMINALS, INC., Respondents.
x-----------------------x
G.R. No. 181319
WESTWIND SHIPPING CORPORATION, Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.) and ASIAN
TERMINALS, INC., Respondents.
DECISION

VILLARAMA, JR., J.:

Before us are three consolidated petitions for review on certiorari assailing the Decision 1 dated
October 15, 2007 and the Resolution2 dated January 11, 2008 of the Court of Appeals (CA) which
affirmed with modification the Decision 3 of the Regional Trial Court (RTC) of Makati City, Branch 148,
in Civil Case No. 96-062. The RTC had ordered Westwind Shipping Corporation (Westwind) and Asian
Terminals, Inc. (ATI) to pay, jointly and severally, Philam Insurance Co., Inc. (Philam) the sum of
P633,957.15, with interest at 12% per annum from the date of judicial demand and P158,989.28 as
attorneys fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors)
219 packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without
engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila. The
shipment, which had a declared value of US$81,368 or P29,400,000, was insured with Philam against
all risks under Marine Policy No. 708-8006717-4.4
The carrying vessel arrived at the port of Manila on April 20, 1995, and when the shipment was
unloaded by the staff of ATI, it was found that the package marked as 03-245-42K/1 was in bad order.5
The Turn Over Survey of Bad Order Cargoes 6 dated April 21, 1995 identified two packages, labeled
03-245-42K/1 and 03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were stored for
temporary safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the
authorized broker of Universal Motors, and delivered to the latters warehouse in Mandaluyong City.
Upon the request7 of Universal Motors, a bad order survey was conducted on the cargoes and it was
found that one Frame Axle Sub without LWR was deeply dented on the buffle plate while six Frame
Assembly with Bush were deformed and misaligned. 8 Owing to the extent of the damage to said
cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the amount of P643,963.84
against Westwind,9 ATI10 and R.F. Revilla Customs Brokerage, Inc. 11 When Universal Motors demands
remained unheeded, it sought reparation from and was compensated in the sum of P633,957.15 by
Philam. Accordingly, Universal Motors issued a Subrogation Receipt 12 dated November 15, 1995 in
favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint 13 for damages
against Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City,
Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered Westwind and
ATI to pay Philam, jointly and severally, the sum of P633,957.15 with interest at the rate of 12% per
annum, P158,989.28 by way of attorneys fees and expenses of litigation.
The court a quo ruled that there was sufficient evidence to establish the respective participation of
Westwind and ATI in the discharge of and consequent damage to the shipment. It found that the
subject cargoes were compressed while being hoisted using a cable that was too short and taut.
The trial court observed that while the staff of ATI undertook the physical unloading of the cargoes
from the carrying vessel, Westwinds duty officer exercised full supervision and control throughout the
process. It held Westwind vicariously liable for failing to prove that it exercised extraordinary diligence
in the supervision of the ATI stevedores who unloaded the cargoes from the vessel. However, the
court absolved R.F. Revilla Customs Brokerage, Inc. from liability in light of its finding that the cargoes
had been damaged before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and Universal Motors on the strength of
the Subrogation Receipt dated November 15, 1995. It likewise upheld Philams claim for the value of

the alleged damaged vehicle parts contained in Case Nos. 03-245-42K/1 and 03-245-51K or
specifically for "7 pieces of Frame Axle Sub Without Lower and Frame Assembly with Bush."14
Westwind filed a Motion for Reconsideration 15 which was, however, denied in an Order 16 dated
October 26, 2000.
On appeal, the CA affirmed with modification the ruling of the RTC. In a Decision dated October 15,
2007, the appellate court directed Westwind and ATI to pay Philam, jointly and severally, the amount of
P190,684.48 with interest at the rate of 12% per annum until fully paid, attorneys fees of P47,671 and
litigation expenses.
The CA stressed that Philam may not modify its allegations by claiming in its Appellees Brief17 that the
six pieces of Frame Assembly with Bush, which were purportedly damaged, were also inside Case No.
03-245-42K/1. The CA noted that in its Complaint, Philam alleged that "one (1) pc. FRAME AXLE SUB
W/O LWR from Case No. 03-245-42K/1 was completely deformed and misaligned, and six (6) other
pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-245-51K were likewise completely
deformed and misaligned."18
The appellate court accordingly affirmed Westwind and ATIs joint and solidary liability for the damage
to only one (1) unit of Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It also noted that
when said cargo sustained damage, it was not yet in the custody of the consignee or the person who
had the right to receive it. The CA pointed out that Westwinds duty to observe extraordinary diligence
in the care of the cargoes subsisted during unloading thereof by ATIs personnel since the former
exercised full control and supervision over the discharging operation.
Similarly, the appellate court held ATI liable for the negligence of its employees who carried out the
offloading of cargoes from the ship to the pier. As regards the extent of ATIs liability, the CA ruled that
ATI cannot limit its liability to P5,000 per damaged package. It explained that Section 7.01 19 of the
Contract for Cargo Handling Services20 does not apply in this case since ATI was not yet in custody
and control of the cargoes when the Frame Axle Sub without Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc., 21 the
appellate court also held that Philams action for damages had not prescribed notwithstanding the
absence of a notice of claim.
All the parties moved for reconsideration, but their motions were denied in a Resolution dated January
11, 2008. Thus, they each filed a petition for review on certiorari which were consolidated together by
this Court considering that all three petitions assail the same CA decision and resolution and involve
the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner Philam in G.R. No.
181262 and petitioner Westwind in G.R. No. 181319 can be summed up into and resolved by
addressing three questions: (1) Has Philams action for damages prescribed? (2) Who between
Westwind and ATI should be held liable for the damaged cargoes? and (3) What is the extent of their
liability?
Petitioners Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame Axle Sub without Lower inside Case No.
03-245-42K/1. It shifts the blame to Westwind, whom it charges with negligence in the supervision of
the stevedores who unloaded the cargoes. ATI admits that the damage could have been averted had
Westwind observed extraordinary diligence in handling the goods. Even so, ATI suspects that Case
No. 03-245-42K/1 is "weak and defective"22 considering that it alone sustained damage out of the 219
packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held liable to pay only P5,000 per

package pursuant to its Contract for Cargo Handling Services. ATI maintains that it was not properly
notified of the actual value of the cargoes prior to their discharge from the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI liable for the deformed and
misaligned Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It, however, faults the
appellate court for disallowing its claim for the value of six Chassis Frame Assembly which were
likewise supposedly inside Case Nos. 03-245-51K and 03-245-42K/1. As to the latter container,
Philam anchors its claim on the results of the Inspection/Survey Report 23 of Chartered Adjusters, Inc.,
which the court received without objection from Westwind and ATI. Petitioner believes that with the
offer and consequent admission of evidence to the effect that Case No. 03-245-42K/1 contains six
pieces of dented Chassis Frame Assembly, Philams claim thereon should be treated, in all respects,
as if it has been raised in the pleadings. Thus, Philam insists on the reinstatement of the trial courts
award in its favor for the payment of P633,957.15 plus legal interest, P158,989.28 as attorneys fees
and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the deformed Frame Axle Sub without
Lower in Case No. 03-245-42K/1. Westwind argues that the evidence shows that ATI was already in
actual custody of said case when the Frame Axle Sub without Lower inside it was misaligned from
being compressed by the tight cable used to unload it. Accordingly, Westwind ceased to have
responsibility over the cargoes as provided in paragraph 4 of the Bill of Lading which provides that the
responsibility of the carrier shall cease when the goods are taken into the custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since it was the latters stevedores
who operated the ships gear to unload the cargoes. Westwind reasons that ATI is an independent
company, over whose employees and operations it does not exercise control. Moreover, it was ATIs
employees who selected and used the wrong cable to lift the box containing the cargo which was
damaged.
Westwind likewise believes that ATI is bound by its acceptance of the goods in good order despite a
finding that Case No. 03-245-42K/1 was partly torn and crumpled on one side. Westwind also notes
that the discovery that a piece of Frame Axle Sub without Lower was completely deformed and
misaligned came only on May 12, 1995 or 22 days after the cargoes were turned over to ATI and after
the same had been hauled by R.F. Revilla Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable considering that Philams cause of action
has prescribed since the latter filed a formal claim with it only on August 17, 1995 or four months after
the cargoes arrived on April 20, 1995. Westwind stresses that according to the provisions of clause 20,
paragraph 224 of the Bill of Lading as well as Article 366 25 of the Code of Commerce, the consignee
had until April 20, 1995 within which to make a claim considering the readily apparent nature of the
damage, or until April 27, 1995 at the latest, if it is assumed that the damage is not readily apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on the award of damages to Philam
reckoned from the time of extrajudicial demand. Westwind asserts that, at most, it can only be charged
with 6% interest since the damages claimed by Philam does not constitute a loan or forbearance of
money.
The Courts Ruling
The three consolidated petitions before us call for a determination of who between ATI and Westwind
is liable for the damage suffered by the subject cargo and to what extent. However, the resolution of
the issues raised by the present petitions is predicated on the appreciation of factual issues which is
beyond the scope of a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended. It is settled that in petitions for review on certiorari, only questions of law may

be put in issue. Questions of fact cannot be entertained.26

There is a question of law if the issue raised is capable of being resolved without need of reviewing
the probative value of the evidence. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact. If the query requires a re-evaluation of the
credibility of witnesses, or the existence or relevance of surrounding circumstances and their relation
to each other, the issue in that query is factual.27
In the present petitions, the resolution of the question as to who between Westwind and ATI should be
liable for the damages to the cargo and to what extent would have this Court pass upon the evidence
on record. But while it is not our duty to review, examine and evaluate or weigh all over again the
probative value of the evidence presented,28 the Court may nonetheless resolve questions of fact
when the case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when
the findings are contrary to those of the trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well
as in the petitioners main and reply briefs are not disputed by the respondent; and (10) when the
findings of fact are premised on the supposed absence of evidence and contradicted by the evidence
on record.29
In the cases at bar, the fifth and seventh exceptions apply. While the CA affirmed the joint liability of
ATI and Westwind, it held them liable only for the value of one unit of Frame Axle Sub without Lower
inside Case No. 03-245-42K/1. The appellate court disallowed the award of damages for the six
pieces of Frame Assembly with Bush, which petitioner Philam alleged, for the first time in its Appellees
Brief, to be likewise inside Case No. 03-245-42K/1. Lastly, the CA reduced the award of attorneys
fees to P47,671.
Foremost, the Court holds that petitioner Philam has adequately established the basis of its claim
against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the
consignee, Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter
in favor of the former. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. 30 Petitioner Philams action finds support in Article 2207 of the Civil
Code, which provides as follows:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. x x x.
In their respective comments31 to Philams Formal Offer of Evidence,32 petitioners ATI and Westwind
objected to the admission of Marine Certificate No. 708-8006717-4 and the Subrogation Receipt as
documentary exhibits "B" and "P," respectively. Petitioner Westwind objects to the admission of both
documents for being hearsay as they were not authenticated by the persons who executed them. For
the same reason, petitioner ATI assails the admissibility of the Subrogation Receipt. As regards Marine
Certificate No. 708-8006717-4, ATI makes issue of the fact that the same was issued only on April 27,
1995 or 12 days after the shipment was loaded on and transported via S/S "Calayan Iris."
The nature of documents as either public or private determines how the documents may be presented
as evidence in court. Public documents, as enumerated under Section 19, 33 Rule 132 of the Rules of
Court, are self-authenticating and require no further authentication in order to be presented as
evidence in court.34

In contrast, a private document is any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized by which some disposition or
agreement is proved or set forth. Lacking the official or sovereign character of a public document, or
the solemnities prescribed by law, a private document requires authentication 35 in the manner
prescribed under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document. Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The requirement of authentication of a private document is excused only in four instances, specifically:
(a) when the document is an ancient one within the context of Section 21, 36 Rule 132 of the Rules; (b)
when the genuineness and authenticity of the actionable document have not been specifically denied
under oath by the adverse party; (c) when the genuineness and authenticity of the document have
been admitted; or (d) when the document is not being offered as genuine.37
Indubitably, Marine Certificate No. 708-8006717-4 and the Subrogation Receipt are private documents
which Philam and the consignee, respectively, issue in the pursuit of their business. Since none of the
exceptions to the requirement of authentication of a private document obtains in these cases, said
documents may not be admitted in evidence for Philam without being properly authenticated.
Contrary to the contention of petitioners ATI and Westwind, however, Philam presented its claims
officer, Ricardo Ongchangco, Jr. to testify on the execution of the Subrogation Receipt, as follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to consignee and have them receive the said check.
Q I see. Therefore, what you are saying is that you personally delivered the claim check of Universal
Motors Corporation to that company and you have the subrogation receipt signed by them personally?
A Yes, sir.
Q And it was signed in your presence?
A Yes, sir.38
Indeed, all that the Rules require to establish the authenticity of a document is the testimony of a
person who saw the document executed or written. Thus, the trial court did not err in admitting the
Subrogation Receipt in evidence despite petitioners ATI and Westwinds objections that it was not
authenticated by the person who signed it.
However, the same cannot be said about Marine Certificate No. 708-8006717-4 which Ongchangcho,
Jr. merely identified in court. There is nothing in Ongchangco, Jr.s testimony which indicates that he
saw Philams authorized representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine certificate 708-8006717-4 issued by Philam
Insurance Company, Inc. to Universal Motors Corporation on April 15, 1995. Will you tell us what
relation does it have to that policy risk claim mentioned in that letter?
A This is a photocopy of the said policy issued by the consignee Universal Motors Corporation.
ATTY. PALACIOS

I see. May I request, if Your Honor please, that this marine risk policy of the plaintiff as submitted by
claimant Universal Motors Corporation be marked as Exhibit B.
COURT
Mark it.39
As regards the issuance of Marine Certificate No. 708-8006717-4 after the fact of loss occurred,
suffice it to say that said document simply certifies the existence of an open insurance policy in favor
of the consignee. Hence, the reference to an "Open Policy Number 9595093" in said certificate. The
Court finds it completely absurd to suppose that any insurance company, of sound business practice,
would assume a loss that has already been realized, when the profitability of its business rests
precisely on the non-happening of the risk insured against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the Subrogation Receipt, on its
own, is adequate proof that petitioner Philam paid the consignees claim on the damaged goods.
Petitioners ATI and Westwind failed to offer any evidence to controvert the same. In Malayan
Insurance Co., Inc. v. Alberto,40 the Court explained the effect of payment by the insurer of the
insurance claim in this wise:
We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract. It accrues simply upon payment by the insurance company of the insurance
claim. The doctrine of subrogation has its roots in equity. It is designed to promote and accomplish
justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in
justice, equity, and good conscience, ought to pay.41
Neither do we find support in petitioner Westwinds contention that Philams right of action has
prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress, was
accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade by virtue of Commonwealth Act (C.A.) No. 65.42 Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventyfourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed
as repealing any existing provision of the Code of Commerce which is now in force, or as limiting its
application.
The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is
found in paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing
to the carrier or his agent at the port of discharge before or at the time of the removal of the goods into
the custody of the person entitled to delivery thereof under the contract of carriage, such removal shall
be prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If
the loss or damage is not apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person
taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been
the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should

have been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not
given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or the date when the goods should have been
delivered.
In the Bill of Lading43 dated April 15, 1995, Rizal Commercial Banking Corporation (RCBC) is indicated
as the consignee while Universal Motors is listed as the notify party. These designations are in line
with the subject shipment being covered by Letter of Credit No. I501054, which RCBC issued upon the
request of Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe
mode of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who
refuses to part with his goods before he is paid, and a buyer, who wants to have control of his goods
before paying.44 However, letters of credit are employed by the parties desiring to enter into
commercial transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties
to the original transaction,45 in these cases, Nichimen Corporation as the seller and Universal Motors
as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as the
person entitled to delivery of the goods. Accordingly, for purposes of reckoning when notice of loss or
damage should be given to the carrier or its agent, the date of delivery to Universal Motors is
controlling.
S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the subject cargoes were
discharged to the custody of ATI the next day. The goods were then withdrawn from the CFS
Warehouse on May 11, 1995 and the last of the packages delivered to Universal Motors on May 17,
1995. Prior to this, the latter filed a Request for Bad Order Survey 46 on May 12,1995 following a joint
inspection where it was discovered that six pieces of Chassis Frame Assembly from two bundles were
deformed and one Front Axle Sub without Lower from a steel case was dented. Yet, it was not until
August 4, 1995 that Universal Motors filed a formal claim for damages against petitioner Westwind.
Even so, we have held in Insurance Company of North America v. Asian Terminals, Inc. that a request
for, and the result of a bad order examination, done within the reglementary period for furnishing
notice of loss or damage to the carrier or its agent, serves the purpose of a claim. A claim is required
to be filed within the reglementary period to afford the carrier or depositary reasonable opportunity and
facilities to check the validity of the claims while facts are still fresh in the minds of the persons who
took part in the transaction and documents are still available. 47 Here, Universal Motors filed a request
for bad order survey on May 12, 1995, even before all the packages could be unloaded to its
warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that failure to comply with the notice
requirement shall not affect or prejudice the right of the shipper to bring suit within one year after
delivery of the goods. Petitioner Philam, as subrogee of Universal Motors, filed the Complaint for
damages on January 18, 1996, just eight months after all the packages were delivered to its
possession on May 17, 1995. Evidently, petitioner Philams action against petitioners Westwind and
ATI was seasonably filed.
This brings us to the question that must be resolved in these consolidated petitions. Who between
Westwind and ATI should be liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and crumpled on one side while it
was being unloaded from the carrying vessel. The damage to said container was noted in the Bad
Order Cargo Receipt48 dated April 20, 1995 and Turn Over Survey of Bad Order Cargoes dated April
21, 1995. The Turn Over Survey of Bad Order Cargoes indicates that said steel case was not opened
at the time of survey and was accepted by the arrastre in good order. Meanwhile, the Bad Order
Cargo Receipt bore a notation "B.O. not yet t/over to ATI." On the basis of these documents, petitioner
ATI claims that the contents of Steel Case No. 03-245-42K/1 were damaged while in the custody of
petitioner Westwind.

We agree.
Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 173449 of the Civil Code, common carriers are responsible for the
loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the possession of, and received by the
carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.50
The court a quo, however, found both petitioners Westwind and ATI, jointly and severally, liable for the
damage to the cargo. It observed that while the staff of ATI undertook the physical unloading of the
cargoes from the carrying vessel, Westwinds duty officer exercised full supervision and control over
the entire process. The appellate court affirmed the solidary liability of Westwind and ATI, but only for
the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to deviate from the finding that
petitioners Westwind and ATI are concurrently accountable for the damage to the content of Steel
Case No. 03-245-42K/1.
Section 251 of the COGSA provides that under every contract of carriage of goods by the sea, the
carrier in relation to the loading, handling, stowage, carriage, custody, care and discharge of such
goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities
set forth in the Act. Section 3 (2)52 thereof then states that among the carriers responsibilities are to
properly load, handle, stow, carry, keep, care for and discharge the goods carried.53
At the trial, Westwinds Operation Assistant, Menandro G. Ramirez, testified on the presence of a ship
officer to supervise the unloading of the subject cargoes.
ATTY. LLAMAS
Q Having been present during the entire discharging operation, do you remember who else were
present at that time?
A Our surveyor and our checker the foreman of ATI.
Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that time.54
xxxx
Q Who selected the cable slink to be used?
A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the storage plan informing the ATI of what type of
cargo and equipment will be utilitized in discharging the cargo.55
xxxx
Q You testified that it was the ATI foremen who select the cable slink to be used in discharging, is that
correct?
A Yes sir, because they are the one who select the slink and they know the kind of cargoes because
they inspected it before the discharge of said cargo.
Q Are you aware that the ship captain is consulted in the selection of the cable sling?
A Because the ship captain knows for a fact the equipment being utilized in the discharge of the

cargoes because before the ship leave the port of Japan the crew already utilized the proper
equipment fitted to the cargo.56 (Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under
the custody of the carrier.57 The Damage Survey Report58 of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-42K/1 was damaged by ATI
stevedores due to overtightening of a cable sling hold during discharge from the vessels hatch to the
pier. Since the damage to the cargo was incurred during the discharge of the shipment and while
under the supervision of the carrier, the latter is liable for the damage caused to the cargo.
This is not to say, however, that petitioner ATI is without liability for the damaged cargo.
The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between
the establishment of the consignee or shipper and the ships tackle. Being the custodian of the goods
discharged from a vessel, an arrastre operators duty is to take good care of the goods and to turn
them over to the party entitled to their possession.59
Handling cargo is mainly the arrastre operators principal work so its drivers/operators or employees
should observe the standards and measures necessary to prevent losses and damage to shipments
under its custody.60
While it is true that an arrastre operator and a carrier may not be held solidarily liable at all times, 61 the
facts of these cases show that apart from ATIs stevedores being directly in charge of the physical
unloading of the cargo, its foreman picked the cable sling that was used to hoist the packages for
transfer to the dock. Moreover, the fact that 218 of the 219 packages were unloaded with the same
sling unharmed is telling of the inadequate care with which ATIs stevedore handled and discharged
Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwinds liability, we agree with the CA that the same should be
confined to the value of the one piece Frame Axle Sub without Lower.
In the Bad Order Inspection Report 62 prepared by Universal Motors, the latter referred to Case No. 03245-42K/1 as the source of said Frame Axle Sub without Lower which suffered a deep dent on its
buffle plate. Yet, it identified Case No. 03-245-51K as the container which bore the six pieces Frame
Assembly with Bush. Thus, in Philams Complaint, it alleged that "the entire shipment showed one (1)
pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 was completely deformed and
misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-245-51K
were likewise completely deformed and misaligned."63 Philam later claimed in its Appellees Brief that
the six pieces of Frame Assembly with Bush were also inside the damaged Case No. 03-245-42K/1.
However, there is nothing in the records to show conclusively that the six Frame Assembly with Bush
were likewise contained in and damaged inside Case No. 03-245-42K/1. In the Inspection Survey
Report of Chartered Adjusters, Inc., it mentioned six pieces of chassis frame assembly with deformed
body mounting bracket. However, it merely noted the same as coming from two bundles with no
identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred in imposing an interest rate of 12% on the
award of damages. Under Article 2209 of the Civil Code, when an obligation not constituting a loan or
forbearance of money is breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. 64 In the similar case of Belgian Overseas
Chartering and Shipping NV v. Philippine First Insurance Co., lnc.,65 the Court reduced the rate of
interest on the damages awarded to the carrier therein to 6% from the time of the filing of the
complaint until the finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated October 15,2007 and the
Resolution dated January 11, 2008 of the Court of Appeals in CA-G.R. CV No. 69284 in that the
interest rate on the award of P190,684.48 is reduced to 6% per annum from the date of extrajudicial

demand, until fully paid.

With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319, respectively.
SO ORDERED.
G.R. No. 170942

August 28, 2013

COMSAVINGS BANK (NOW GSIS FAMILY BANK), PETITIONER,

vs.
SPOUSES DANILO AND ESTRELLA CAPISTRANO, RESPONDENTS.
DECISION
BERSAMIN, J.:
A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP) of
the Government owes a duty to observe the highest degree of diligence and a high standard of
integrity and performance in all its transactions with its clients because its business is imbued with
public interest.
The Case
Comsavings Bank (now GSIS Family Bank) seeks the review and reversal of the decision
promulgated on November 30, 2005,1 whereby the Court of Appeals (CA) affirmed with modifications
the decision rendered on April 25, 2003 by the Regional Trial Court (RTC), Branch 135, in Makati City
finding it liable for damages to respondents.2
Antecedents
Respondents were the owners of a residential lot with an area of 200 square meters known as Lot 8 of
Block 4 of the Infant Jesus Subdivision situated in Bacoor, Cavite, and covered by Transfer Certificate
of Title (TCT) No. 316885 of the Register of Deeds of Cavite. Desirous of building their own house on
the lot, they availed themselves of the UHLP implemented by the National Home Mortgage Finance
Corporation (NHMFC). On May 28, 1992, they executed a construction contract with Carmencita CruzBay, the proprietor of GCB Builders, for the total contract price of P265,000.00 with the latter
undertaking to complete the construction within 75 days. To finance the construction, GCB Builders
facilitated their loan application with Comsavings Bank, an NHFMC-accredited originator. As proof of
their qualifications to avail themselves of a loan under the UHLP and to comply with the conditions
prescribed for the approval of their application, they submitted their record of employment, the amount
of their income, and a clearance from the Social Security System (SSS) to the effect that they had no
existing loans, among others. On May 28, 1992, they executed in favor of GCB Builders a deed of
assignment of the amount of the P300,000.00 proceeds of the loan from Comsavings Bank.
On July 2, 1992, Comsavings Bank informed respondent Estrella Capistrano that she would have to
sign various documents as part of the requirements for the release of the loan. Among the documents
was a certificate of house completion and acceptance. On the same date, Comsavings Bank handed
Estrella a letter addressed to GCB Builders informing the latter that respondents had complied with the
preliminary requirements of the UHLP, and were qualified to avail themselves of the loan amounting to
P303,450.00 payable within 25 years at 16% per annum, subject to the following terms and conditions,
namely: the signing of mortgage documents, 100% completion of the construction of the housing unit,
original certificate of occupancy permit and certification of completion, and submission of house
pictures signed by the borrower at the back.
On August 10, 1992, Comsavings Bank informed respondents of the approval of an interim financing
loan of P260,000.00 payable within 180 days, which amount was to be paid out of the proceeds of the

loan from NHMFC. By October 9, 1992, GCB Builders received from Comsavings Bank the total sum
of P265,000.00 as construction cost in four releases, to wit:
August 7, 1992
- P39,210.00
August 19, 1992
- P112,181.00
September 3, 1992
- P53,565.00
October 9, 1992
- P24,779.253
In late September 1992, after Comsavings Bank had released the total of P265,000.00 to GCB
Builders as construction cost, respondents inquired from GCB Builder when their house would be
completed considering that their contract stipulated a completion period of 75 days. Cruz-Bay gave
various excuses for the delay, such as the rainy season, but promised to finish the construction as
soon as possible. The year 1992 ended with the construction of the house unfinished.4
In February 1993, respondents demanded the completion of the house. In reply, Cruz-Bay told them to
give the further amount of P25,000.00 to finish the construction. They requested a breakdown of the
amounts already spent in the construction considering that the P303,450.00 that Comsavings Bank
had been paid by NHMFC on their loan had been more than the contract price of the contract. Instead
of furnishing them the requested breakdown, GCB Builders counsel sent a demand letter for an
additional construction cost of P52,511.59.
On May 30, 1993, respondents received a letter from NHMFC advising that they should already start
paying their monthly amortizations of P4,278.00 because their loan had been released on April 20,
1993 directly to Comsavings Bank. On June 1, 1993, Estrella Capistrano went to the construction site
and found to her dismay that the house was still unfinished. She noted that there were no doorknobs;
that the toilet bath floor was not even constructed yet because the portion of the house was still soil;
that there were no toilet and bathroom fixtures; that the toilet and bath wall tiles had no end-capping;
that there were cracks on the wall plastering; that the kitchen sink had no plumbing fixtures; and that
the main door installed was a flush-type instead of the sliding door specified in the approved plans.
On July 5, 1993, respondents wrote to NHMFC protesting the demand for amortization payments
considering that they had not signed any certification of completion and acceptance, and that even if
there was such a certification of completion and acceptance, it would have been forged.
On July 14, 1993, respondents again wrote to NHMFC requesting an ocular inspection of the
construction site.
On November 11, 1993, Atty. Ruben C. Corona, the Manager of the Collateral Verification & External
Examination Department of NHMFC, informed the counsel of respondents that the inspection of the
construction site conducted on August 4, 1993 showed the following:
1) That the subject unit is being occupied by tenant, a certain Mr. Mark Inanil;
2) That the toilet/bath and kitchen counter are not installed with Plumbing fixtures;
3) That there are no door knobs on bedroom and no handles on Kitchen cabinet;
4) That the toilet bath has no concrete flooring and the tiles has no end/corner cappings; and
5) That there are hairline cracks on flooring.5

On July 12, 1993, respondents sued GCB Builders and Comsavings Bank for breach of contract and
damages,6 praying that defendants be ordered jointly and severally liable: (1) to finish the construction
of the house according to the plans and specifications agreed upon at the price stipulated in the
construction contract; and (2) to pay them P38,450.00 as the equivalent of the mortgage value in
excess of the contract price; P25,000.00 as actual damages for the expenses incurred by reason of
the breach of contract; P200,000.00 as moral damages; P30,000.00 as attorneys fees; and
P50,000.00 as exemplary damages.
Respondents amended their complaint to implead NHMFC as ab additional defendant. Aside from
adopting the reliefs under the original complaint, they prayed that NHMFC be directed to hold in
abeyance its demand for amortization payment until the case had been finally adjudged; that NHMFC,
GCB Builders and Comsavings Bank be ordered to pay moral and exemplary damages, and attorneys
fees; and that GCB Builders and Comsavings be directed to pay P4,500.00 as monthly rental from the
filing of the complaint until the house was turned-over and accepted by them.7
In their respective answers,8 GCB Builders, Comsavings Bank and NHMFC asserted that the
complaint as amended stated no cause of action against them. On its part, GCB Builders claimed that
the construction of the house had been completed a long time ago; that respondent had failed, despite
demand, to occupy the house and to pay a balance of P46,849.94 as of August 23, 1993; and that it
had received only P239,355.30 out of the P303,000.00 loan, inasmuch as the balance went to interim
interest, originator fee, service charge and other bank charges. Comsavings Bank averred that
respondents were estopped from assailing their signing of the certificate of house
acceptance/completion on July 2, 1992 considering that they had the option not to pre-sign the
certificate; and that it did not make any representation as to the conditions and facilitation of the loan
with NHMFC when it submitted the certificate of house acceptance/completion to NHMFC after the
completion of the house on April 20, 1993 because such representations were normal and regular
requirements in loan processing of the conduit banks of NHMFC. Lastly, NHMFC alleged that it
administered the UHLP of the Government by granting financing to qualified home borrowers through
loan originators, like Comsavings Bank in this case; and that respondents had applied and had been
granted a housing loan, and, as security, they had executed a loan and mortgage agreement and
promissory note for P303,450.00 dated July 2, 1992.
Decision of the RTC
On April 25, 2003, after trial, the RTC rendered a decision in favor of respondents. 9 Specifically, it
found that although the proceeds of the loan had been completely released, the construction of the
house of respondents remained not completed; that the house had remained in the possession of
GCB Builders, which had meanwhile leased it to another person; that GCB Builders did not comply
with the terms and conditions of the construction contract; and that NHMFC approved the loan in the
gross amount of P303,450.00, and released P289,000.00 of that amount to Comsavings Bank on April
20, 1993. It concluded that respondents were entitled to recover from all defendants actual damages
of P25,000.00; moral damages for their mental anguish and sleepless night in the amount of
P200,000.00; exemplary damages of P100,000.00; and P30,000.00 as attorneys fees. It ruled,
however, that only GCB Builders was liable for the monthly rental of P4,500.00 because GCB Builders
was alone in renting out the house; and that NHMFC was equally liable with the other defendants by
reason of its having released the loan proceeds to Comsavings Bank without verifying whether the
construction had already been completed, thereby indicating that NHMFC had connived and
confederated with its co-defendants in the irregular release of the loan proceeds to Comsavings Bank.
The RTC disposed thusly:
WHEREFORE, judgment is hereby rendered ordering:
Defendants GCB Builder, COMSAVINGS BANK, and NATIONAL HOUSING FINANCE MORTGAGE
CORPORATION (sic) jointly and severally:
1.1 To complete the construction of the house of plaintiff Spouses DANILO and ESTRELLA

CAPISTRANO within thirty 30 days;

1.2 To pay said plaintiffs:
1.2.1 P25,000.00 in actual damages;
1.2.2 P200,000.00 in moral damages;
1.2.3 P100,000.00 in exemplary damages;
1.2.4 P30,000.00 as attorneys fees.
Defendant GCB Builder to pay the plaintiffs the amount of P4,500.00, as rentals from the date of the
filing of the Complaint until the construction of the house is completed, turned over to and accepted by
the plaintiffs;
Defendants NHMFC to hold in abeyance the collection of the amortizations until 30 days from the
completion and acceptance by the plaintiffs of the house in question.
SO ORDERED.10
GCB Builders, Comsavings Bank and NHMFC appealed to the CA.
Decision of the CA
GCB Builders assigned the following errors to the RTC, namely:
IN FINDING THAT THE HOUSE IN QUESTION WAS NOT COMPLETED.
IN FINDING THAT GCB BUILDERS DID NOT COMPLY WITH THE TERM AND CONDITIONS OF
THE CONSTRUCTION.
IN NOT FINDING THAT THE PLAINTIFFS ARE LIABLE TO PAY DEFENDANT GCB THE AMOUNT
OF P45,000.00.
IN RENDERING WITHOUT LEGAL AND FACTUAL BASIS THE DECISION, THE DISPOSTIVE
PORTION OF WHICH READS, AS FOLLOWS:
xxxx
IN NOT GRANTING THE RELIEFS PRAYED FOR IN THE COUNTERCLAIM;
IN NOT DISMISSING THE COMPLAINT.11
Comsavings Bank phrased its assignment of error thuswise:
I
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT COMSAVINGS BANK IS
JOINTLY AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS-APPELLANTS GCB
BUILDERS AND NATIONAL HOME MORTGAGE FINANCE CORPORATION TO PAY PLAINTIFFSAPPELLEES ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES.12
NHMFC ascribes to the RTC the following errors, to wit:
I
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT NATIONAL HOME
MORTGAGE FINANCE CORPORATION IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANT-APPELLANTS GCB BUILDERS AND COMSAVINGS BANK TO PAY PLAINTIFFSAPPELLEES ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES.
II

THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT NATIONAL HOME

MORTGAGE FINANCE CORPORATION SHOULD HOLD IN ABEYANCE THE COLLECTION OF
AMORTIZATION UNTIL 30 DAYS FROM THE COMPLETION AND ACCEPTANCE BY THE
PLAINTIFFS OF THE HOUSE IN QUESTION.13
On November 30, 2005, the CA promulgated the appealed decision, 14 affirming the RTC subject to the
modification that NHMFC was absolved of liability, and that the moral and exemplary damages were
reduced, viz:
xxxx
The Court a quo held appellant Comsavings Bank jointly and severally liable with appellant GCB
Builders since it likewise committed misrepresentations in obtaining the mortgage loan from the
NHMFC in the name of the appellees. We concur. The records show that it was appellant Comsavings
Bank which called up the appellee Estrella Capistrano and had her sign various documents as part of
the documentary requirements for the release of the construction loan. One of these documents, was
the Certificate of House Completion and Acceptance, which, upon appellant Banks representation
was signed by the appellees even if the construction of the house had not yet started. On July 2, 1992,
Comsavings Bank informed appellant GCB Builders that appellees had provisionally complied with the
preliminary requirements under the Unified Home Lending Program of appellant NHMFC and qualified
for a loan in the amount of P303,450.00 payable in twenty-five (25) years at an interest of 16% per
annum. One condition for the approval of the loan was "100% completion of the construction of the
housing unit located on the property described plus: Original Certificate of Occupancy Permit and
Certification of Completion and Submission of House pictures signed at the back by the borrower.
However, the loan documents which appellant Bank submitted to appellant NHMFC were false.
Appellant Comsavings Bank in order to show that the construction of the subject house had been
completed, submitted a photograph of a toilet/bath with plumbing and fixtures installed when in the
truth, as admitted by appellant GCB Builders, the plumbing fixtures had not (been) installed as the
appellees were still indebted to GCB. Comsavings Bank also submitted photographs of wall tiles of the
toilet/bath showing them to be brown or mustard, but the color of the wall tiles actually installed was
white per testimony of appellee Estrella Capistrano and corroborated by appellant GCB Builders
witness Leopoldo Arnaiz. The appellees complained to appellant NHMFC that the house which they
bought was unfinished on the basis of which NHMFC conducted an inspection of the housing unit and
found the complaint to be true.
By submitting false or forged documents to the NHMFC, appellant Comsavings Bank violated the
warranties contained in the purchase of the loan agreement with appellant NHMFC. On the strength of
such warranties, NHMFC issued Check No. 425824 in the amount of P1,382,806.63 that include the
mortgage loan of the appellees. It must be recalled that the agreement provided among others that
"the housing loan extended to the appellees would be released to and received by Comsavings Bank,
and the latter warrants the genuineness of all loan documents it submitted to NHMFC. Incidentally,
Carmencita B. Cruz, owner and proprietor of appellant GCB Builders admitted that she is even not an
accredited builder of housing units under the Unified Home Lending Program (UHLP) of the NHMFC in
the area. Appellant Comsavings Bank in allowing appellant GCB Builders to participate in the UHLP
program undermined and defeated its real purpose, to help low income families build their own homes,
to the damage and prejudice of the appellees.15
xxxx
WHEREFORE, in view of all the foregoing, the decision appealed from is AFFIRMED with
MODIFICATIONS. The dispositive portion finding the NHMFC jointly and severally liable with the other
appellants for the payment of actual, moral and exemplary damages, is hereby deleted; the awards of
moral and exemplary damages are reduced to P100,000.00 and P50,000.00, respectively, and the
amount of rentals to be paid by GCB Builders is to be reckoned from August 4, 1993.
SO ORDERED.16

Hence, this further appeal by Comsavings Bank.

Issue
Comsavings Bank submits the lone issue of:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING PETITIONER BANK JOINTLY
AND SEVERALLY LIABLE WITH GCB BUILDERS TO PAY RESPONDENT ACTUAL, MORAL AND
EXEMPLARY DAMAGES, AS WELL AS ATTORNEYS FEES.17
Comsavings Bank insists on its non-liability, contending that it committed no misrepresentation when it
made respondents sign the certificate of house acceptance/completion notwithstanding that the
construction of the house had not yet started; that they agreed to pre-sign the certificate, although they
had the option not to; that it made them sign the certificate to enable them to avoid the inconvenience
of returning back and forth just to sign the certificate; that it made clear to them during the pre-signing
that the certificate would be submitted to NHMFC only after the completion of the house; that it
submitted the certificate to NHMFC after the completion of the construction of the house on April 23,
2003; that they had thus been informed beforehand of the conditions in pre-signing the certificate; that
choosing to pre-sign the certificate estopped them from questioning the procedural aspect of the
documentation; and that the practice of pre-signing documents was not expressly prohibited
considering that they were not induced to pre-sign the certificate.18
Ruling
The appeal has no merit.
1.
Comsaving Banks liability was not based on its purchase of loan agreement with NHMFC but on
Article 20 and Article 1170 of the Civil Code
The CA rightfully declared Comsavings Bank solidarily liable with GCB Builders for the damages
sustained by respondents. However, we point out that such liability did not arise from Comsavings
Banks breach of warranties under its purchase of loan agreement with NHMFC. Under the purchase
of loan agreement, it undertook, for value received, to sell, transfer and deliver to NHMFC the loan
agreements, promissory notes and other supporting documents that it had entered into and executed
with respondents, and warranted the genuineness of the loan documents and the "construction of the
residential units."19 Having made the warranties in favor of NHMFC, it would be liable in case of
breach of the warranties to NHMFC, not respondents, eliminating breach of such warranties as a
source of its liability towards respondents.
Instead, the liability of Comsavings Bank towards respondents was based on Article 20 and Article
1170 of the Civil Code, viz:
Article 20. Every person who, contrary to law, willfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the highest
degree of diligence as well as high standards of integrity and performance in all its transactions
because its business is imbued with public interest.20 As aptly declared in Philippine National Bank v.
Pike:21 "The stability of banks largely depends on the confidence of the people in the honesty and
efficiency of banks."
Gross negligence connotes want of care in the performance of ones duties; 22 it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is duty
to act, not inadvertently but willfully and intentionally, with a conscious indifference to consequences

insofar as other persons may be affected. 23 It evinces a thoughtless disregard of consequences

without exerting any effort to avoid them.24
There is no question that Comsavings Bank was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise the required diligence and integrity. As a
banking institution serving as an originator under the UHLP and being the maker of the certificate of
acceptance/completion,25 it was fully aware that the purpose of the signed certificate was to affirm that
the house had been completely constructed according to the approved plans and specifications, and
that respondents had thereby accepted the delivery of the complete house. Given the purpose of the
certificate, it should have desisted from presenting the certificate to respondents for their signature
without such conditions having been fulfilled. Yet, it made respondents sign the certificate (through
Estrella Capistrano, both in her personal capacity and as the attorney-in-fact of her husband Danilo
Capistrano) despite the construction of the house not yet even starting. Its act was irregular per se
because it contravened the purpose of the certificate. Worse, the pre-signing of the certificate was
fraudulent because it was thereby enabled to gain in the process the amount of P17,306.83 in the
form of several deductions from the proceeds of the loan on top of other benefits as an originator
bank.26 On the other hand, respondents were prejudiced, considering that the construction of the
house was then still incomplete and was ultimately defective. Compounding their plight was that
NHMFC demanded payment of their monthly amortizations despite the non-completion of the house.
Had Comsavings Bank been fair towards them as its clients, it should not have made them pre-sign
the certificate until it had confirmed that the construction of the house had been completed.
Comsavings Bank asserts that it submitted the certificate to NHMFC after the construction of the
house had been completed on April 23, 2003. The assertion could not be true, however, because Atty.
Corona of NHMFC testified that he had inspected the house on August 4, 1993 and had found the
construction to be incomplete and defective.27
Contrary to the claim of Comsavings Bank, the records contain no showing that respondents had been
given the option not to pre-sign the certificate of acceptance/completion; that Comsavings Bank had
made respondents sign the certificate so that they would not be inconvenienced in going back and
forth just to sign the certificate; and that it made clear to them during the pre-signing that the certificate
would be submitted to NHMFC only after the completion of the house. Felicisima M. Miranda, the loan
officer of Comsavings Bank and its sole witness during trial, did not attest to such option not to presign. Also, Estrella Capistrano (Estrella) mentioned nothing about it during the trial, testifying only that
after signing several documents, including the certificate, she was told by Comsavings Banks
personnel that the documents would be needed for the processing of the loan. 28 Clearly, the supposed
option was Comsavings Banks lame justification for the pre-signing of the certificate.
The submission of pictures of the fully-constructed house bearing the signatures of respondents on
the dorsal sides was a requirement for the release of the loan by Comsavings Bank to GCB Builders,
and for the Comsavings Banks reimbursement of the loan from NHMFC. 29 The signatures were
ostensibly for authentication of the pictures. In its compliance, GCB Builders submitted pictures of a
different house sans the signatures of respondents on the dorsal sides. 30 Ignoring the glaring
irregularity, Comsavings Bank accepted the unsigned (hence, unauthenticated) pictures, released the
loan to GCB Builders, and turned over the pictures to NHMFC for the reimbursement of the loan. Had
Comsavings Bank complied with its duty of observing the highest degree of diligence, it would have
checked first whether the pictures carried the signatures of respondents on their dorsal sides, and
whether the house depicted on the pictures was really the house of respondents, before releasing the
proceeds of the loan to GCB Builders and before submitting the pictures to NHMFC for the
reimbursement. Again, this is an indication of Comsavings Banks gross negligence.
2.
Comsavings Bank is liable for damages
As to the damages that should be awarded to respondents, moral and exemplary damages were

warranted.
Under Article 2219 of the Civil Code, moral damages may be recovered for the acts or actions referred
to in Article 20 of the Civil Code. Moral damages are meant to compensate the claimant for any
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injuries unjustly caused.31
In their amended complaint, respondents claimed that the acts of GCB Builders and Comsavings Bank
had caused them to suffer sleepless nights, worries and anxieties. The claim was well founded. Danilo
worked in Saudi Arabia in order to pay the loan used for the construction of their family home. His
anxiety and anguish over the incomplete and defective construction of their house, as well as the
inconvenience he and his wife experienced because of this suit were not easily probable. On her part,
Estrella was a mere housewife, but was the attorney-in-fact of Danilo in matters concerning the loan
transaction. With Danilo working abroad, she was alone in overseeing the house construction and the
progress of the present case. Given her situation, she definitely experienced worries and sleepless
nights. The award of moral damages of P100,000.00 awarded by the CA as exemplary damages is
proper.1wphi1
With respect to exemplary damages, the amount of P50,000.00 awarded by the CA as exemplary
damages is sustained. Relevantly, we have held that:
The law allows the grant of exemplary damages to set an example for the public good. The business
of a bank is affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. For this reason, the bank should guard against injury
attributable to negligence or bad faith on its part. The banking sector must at all times maintain a high
level of meticulousness. The grant of exemplary damages is justified by the initial carelessness of
petitioner, aggravated by its lack of promptness in repairing its error.32
However, the award of actual damages amounting to P25,000.00 is not warranted. To justify an award
for actual damages, there must be competent proof of the actual amount of loss. Credence can be
given only to claims duly supported by receipts.33 Respondents did not submit any documentary proof,
like receipts, to support their claim for actual damages.
Nonetheless, it cannot be denied that they had suffered substantial losses. Article 2224 of the Civil
Code allows the recovery of temperate damages when the court finds that some pecuniary loss was
suffered but its amount cannot be proved with certainty. In lieu of actual damages, therefore,
temperate damages of P25,000.00 are awarded. Such amount, in our view, is reasonable under the
circumstances.
Article 2208 of the Civil Code allows recovery of attorneys fees when exemplary damages are
awarded or where the plaintiff has incurred expenses to protect his interest by reason of defendants
act or omission. Considering that exemplary damages were properly awarded here, and that
respondents hired a private lawyer to litigate its cause, we agree with the RTC and CA that the
P30,000.00 allowed as attorneys fees were appropriate and reasonable.
A defendant who did not appeal may be benefitted by the judgment in favor of the other defendant
who appealed.34 Thus, the foregoing modifications as to the nature and amount of damages inures to
the benefit of GCB Builders although it did not appeal the ruling of the CA.
WHEREFORE, we AFFIRM the decision promulgated by the Court of Appeals on November 30, 2005,
subject to the MODIFICATIONS that Comsavings Bank and GCB Builders are further ordered to pay,
jointly and severally, to the Spouses Danilo and Estrella Capistrano the following amounts: (1)
P25,000.00 as temperate damages; (2) P30,000.00 as attorneys fees; (3) interest of 6% per annum
on all the amounts of damages reckoned from the finality of this decision; and (4) the costs of suit.
SO ORDERED.

G.R. No. 160758

January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is premature,
and should be undone for being void and ineffectual. The mortgagee who has been meanwhile given
possession of the mortgaged property by virtue of a writ of possession issued to it as the purchaser at
the foreclosure sale may be required to restore the possession of the property to the mortgagor and to
pay reasonable rent for the use of the property during the intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the adverse decision
promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491, 1 whereby the Court of Appeals (CA)
upheld the judgment rendered on January 6, 1998 2 by the Regional Trial Court, Branch 25, in Iloilo
City (RTC) annulling the extra-judicial foreclosure of the real estate and chattel mortgages at the
instance of DBP because the debtor-mortgagor, Guaria Agricultural and Realty Development
Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was approved on
August 5, 1976.3 Guaria Corporation executed a promissory note that would be due on November 3,
1988.4 On October 5, 1976, Guaria Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17, 1977, Guaria
Corporation executed a chattel mortgage over the personal properties existing at the resort complex
and those yet to be acquired out of the proceeds of the loan, also to secure the performance of the
obligation.5 Prior to the release of the loan, DBP required Guaria Corporation to put up a cash equity
of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the proceeds to defray
the cost of additional improvements in the resort complex. In all, the amount released totalled
P3,003,617.49, from which DBP withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP
directly paid some suppliers of Guaria Corporation over the latter's objection. DBP found upon
inspection of the resort project, its developments and improvements that Guaria Corporation had not
completed the construction works.7 In a letter dated February 27, 1978, 8 and a telegram dated June 9,
1978,9 DBP thus demanded that Guaria Corporation expedite the completion of the project, and
warned that it would initiate foreclosure proceedings should Guaria Corporation not do so.10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guaria Corporation. The notice was
eventually published, leading the clients and patrons of Guaria Corporation to think that its business
operation had slowed down, and that its resort had already closed.11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific performance of
the latter's obligations under the loan agreement, and to stop the foreclosure of the mortgages (Civil
Case No. 12707).12 However, DBP moved for the dismissal of the complaint, stating that the
mortgaged properties had already been sold to satisfy the obligation of Guaria Corporation at a

public auction held on January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due
to this, Guaria Corporation amended the complaint on February 6, 1979 14 to seek the nullification of
the foreclosure proceedings and the cancellation of the certificate of sale. DBP filed its answer on
December 17, 1979,15 and trial followed upon the termination of the pre-trial without any agreement
being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At first, the RTC
denied the application but later granted it upon DBP's motion for reconsideration. Aggrieved, Guaria
Corporation assailed the granting of the application before the CA on certiorari (C.A.-G.R. No. 12670SP entitled Guaria Agricultural and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP sought the implementation of the
order for the issuance of the writ of possession. Over Guaria Corporation's opposition, the RTC
issued the writ of possession on June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial sales of the
mortgaged properties of the plaintiff by the Office of the Provincial Sheriff of Iloilo on January 15, 1979
are null and void, so with the consequent issuance of certificates of sale to the defendant of said
properties, the registration thereof with the Registry of Deeds and the issuance of the transfer
certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the actual possession
and enjoyment of all the properties foreclosed and possessed by it. To pay the plaintiff the reasonable
rental for the use of its beach resort during the period starting from the time it (defendant) took over its
occupation and use up to the time possession is actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it takes
possession and management of the beach resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP TO
JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE WAS
FORECLOSED BY EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE
CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO. 26
PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES TO
DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR IN ORDERING

DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT OF ALL THE
FORECLOSED PROPERTIES AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE USE OF
THE FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP WHICH MERELY
EXERCISED ITS RIGHTS UNDER THE MORTGAGE CONTRACT.19
In its decision promulgated on March 26, 2003,20 however, the CA sustained the RTC's judgment but
deleted the award of attorney's fees, decreeing:
WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered by the
Regional Trial Court of Iloilo City, Branch 25 in Civil Case No. 12707 for Specific Performance with
Preliminary Injunction is hereby AFFIRMED with MODIFICATION, in that the award for attorney's fees
is deleted.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the CA denied its motion on October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED MARCH 26, 2003 AND
ITS RESOLUTION DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR
RECONSIDERATION WERE ISSUED IN ACCORDANCE WITH LAW, PREVAILING
JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE USUAL
COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND THEREFORE
IN ACCORDANCE WITH THE "LAW OF THE CASE DOCTRINE."22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing scheme for the
development of a beach resort, and the releases of the proceeds would be subject to conditions that
included the verification of the progress of works in the project to forestall diversion of the loan
proceeds; and that under Stipulation No. 26 of the mortgage contract, further loan releases would be
terminated and the account would be considered due and demandable in the event of a deviation from
the purpose of the loan,23 including the failure to put up the required equity and the diversion of the
loan proceeds to other purposes.24 It assails the declaration by the CA that Guaria Corporation had
not yet been in default in its obligations despite violations of the terms of the mortgage contract
securing the promissory note.
Guaria Corporation counters that it did not violate the terms of the promissory note and the mortgage
contracts because DBP had fully collected the interest notwithstanding that the principal obligation did
not yet fall due and become demandable.25
The submissions of DBP lack merit and substance.

The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid. 26 Loan is a reciprocal
obligation, as it arises from the same cause where one party is the creditor, and the other the debtor.27
The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and
the performance should ideally be simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security, executed real
estate and chattel mortgages. However, it was never established that appellee was already in default.
Appellant, in a telegram to the appellee reminded the latter to make good on its construction works,
otherwise, it would foreclose the mortgage it executed. It did not mention that appellee was already in
default. The records show that appellant did not make any demand for payment of the promissory
note. It appears that the basis of the foreclosure was not a default on the loan but appellee's failure to
complete the project in accordance with appellant's standards. In fact, appellant refused to release the
remaining balance of the approved loan after it found that the improvements introduced by appellee
were below appellant's expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case bound
itself to grant appellee the loan amount of P3,387,000.00 condition on appellee's payment of the
amount when it falls due. Furthermore, the loan was evidenced by the promissory note which was
secured by real estate mortgage over several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other
(Areola vs. Court of Appeals, 236 SCRA 643). They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfilment of the other (Jaime Ong vs. Court
of Appeals, 310 SCRA 1). The promise of appellee to pay the loan upon due date as well as to
execute sufficient security for said loan by way of mortgage gave rise to a reciprocal obligation on the
part of appellant to release the entire approved loan amount. Thus, appellees are entitled to receive
the total loan amount as agreed upon and not an incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant therefore could not
have made a demand for payment of the loan since it had yet to fulfil its own obligation. Moreover, the
fact that appellee was not yet in default rendered the foreclosure proceedings premature and
improper.
The properties which stood as security for the loan were foreclosed without any demand having been
made on the principal obligation. For an obligation to become due, there must generally be a demand.
Default generally begins from the moment the creditor demands the performance of the obligation.
Without such demand, judicial or extrajudicial, the effects of default will not arise (Namarco vs.
Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis Occidental,
88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the approved loan.
As a consequence, the real estate mortgage of appellee becomes unenforceable, as it cannot be
entirely foreclosed to satisfy appellee's total debt to appellant (Central Bank of the Philippines vs.
Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows that appellee is
still entitled to possession of the foreclosed properties. However, appellant took possession of the
same by virtue of a writ of possession issued in its favor during the pendency of the case. Thus, the

trial court correctly ruled when it ordered appellant to return actual possession of the subject
properties to appellee or its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's fees is the
exception rather than the rule and counsel's fees are not to be awarded every time a party wins a suit.
Attorney's fees cannot be recovered as part of damages because of the policy that no premium should
be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38).29
xxxx
We uphold the CA.
To start with, considering that the CA thereby affirmed the factual findings of the RTC, the Court is
bound to uphold such findings, for it is axiomatic that the trial court's factual findings as affirmed by the
CA are binding on appeal due to the Court not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had no right yet to
exact on Guaria Corporation the latter's compliance with its own obligation under the loan. Indeed, if
a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be
obliged to perform what is expected of it while the other's obligation remains unfulfilled. 30 In other
words, the latter party does not incur delay.31
Still, DBP called upon Guaria Corporation to make good on the construction works pursuant to the
acceleration clause written in the mortgage contract (i.e., Stipulation No. 26), 32 or else it would
foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor's interest in case of the default of the
debtor. By its nature, however, a mortgage remains an accessory contract dependent on the principal
obligation,33 such that enforcement of the mortgage contract will depend on whether or not there has
been a violation of the principal obligation. While a creditor and a debtor could regulate the order in
which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender
should perform its obligation - the release of the full loan amount - before it could demand that the
borrower repay the loaned amount. In other words, Guaria Corporation would not incur in delay
before DBP fully performed its reciprocal obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guaria Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v. Licuanan,35 it would only be when a demand to
pay had been made and was subsequently refused that a borrower could be considered in default,
and the lender could obtain the right to collect the debt or to foreclose the mortgage.1wphi1 Hence,
Guaria Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan agreement, the
letter dated February 27, 1978 that DBP sent would still not be regarded as a demand to render
Guaria Corporation in default under the principal contract because DBP was only thereby requesting
the latter "to put up the deficiency in the value of improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged properties
at its instance were premature, and, therefore, void and ineffectual.37
Being a banking institution, DBP owed it to Guaria Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity and performance in all its transactions
because its business was imbued with public interest. 38 The high standards were also necessary to
ensure public confidence in the banking system, for, according to Philippine National Bank v. Pike: 39
"The stability of banks largely depends on the confidence of the people in the honesty and efficiency of
banks." Thus, DBP had to act with great care in applying the stipulations of its agreement with Guaria
Corporation, lest it erodes such public confidence. Yet, DBP failed in its duty to exercise the highest

degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the
foreclosure sale of the mortgaged properties despite Guaria Corporation not being yet in default.
DBP wrongly relied on Stipulation No. 26 as its basis to accelerate the obligation of Guaria
Corporation, for the stipulation was relevant to an Omnibus Agricultural Loan, to Guaria Corporation's
loan which was intended for a project other than agricultural in nature.
Even so, Guaria Corporation did not elevate the actionability of DBP's negligence to the CA, and did
not also appeal the CA's deletion of the award of attorney's fees allowed by the RTC.1wphi1 With the
decision of the CA consequently becoming final and immutable as to Guaria Corporation, we will not
delve any further on DBP's actionable actuations.
2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already constituted the law of the
case. Hence, the CA could not decide the appeal in C.A.-G.R. CV No. 59491 differently.
Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not constitute the law of
the case because C.A.-G.R. No. 12670-SP concerned the issue of possession by DBP as the winning
bidder in the foreclosure sale, and had no bearing whatsoever to the legal issues presented in C.A.G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and means, more
specifically, that whatever is once irrevocably established as the controlling legal rule of decision
between the same parties in the same case continues to be the law of the case, whether correct on
general principles or not, so long as the facts on which such decision was predicated continue to be
the facts of the case before the court.40
The concept of law of the case is well explained in Mangold v. Bacon,41 an American case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions announced on a first appeal,
whether on the general law or the law as applied to the concrete facts, not only prescribe the duty and
limit the power of the trial court to strict obedience and conformity thereto, but they become and
remain the law of the case in all other steps below or above on subsequent appeal. The rule is
grounded on convenience, experience, and reason. Without the rule there would be no end to
criticism, reagitation, reexamination, and reformulation. In short, there would be endless litigation. It
would be intolerable if parties litigants were allowed to speculate on changes in the personnel of a
court, or on the chance of our rewriting propositions once gravely ruled on solemn argument and
handed down as the law of a given case. An itch to reopen questions foreclosed on a first appeal
would result in the foolishness of the inquisitive youth who pulled up his corn to see how it grew.
Courts are allowed, if they so choose, to act like ordinary sensible persons. The administration of
justice is a practical affair. The rule is a practical and a good one of frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate court has once
declared the law in a case, its declaration continues to be the law of that case even on a subsequent
appeal, notwithstanding that the rule thus laid down may have been reversed in other cases. 42 For
practical considerations, indeed, once the appellate court has issued a pronouncement on a point that
was presented to it with full opportunity to be heard having been accorded to the parties, the
pronouncement should be regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages.43 But the law of the case, as the name
implies, concerns only legal questions or issues thereby adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case exposes DBP's insistence to be
unwarranted.

To start with, the ex parte proceeding on DBP's application for the issuance of the writ of possession
was entirely independent from the judicial demand for specific performance herein. In fact, C.A.-G.R.
No. 12670-SP, being the interlocutory appeal concerning the issuance of the writ of possession while
the main case was pending, was not at all intertwined with any legal issue properly raised and litigated
in C.A.-G.R. CV No. 59491, which was the appeal to determine whether or not DBP's foreclosure was
valid and effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle any question of
law involved herein because this case for specific performance was not a continuation of C.A.-G.R.
No. 12670-SP (which was limited to the propriety of the issuance of the writ of possession in favor of
DBP), and vice versa.
3.
Guarifia Corporation is legally entitled to the
restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by DBP was premature, and that the
ensuing foreclosure sale was void and ineffectual, the Court affirms the order for the restoration of
possession to Guarifia Corporation and the payment of reasonable rentals for the use of the resort.
The CA properly held that the premature and invalid foreclosure had unjustly dispossessed Guarifia
Corporation of its properties. Consequently, the restoration of possession and the payment of
reasonable rentals were in accordance with Article 561 of the Civil Code, which expressly states that
one who recovers, according to law, possession unjustly lost shall be deemed for all purposes which
may redound to his benefit to have enjoyed it without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and ORDERS the
petitioner to pay the costs of suit.
SO ORDERED.
G.R. No. 193986

January 15, 2014

EASTERN SHIPPING LINES INC., Petitioner,

vs.
BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD., Respondents.
DECISION
VILLARAMA, JR., J.:
Before this Court is a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, seeking the reversal of the Decision 2 of the Court of Appeals (CA) in CA-G.R.
CV No. 88361, which affirmed with modification the Decision 3 of the Regional Trial Court (RTC), of
Makati City, Branch 138 in Civil Case No. 04-1005.
The facts follow:
On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through MV Eastern Challenger V-9S, a vessel owned by petitioner Eastern Shipping Lines, Inc. (petitioner), 31 various steel sheets in coil
weighing 271,828 kilograms from Yokohama, Japan for delivery in favor of the consignee Calamba
Steel Center Inc. (Calamba Steel).4 The cargo had a declared value of US$125,417.26 and was
insured against all risk by Sumitomo with respondent Mitsui Sumitomo Insurance Co., Ltd. (Mitsui). On
or about September 6 2003, the shipment arrived at the port of Manila. Upon unloading from the
vessel, nine coils were observed to be in bad condition as evidenced by the Turn Over Survey of Bad

Order Cargo No. 67327. The cargo was then turned over to Asian Terminals, Inc. (ATI) for stevedoring,
storage and safekeeping pending Calamba Steels withdrawal of the goods. When ATI delivered the
cargo to Calamba Steel, the latter rejected its damaged portion, valued at US$7,751.15, for being unfit
for its intended purpose.5
Subsequently, on September 13, 2003, a second shipment of 28 steel sheets in coil, weighing 215,817
kilograms, was made by Sumitomo through petitioners MV Eastern Challenger V-10-S for transport
and delivery again to Calamba Steel.6 Insured by Sumitomo against all risk with Mitsui, 7 the shipment
had a declared value of US$121,362.59. This second shipment arrived at the port of Manila on or
about September 23, 2003. However, upon unloading of the cargo from the said vessel, 11 coils were
found damaged as evidenced by the Turn Over Survey of Bad Order Cargo No. 67393. The
possession of the said cargo was then transferred to ATI for stevedoring, storage and safekeeping
pending withdrawal thereof by Calamba Steel. When ATI delivered the goods, Calamba Steel rejected
the damaged portion thereof, valued at US$7,677.12, the same being unfit for its intended purpose.8
Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel sheets in coil weighing
930,718 kilograms through petitioners vessel, MV Eastern Venus V-17-S, again in favor of Calamba
Steel.9 This third shipment had a declared value of US$476,416.90 and was also insured by Sumitomo
with Mitsui. The same arrived at the port of Manila on or about October 11, 2003. Upon its discharge,
six coils were observed to be in bad condition. Thereafter, the possession of the cargo was turned
over to ATI for stevedoring, storage and safekeeping pending withdrawal thereof by Calamba Steel.
The damaged portion of the goods being unfit for its intended purpose, Calamba Steel rejected the
damaged portion, valued at US$14,782.05, upon ATIs delivery of the third shipment.10
Calamba Steel filed an insurance claim with Mitsui through the latters settling agent, respondent
BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sums of US$7,677.12,
US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments or for the total
amount of US$30,210.32. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba
Steel, Mitsui and BPI/MS filed a Complaint for Damages against petitioner and ATI.11
As synthesized by the RTC in its decision, during the pre-trial conference of the case, the following
facts were established, viz:
1. The fact that there were shipments made on or about August 29, 2003, September 13, 2003 and
September 29, 2003 by Sumitomo to Calamba Steel through petitioners vessels;
2. The declared value of the said shipments and the fact that the shipments were insured by
respondents;
3. The shipments arrived at the port of Manila on or about September 6, 2003, September 23, 2003
and October 11, 2003 respectively;
4. Respondents paid Calamba Steels total claim in the amount of US$30,210.32.12
Trial on the merits ensued.
On September 17, 2006, the RTC rendered its Decision,13 the dispositive portion of which provides:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendants Eastern
Shipping Lines, Inc. and Asian Terminals, Inc., jointly and severally, ordering the latter to pay plaintiffs
the following:
1. Actual damages amounting to US$30,210.32 plus 6% legal interest thereon commencing from the
filing of this complaint, until the same is fully paid;
2. Attorneys fees in a sum equivalent to 25% of the amount claimed;
3. Costs of suit. The defendants counterclaims and ATIs crossclaim are DISMISSED for lack of merit.
SO ORDERED.14

Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA in its assailed Decision
affirmed with modification the RTCs findings and ruling, holding, among others, that both petitioner
and ATI were very negligent in the handling of the subject cargoes. Pointing to the affidavit of Mario
Manuel, Cargo Surveyor, the CA found that "during the unloading operations, the steel coils were lifted
from the vessel but were not carefully laid on the ground. Some were even dropped while still several
inches from the ground while other coils bumped or hit one another at the pier while being arranged by
the stevedores and forklift operators of ATI and [petitioner]." The CA added that such finding coincides
with the factual findings of the RTC that both petitioner and ATI were both negligent in handling the
goods. However, for failure of the RTC to state the justification for the award of attorneys fees in the
body of its decision, the CA accordingly deleted the same. 15 Petitioner filed its Motion for
Reconsideration16 which the CA, however, denied in its Resolution17 dated October 6, 2010.
Both petitioner and ATI filed their respective separate petitions for review on certiorari before this
Court.1wphi1 However, ATIs petition, docketed as G.R. No. 192905, was denied by this Court in our
Resolution18 dated October 6, 2010 for failure of ATI to show any reversible error in the assailed CA
decision and for failure of ATI to submit proper verification. Said resolution had become final and
executory on March 22, 2011.19 Nevertheless, this Court in its Resolution20 dated September 3, 2012,
gave due course to this petition and directed the parties to file their respective memoranda.
In its Memorandum,21 petitioner essentially avers that the CA erred in affirming the decision of the RTC
because the survey reports submitted by respondents themselves as their own evidence and the
pieces of evidence submitted by petitioner clearly show that the cause of the damage was the rough
handling of the goods by ATI during the discharging operations. Petitioner attests that it had no
participation whatsoever in the discharging operations and that petitioner did not have a choice in
selecting the stevedore since ATI is the only arrastre operator mandated to conduct discharging
operations in the South Harbor. Thus, petitioner prays that it be absolved from any liability relative to
the damage incurred by the goods.
On the other hand, respondents counter, among others, that as found by both the RTC and the CA,
the goods suffered damage while still in the possession of petitioner as evidenced by various Turn
Over Surveys of Bad Order Cargoes which were unqualifiedly executed by petitioners own surveyor,
Rodrigo Victoria, together with the representative of ATI. Respondents assert that petitioner would not
have executed such documents if the goods, as it claims, did not suffer any damage prior to their turnover to ATI. Lastly, respondents aver that petitioner, being a common carrier is required by law to
observe extraordinary diligence in the vigilance over the goods it carries.22
Simply put, the core issue in this case is whether the CA committed any reversible error in finding that
petitioner is solidarily liable with ATI on account of the damage incurred by the goods.
The Court resolves the issue in the negative.
Well entrenched in this jurisdiction is the rule that factual questions may not be raised before this
Court in a petition for review on certiorari as this Court is not a trier of facts. This is clearly stated in
Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.
Thus, it is settled that in petitions for review on certiorari, only questions of law may be put in issue.
Questions of fact cannot be entertained.23
A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts, or when the issue does not call for an examination of the
probative value of the evidence presented, the truth or falsehood of facts being admitted. A question of
fact exists when the doubt or difference arises as to the truth or falsehood of facts or when the query

invites calibration of the whole evidence considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances as well as their relation to each other
and to the whole, and the probability of the situation.24
In this petition, the resolution of the question as to who between petitioner and ATI should be liable for
the damage to the goods is indubitably factual, and would clearly impose upon this Court the task of
reviewing, examining and evaluating or weighing all over again the probative value of the evidence
presented25 something which is not, as a rule, within the functions of this Court and within the office
of a petition for review on certiorari.
While it is true that the aforementioned rule admits of certain exceptions, 26 this Court finds that none
are applicable in this case. This Court finds no cogent reason to disturb the factual findings of the RTC
which were duly affirmed by the CA. Unanimous with the CA, this Court gives credence and accords
respect to the factual findings of the RTC a special commercial court 27 which has expertise and
specialized knowledge on the subject matter28 of maritime and admiralty highlighting the solidary
liability of both petitioner and ATI. The RTC judiciously found:
x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity) No. 67393 and Request for
Bad Order Survey No. 57692 show that prior to the turn over of the first shipment to the custody of
ATI, eleven (11) of the twenty-eight (28) coils were already found in bad order condition. Eight (8) of
the said eleven coils were already "partly dented/crumpled " and the remaining three (3) were found
"partly dented, scratches on inner hole, crumple (sic)". On the other hand, the TOSBOC No. 67457
and Request for Bad Order Survey No. 57777 also show that prior to the turn over of the second
shipment to the custody of ATI, a total of six (6) coils thereof were already "partly dented on one side,
crumpled/cover detach (sic)". These documents were issued by ATI. The said TOSBOCs were jointly
executed by ATI, vessels representative and surveyor while the Requests for Bad Order Survey were
jointly executed by ATI, consignees representative and the Shed Supervisor. The aforementioned
documents were corroborated by the Damage Report dated 23 September 2003 and Turn Over
Survey No. 15765 for the first shipment, Damage Report dated 13 October 2003 and Turn Over
Survey No. 15772 for the second shipment and, two Damage Reports dated 6 September 2003 and
Turn Over Survey No. 15753 for the third shipment.
It was shown to this Court that a Request for Bad Order Survey is a document which is requested by
an interested party that incorporates therein the details of the damage, if any, suffered by a shipped
commodity. Also, a TOSBOC, usually issued by the arrastre contractor (ATI in this case), is a form of
certification that states therein the bad order condition of a particular cargo, as found prior to its turn
over to the custody or possession of the said arrastre contractor.
The said Damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey led the
Court to conclude that before the subject shipments were turned over to ATI, the said cargo were
already in bad order condition due to damage sustained during the sea voyage. Nevertheless, this
Court cannot turn a blind eye to the fact that there was also negligence on the part of the employees
of ATI and [Eastern Shipping Lines, Inc.] in the discharging of the cargo as observed by plaintiffs
witness, Mario Manuel, and [Eastern Shipping Lines, Inc.s] witness, Rodrigo Victoria.
In ascertaining the cause of the damage to the subject shipments, Mario Manuel stated that the "coils
were roughly handled during their discharging from the vessel to the pier of (sic) ASIAN TERMINALS,
INC. and even during the loading operations of these coils from the pier to the trucks that will transport
the coils to the consignees warehouse. During the aforesaid operations, the employees and forklift
operators of EASTERN SHIPPING LINES and ASIAN TERMINALS, INC. were very negligent in the
handling of the subject cargoes. Specifically, "during unloading, the steel coils were lifted from the
vessel and not carefully laid on the ground, sometimes were even dropped while still several inches
from the ground. The tine (forklift blade) or the portion that carries the coils used for the forklift is
improper because it is pointed and sharp and the centering of the tine to the coils were negligently
done such that the pointed and sharp tine touched and caused scratches, tears and dents to the coils.
Some of the coils were also dragged by the forklift instead of being carefully lifted from one place to

another. Some coils bump/hit one another at the pier while being arranged by the stevedores/forklift
operators of ASIAN TERMINALS, INC. and EASTERN SHIPPING LINES.29 (Emphasis supplied.)
Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier.30 As hereinbefore found by the RTC and affirmed by the CA based on
the evidence presented, the goods were damaged even before they were turned over to ATI. Such
damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the
goods during the discharging operations. Thus, it bears stressing unto petitioner that common carriers,
from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. Subject to certain exceptions
enumerated under Article 173431 of the Civil Code, common carriers are responsible for the loss,
destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts
from the time the goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.32 Owing to this high degree of diligence required of
them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods
they transported deteriorated or got lost or destroyed. That is, unless they prove that they exercised
extraordinary diligence in transporting the goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving that they observed such high level of diligence. 33
In this case, petitioner failed to hurdle such burden.
In sum, petitioner failed to show any reversible error on the part of the CA in affirming the ruling of the
RTC as to warrant the modification, much less the reversal of its assailed decision.
WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of the Court of Appeals in
CA-G.R. CV No. 88361 is hereby AFFIRMED.
With costs against the petitioner.
SO ORDERED.
G.R. No. 200468

March 19, 2014

MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO ARGUELLES,

Petitioners,
vs.
MALARAYAT RURAL BANK, INC., Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the Decision 1 dated December 19, 2011 and
Resolution2 dated February 6, 2012 of the Court of Appeals (CA) in CA-G.R . CV No. 92555. The CA
had reversed and set aside the July 29, 2008 Decision 3 of the Regional Trial Court (RTC) Branch 86,
of Taal, Batangas, in Civil Case No. 66.
The facts, as culled from the records, follow:
The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land in Barrio
Pinagkurusan, Alitagtag, Batangas, with an area of 4,560 square meters, as evidenced by Original
Certificate of Title (OCT) No. P-12930 4 of the Register of Deeds of Batangas. On December 1, 1990,
Fermina M. Guia sold the south portion of the land with an approximate area of 1,350 square meters
to the spouses Petronio and Macaria Arguelles. 5 Although the spouses Arguelles immediately acquired
possession of the land, the Deed of Sale was neither registered with the Register of Deeds nor
annotated on OCT No. P-12930. At the same time, Fermina M. Guia ordered her son Eddie Guia and

the latter's wife Teresita Guia to subdivide the land covered by OCT No. P-12930 into three lots and to
apply for the issuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C. Thereafter, she
directed the delivery of the Transfer Certificate of Title (TCT) corresponding to Lot 3-C to the vendees
of the unregistered sale or the spouses Arguelles. However, despite their repeated demands, the
spouses Arguelles claimed that they never received the TCT corresponding to Lot 3-C from the
spouses Guia.
Nevertheless, in accordance with the instructions of Fermina M. Guia, the spouses Guia succeeded in
cancelling OCT No. P-12930 on August 15, 1994 and in subdividing the lot in the following manner:
Lot No.

TCT No.

Registered Owner

3-A

T-83943

Fermina M. Guia

3-B

T-83945

Spouses Datingaling

3-C

T-83944

Fermina M. Guia6

On August 18, 1997, the spouses Guia obtained a loan in the amount of P240,000 from the
respondent Malarayat Rural Banlc and secured the loan with a Deed of Real Estate Mortgage 7 over
Lot 3-C. The loan and Real Estate Mortgage were made pursuant to the Special Power of Attorney 8
purportedly executed by the registered owner of Lot 3-C, Fermina M. Guia, in favor of the mortgagors,
spouses Guia. Moreover, the Real Estate
Mortgage and Special Power of Attorney were duly annotated in the memorandum of encumbrances
of TCT No. T-83944 covering Lot 3-C.
The spouses Arguelles alleged that it was only in 1997 or after seven years from the date of the
unregistered sale that they discovered from the Register of Deeds of Batangas City the following facts:
(1) subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of separate TCTs for each lot; and (3)
the annotation of the Real Estate Mortgage and Special Power of Attorney over Lot 3-C covered by
TCT No. T-83944. Two years thereafter, or on June 17, 1999, the spouses Arguelles registered their
adverse claim9 based on the unregistered sale dated December 1, 1990 over Lot 3-C.
On July 22, 1999, the spouses Arguelles filed a complaint 10 for Annulment of Mortgage and
Cancellation of Mortgage Lien with Damages against the respondent Malarayat Rural Banlc with the
RTC, Branch 86, of Taal, Batangas. In asserting the nullity of the mortgage lien, the spouses Arguelles
alleged ownership over the land that had been mortgaged in favor of the respondent Malarayat Rural
Bank. On August 16, 1999, the respondent Malarayat Rural Bank filed an Answer with Counterclaim
and Cross-claim11 against cross-claim-defendant spouses Gui a wherein it argued that the failure of
the spouses Arguelles to register the Deed of Sale dated December 1, 1990 was fatal to their claim of
ownership.
On July 29, 2008, the RTC rendered a Decision, the dispositive portion of which reads as follows:
WHEREFORE, premises considered judgment is hereby rendered:
1) declaring the mortgage made by the defendants spouses Eddie Guia and Teresita Guia in favor of
defendant Malarayat Rural Bank null and void;
2) setting aside the foreclosure sale had on December 6, 1999 and the corresponding certificate of
sale issued by this Court dated May 12, 2000;
3) ordering the Register of Deeds of the Province of Batangas to cancel the annotation pertaining to
the memorandum of encumbrances (entries no. 155686 and 155688) appearing in TCT No. T-839[4]4;
4) ordering cross defendants spouses Eddie and Teresita Guia to pay the amount of Php240,000.00 to
cross claimant Malarayat Rural [B]ank corresponding to the total amount of the loan obligation, with
interest herein modified at 12% per annum computed from default;

5) ordering defendants spouses Eddie and Teresita Guia to pay plaintiffs Arguelles the amount of
Php100,000.00 as moral damages. However, the prayer of the plaintiffs to order the registration of the
deed of sale in their favor as well as the subsequent issuance of a new title in their names as the
registered owners is denied considering that there are other acts that the plaintiffs ought to do which
are administrative in nature, and are dependent upon compliance with certain requirements pertaining
to land acquisition and transfer.
SO ORDERED.12
The RTC found that the spouses Guia were no longer the absolute owners of the land described as
Lot 3-C and covered by TCT No. T-83944 at the time they mortgaged the same to the respondent
Malarayat Rural Bank in view of the unregistered sale in favor of the vendee spouses Arguelles. Thus,
the RTC annulled the real estate mortgage, the subsequent foreclosure sale, and the corresponding
issuance of the certificate of title. Moreover, the RTC declared that the respondent Malarayat Rural
Bank was not a mortgagee in good faith as it failed to exercise the exacting degree of diligence
required from banking institutions.
On September 16, 2008, the respondent filed a notice of appeal with the CA.
On December 19, 2011, the CA reversed and set aside the decision of the court a quo:
IN LIGHT OF THE FOREGOING, premises considered, the instant appeal is GRANTED. Accordingly,
the Decision of the RTC of Taal, Batangas, Branch 86 promulgated on July 29, 2008 in Civil Case No.
66 is hereby REVERSED AND SET ASIDE and the complaint below dismissed.
SO ORDERED.13
In granting the appeal, the CA held that because of the failure of the spouses Arguelles to register their
deed of sale, the unregistered sale could not affect the respondent Malarayat Rural Bank. Thus, the
respondent Malarayat Rural Bank has a better right to the land mortgaged as compared to spouses
Arguelles who were the vendees in the unregistered sale. In addition, the CA found that the
respondent Malarayat Rural Bank was a mortgagee in good faith as it sufficiently demonstrated due
diligence in approving the loan application of the spouses Guia. Aggrieved, the petitioners filed the
instant petition raismg the following issues for resolution:
A
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE EXECUTED BY
FERMINA GUIA IN FAVOR OF THE SPOUSES PETRONIO AND MACARIA ARGUELLES CANNOT
BE ENFORCED AGAINST APPELLANT BANK FOR NOT BEING REGISTERED AND ANNOTATED
IN THE CERTIFICATE OF TITLE, DESPITE THE FACT THAT THE BANK HAD ACTUAL
KNOWLEDGE THEREOF.
B
THE COURT OF APPEALS COMMITTED A MISTAKE IN FINDING THAT APPELLANT BANK IS A
MORTGAGEE IN GOOD FAITH NOTWITHSTANDING CONCLUSIVE EVIDENCE ON RECORD
THAT IT WAS GROSSLY NEGLIGENT IN NOT ASCERTAINING THE REAL CONDITION OF THE
PROPERTY IN THE POSSESSION OF THE SPOUSES ARGUELLES BEFORE ACCEPTING IT AS
COLLATERAL FOR THE LOAN APPLIED FOR BY A MERE ATTORNEY-IN-FACT.
C
THE COURT OF APPEALS COMMITTED AN ERROR IN DECLARING APPELLANT BANK HAS
BECOME THE ABSOLUTE OWNER OF THE SUBJECT PROPERTY NOTWITHSTANDING THE
NULLITY OF THE REAL ESTATE MORTGAGE EXTRAJUDICIALL Y FORECLOSED BY IT.
D
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SPOUSES ARGUELLES DID NOT PUT

IN ISSUE THAT APPELLANT BANK HAD CONSTRUCTIVE NOTICE AND POSSESSION OF THE
SUBJECT LOT.14
In fine, the issue in this case is whether the respondent Malarayat Rural Bank is a mortgagee in good
faith who is entitled to protection on its mortgage lien.
Petitioners imputed negligence on the part of respondent Malarayat Rural Bank when it approved the
loan application of the spouses Guia. They pointed out that the bank failed to conduct a thorough
ocular inspection of the land mortgaged and an extensive investigation of the title of the registered
owner. And since the respondent Malarayat Rural Bank cannot be considered a mortgagee in good
faith, petitioners argued that the unregistered sale in their favor takes precedence over the duly
registered mortgage lien. On the other hand, respondent Malarayat Rural Bank claimed that it
exercised the required degree of diligence before granting the loan application. In particular, it
asserted the absence of any facts or circumstances that can reasonably arouse suspicion in a prudent
person. Thus, the respondent Malarayat Rural Bank argued that it is a mortgagee in good faith with a
better right to the mortgaged land as compared to the vendees to the unregistered sale.
The petition is meritorious.
At the outset, we note that the issue of whether a mortgagee is in good faith generally cannot be
entertained in a petition filed under Rule 45 of the 1997 Rules of Civil Procedure, as amended. 15 This
is because the ascertainment of good faith or the lack thereof, and the determination of negligence are
factual matters which lay outside the scope of a petition for review on certiorari. 16 However, a
recognized exception to this rule is when the RTC and the CA have divergent findings of fact 17 as in
the case at bar. We find that the respondent Malarayat Rural Bank is not a mortgagee in good faith.
Therefore, the spouses Arguelles as the vendees to the unregistered sale have a superior right to the
mortgaged land.
In Cavite Development Bank v. Spouses Lim, 18 the Court explained the doctrine of mortgagee in good
faith, thus:
There is, however, a situation where, despite the fact that the mortgagor is not the owner of the
mortgaged property, his title being fraudulent, the mortgage contract and any foreclosure sale arising
therefrom are given effect by reason of public policy. This is the doctrine of "mortgagee in good faith"
based on the rule that all persons dealing with the property covered by a Torrens Certificate of Title, as
buyers or mortgagees, are not required to go beyond what appears on the face of the title. The public
interest in upholding the indefeasibility of a certificate of title, as evidence of lawful ownership of the
land or of any encumbrance thereon, protects a buyer or mortgagee who, in good faith, relied upon
what appears on the face of the certificate of title.
In Bank of Commerce v. Spouses San Pablo, Jr., 19 we declared that indeed, a mortgagee has a right
to rely in good faith on the certificate of title of the mortgagor of the property offered as security, and in
the absence of any sign that might arouse suspicion, the mortgagee has no obligation to undertake
further investigation.
However, in Bank of Commerce v. Spouses San Pablo, Jr., 20 we also ruled that "[i]n cases where the
mortgagee does not directly deal with the registered owner of real property, the law requires that a
higher degree of prudence be exercised by the mortgagee." Specifically, we cited Abad v. Sps.
Guimbci21 where we held, "x x x While one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from one who is not the registered owner is expected to
examine not only the certificate of title but all factual circumstances necessary for [one] to determine if
there are any flaws in the title of the transferor, or in [the] capacity to transfer the land. " Although the
instant case does not involve a sale but only a mortgage, the same rule applies inasmuch as the law
itself includes a mortgagee in the term "purchaser."
Thus, where the mortgagor is not the registered owner of the property but is merely an attorney-in-fact
of the same, it is incumbent upon the mortgagee to exercise greater care and a higher degree of

prudence in dealing with such mortgagor.22 Recently, in Land Bank of the Philippines v. Poblete,23 we
affirmed Bank of Commerce v. Spouses San Pablo, Jr.:
Based on the evidence, Land Bank processed Maniego's loan application upon his presentation of
OCT No. P-12026, which was still under the name of Poblete. Land Bank even ignored the fact that
Kapantay previously used Poblete's title as collateral in its loan account with Land Bank. In Bank of
Commerce v. San Pablo, Jr., we held that when "the person applying for the loan is other than the
registered owner of the real property being mortgaged, [such fact] should have already raised a red
flag and which should have induced the Bank xx x to make inquiries into and confirm x x x [the]
authority to mortgage x x x. A person who deliberately ignores a significant fact that could create
suspicion in an otherwise reasonable person is not an innocent purchaser for value."
Moreover, in a long line of cases, we have consistently enjoined banks to exert a higher degree of
diligence, care, and prudence than individuals in handling real estate transactions.
In Cruz v. Bancom Finance Corporation,24 we declared:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before entering
into a mortgage contract. The ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its operations.
In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it cannot rely merely on the
certificate of title offered by the mortgagor in ascertaining the status of mortgaged properties. Since its
business is impressed with public interest, the mortgagee-bank is duty-bound to be more cautious
even in dealing with registered lands.26 Indeed, the rule that person dealing with registered lands can
rely solely on the certificate of title does not apply to banks. Thus, before approving a loan application,
it is a standard operating practice for these institutions to conduct an ocular inspection of the property
offered for mortgage and to verify the genuineness of the title to determine the real owners thereof.
The apparent purpose of an ocular inspection is to protect the "true owner" of the property as well as
innocent third parties with a right, interest or claim thereon from a usurper who may have acquired a
fraudulent certificate of title thereto.27
In Metropolitan Bank and Trust Co. v. Cabilzo, 28 we explained the socio-economic role of banks and
the reason for bestowing public interest on the banking system:
We never fail to stress the remarkable significance of a banking institution to commercial transactions,
in particular, and to the country's economy in general. The banking system is an indispensable
institution in the modem world and plays a vital role in the economic life of every civilized nation.
Whether as mere passive entities for the safekeeping and saving of money or as active instruments of
business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence.
In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of
diligence, prudence, and care in approving the loan application of the spouses Guia.
Respondent should have diligently conducted an investigation of the land offered as
collateral.1wphi1 Although the Report of Inspection and Credit Investigation found at the dorsal
portion of the Application for Agricultural Loan 29 proved that the respondent Malarayat Rural Bank
inspected the land, the respondent turned a blind eye to the finding therein that the "lot is planted
[with] sugarcane with annual yield (crops) in the amount of P15,000."30
We disagree with respondent's stance that the mere planting and harvesting of sugarcane cannot
reasonably trigger suspicion that there is adverse possession over the land offered as mortgage.
Indeed, such fact should have immediately prompted the respondent to conduct further inquiries,
especially since the spouses Guia were not the registered owners of the land being mortgaged. They

merely derived the authority to mortgage the lot from the Special Power of Attorney allegedly executed
by the late Fermina M. Guia. Hence, it was incumbent upon the respondent Malarayat Rural Bank to
be more cautious in dealing with the spouses Guia, and inquire further regarding the identity and
possible adverse claim of those in actual possession of the property.
Pertinently, in Land Bank of the Philippines v. Poblete, 31 we ruled that "[w]here the mortgagee acted
with haste in granting the mortgage loan and did not ascertain the ownership of the land being
mortgaged, as well as the authority of the supposed agent executing the mortgage, it cannot be
considered an innocent mortgagee."
Since the subject land was not mortgaged by the owner thereof and since the respondent Malarayat
Rural Bank is not a mortgagee in good faith, said bank is not entitled to protection under the law. The
unregistered sale in favor of the spouses Arguelles must prevail over the mortgage lien of respondent
Malarayat Rural Bank.
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated December 19,
2011 and Resolution dated February 6, 2012 of the Court of Appeals in CA-G.R. CV No. 92555 are
REVERSED and SET ASIDE. The Decision dated July 29, 2008 of the Regional Trial Court, Branch
86, of Taal, Batangas, in Civil Case No. 66 is REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 192123

March 10, 2014

DR. FERNANDO P. SOLIDUM, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
BERSAMIN, J.:
This appeal is taken by a physician-anesthesiologist who has been pronounced guilty of reckless
imprudence resulting in serious physical injuries by the Regional Trial Court (RTC) and the Court of
Appeals (CA). He had been part of the team of anesthesiologists during the surgical pull-through
operation conducted on a three-year old patient born with an imperforate anus.1
The antecedents are as follows:
Gerald Albert Gercayo (Gerald) was born on June 2, 1992 2 with an imperforate anus. Two days after
his birth, Gerald underwent colostomy, a surgical procedure to bring one end of the large intestine out
through the abdominal wall,3 enabling him to excrete through a colostomy bag attached to the side of
his body.4
On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng Maynila for a pullthrough operation.5 Dr. Leandro Resurreccion headed the surgical team, and was assisted by Dr.
Joselito Luceo, Dr. Donatella Valea and Dr. Joseph Tibio. The anesthesiologists included Dr.
Marichu Abella, Dr. Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum). 6 During the
operation, Gerald experienced bradycardia,7 and went into a coma. 8 His coma lasted for two weeks, 9
but he regained consciousness only after a month.10 He could no longer see, hear or move.11
Agitated by her sons helpless and unexpected condition, Ma. Luz Gercayo (Luz) lodged a complaint
for reckless imprudence resulting in serious physical injuries with the City Prosecutors Office of

Manila against the attending physicians.12

Upon a finding of probable cause, the City Prosecutors Office filed an information solely against Dr.
Solidum,13 alleging:
That on or about May 17, 1995, in the City of Manila, Philippines, the said accused, being then an
anesthesiologist at the Ospital ng Maynila, Malate, this City, and as such was tasked to administer the
anesthesia on three-year old baby boy GERALD ALBERT GERCAYO, represented by his mother, MA.
LUZ GERCAYO, the former having been born with an imperforate anus [no anal opening] and was to
undergo an operation for anal opening [pull through operation], did then and there willfully, unlawfully
and feloniously fail and neglect to use the care and diligence as the best of his judgment would dictate
under said circumstance, by failing to monitor and regulate properly the levels of anesthesia
administered to said GERALD ALBERT GERCAYO and using 100% halothane and other anesthetic
medications, causing as a consequence of his said carelessness and negligence, said GERALD
ALBERT GERCAYO suffered a cardiac arrest and consequently a defect called hypoxic
encephalopathy meaning insufficient oxygen supply in the brain, thereby rendering said GERALD
ALBERT GERCAYO incapable of moving his body, seeing, speaking or hearing, to his damage and
prejudice.
Contrary to law.14
The case was initially filed in the Metropolitan Trial Court of Manila, but was transferred to the RTC
pursuant to Section 5 of Republic Act No. 8369 (The Family Courts Act of 1997), 15 where it was
docketed as Criminal Case No. 01-190889.
Judgment of the RTC
On July 19, 2004, the RTC rendered its judgment finding Dr. Solidum guilty beyond reasonable doubt
of reckless imprudence resulting to serious physical injuries,16 decreeing:
WHEREFORE, premises considered, the Court finds accused DR. FERNANDO P. SOLIDUM GUILTY
beyond reasonable doubt as principal of the crime charged and is hereby sentenced to suffer the
indeterminate penalty of TWO (2) MONTHS and ONE (1) DAY of arresto mayor as minimum to ONE
(1) YEAR, ONE (1) MONTH and TEN (10) DAYS of prision correccional as maximum and to
indemnify, jointly and severally with the Ospital ng Maynila, Dr. Anita So and Dr. Marichu Abella,
private complainant Luz Gercayo, the amount of P500,000.00 as moral damages and P100,000.00 as
exemplary damages and to pay the costs.
Accordingly, the bond posted by the accused for his provisional liberty is hereby CANCELLED.
SO ORDERED.17
Upon motion of Dr. Anita So and Dr. Marichu Abella to reconsider their solidary liability,18 the RTC
excluded them from solidary liability as to the damages, modifying its decision as follows:
WHEREFORE, premises considered, the Court finds accused Dr. Fernando Solidum, guilty beyond
reasonable doubt as principal of the crime charged and is hereby sentenced to suffer the
indeterminate penalty of two (2) months and one (1) day of arresto mayor as minimum to one (1) year,
one (1) month and ten (10) days of prision correccional as maximum and to indemnify jointly and
severally with Ospital ng Maynila, private complainant Luz Gercayo the amount of P500,000.00 as
moral damages and P100,000 as exemplary damages and to pay the costs.
Accordingly, the bond posted by the accused for his provisional liberty is hereby cancelled.19
Decision of the CA
On January 20, 2010, the CA affirmed the conviction of Dr. Solidum,20 pertinently stating and ruling:
The case appears to be a textbook example of res ipsa loquitur.

xxxx
x x x [P]rior to the operation, the child was evaluated and found fit to undergo a major operation. As
noted by the OSG, the accused himself testified that pre-operation tests were conducted to ensure
that the child could withstand the surgery. Except for his imperforate anus, the child was healthy. The
tests and other procedures failed to reveal that he was suffering from any known ailment or disability
that could turn into a significant risk. There was not a hint that the nature of the operation itself was a
causative factor in the events that finally led to hypoxia.
In short, the lower court has been left with no reasonable hypothesis except to attribute the accident to
a failure in the proper administration of anesthesia, the gravamen of the charge in this case. The High
Court elucidates in Ramos vs. Court of Appeals 321 SCRA 584
In cases where the res ipsa loquitur is applicable, the court is permitted to find a physician negligent
upon proper proof of injury to the patient, without the aid of expert testimony, where the court from its
fund of common knowledge can determine the proper standard of care.
Where common knowledge and experience teach that a resulting injury would not have occurred to
the patient if due care had been exercised, an inference of negligence may be drawn giving rise to an
application of the doctrine of res ipsa loquitur without medical evidence, which is ordinarily required to
show not only what occurred but how and why it occurred. When the doctrine is appropriate, all that
the patient must do is prove a nexus between the particular act or omission complained of and the
injury sustained while under the custody and management of the defendant without need to produce
expert medical testimony to establish the standard of care. Resort to res ipsa loquitur is allowed
because there is no other way, under usual and ordinary conditions, by which the patient can obtain
redress for injury suffered by him.
The lower court has found that such a nexus exists between the act complained of and the injury
sustained, and in line with the hornbook rules on evidence, we will afford the factual findings of a trial
court the respect they deserve in the absence of a showing of arbitrariness or disregard of material
facts that might affect the disposition of the case. People v. Paraiso 349 SCRA 335.
The res ipsa loquitur test has been known to be applied in criminal cases. Although it creates a
presumption of negligence, it need not offend due process, as long as the accused is afforded the
opportunity to go forward with his own evidence and prove that he has no criminal intent. It is in this
light not inconsistent with the constitutional presumption of innocence of an accused.
IN VIEW OF THE FOREGOING, the modified decision of the lower court is affirmed.
SO ORDERED.21
Dr. Solidum filed a motion for reconsideration, but the CA denied his motion on May 7, 2010.22
Hence, this appeal.
Issues
Dr. Solidum avers that:
I.
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER
COURT IN UPHOLDING THE PETITIONERS CONVICTION FOR THE CRIME CHARGED BASED
ON THE TRIAL COURTS OPINION, AND NOT ON THE BASIS OF THE FACTS ESTABLISHED
DURING THE TRIAL. ALSO, THERE IS A CLEAR MISAPPREHENSION OF FACTS WHICH IF
CORRECTED, WILL RESULT TO THE ACQUITTAL OF THE PETITIONER. FURTHER, THE
HONORABLE COURT ERRED IN AFFIRMING THE SAID DECISION OF THE LOWER COURT, AS
THIS BREACHES THE CRIMINAL LAW PRINCIPLE THAT THE PROSECUTION MUST PROVE THE
ALLEGATIONS OF THE INFORMATION BEYOND REASONABLE DOUBT, AND NOT ON THE

BASIS OF ITS PRESUMPTIVE CONCLUSION.

II.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF RES IPSA
LOQUITOR (sic) WHEN THE DEFENSE WAS ABLE TO PROVE THAT THERE IS NO NEGLIGENCE
ON THE PART OF THE PETITIONER, AND NO OVERDOSING IN THE APPLICATION OF THE
ANESTHETIC AGENT BECAUSE THERE WAS NO 100% HALOTHANE ADMINISTERED TO THE
CHILD, BUT ONLY ONE (1%) PERCENT AND THE APPLICATION THEREOF, WAS REGULATED BY
AN ANESTHESIA MACHINE. THUS, THE APPLICATION OF THE PRINCIPLE OF RES IPSA
LOQUITOR (sic) CONTRADICTED THE ESTABLISHED FACTS AND THE LAW APPLICABLE IN THE
CASE.
III.
THE AWARD OF MORAL DAMAGES AND EXEMPLARY DAMAGES IS NOT JUSTIFIED THERE
BEING NO NEGLIGENCE ON THE PART OF THE PETITIONER. ASSUMING THAT THE CHILD IS
ENTITLED TO FINANCIAL CONSIDERATION, IT SHOULD BE ONLY AS A FINANCIAL
ASSISTANCE, BECAUSE THERE WAS NO NEGLIGENCE, AND NO OVERDOSING OF
ANESTHETIC AGENT AND AS SUCH, THE AWARD IS SO EXCESSIVE, AND NO FACTUAL AND
LEGAL BASIS.23
To simplify, the following are the issues for resolution, namely: (a) whether or not the doctrine of res
ipsa loquitur was applicable herein; and (b) whether or not Dr. Solidum was liable for criminal
negligence.
Ruling
The appeal is meritorious.
Applicability of the Doctrine of Res Ipsa Loquitur
Res ipsa loquitur is literally translated as "the thing or the transaction speaks for itself." The doctrine
res ipsa loquitur means that "where the thing which causes injury is shown to be under the
management of the defendant, and the accident is such as in the ordinary course of things does not
happen if those who have the management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose from want of care." 24 It is simply
"a recognition of the postulate that, as a matter of common knowledge and experience, the very
nature of certain types of occurrences may justify an inference of negligence on the part of the person
who controls the instrumentality causing the injury in the absence of some explanation by the
defendant who is charged with negligence. It is grounded in the superior logic of ordinary human
experience and on the basis of such experience or common knowledge, negligence may be deduced
from the mere occurrence of the accident itself.
Hence, res ipsa loquitur is applied in conjunction with the doctrine of common knowledge."25
Jarcia, Jr. v. People26 has underscored that the doctrine is not a rule of substantive law, but merely a
mode of proof or a mere procedural convenience. The doctrine, when applicable to the facts and
circumstances of a given case, is not meant to and does not dispense with the requirement of proof of
culpable negligence against the party charged. It merely determines and regulates what shall be prima
facie evidence thereof, and helps the plaintiff in proving a breach of the duty. The doctrine can be
invoked when and only when, under the circumstances involved, direct evidence is absent and not
readily available.27
The applicability of the doctrine of res ipsa loquitur in medical negligence cases was significantly and
exhaustively explained in Ramos v. Court of Appeals,28 where the Court said
Medical malpractice cases do not escape the application of this doctrine. Thus, res ipsa loquitur has
been applied when the circumstances attendant upon the harm are themselves of such a character as

to justify an inference of negligence as the cause of that harm. The application of res ipsa loquitur in
medical negligence cases presents a question of law since it is a judicial function to determine
whether a certain set of circumstances does, as a matter of law, permit a given inference.
Although generally, expert medical testimony is relied upon in malpractice suits to prove that a
physician has done a negligent act or that he has deviated from the standard medical procedure,
when the doctrine of res ipsa loquitur is availed by the plaintiff, the need for expert medical testimony
is dispensed with because the injury itself provides the proof of negligence. The reason is that the
general rule on the necessity of expert testimony applies only to such matters clearly within the
domain of medical science, and not to matters that are within the common knowledge of mankind
which may be testified to by anyone familiar with the facts. Ordinarily, only physicians and surgeons of
skill and experience are competent to testify as to whether a patient has been treated or operated
upon with a reasonable degree of skill and care. However, testimony as to the statements and acts of
physicians and surgeons, external appearances, and manifest conditions which are observable by any
one may be given by non-expert witnesses. Hence, in cases where the res ipsa loquitur is applicable,
the court is permitted to find a physician negligent upon proper proof of injury to the patient, without
the aid of expert testimony, where the court from its fund of common knowledge can determine the
proper standard of care. Where common knowledge and experience teach that a resulting injury would
not have occurred to the patient if due care had been exercised, an inference of negligence may be
drawn giving rise to an application of the doctrine of res ipsa loquitur without medical evidence, which
is ordinarily required to show not only what occurred but how and why it occurred. When the doctrine
is appropriate, all that the patient must do is prove a nexus between the particular act or omission
complained of and the injury sustained while under the custody and management of the defendant
without need to produce expert medical testimony to establish the standard of care. Resort to res ipsa
loquitur is allowed because there is no other way, under usual and ordinary conditions, by which the
patient can obtain redress for injury suffered by him.
Thus, courts of other jurisdictions have applied the doctrine in the following situations: leaving of a
foreign object in the body of the patient after an operation, injuries sustained on a healthy part of the
body which was not under, or in the area, of treatment, removal of the wrong part of the body when
another part was intended, knocking out a tooth while a patients jaw was under anesthetic for the
removal of his tonsils, and loss of an eye while the patient plaintiff was under the influence of
anesthetic, during or following an operation for appendicitis, among others.
Nevertheless, despite the fact that the scope of res ipsa loquitur has been measurably enlarged, it
does not automatically apply to all cases of medical negligence as to mechanically shift the burden of
proof to the defendant to show that he is not guilty of the ascribed negligence. Res ipsa loquitur is not
a rigid or ordinary doctrine to be perfunctorily used but a rule to be cautiously applied, depending upon
the circumstances of each case. It is generally restricted to situations in malpractice cases where a
layman is able to say, as a matter of common knowledge and observation, that the consequences of
professional care were not as such as would ordinarily have followed if due care had been exercised.
A distinction must be made between the failure to secure results, and the occurrence of something
more unusual and not ordinarily found if the service or treatment rendered followed the usual
procedure of those skilled in that particular practice. It must be conceded that the doctrine of res ipsa
loquitur can have no application in a suit against a physician or surgeon which involves the merits of a
diagnosis or of a scientific treatment. The physician or surgeon is not required at his peril to explain
why any particular diagnosis was not correct, or why any particular scientific treatment did not produce
the desired result. Thus, res ipsa loquitur is not available in a malpractice suit if the only showing is
that the desired result of an operation or treatment was not accomplished. The real question,
therefore, is whether or not in the process of the operation any extraordinary incident or unusual event
outside of the routine performance occurred which is beyond the regular scope of customary
professional activity in such operations, which, if unexplained would themselves reasonably speak to
the average man as the negligent cause or causes of the untoward consequence. If there was such
extraneous intervention, the doctrine of res ipsa loquitur may be utilized and the defendant is called

upon to explain the matter, by evidence of exculpation, if he could.

In order to allow resort to the doctrine, therefore, the following essential requisites must first be
satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur unless someone is
negligent; (2) the instrumentality or agency that caused the injury was under the exclusive control of
the person charged; and (3) the injury suffered must not have been due to any voluntary action or
contribution of the person injured.29
The Court considers the application here of the doctrine of res ipsa loquitur inappropriate. Although it
should be conceded without difficulty that the second and third elements were present, considering
that the anesthetic agent and the instruments were exclusively within the control of Dr. Solidum, and
that the patient, being then unconscious during the operation, could not have been guilty of
contributory negligence, the first element was undeniably wanting. Luz delivered Gerald to the care,
custody and control of his physicians for a pull-through operation. Except for the imperforate anus,
Gerald was then of sound body and mind at the time of his submission to the physicians. Yet, he
experienced bradycardia during the operation, causing loss of his senses and rendering him immobile.
Hypoxia, or the insufficiency of oxygen supply to the brain that caused the slowing of the heart rate,
scientifically termed as bradycardia, would not ordinarily occur in the process of a pull-through
operation, or during the administration of anesthesia to the patient, but such fact alone did not prove
that the negligence of any of his attending physicians, including the anesthesiologists, had caused the
injury. In fact, the anesthesiologists attending to him had sensed in the course of the operation that the
lack of oxygen could have been triggered by the vago-vagal reflex, prompting them to administer
atropine to the patient.30
This conclusion is not unprecedented. It was similarly reached in Swanson v. Brigham, 31 relevant
portions of the decision therein being as follows:
On January 7, 1973, Dr. Brigham admitted 15-year-old Randall Swanson to a hospital for the
treatment of infectious mononucleosis. The patient's symptoms had included a swollen throat and
some breathing difficulty. Early in the morning of January 9 the patient was restless, and at 1:30 a.m.
Dr. Brigham examined the patient. His inspection of the patient's air passage revealed that it was in
satisfactory condition. At 4:15 a.m. Dr. Brigham received a telephone call from the hospital, advising
him that the patient was having respiratory difficulty. The doctor ordered that oxygen be administered
and he prepared to leave for the hospital. Ten minutes later, 4:25 a.m., the hospital called a second
time to advise the doctor that the patient was not responding. The doctor ordered that a medicine be
administered, and he departed for the hospital. When he arrived, the physician who had been on call
at the hospital had begun attempts to revive the patient. Dr. Brigham joined him in the effort, but the
patient died.
The doctor who performed the autopsy concluded that the patient died between 4:25 a.m. and 4:30
a.m. of asphyxia, as a result of a sudden, acute closing of the air passage. He also found that the air
passage had been adequate to maintain life up to 2 or 3 minutes prior to death. He did not know what
caused the air passage to suddenly close.
xxxx
It is a rare occurrence when someone admitted to a hospital for the treatment of infectious
mononucleosis dies of asphyxiation. But that is not sufficient to invoke res ipsa loquitur. The fact that
the injury rarely occurs does not in itself prove that the injury was probably caused by someone's
negligence. Mason v. Ellsworth, 3 Wn. App. 298, 474 P.2d 909 (1970). Nor is a bad result by itself
enough to warrant the application of the doctrine. Nelson v. Murphy, 42 Wn.2d 737, 258 P.2d 472
(1953). See 2 S. Speiser, The Negligence Case Res Ipsa Loquitur 24:10 (1972). The evidence
presented is insufficient to establish the first element necessary for application of res ipsa loquitur
doctrine. The acute closing of the patients air passage and his resultant asphyxiation took place over
a very short period of time. Under these circumstances it would not be reasonable to infer that the
physician was negligent. There was no palpably negligent act. The common experience of mankind

does not suggest that death would not be expected without negligence. And there is no expert medical
testimony to create an inference that negligence caused the injury.
Negligence of Dr. Solidum
In view of the inapplicability of the doctrine of res ipsa loquitur, the Court next determines whether the
CA correctly affirmed the conviction of Dr. Solidum for criminal negligence.
Negligence is defined as the failure to observe for the protection of the interests of another person that
degree of care, precaution, and vigilance that the circumstances justly demand, whereby such other
person suffers injury.32 Reckless imprudence, on the other hand, consists of voluntarily doing or failing
to do, without malice, an act from which material damage results by reason of an inexcusable lack of
precaution on the part of the person performing or failing to perform such act.33
Dr. Solidums conviction by the RTC was primarily based on his failure to monitor and properly
regulate the level of anesthetic agent administered on Gerald by overdosing at 100% halothane. In
affirming the conviction, the CA observed:
On the witness stand, Dr. Vertido made a significant turnaround. He affirmed the findings and
conclusions in his report except for an observation which, to all intents and purposes, has become the
storm center of this dispute. He wanted to correct one piece of information regarding the dosage of the
anesthetic agent administered to the child. He declared that he made a mistake in reporting a 100%
halothane and said that based on the records it should have been 100% oxygen.
The records he was relying on, as he explains, are the following:
(a) the anesthesia record A portion of the chart in the record was marked as Exhibit 1-A and 1-B to
indicate the administration at intervals of the anesthetic agent.
(b) the clinical abstract A portion of this record that reads as follows was marked Exhibit 3A. 3B
Approximately 1 hour and 45 minutes through the operation, patient was noted to have bradycardia
(CR = 70) and ATSO4 0.2 mg was immediately administered. However, the bradycardia persisted, the
inhalational agent was shut off, and the patient was ventilated with 100% oxygen and another dose of
ATSO4 0.2 mg was given. However, the patient did not respond until no cardiac rate can be
auscultated and the surgeons were immediately told to stop the operation. The patient was put on a
supine position and CPR was initiated. Patient was given 1 amp of epinephrine initially while
continuously doing cardiac massage still with no cardiac rate appreciated; another ampule of
epinephrine was given and after 45 secs, patients vital signs returned to normal. The entire
resuscitation lasted approximately 3-5 mins. The surgeons were then told to proceed to the closure
and the childs vital signs throughout and until the end of surgery were: BP = 110/70; CR = 116/min
and RR = 20-22 cycles/min (on assisted ventilation).
Dr. Vertido points to the crucial passage in the clinical abstract that the patient was ventilated with
100% oxygen and another dose of ATSO4 when the bradycardia persisted, but for one reason or
another, he read it as 100% halothane. He was asked to read the anesthesia record on the
percentage of the dosage indicated, but he could only sheepishly note I cant understand the number.
There are no clues in the clinical abstract on the quantity of the anesthetic agent used. It only contains
the information that the anesthetic plan was to put the patient under general anesthesia using a
nonrebreathing system with halothane as the sole anesthetic agent and that 1 hour and 45 minutes
after the operation began, bradycardia occurred after which the inhalational agent was shut off and the
patient administered with 100% oxygen. It would be apparent that the 100% oxygen that Dr. Vertido
said should be read in lieu of 100% halothane was the pure oxygen introduced after something went
amiss in the operation and the halothane itself was reduced or shut off.
The key question remains what was the quantity of halothane used before bradycardia set in?
The implication of Dr. Vertidos admission is that there was no overdose of the anesthetic agent, and
the accused Dr. Solidum stakes his liberty and reputation on this conclusion. He made the assurance

that he gave his patient the utmost medical care, never leaving the operating room except for a few
minutes to answer the call of nature but leaving behind the other members of his team Drs. Abella and
Razon to monitor the operation. He insisted that he administered only a point 1% not 100% halothane,
receiving corroboration from Dr. Abella whose initial MA in the record should be enough to show that
she assisted in the operation and was therefore conversant of the things that happened. She revealed
that they were using a machine that closely monitored the concentration of the agent during the
operation.
But most compelling is Dr. Solidums interpretation of the anesthesia record itself, as he takes the bull
by the horns, so to speak. In his affidavit, he says, reading from the record, that the quantity of
halothane used in the operation is one percent (1%) delivered at time intervals of 15 minutes. He
studiedly mentions the concentration of halothane as reflected in the anesthesia record (Annex D of
the complaint-affidavit) is only one percent (1%) The numbers indicated in 15 minute increments for
halothane is an indication that only 1% halothane is being delivered to the patient Gerard Gercayo for
his entire operation; The amount of halothane delivered in this case which is only one percent cannot
be summated because halothane is constantly being rapidly eliminated by the body during the entire
operation.
xxxx
In finding the accused guilty, despite these explanations, the RTC argued that the volte-face of Dr.
Vertido on the question of the dosage of the anesthetic used on the child would not really validate the
non-guilt of the anesthesiologist. Led to agree that the halothane used was not 100% as initially
believed, he was nonetheless unaware of the implications of the change in his testimony. The court
observed that Dr. Vertido had described the condition of the child as hypoxia which is deprivation of
oxygen, a diagnosis supported by the results of the CT Scan. All the symptoms attributed to a failing
central nervous system such as stupor, loss of consciousness, decrease in heart rate, loss of usual
acuity and abnormal motor function, are manifestations of this condition or syndrome. But why would
there be deprivation of oxygen if 100% oxygen to 1% halothane was used? Ultimately, to the court,
whether oxygen or halothane was the object of mistake, the detrimental effects of the operation are
incontestable, and they can only be led to one conclusion if the application of anesthesia was really
closely monitored, the event could not have happened.34
The Prosecution did not prove the elements of reckless imprudence beyond reasonable doubt
because the circumstances cited by the CA were insufficient to establish that Dr. Solidum had been
guilty of inexcusable lack of precaution in monitoring the administration of the anesthetic agent to
Gerald. The Court aptly explained in Cruz v. Court of Appeals35 that:
Whether or not a physician has committed an "inexcusable lack of precaution" in the treatment of his
patient is to be determined according to the standard of care observed by other members of the
profession in good standing under similar circumstances bearing in mind the advanced state of the
profession at the time of treatment or the present state of medical science. In the recent case of
Leonila Garcia-Rueda v. Wilfred L. Pacasio, et. al., this Court stated that in accepting a case, a doctor
in effect represents that, having the needed training and skill possessed by physicians and surgeons
practicing in the same field, he will employ such training, care and skill in the treatment of his patients.
He therefore has a duty to use at least the same level of care that any other reasonably competent
doctor would use to treat a condition under the same circumstances. It is in this aspect of medical
malpractice that expert testimony is essential to establish not only the standard of care of the
profession but also that the physician's conduct in the treatment and care falls below such standard.
Further, inasmuch as the causes of the injuries involved in malpractice actions are determinable only
in the light of scientific knowledge, it has been recognized that expert testimony is usually necessary
to support the conclusion as to causation.
xxxx
In litigations involving medical negligence, the plaintiff has the burden of establishing appellant's

negligence and for a reasonable conclusion of negligence, there must be proof of breach of duty on
the part of the surgeon as well as a causal connection of such breach and the resulting death of his
patient. In Chan Lugay v. St Luke's Hospital, Inc., where the attending physician was absolved of
liability for the death of the complainants wife and newborn baby, this Court held that:
"In order that there may be a recovery for an injury, however, it must be shown that the injury for
which recovery is sought must be the legitimate consequence of the wrong done; the connection
between the negligence and the injury must be a direct and natural sequence of events, unbroken by
intervening efficient causes. In other words, the negligence must be the proximate cause of the injury.
For, negligence, no matter in what it consists, cannot create a right of action unless it is the proximate
cause of the injury complained of. And the proximate cause of an injury is that cause, which, in
natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury,
and without which the result would not have occurred."
An action upon medical negligence whether criminal, civil or administrative calls for the plaintiff to
prove by competent evidence each of the following four elements, namely: (a) the duty owed by the
physician to the patient, as created by the physician-patient relationship, to act in accordance with the
specific norms or standards established by his profession; (b) the breach of the duty by the physicians
failing to act in accordance with the applicable standard of care; (3) the causation, i.e., there must be a
reasonably close and causal connection between the negligent act or omission and the resulting
injury; and (4) the damages suffered by the patient.36
In the medical profession, specific norms or standards to protect the patient against unreasonable risk,
commonly referred to as standards of care, set the duty of the physician to act in respect of the
patient. Unfortunately, no clear definition of the duty of a particular physician in a particular case
exists. Because most medical malpractice cases are highly technical, witnesses with special medical
qualifications must provide guidance by giving the knowledge necessary to render a fair and just
verdict. As a result, the standard of medical care of a prudent physician must be determined from
expert testimony in most cases; and in the case of a specialist (like an anesthesiologist), the standard
of care by which the specialist is judged is the care and skill commonly possessed and exercised by
similar specialists under similar circumstances. The specialty standard of care may be higher than that
required of the general practitioner.37
The standard of care is an objective standard by which the conduct of a physician sued for negligence
or malpractice may be measured, and it does not depend, therefore, on any individual physicians own
knowledge either. In attempting to fix a standard by which a court may determine whether the
physician has properly performed the requisite duty toward the patient, expert medical testimony from
both plaintiff and defense experts is required. The judge, as the trier of fact, ultimately determines the
standard of care, after listening to the testimony of all medical experts.38
Here, the Prosecution presented no witnesses with special medical qualifications in anesthesia to
provide guidance to the trial court on what standard of care was applicable. It would consequently be
truly difficult, if not impossible, to determine whether the first three elements of a negligence and
malpractice action were attendant.
Although the Prosecution presented Dr. Benigno Sulit, Jr., an anesthesiologist himself who served as
the Chairman of the Committee on Ethics and Malpractice of the Philippine Society of
Anesthesiologists that investigated the complaint against Dr. Solidum, his testimony mainly focused on
how his Committee had conducted the investigation.39 Even then, the report of his Committee was
favorable to Dr. Solidum,40 to wit:
Presented for review by this committee is the case of a 3 year old male who underwent a pull-thru
operation and was administered general anesthesia by a team of anesthesia residents. The patient, at
the time when the surgeons was manipulating the recto-sigmoid and pulling it down in preparation for
the anastomosis, had bradycardia. The anesthesiologists, sensing that the cause thereof was the
triggering of the vago-vagal reflex, administered atropine to block it but despite the administration of

the drug in two doses, cardiac arrest ensued. As the records show, prompt resuscitative measures
were administered and spontaneous cardiac function re-established in less than five (5) minutes and
that oxygen was continuously being administered throughout, unfortunately, as later become manifest,
patient suffered permanent irreversible brain damage.
In view of the actuations of the anaesthesiologists and the administration of anaesthesia, the
committee find that the same were all in accordance with the universally accepted standards of
medical care and there is no evidence of any fault or negligence on the part of the anaesthesiologists.
Dr. Antonio Vertido, a Senior Medico-Legal Officer of the National Bureau of Investigation, was also
presented as a Prosecution witness, but his testimony concentrated on the results of the physical
examination he had conducted on Gerald, as borne out by the following portions of his direct
examination, to wit:
FISCAL CABARON Doctor, what do you mean by General Anesthetic Agent?
WITNESS General Anesthetic Agent is a substance used in the conduction of Anesthesia and in this
case, halothane was used as a sole anesthetic agent.
xxxx
Q Now under paragraph two of page 1 of your report you mentioned that after one hour and 45
minutes after the operation, the patient experienced a bradycardia or slowing of heart rate, now as a
doctor, would you be able to tell this Honorable Court as to what cause of the slowing of heart rate as
to Gerald Gercayo?
WITNESS Well honestly sir, I cannot give you the reason why there was a bradycardia of time
because is some reason one way or another that might caused bradycardia.
FISCAL CABARON What could be the possible reason?
A Well bradycardia can be caused by anesthetic agent itself and that is a possibility, were talking
about possibility here.
Q What other possibility do you have in mind, doctor?
A Well, because it was an operation, anything can happen within that situation.
FISCAL CABARON Now, this representation would like to ask you about the slowing of heart rate, now
what is the immediate cause of the slowing of the heart rate of a person?
WITNESS Well, one of the more practical reason why there is slowing of the heart rate is when you do
a vagal reflex in the neck wherein the vagal receptors are located at the lateral part of the neck, when
you press that, you produce the slowing of the heart rate that produce bradycardia.
Q I am pro[p]ounding to you another question doctor, what about the deficiency in the supply of
oxygen by the patient, would that also cause the slowing of the heart rate?
A Well that is a possibility sir, I mean not as slowing of the heart rate, if there is a hypoxia or there is a
low oxygen level in the blood, the normal thing for the heart is to pump or to do not a bradycardia but a
to counter act the Hypoxia that is being experienced by the patient
(sic).
xxxx
Q Now, you made mention also doctor that the use of general anesthesia using 100% halothane and
other anesthetic medications probably were contributory to the production of hypoxia.
A Yes, sir in general sir.41
On cross-examination, Dr. Vertido expounded more specifically on his interpretation of the anesthesia

record and the factors that could have caused Gerald to experience bradycardia, viz:
ATTY. COMIA I noticed in, may I see your report Doctor, page 3, will you kindly read to this Honorable
court your last paragraph and if you will affirm that as if it is correct?
A "The use of General Anesthesia, that is using 100% Halothane probably will be contributory to the
production of Hypoxia and - - - -"
ATTY COMIA And do you affirm the figure you mentioned in this Court Doctor?
WITNESS Based on the records, I know the - - Q 100%?
A 100% based on the records.
Q I will show you doctor a clinical record. I am a lawyer I am not a doctor but will you kindly look at this
and tell me where is 100%, the word "one hundred" or 1-0-0, will you kindly look at this Doctor, this
Xerox copy if you can show to this Honorable Court and even to this representation the word "one
hundred" or 1-0-0 and then call me.
xxxx
ATTY. COMIA Doctor tell this Honorable Court where is that 100, 1-0-0 and if there is, you just call me
and even the attention of the Presiding Judge of this Court. Okay, you read one by one.
WITNESS Well, are you only asking 100%, sir?
ATTY. COMIA Im asking you, just answer my question, did you see there 100% and 100 figures, tell
me, yes or no?
WITNESS Im trying to look at the 100%, there is no 100% there sir.
ATTY. COMIA Okay, that was good, so you Honor please, may we request also temporarily, because
this is just a xerox copy presented by the fiscal, that the percentage here that the Halothane
administered by Dr. Solidum to the patient is 1% only so may we request that this portion, temporarily
your Honor, we are marking this anesthesia record as our Exhibit 1 and then this 1% Halothane also
be bracketed and the same be marked as our Exhibit "1-A".
xxxx
ATTY. COMIA Doctor, my attention was called also when you said that there are so many factors that
contributed to Hypoxia is that correct?
WITNESS Yes, sir.
Q I remember doctor, according to you there are so many factors that contributed to what you call
hypoxia and according to you, when this Gerald suffered hypoxia, there are other factors that might
lead to this Hypoxia at the time of this operation is that correct?
WITNESS The possibility is there, sir.
Q And according to you, it might also be the result of such other, some or it might be due to operations
being conducted by the doctor at the time when the operation is being done might also contribute to
that hypoxia is that correct?
A That is a possibility also.
xxxx
ATTY. COMIA How will you classify now the operation conducted to this Gerald, Doctor?
WITNESS Well, that is a major operation sir.

Q In other words, when you say major operation conducted to this Gerald, there is a possibility that
this Gerald might [be] exposed to some risk is that correct?
A That is a possibility sir.
Q And which according to you that Gerald suffered hypoxia is that correct?
A Yes, sir.
Q And that is one of the risk of that major operation is that correct?
A That is the risk sir.42
At the continuation of his cross-examination, Dr. Vertido maintained that Geralds operation for his
imperforate anus, considered a major operation, had exposed him to the risk of suffering the same
condition.43 He then corrected his earlier finding that 100% halothane had been administered on
Gerald by saying that it should be 100% oxygen.44
Dr. Solidum was criminally charged for "failing to monitor and regulate properly the levels of
anesthesia administered to said Gerald Albert Gercayo and using 100% halothane and other
anesthetic medications."45 However, the foregoing circumstances, taken together, did not prove
beyond reasonable doubt that Dr. Solidum had been recklessly imprudent in administering the
anesthetic agent to Gerald. Indeed, Dr. Vertidos findings did not preclude the probability that other
factors related to Geralds major operation, which could or could not necessarily be attributed to the
administration of the anesthesia, had caused the hypoxia and had then led Gerald to experience
bradycardia. Dr. Vertido revealingly concluded in his report, instead, that "although the
anesthesiologist followed the normal routine and precautionary procedures, still hypoxia and its
corresponding side effects did occur."46
The existence of the probability about other factors causing the hypoxia has engendered in the mind
of the Court a reasonable doubt as to Dr. Solidums guilt, and moves us to acquit him of the crime of
reckless imprudence resulting to serious physical injuries. "A reasonable doubt of guilt," according to
United States v. Youthsey:47
x x x is a doubt growing reasonably out of evidence or the lack of it. It is not a captious doubt; not a
doubt engendered merely by sympathy for the unfortunate position of the defendant, or a dislike to
accept the responsibility of convicting a fellow man. If, having weighed the evidence on both sides,
you reach the conclusion that the defendant is guilty, to that degree of certainty as would lead you to
act on the faith of it in the most important and crucial affairs of your life, you may properly convict him.
Proof beyond reasonable doubt is not proof to a mathematical demonstration. It is not proof beyond
the possibility of mistake.
We have to clarify that the acquittal of Dr. Solidum would not immediately exempt him from civil
liability.1wphi1 But we cannot now find and declare him civilly liable because the circumstances that
have been established here do not present the factual and legal bases for validly doing so. His
acquittal did not derive only from reasonable doubt. There was really no firm and competent showing
how the injury to Gerard had been caused. That meant that the manner of administration of the
anesthesia by Dr. Solidum was not necessarily the cause of the hypoxia that caused the bradycardia
experienced by Gerard. Consequently, to adjudge Dr. Solidum civilly liable would be to speculate on
the cause of the hypoxia. We are not allowed to do so, for civil liability must not rest on speculation but
on competent evidence.
Liability of Ospital ng Maynila
Although the result now reached has resolved the issue of civil liability, we have to address the
unusual decree of the RTC, as affirmed by the CA, of expressly holding Ospital ng Maynila civilly liable
jointly and severally with Dr. Solidum. The decree was flawed in logic and in law.
In criminal prosecutions, the civil action for the recovery of civil liability that is deemed instituted with

the criminal action refers only to that arising from the offense charged. 48 It is puzzling, therefore, how
the RTC and the CA could have adjudged Ospital ng Maynila jointly and severally liable with Dr.
Solidum for the damages despite the obvious fact that Ospital ng Maynila, being an artificial entity, had
not been charged along with Dr. Solidum. The lower courts thereby acted capriciously and whimsically,
which rendered their judgment against Ospital ng Maynila void as the product of grave abuse of
discretion amounting to lack of jurisdiction.
Not surprisingly, the flawed decree raises other material concerns that the RTC and the CA
overlooked. We deem it important, then, to express the following observations for the instruction of the
Bench and Bar.
For one, Ospital ng Maynila was not at all a party in the proceedings. Hence, its fundamental right to
be heard was not respected from the outset. The R TC and the CA should have been alert to this
fundamental defect. Verily, no person can be prejudiced by a ruling rendered in an action or
proceeding in which he was not made a party. Such a rule would enforce the constitutional guarantee
of due process of law.
Moreover, Ospital ng Maynila could be held civilly liable only when subsidiary liability would be
properly enforceable pursuant to Article 103 of the Revised Penal Code. But the subsidiary liability
seems far-fetched here. The conditions for subsidiary liability to attach to Ospital ng Maynila should
first be complied with. Firstly, pursuant to Article 103 of the Revised Penal Code, Ospital ng Maynila
must be shown to be a corporation "engaged in any kind of industry." The term industry means any
department or branch of art, occupation or business, especially one that employs labor and capital,
and is engaged in industry.49 However, Ospital ng Maynila, being a public hospital, was not engaged in
industry conducted for profit but purely in charitable and humanitarian work. 50 Secondly, assuming that
Ospital ng Maynila was engaged in industry for profit, Dr. Solidum must be shown to be an employee
of Ospital ng Maynila acting in the discharge of his duties during the operation on Gerald. Yet, he
definitely was not such employee but a consultant of the hospital. And, thirdly, assuming that civil
liability was adjudged against Dr. Solidum as an employee (which did not happen here), the execution
against him was unsatisfied due to his being insolvent.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES AND SETS
ASIDE the decision promulgated on January 20, 2010; ACQUITS Dr. Fernando P. Solidum of the
crime of reckless imprudence resulting to serious physical injuries; and MAKES no pronouncement on
costs of suit.
SO ORDERED.
G.R. No. 77648 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and ONG TENG, respondents.
G.R. No. 77647 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and EDERLINA NAVALTA, respondents.
G.R. No. 77649 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,

vs.
COURT OF APPEALS and JOSE LIWANAG, respondents.
G.R. No. 77650 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and LEANDRO CANLAS, respondents.
G.R. No. 77651 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and VICTORIA SUDARIO respondents.
G.R. No.77652 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and FLORA NAGBUYA respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of
Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado
T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch Ederlina Navalta, et. al.,
respondents.
The following facts appear in the records:
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria
Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard,
Quiapo, Manila, originally owned by the Susana Realty. These individual verbal leases were on a
month-to month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the
rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria
Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The payments of the rentals
were paid by the lessees to a collector of the Susana Realty who went to the premises monthly.
Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus
Development, Inc., a corporation duly organized and existing under the laws of the Philippines. From
April to June, 1984, the private respondents continued to pay their monthly rentals to a collector sent
by the petitioner. In the succeeding months of July, August and September 1984, the respondents
failed to pay their monthly individual rentals as no collector came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that
they vacate the subject premises and to pay the back rentals for the months of July, August and
September, 1984, within fifteen (15) days from the receipt thereof. Immediately upon the receipt of the
said demand letters on October 10, 1984, the private respondents paid their respective arrearages in
rent which were accepted by the petitioner subject to the unilateral condition that the acceptance was
without prejudice to the filing of an ejectment suit. Subsequent monthly rental payments were likewise
accepted by the petitioner under the same condition.
For failure of the private respondents to vacate the premises as demanded in the letter dated October

9, 1984, the petitioner filed with the Metropolitan Trial Court of Manila complaints for ejectment against
the manner, as follows: (1) 105972-CV, against Ederlina Navalta (2) 105973-CV, against Jose
Liwanag; (3) 105974-CV, against Flora Nagbuya; (4) 105975-CV, against Leandro Canlas; (5) 105976CV, against Victoria Sudario and (6) 105977-CV, against Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense. They
claimed that since the occupancy of the premises they paid their monthly rental regularly through a
collector of the lessor; that their non-payment of the rentals for the months of July, August and
September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector; that
they were at a loss as to where they should pay their rentals; that sometime later, one of the
respondents called the office of the petitioner to inquire as to where they would make such payments
and he was told that a collector would be sent to receive the same; that no collector was ever sent by
the petitioner; and that instead they received a uniform demand letter dated October 9, 1984.
The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as a
result thereof, the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch XII,
presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its decision
dismissing the six cases, a pertinent portion of which reads, as follows:
The records of this case show that at the time of the filing of this complaint, the rentals had all been
paid. Hence, the plaintiff cannot eject the defendants from the leased premises, because at the time
these cases were instituted, there are no rentals in arrears.
The acceptance of the back rental by the plaintiff before the filing of the complaint, as in these case,
the alleged rental arrearages were paid immediately after receipt of the demand letter, removes its
cause of action in an unlawful detainer case, even if the acceptance was without prejudice.
x x x.
Furthermore, the court has observed that the account involved which constitutes the rentals of the
tenants are relatively small to which the ejectment may not lie on grounds of equity and for
humanitarian reasons.
Defendants' counterclaim for litigation expenses has no legal and factual basis for assessing the same
against plaintiff.
WHEREFORE, judgment is hereby rendered dismissing these cases, without pronouncement as to
costs.
Defendants' counterclaim is likewise dismissed.
SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the Regional
Trial Court of Manila and the same was assigned to Branch IX thereof presided over by Judge
Conrado T. Limcaoco (now Associate Justice of the Court of Appeals).lwph1.t In its decision dated
November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the petitioner
with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition,
assigning the following errors:
ASSIGNMENT OF ERRORS
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE CAUSE OF

ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID NOT EXIST WHEN THE
COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND PETITIONER
ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN ARREARS WITHIN THE
FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS' RECEIPT OF PETITIONER'S
DEMAND LETTERS TO VACATE THE SUBJECT PREMISES AND TO PAY THE RENTALS IN
ARREARS.
II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION COMMITTED A GRAVE WHEN IT ERRED IN
AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING THE
EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE RESPONDENT.
III
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE CASES
ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT CONTROL LAW. (pp. 164-165, Rollo, G.R.
No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a
cause of action when the complaints for unlawful detainer were filed considering the fact that upon
demand by petitioner from private respondents for payment of their back rentals, the latter immediately
tendered payment which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of the
Rules of Court, which provides:
Sec. 2. Landlord to proceed against tenant only after demand. No landlord or his legal
representative or assign, shall be such action against a tenant for failure to pay rent due or to comply
with the conditions of his lease, unless the tenant shall have failed to pay such rent or comply with
such conditions for a period of fifteen (15) days or five (5) days in case of building, after demand
therefor, made upon qqqm personally, or by serving written notice of such demand upon the person
found on the premises, or by posting such notice on the premises if no persons be found thereon.
It interpreted the said provision as follows:
.....the right to bring an action of ejectment or unlawful detainer must be counted from the time the
defendants failed to pay rent after the demand therefor. It is not the failure per se to pay rent as
agreed in the contract, but the failure to pay the rent after a demand therefor is made, that entitles the
lessor to bring an action for unlawful detainer. In other words, the demand contemplated by the abovequoted provision is not a demand to vacate, but a demand made by the landlord upon his tenant for
the latter to pay the rent due if the tenant fails to comply with the said demand with the period
provided, his possession becomes unlawful and the landlord may then bring the action for ejectment.
(p. 28, , G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional
requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply with
the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before resorting for
judicial action so much so that when there is full compliance with the demand, there arises no
necessity for court action.
As to whether this demand is merely a demand to pay rent or comply with the conditions of the lease
or also a demand to vacate, the answer can be gleaned from said Section 2. This section
presupposes the existence of a cause of action for unlawful detainer as it speaks of "failure to pay rent
due or comply with the conditions of the lease." The existence of said cause of action gives the lessor
the right under Article 1659 of the New Civil Code to ask for the rescission of the contract of lease and

indemnification for damages, or only the latter, allowing the contract to remain in force. Accordingly, if
the option chosen is for specific performance, then the demand referred to is obviously to pay rent or
to comply with the conditions of the lease violated. However, if rescission is the option chosen, the
demand must be for the lessee to pay rents or to comply with the conditions of the lease and to
vacate. Accordingly, the rule that has been followed in our jurisprudence where rescission is clearly
the option taken, is that both demands to pay rent and to vacate are necessary to make a lessee a
deforciant in order that an ejectment suit may be filed (Casilan et al. vs. Tomassi, L-16574, February
28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs. Icasiano, 89 Phil.
44).lwph1.t
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there must
be failure to pay rent or comply with the conditions of the lease and (2) there must be demand both to
pay or to comply and vacate within the periods specified in Section 2, Rule 70, namely 15 days in case
of lands and 5 days in case of buildings. The first requisite refers to the existence of the cause of
action for unlawful detainer while the second refers to the jurisdictional requirement of demand in
order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no
failure yet on the part of private respondents to pay rents for three consecutive months. As the terms
of the individual verbal leases which were on a month-to-month basis were not alleged and proved,
the general rule on necessity of demand applies, to wit: there is default in the fulfillment of an
obligation when the creditor demands payment at the maturity of the obligation or at anytime
thereafter. This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to deliver
or to do something incur in delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation." Petitioner has not shown that its case falls on any of the
following exceptions where demand is not required: (a) when the obligation or the law so declares; (b)
when from the nature and circumstances of the obligation it can be inferred that time is of the essence
of the contract; and (c) when demand would be useless, as when the obligor has rendered it beyond
his power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be
proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the
effects of default do not arise. This demand is different from the demand required under Section 2,
Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be
pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when the
obligation matured. Coupled with the fact that no collector was sent as previously done in the past, the
private respondents cannot be held guilty of mora solvendi or delay in the payment of rentals. Thus,
when petitioner first demanded the payment of the 3-month arrearages and private respondents lost
no time in making tender and payment, which petitioner accepted, no cause of action for ejectment
accrued. Hence, its demand to vacate was premature as it was an exercise of a non-existing right to
rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental after the
demand to pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action for
ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the lessee.
Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the
cause of action for ejectment especially when accepted with the written condition that it was "without
prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept the tender of
payment of rentals merely to preserve the right to file an action for unlawful detainer. However, this line
of argument presupposes that a cause of action for ejectment has already accrued, which is not true in
the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be considered

a valid defense for the reason that sending a collector is not one of the obligations of the lessor under
Article 1654. While it is true that a lessor is not obligated to send a collector, it has been duly
established that it has been customary for private respondents to pay the rentals through a collector.
Besides Article 1257, New Civil Code provides that where no agreement has been designated for the
payment of the rentals, the place of payment is at the domicile of the defendants. Hence, it could not
be said that they were in default in the payment of their rentals as the delay in paying the same was
not imputable to them. Rather, it was attributable to petitioner's omission or neglect to collect.
Petitioner also argues that neither is its refused to accept the rentals a defense for non-payment as
Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the consignation of
the thing due." It bears emphasis that in this case there was no unjustified refusal on the part of
petitioner or non-acceptance without reason that would constitute mora accipiendi and warrant
consignation. There was simply lack of demand for payment of the rentals.
In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion amounting
to lack of jurisdiction in its conclusion affirming the trial court's decision dismissing petitioner's
complaint for lack of cause of action. We do not agree, however, with the reasons relied upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the
decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein petitioners
(except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as
Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment

P1,190,000.00 Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand
Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of
Deeds of Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father, Constancio P.
Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the deed of absolute
sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the
P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the
document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property registered in the name
of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of
absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million
One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to
as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos
(Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the name of the Coronels' father was
transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenorappellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing
the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the
Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh.
"E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same
property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of
Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT
No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs
therein (now private respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits
as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1"

through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the
trial court gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding comment or reply
thereof, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then
temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the
Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute
in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by
Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon
City, together with all the improvements existing thereon free from all liens and encumbrances, and
once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt
thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to
pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is
hereby canceled and declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the
counterclaims of defendants and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City
RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by
the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case
became submitted for decision as of April 14, 1988 when the parties terminated the presentation of
their respective documentary evidence and when the Presiding Judge at that time was Judge
Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not
change the fact that the hearing of the case was terminated before Judge Roura and therefore the
same should be submitted to him for decision; (2) When the defendants and intervenor did not object
to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision,
when they met for the first time before the undersigned Presiding Judge at the hearing of a pending
incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced
thereto and they are now estopped from questioning said authority of Judge Roura after they received
the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding
Judge with full authority to act on any pending incident submitted before this Court during his
incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his
authority to decide or resolve such cases submitted to him for decision or resolution because he
continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding
Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted
for decision has the authority to decide the case notwithstanding his transfer to another branch or
region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in
the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a

meticulous examination of the documentary evidence presented by the parties, she is convinced that
the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render
Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents'
Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom
the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent court in
the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the case
at bar is the precise determination of the legal significance of the document entitled "Receipt of Down
Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the
heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT
No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract
absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever
relevant and admissible evidence may be available on record, this, Court, as were the courts below, is
now called upon to adjudge what the real intent of the parties was at the time the said document was
executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money
or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer
of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to
transfer ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the
purchase price is delivered to him. In other words the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without further remedies by the prospective buyer. In
Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to sell
where the ownership or title is retained by the seller and is not to pass until the full payment of the
price, such payment being a positive suspensive condition and failure of which is not a breach, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon
the promissor if the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of
a suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the
suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already
been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically
transfers to the buyer by operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to convey title to the prospective
buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with, but to
a third person, as in the case at bench. In a contract to sell, there being no previous sale of the
property, a third person buying such property despite the fulfillment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in
such case. Title to the property will transfer to the buyer after registration because there is no defect in
the owner-seller's title per se, but the latter, of course, may be used for damages by the intending
buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is automatically
transferred to the buyer such that, the seller will no longer have any title to transfer to any third person.
Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual
or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation
to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of
the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their natural
and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA
586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand
Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of
Deeds of Quezon City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural and ordinary
idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P.
Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after
which, they promised to present said title, now in their names, to the latter and to execute the deed of
absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers at that time, there would have been
no reason why an absolute contract of sale could not have been executed and consummated right
there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the
properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having
already agreed to sell the subject property, they undertook to have the certificate of title changed to
their names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the
buyer with certain terms and conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the documents were then in order. It just
happened, however, that the transfer certificate of title was then still in the name of their father. It was
more expedient to first effect the change in the certificate of title so as to bear their names. That is why
they undertook to cause the issuance of a new transfer of the certificate of title in their names upon
receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is
issued in their names, petitioners were committed to immediately execute the deed of absolute sale.

Only then will the obligation of the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect
the seller against a buyer who intends to buy the property in installment by withholding ownership over
the property until the buyer effects full payment therefor, in the contract entered into in the case at bar,
the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact
that the certificate of title to the property was still in the name of their father. It was the sellers in this
case who, as it were, had the impediment which prevented, so to speak, the execution of an contract
of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel,
to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh.
"D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private
respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof
being the delivery of the property by means of the execution of the deed of absolute sale in a public
instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt
of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From the moment, the parties may reciprocally demand performance, subject to the provisions of the
law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the
contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present
the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the
buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged
to forthwith pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively
admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our
deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis
supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property
under their names, there could be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly
provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by
TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as
"Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only
to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of
their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D";
Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale became mutually
due and demandable as of the time of fulfillment or occurrence of the suspensive condition on
February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they were
then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to
be extent and value of the inheritance of a person are transmitted through his death to another or
others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P.
Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point
their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became binding and enforceable
upon them. It is expressly provided that rights to the succession are transmitted from the moment of
death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the creditors have
been paid is rendered moot by the fact that they were able to effect the transfer of the title to the
property from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an
agreement at that time and they cannot be allowed to now take a posture contrary to that which they
took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil
Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject property at the time of sale,
petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and
Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the
consummation thereof by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude,
they were correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant
case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only
in their responsive pleadings, which by express provision of the rules, are deemed controverted even
if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and
again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882
[1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De
Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6,
1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of
sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of
sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the
buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for
and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by
Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona
P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to
represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to
pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of
the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show
that they actually presented the new transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the purchase price in the amount of
P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed
to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may
be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfill his obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a
case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should be
movable property.
Should if be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in
the possession; and, in the absence thereof to the person who presents the oldest title, provided there
is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the
issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer,
and (b) should there be no inscription by either of the two buyers, when the second buyer, in good
faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies
these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the
first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first
registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to register, since
knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it
has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second
realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals,
69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean
title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good
faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer
was a buyer in good faith but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice
of lis pendens had been annotated on the transfer certificate of title in the names of petitioners,
whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of
registration, therefore, petitioner Mabanag knew that the same property had already been previously
sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in
petitioners' title to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that there was a
previous sale of the same property to a third party or that another person claims said property in a
pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any
right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146;
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on
February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985,
was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as
principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned,
the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed between mother and daughter.
Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.
SO ORDERED.
G.R. No. 108129 September 23, 1999
AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,
vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.
QUISUMBING, J.:
This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals, which
set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a
complaint filed by the buyer (herein petitioner) against the seller (private respondent) for alleged
breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and
instead found petitioner guilty of delay and therefore liable for damages, as follows:
WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered, dismissing the
complaint with costs against the plaintiff (herein petitioner) and, on the counterclaim, ordering the
plaintiff Aerospace Chemical Industries, Inc. to pay the defendant, Philippine Phosphate Fertilizer
Corporation the sum of P324,516.63 representing the balance of the maintenance cost and tank rental
charges incurred by the defendant for the failure of the plaintiff to haul the rest of the rest of the
sulfuric acid on the designated date.
Costs against plaintiff-appellee. 2
As gleaned from the records, the following are the antecedents:
On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500)
metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). The contract 3 was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.

203 E. Fernandez St.

San Juan, Metro Manila
Attention: Mr. Melecio Hernandez
Manager
Subject : Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the following terms
and conditions:
A. Commodity : Sulfuric Acid in Bulk
B. Concentration : 98-99% H2SO4
C. Quantity : 500 MT-100 MT Ex-Basay
400 MT Ex-Sangi
D. Price : US$ 50.00/MT-FOB Cotcot,
Basay, Negros Or.
US$ 54.00/MT-FOB Sangi, Cebu
E. Payment : Cash in Philippine currency
payable to Philippine Phosphate
Fertilizer Corp. (MAKATI) at
PCIB selling rate at the time of
payment at least five (5) days prior
to shipment date.
F. Shipping Conditions
1. Laycan : July
2. Load port : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx xxx xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
AEROSPACE INDUSTRIES, INC.
Signed: Mr. Melecio Hernandez

Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in
equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer
committed to secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from
Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should be
retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the sulfuric
acid purchased at Basay because private respondent had been incurring incremental expense of two
thousand (P2,000.00) pesos for each day of delay in shipment.
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.
On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head
Services. The vessel was assigned to carry the agreed volumes of freight from designated loading
areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel
heavily tilted on its port side. Consequently, the master of the ship stopped further loading. Thereafter,
the vessel underwent repairs.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the
remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December 15,
1986. Private respondent said that it would charge petitioner the storage and consequential costs for
the Basay tanks, including all other incremental expenses due to loading delay, if petitioner failed to
comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports
conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17,
1986 and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT of
sulfuric acid on board.1wphi1.nt
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT. 6 On
January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to
private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases,
which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx
We recently charter another vessel M/T DON VICTOR who will be authorized by us to lift the balance
approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of 227.51 MT and
we are willing to pay the additional order at the prevailing market price, provided the lifting of the total
500 MT be centered/confined to only one safe berth which is Atlas Pier, Sangi, Cebu. 7
March 20, 1987
This refers to the remaining balance of the above product quantity which were not loaded to the
authorized cargo vessel, M/T Sultan Kayumanggi at your load port Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the month of April 1987
and we are arranging for a 500 MT Sulfuric Acid inclusive of which the remaining balance: 272.49 MT
an additional product quantity thereof of 227.51 MT. 8

Petitioner's letter 9 dated May 15, 1987, reiterated the same request to private respondent.
On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to private
respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return of the
purchase price of three hundred seven thousand five hundred thirty (P307,530.00) pesos. Private
respondent in reply, 11 on March 8, 1988, instructed petitioner to lift the remaining 30 MT of sulfuric
acid from Basay, or pay maintenance and storage expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of
272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the
chartered vessel for the full capacity of 500 MT, stating that:
With regard to our balance of sulfuric acid product at your shore tank/plant for 272.49 metric ton
that was left by M/T Sultana Kayumanggi due to her sinking, we request for an additional quantity of
227.51 metric ton of sulfuric acid, 98% concentration.
The additional quantity is requested in order to complete the shipment, as the chartered vessel
schedule to lift the high grade sulfuric acid product is contracted for her full capacity/load which is 500
metric tons more or less.
We are willing to pay the additional quantity 227.51 metric tons high grade sulfuric acid in the
prevailing price of the said product. 12
xxx xxx xxx
By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get its
additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the information to his
associate, Herman Rustia, the Senior Manager for Imports and International Sales of private
respondent. In a letter dated July 22, 1988, Rustia replied:
Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we cannot
accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite limitation and delayed arrival of
imported Sulfuric Acid from Japan. 14
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for the
delivery of the purchases remaining, or suffer tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the
Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim,
stating that it was the petitioner who was remiss in the performance of its obligation in arranging the
shipping requirements of its purchases and, as a consequence, should pay damages as computed
below:
Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00
Less Shipments
70.009 MT sulfuric acid P72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)

Balance P303,483.37
Less Charges
Basay Maintenance Expense

from Aug. 15 to Dec. 15, 1986

(P2,000.00/day x 122 days) P244,000.00
Sangi Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)

Receivable/Counterclaim (P324,516.63)
===========
Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's favor,
disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, directing the
latter to pay the former the following sums:
1. P306,060.77 representing the value of the undelivered 272.49 metric tons of sulfuric acid plaintiff
paid to defendant;
2. P91,818.23 representing unrealized profits, both items with 12% interest per annum from May 4,
1989, when the complaint was filed until fully paid;
3. P30,000.00 as exemplary damages; and
4. P30,000.00 as attorney's fees and litigation expenses, both last items also with 12% interest per
annum from date hereof until fully paid.
Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant. 15
In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to pickup the remaining sulfuric acid because its failure was due to force majeure. According to the trial court,
it was private respondent who committed a breach of contract when it failed to accommodate the
additional order of the petitioner, to replace those that sank in the sea, thus:
To begin with, even if we assume that it is incumbent upon the plaintiff to "lift" the sulfuric acid it
ordered from defendant, the fact that force majeure intervened when the vessel which was previouly
(sic) listing, but which the parties, including a representative of the defendant, did not mind, sunk, has
the effect of absolving plaintiff from "lifting" the sulfuric acid at the designated load port. But even
assuming the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to a
payment of a 2,000-peso incremental expenses per day to defendant for delayed "lifting has not been
proven." . . .
Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a second
additional order after the transaction in litigation? Why also, did defendant not send plaintiff statements
of account until after 3 years?
All these convince the Court that indeed, defendant must return what plaintiff has paid it for the goods
which the latter did not actually receive. 16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as
follows:
Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff had the obligation
to withdraw the full amount of 500 MT of sulfuric acid from the defendant's loadport at Basay and

Sangi on or before August 15, 1986. As early as August 6, 1986 it had been accordingly warned by the
defendant that any delay in the hauling of the commodity would mean expenses on the part of the
defendant amounting to P2,000.00 a day. The plaintiff sent its vessel, the "M/T Sultan Kayumanggi",
only on November 19, 1987. The vessel, however; was not capable of loading the entire 500 MT and
in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the "M/T Sultan Kayumanggi" did not absolve
the plaintiff from its obligation to lift the rest of the 272.481 MT of sulfuric acid at the agreed time. It
was the plaintiff's duty to charter another vessel for the purpose. It did contract for the services of a
new vessel, the "M/T Don Victor", but did not want to lift the balance of 272.481 MT only but insisted
that its additional order of 227.51 MT be also given by the defendant to complete 500 MT. apparently
so that the vessel may be availed of in its full capacity.
xxx xxx xxx
We find no basis for the decision of the trial court to make the defendant liable to the plaintiff not only
for the cost of the sulfuric acid, which the plaintiff itself failed to haul, but also for unrealized profits as
well as exemplary damages and attorney's fees. 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance of
its obligation. It dismissed the complaint of petitioner and ordered it to pay damages representing the
counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution
dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO
HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT PETITIONER
PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE RESPONDENT BUT THE
LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51 M.T.
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE FOR
DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN ALLEGED
AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY WHEN PRIVATE
RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION OF THE RULES ON
EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED
FACTS THAT PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE
RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT ENTERED
INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF SULFURIC ACID IN
ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY DELAY OF PETITIONER
WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN THE
SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR STORAGE AND
MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504 CIVIL CODE).
V.

RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR

PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT.
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:
1. Did the respondent court err in holding that the petitioner committed breach of contract, considering
that:
a) the petitioner allegedly paid the full value of its purchases, yet received only a portion of said
purchases?
b) petitioner and private respondent allegedly had also agreed for the purchase and supply of an
additional 227.519 MT of sulfuric acid, hence prior delay, if any, had been waived?
2. Did the respondent court err in awarding damages to private respondent?
3. Should expenses for the storage and preservation of the purchased fungible goods, namely sulfuric
acid, be on seller's account pursuant to Article 1504 of the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court and its
conclusion that the petitioner was guilty of delay in the performance of its obligation. According to
petitioner, that conclusion is contrary to the factual evidence. It adds that respondent court disregarded
the rule that findings of the trial court are given weight, with the highest degree of respect. Claiming
that respondent court's findings conflict with those of the trial court, petitioner prays that the trial court's
findings be upheld over those of the appellate court.
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal
thereof, or on October 3, 1986, hence, it had complied with the primary condition set in the sales
contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a storm, a
force majeure, which sank the vessel. It thus claims exemption from liability to pay damages.
Petitioner also contends that it was actually the private respondent's shipping officer, who advised
petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize the capacity of the
vessel it chartered. Petitioner insists that when its ship was ready to pick-up the remaining balance of
272.49 MT of sulfuric acid, private respondent could not comply with the contract commitment due to
"pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary to those of
the trial court, 18 this Court may review those findings, we find the appellate court's conclusion that
petitioner violated the subject contract amply supported by preponderant evidence. Petitioner's claim
was predicated merely on the allegations of its employee, Melecio Hernandez, that the storm or force
majeure caused the petitioner's delay and failure to lift the cargo of sulfuric acid at the designated
loadports. In contrast, the appellate court discounted Hernandez' assertions. For on record, the storm
was not the proximate cause of petitioner's failure to transport its purchases on time. The survey
report submitted by a third party surveyor, SGS Far East Limited, revealed that the vessel, which was
unstable, was incapable of carrying the full load of sulfuric acid. Note that there was a premature
termination of loading in Basay, Negros Oriental. The vessel had to undergo several repairs before
continuing its voyage to pick-up the balance of cargo at Sangi, Cebu. Despite repairs, the vessel still
failed to carry the whole lot of 500 MT of sulfuric acid due to ship defects like listing to one side. Its
unfortunate sinking was not due to force majeure. It sunk because it was, based on SGS survey
report, unstable and unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros
Oriental, elucidated this point:
Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading operation was
temporarily stopped by the vessel's master due to ships stability was heavily tilted to port side, ship's
had tried to transfer the loaded acid to stbdside but failed to do so, due to their auxiliary pump on
board does not work out for acid.

xxx xxx xxx

Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice of said vessel
Declared quantity loaded onboard based on data's provided by PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to assist the situation, at
1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs November 27, repairing and/or
welding was suspended due to the explosion of tank no. 5. Explosion ripped about two feet of the
double bottom tank.
November 27 up to date no progress of said vessel. 19
While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report therein
noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ship's incomplete tank
calibration table. Barge displacement cannot be applied due to ship was listing to Stboard side which
has been loaded with rocks to control her stability. 20
These two vital pieces of information were totally ignored by trial court. The appellate court correctly
took these into account, significantly. As to the weather condition in Basay, the appellate court
accepted surveyor Rabe's testimony, thus:
Q. Now, Mr. Witness, what was the weather condition then at Basay, Negros Oriental during the
loading operation of sulfuric acid on board the Sultana Kayumanggi?
A. Fair, sir. 21
Since the third party surveyor was neither petitioner's nor private respondent's employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondent's loadports to the petitioner's designated
warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's
agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was incumbent
upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy vessel.
However, despite repeated demands, petitioner did not comply seasonably.
Additionally, petitioner claims that private respondent's employee, Gil Belen, had recommended to
petitioner to fully utilize the vessel, hence petitioner's request for additional order to complete the
vessel's 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who asserts
that a contract of sale has been changed or modified has the burden of proving the change or
modification by clear and convincing evidence. 22 Repeated requests and additional orders were
contained in petitioner's letters to private respondent. In contrast, Belen's alleged action was only
verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity could
redound to petitioner's advantage, not the other party's. If additional orders were at the instance of
private respondent, the same must be properly proved together with its relevance to the question of
delay. Settled is the principle in law that proof of verbal agreements offered to vary the terms of written
agreements is inadmissible, under the parol evidence rule. 23 Belen's purported recommendation could
not be taken at face value and, obviously, cannot excuse petitioner's default.
Respondent court found petitioner's default unjustified, and on this conclusion we agree:
It is not true that the defendant was not in a position to deliver the 272.481 MT which was the balance
of the original 500 MT purchased by the plaintiff. The whole lot of 500 MT was ready for lifting as early
as August 15, 1986. What the defendant could not sell to the plaintiff was the additional 227.51 MT
which said plaintiff was ordering, for the reason that the defendant was short of the supply needed.
The defendant, however, had no obligation to agree to this additional order and may not be faulted for
its inability to meet the said additional requirements of the plaintiff. And the defendant's incapacity to

agree to the delivery of another 227.51 MT is not a legal justification for the plaintiffs refusal to lift the
remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the "M/T Don Victor" only if
the defendant would confirm that it was ready to deliver 500 MT. Because the defendant could not sell
another 227.51 MT to the plaintiff, the latter did not send a new vessel to pick up the balance of the
500 MT originally contracted for by the parties. This, inspite the representations made by the
defendant for the hauling thereof as scheduled and its reminders that any expenses for the delay
would be for the account of the plaintiff. 24
We are therefore constrained to declare that the respondent court did not err when it absolved private
respondent from any breach of contract.
Our next inquiry is whether damages have been properly awarded against petitioner for its unjustified
delay in the performance of its obligation under the contract. Where there has been breach of contract
by the buyer, the seller has a right of action for damages. Following this rule, a cause of action of the
seller for damages may arise where the buyer refuses to remove the goods, such that buyer has to
remove them. 25 Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those
who in any manner contravene the tenor thereof, are liable for damages.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation. 26 Art. 1169 states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extrajudicially demands from them the fulfillment of their obligation.
In order that the debtor may 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 extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as agreed,
otherwise petitioner would be charged for the consequential damages owing to any delay. As stated in
private respondent's letter to petitioner, dated December 12, 1986:
Subject: M/T "KAYUMANGGI"
Gentlemen:
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2 December 1986
regarding your sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be vacated 15th
December 1986 as we are expecting the arrival of our chartered vessel purportedly to haul our
equipments and all other remaining assets in Basay. This includes our sulfuric acid tanks. We regret,
therefore, that if these tanks are not emptied on or before the 15th of December, we either have to
charge you for the tanks waiting time at Basay and its consequential costs (i.e. chartering of another
vessel for its second pick-up at Basay, handling, etc.) as well as all other incremental costs on
account of the protracted loading delay. 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such
delay begin? The above letter constitutes private respondent's extrajudicial demand for the petitioner
to fulfill its obligation, and its dateline is significant. Given its date, however, we cannot sustain the
finding of the respondent court that petitioner's delay started on August 6, 1986. The Court of Appeals
had relied on private respondent's earlier letter to petitioner of that date for computing the
commencement of delay. But as averred by petitioner, said letter of August 6th is not a categorical
demand. What it showed was a mere statement of fact, that "[F]for your information any delay in
Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00 per day." Noteworthy, private

respondent accepted the full payment by petitioner for purchases on October 3, 1986, without
qualification, long after the August 6th letter. In contrast to the August 6th letter, that of December 12th
was a categorical demand.
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the
remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to
travel between Basay and Sangi. Logically, the computation of damages arising from the shipping
delay would then have to be from December 15, 1986, given said reasonable period after the
December 12th letter. More important, private respondent was forced to vacate Basay wharf only on
December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and regular
business expenses for which the petitioner should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until August
31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should reimburse
private respondent's rental expenses of P32,000 monthly, commencing December 15, 1986, up to
August 31, 1987, the period of the extended lease. Note further that there is nothing on record refuting
the amount of expenses abovecited. Private respondent presented in court two supporting documents:
first, the lease agreement pertaining to the equipment, and second a letter dated June 15, 1987, sent
by Atlas Fertilizer Corporation to private respondent representing the rental charges incurred. Private
respondent is entitled to recover the payment for these charges. It should be reimbursed the amount
of two hundred seventy two thousand
(P272,000.00) 29 pesos, corresponding to the total amount of rentals from December 15, 1986 to
August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be assumed by the
seller. Rental expenses of storing sulfuric acid should be at private respondent's account until
ownership is transferred, according to petitioner. However, the general rule that before delivery, the
risk of loss is borne by the seller who is still the owner, is not applicable in this case because petitioner
had incurred delay in the performance of its obligation. Article 1504 of the Civil Code clearly states:
Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's
risk whether actual delivery has been made or not, except that:
xxx xxx xxx
(2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods
are at the risk of the party at fault. (emphasis supplied)
On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the plaintiff that it would
have to bear the said expenses for failure to lift the commodity for an unreasonable length of time.
But even assuming that the plaintiff did not consent to be so bound, the provisions of Civil Code come
in to make it liable for the damages sought by the defendant.
Art. 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or delay and those
who in any manner contravene the tenor thereof, are liable for damages.
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the performance of its
obligation to lift the sulfuric acid on August 15, 1986 and had contravened the tenor of its lettercontract with the defendant. 30
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary

extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When
petitioner failed to comply with its obligations under the contract it became liable for its shortcomings.
Petitioner is indubitably liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the
amount of three hundred three thousand, four hundred eighty three pesos and thirty seven centavos
(P303,483.37), it is proper to set-off this amount against the rental expenses initially paid by private
respondent. It is worth noting that the adjustment and allowance of private respondent's counterclaim
or set-off in the present action, rather than by another independent action, is encouraged by the law.
Such practice serves to avoid circuitry of action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the court's time. 31 The trend of judicial decisions is toward a liberal
extension of the right to avail of counterclaims or set-offs. 32 The rules on counterclaims are designed
to achieve the disposition of a whole controversy involving the conflicting claims of interested parties
at one time and in one action, provided all parties can be brought before the court and the matter
decided without prejudicing the right of any party. 33 Set-off in this case is proper and reasonable. It
involves deducting P272,000.00 (rentals) from P303,483.37 (advance payment), which will leave the
amount of P31,483.37 refundable to petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA
G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor
of private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is
also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos
(P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is
ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and thirty
seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein
petitioner.1wphi1.nt
Costs against the petitioner.
SO ORDERED.
G.R. No. 154017

December 8, 2003

DESAMPARADOS M. SOLIVA, Substituted by Sole Heir PERLITA SOLIVA GALDO, petitioner,

vs.
The INTESTATE ESTATE of MARCELO M. VILLALBA and VALENTA BALICUA VILLALBA,
respondents.
DECISION
PANGANIBAN, J.:
There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is
an action to collect the balance or to rescind the contract within the time allowed by law. In this case,
laches barring the claim of petitioner to recover the property has already set in. However, in the
interest of substantial justice, and pursuant to the equitable principle proscribing unjust enrichment,
she is entitled to receive the unpaid balance of the purchase price plus legal interest thereon.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, seeking to nullify the
November 9, 2001 Decision2 and the May 23, 20023 Resolution of the Court of Appeals (CA) in CA-GR
CV No. 42024. The assailed Decision disposed as follows:
"WHEREFORE, the Decision appealed from is AFFIRMED."4

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts
The facts are narrated by the CA, as follows:
"On May 5, 1982, [Petitioner] Desamparados M. Soliva filed a complaint for recovery of ownership,
possession and damages against [Respondent] Valenta Balicua Villalba x x x alleging that she is the
owner of a parcel of agricultural land situated at Hinaplanan, Claveria, Misamis Oriental, containing an
area of 16,542 square meters and covered by Original Certificate of Title No. 8581; that on January 4,
1966, the late Capt. Marcelo Villalba asked her permission to occupy her house on said land,
promised to buy the house and lot upon receipt of his money from Manila and gave her P600.00 for
the occupation of the house; that Capt. Villalba died in 1978 without having paid the consideration for
the house and lot; and that after [the] death of Capt. Villalba, his widow, [Respondent Valenta], refused
to vacate the house and lot despite demands, destroyed the house thereon and constructed a new
one.
"For failure to file an answer, [Respondent Valenta] was declared in default and [petitioner] was
allowed to present her evidence ex-parte.
"On March 26, 1984, the court a quo rendered judgment restoring to [petitioner] her right of ownership
and possession of the property and ordering [Respondent Valenta] to pay [her] P25,000.00 as actual
damages and P5,000.00 as attorneys fees. Said decision became final and [petitioner] was placed in
possession of the subject property.
"A petition for relief from judgment was filed by [Respondent Valenta] on June 5, 1984 alleging that her
failure to file an answer to the complaint was caused by her confusion as to whether the property
formed part of the estate of her late husband, Marcelo Villalba; that she referred the matter to Atty.
Eleno Kabanlit, the administrator of the estate, but the latter informed her that the property was not
included in the inventory of the estate; and that she has a meritorious defense as her late husband
had already paid the amount of P2,250.00 out of the purchase price of P3,500.00 for the house and
lot.
"The petition for relief was denied by the court a quo in an Order dated September 3, 1984 on the
grounds that the failure of [Respondent Valenta] to file an answer was not due to excusable
negligence and that she does not seem to have a valid and meritorious defense.
"[Respondent Valenta] appealed to [the CA], which rendered a Decision on February 21, 1990 finding
that the failure of [Respondent Valenta] to file an answer to the complaint was due to excusable
negligence; that she has a meritorious defense, and that the complaint should have been filed not
against her but against the administrator of the estate of deceased Marcelo Villalba. The dispositive
portion of said Decision reads:
WHEREFORE, the order appealed from is hereby REVERSED; the judgment by default in Civil Case
No. 8515, subject matter of the petition for relief, is SET ASIDE; the trial court is ORDERED to
continue with the proceedings in said case; and [Petitioner] Desamparados M. Soliva x x x is
ORDERED to amend [her] complaint by substituting the administrator of the intestate testate (sic) of
the late Marcelo M. Villalba for Valenta Baricua-Villalba [respondent] as defendant in said amended
complaint. No pronouncement as to costs.
SO ORDERED.
"Consequently, an amended complaint was filed in Civil Case No. 8515 by substituting the Intestate
Estate of Marcelo M. Villalba, represented by its Administrator, Atty. Eleno M. Kabanlit, for
[Respondent Valenta], as defendant therein.
"Answering the complaint, the Administrator alleged that the house and lot were sold to the late
Marcelo Villalba by Magdaleno Soliva, the late husband of [petitioner], on December 18, 1965 for

P3,500.00 on installment basis and that Marcelo Villalba had paid the total amount of P2,250.00; that
no demands were made on [Respondent Valenta] to vacate the property prior to the filing of the
original complaint in 1982; and that [Respondent Valenta] has been in continuous, public and
uninterrupted possession of the property for seventeen (17) years, i.e., from 1965 to 1982, so that
[petitioners] claim of ownership has already prescribed.
"An answer-in-intervention was filed by [Respondent Valenta] alleging that the original transaction
between her late husband and the late husband of [petitioner] covered seventy [two] (72) hectares of
land, twenty-nine (29) heads of cattle and the subject house and lot; that [petitioner] and her husband
delivered to them only twenty-seven (27) hectares and twelve (12) heads of cattle and they had to pay
separately for the house and lot; and that she renovated the house and lot at a cost of not less than
P30,000.00 and planted numerous fruit trees and permanent crops, all valued at not less than
P50,000.00.
"On March 11, 1993, the court a quo rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing the complaint and the counterclaims without
special pronouncement as to costs, and ordering the reconveyance of subject lot to [respondent] and
intervenor."5
Ruling of the Court of Appeals
Affirming the RTC, the CA held that laches had already set in. The inaction of petitioner for almost 16
years had barred her action to recover the disputed property from the Villalbas. The appellate court
found that 1) until the death of Marcelo Villalba in 1978, his payment of the full purchase price of the
disputed house and lot was never demanded; 2) no evidence was presented to show when petitioner
had made a verbal demand on Valenta Villalba to vacate the premises; and 3) the complaint for
recovery of ownership and possession was filed only on May 5, 1982 -- 16 years after the formers
cause of action had accrued.
Hence, this Petition.6
Issues
Petitioner submits the following issues for our consideration:
"1. Whether or not Capt. Marcelo M. Villalba who died in 1978 after declaring that he would not pay
anymore the full consideration of the price of the house and lot and after exhausting extrajudicial
remedies would bar Desamparados M. Soliva or her successor-in-interest from asserting her claim
over her titled property.
"2. Whether or not the Decision of the Court of Appeals affirming the Decision of the Regional Trial
Court ordering the reconveyance of the subject lot to defendant and intervenor although Capt. Marcelo
Villalba nor his wife Valenta Balicua Villalba had not yet paid the full consideration of the price of the
house and lot would unjustly enrich spouses Marcelo and Valenta Villalba at the expense of
Desamparados M. Soliva."7
Simply put, the issues boil down to the following: (1) whether petitioner is barred from recovering the
disputed property; and (2) whether the conveyance ordered by the court a quo would unjustly enrich
respondents at her expense.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Petitioners Claim Already Barred
Petitioner contests the appellate courts finding that she slept on her rights for 16 years and thereby

allowed prescription and laches to set in and bar her claim. She avers that she undertook extrajudicial
measures to collect the unpaid balance of the purchase price from the Villalbas. She also emphasizes
that as a result of her original action, the trial court restored her to the possession of the disputed
house and lot on March 26, 1984.
It is readily apparent that petitioner is raising issues of fact that have amply been ruled upon by the
appellate court. The CAs findings of fact are generally binding upon this Court and will not be
disturbed on appeal -- especially when, as in this case, they are the same as those of the trial court. 8
Petitioner has failed to show sufficient reason for us to depart from this rule. Accordingly, we shall
review only questions of law that have been distinctly set forth.9
No Invalidation of Sale Dueto Nonpayment of Full Price
Petitioner argues that the transaction between the parties was a contract to sell rather than a contract
of sale. This argument was properly brushed aside by the appellate court, which held that she was
bound by her admission in her Complaint10 and during the hearings11 that she had sold the property to
the Villalbas.
Petitioner further contends that the oral contract of sale between the parties was invalid, because the
late Captain Marcelo Villalba and his wife had failed to comply with their obligation to pay in full the
purchase price of the house and lot. She is mistaken.
Under Article 1318 of the Civil Code, the following are the essential requisites of a valid contract: 1)
the consent of the contracting parties, 2) the object certain which is the subject matter of the contract,
and 3) the cause of the obligation which is established. When all the essential requisites are present, a
contract is obligatory in whatever form it may have been entered into, save in cases where the law
requires that it be in a specific form to be valid and enforceable.12
With respect to real property, Article 1358(1) of the Civil Code specifically requires that a contract of
sale thereof be in a public document. However, an otherwise unenforceable oral contract of sale of
realty under Article 1403(2) of the Civil Code may be ratified by the failure to object to the presentation
of oral evidence to prove it or by the acceptance of benefits granted by it.13
All the essential elements of a valid contract are present in this case. No issue was raised by petitioner
on this point. Moreover, while the contract between the parties might have been unenforceable under
Article 1403(2) of the Civil Code, the admission14 by petitioner that she had accepted payments under
the oral contract of sale took the case out of the scope of the Statute of Frauds. 15 The ratification of the
contract rendered it valid and enforceable.
Furthermore, contrary to petitioners submission, the nonpayment of the full consideration did not
invalidate the contract of sale. Under settled doctrine, nonpayment is a resolutory condition that
extinguishes the transaction existing for a time and discharges the obligations created thereunder. 16
The remedy of the unpaid seller is to sue for collection 17 or, in case of a substantial breach, to rescind
the contract.18 These alternative remedies of specific performance and rescission are provided under
Article 1191 of the Civil Code as follows:
"Art.1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
"The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen fulfillment,
if the latter should become impossible.
"The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
"x x x

xxx

x x x."

The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil

Code as follows:
"Article 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or extrajudicially or by a notarial act. After the
demand, the court may not grant him a new term."
Upon the facts found by the trial and the appellate courts, petitioner did not exercise her right either to
seek specific performance or to rescind the verbal contract of sale until May 1982, when she filed her
complaint for recovery of ownership and possession of the property. This factual finding brings to the
fore the question of whether by 1982, she was already barred from recovering the property due to
laches and prescription.
Action Barred by Laches
In general, laches is the failure or neglect, for an unreasonable and unexplained length of time, to do
that which -- by the exercise of due diligence -- could or should have been done earlier. 19 It is the
negligence or omission to assert a right within a reasonable period, warranting the presumption that
the party entitled to assert it has either abandoned or declined to assert it.20
Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on their rights for
an unreasonable length of time -- either by negligence, folly or inattention -- have allowed their claims
to become stale.21 Vigilantibus, sed non dormientibus, jura subveniunt. The laws aid the vigilant, not
those who slumber on their rights.22
The following are the essential elements of laches:
(1) Conduct on the part of the defendant that gave rise to the situation complained of; or the conduct
of another which the defendant claims gave rise to the same;
(2) Delay by the complainant in asserting his right after he has had knowledge of the defendants
conduct and after he has had an opportunity to sue;
(3) Lack of knowledge by or notice to the defendant that the complainant will assert the right on which
he bases his suit; and
(4) Injury or prejudice to the defendant in the event relief is accorded to the complainant.23
Petitioner complied with her obligation to deliver the property in 1966. 24 However, respondents
husband failed to comply with his reciprocal obligation to pay, when the money he had been expecting
from Manila never materialized. 25 He also failed to make further installments after May 13, 1966. 26 As
early as 1966, therefore, petitioner already had the right to compel payment or to ask for rescission,
pursuant to Article 1169 of the Civil Code, which reads:
"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may exist:
xxx

xxx

xxx

"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins." (Italics supplied)
Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of evidence, the
lower courts brushed aside her assertions that she had availed herself of extrajudicial remedies to
collect the balance or to serve an extrajudicial demand on Villalba, prior to her legal action in 1982.
Meanwhile, respondent had spent a considerable sum in renovating the house and introducing

improvements on the premises.27

In view thereof, the appellate court aptly ruled that petitioners claim was already barred by laches. It
has been consistently held that laches does not concern itself with the character of the defendants
title, but only with the issue of whether or not the plaintiff -- by reason of long inaction or inexcusable
neglect -- should be barred entirely from asserting the claim, because to allow such action would be
inequitable and unjust to the defendant.28
Likewise, it must be stressed that unlike prescription, laches is not concerned merely with the fact of
delay, but even more with the effect of unreasonable delay.29 In Vda. de Cabrera v. CA,30 we
explained:
"In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred from
recovering possession of property by virtue of laches. Under the Land Registration Act (now the
Property Registration Decree), no title to registered land in derogation to that of the registered owner
shall be acquired by prescription or adverse possession. The same is not true with regard to laches.
As we have stated earlier in Mejia de Lucas vs. Gamponia, while the defendant may not be
considered as having acquired title by virtue of his and his predecessors long continued possession
(37 years) the original owners right to recover x x x the possession of the property and the title thereto
from the defendant has, by the latters long period of possession and by patentees inaction and
neglect, been converted into a stale demand."31
The contention of petitioner that her right to recover is imprescriptible because the property was
registered under the Torrens system32 also fails to convince us. It was the finding of the trial court that
the property was not yet covered by a free patent on January 4, 1966, when Captain Villalba acquired
possession thereof. Indeed, the evidence shows that as of that date, the documents relating to the
property were still in the name of Pilar Castrence, from whom petitioner purchased the property on
April 27, 1966;33 that she applied for a free patent therefor between January 4 and April 27, 1966; 34
and that the original certificate of title over the lot was issued to her under Free Patent No. (x-1) 3732
only on August 16, 1974.35
It is apparent, then, that petitioner sold the house and lot to respondent on January 4, 1966, before
she had even acquired the title to convey it. Moreover, she applied for a free patent after she lost, by
operation of law,36 the title she had belatedly acquired from Castrence. These circumstances raise
serious questions over the formers good faith in delaying the assertion of her rights to the property.
They bar her from seeking relief under the principle that "one who comes to court must come with
clean hands."37
Action Barred by Prescription
Moreover, we find that the RTC and the CA correctly appreciated the operation of ordinary acquisitive
prescription in respondents favor.1wphi1 To acquire ownership and other real rights over
immovables under Article 1134 of the Civil Code, possession must be for 10 years. It must also be in
good faith and with just title.38
Good faith consists of the reasonable belief that the person from whom the possessor received the
thing was its owner, but could not transmit the ownership thereof. 39 On the other hand, there is just title
when the adverse claimant came into possession of the property through one of the modes
recognized by law for the acquisition of ownership or other real rights, but the grantor was not the
owner or could not transmit any right.40
The RTC and the CA held that the Villalbas had continuously possessed the property from January 4,
1966 until May 5, 198241 or for a total of 16 years. Capt. Villalba came into possession through a sale
by petitioner, whom he believed was the owner, though -- at the time of the sale -- she was not.
Clearly, all the elements of ordinary acquisitive prescription were present.
Petitioner is thus precluded from invoking the 30-year prescriptive period for commencing real action

over immovables. Prescription of the action is without prejudice to acquisitive prescription, according
to Article 1141 of the Civil Code, which we quote:
"Art. 1141. Real actions over immovables prescribe after thirty years.
"This provision is without prejudice to what is established for the acquisition of ownership and other
real rights by prescription." (Italics supplied)
Second Issue:
Unjust Enrichment
While petitioner is now barred from recovering the subject property, all is not lost for her. By
Respondent Villalbas own admission,42 a balance of P1,250 of the total purchase price remains
unpaid. Reason and fairness suggest that petitioner be allowed to collect this sum. It is a basic rule in
law that no one shall unjustly enrich oneself at the expense of another. Niguno non deue enriquecerse
tortizamente condao de otro. For indeed, to allow respondent to keep the property without paying
fully for it amounts to unjust enrichment on her part.
Since the obligation consists of the payment of a sum of money, and Respondent Villalba has incurred
delay in satisfying that obligation, legal interest at six percent (6%) per annum 43 is hereby imposed on
the balance of P1,250, to be computed starting May 5, 1982 -- when the claim was made judicially -until the finality of this Courts judgment. Following our ruling in Eastern Shipping Lines, Inc. v. CA, 44
the sum so awarded shall likewise bear interest at the rate of 12 percent per annum from the time this
judgment becomes final and executory until its satisfaction.
WHEREFORE, the Petition is partly GRANTED. The Decision of the Court of Appeals is AFFIRMED,
with the MODIFICATION that respondent is ordered to pay the balance of the purchase price of
P1,250 plus 6 percent interest per annum, from May 5, 1982 until the finality of this judgment.
Thereafter, interest of 12 percent per year shall then be imposed on that amount upon the finality of
this Decision until the payment thereof. No costs.
SO ORDERED.
G.R. No. 174269

May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in any
sight-seeing. Instead, it was agreed upon that they would start early the next day to see the entire city
before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster should
end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group was
ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond polishing
that lasted for around ten minutes.1 Afterwards, the group was led to the stores showroom to allow

them to select items for purchase. Mrs. Pantaleon had already planned to purchase even before the
tour began a 2.5 karat diamond brilliant cut, and she found a diamond close enough in approximation
that she decided to buy.2 Mrs. Pantaleon also selected for purchase a pendant and a chain, 3 all of
which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the cards imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been approved.
His son, who had already boarded the tour bus, soon returned to Coster and informed the other
members of the Pantaleon family that the entire tour group was waiting for them. As it was already
9:40 a.m., and he was already worried about further inconveniencing the tour group, Pantaleon asked
the store clerk to cancel the sale. The store manager though asked plaintiff to wait a few more
minutes. After 15 minutes, the store manager informed Pantaleon that respondent had demanded
bank references. Pantaleon supplied the names of his depositary banks, then instructed his daughter
to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the items
even without respondents approval of the purchase. The spouses Pantaleon returned to the bus. It is
alleged that their offers of apology were met by their tourmates with stony silence. 4 The tour groups
visible irritation was aggravated when the tour guide announced that the city tour of Amsterdam was to
be canceled due to lack of remaining time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to
London.5 Mrs. Pantaleon ended up weeping, while her husband had to take a tranquilizer to calm his
nerves.
It later emerged that Pantaleons purchase was first transmitted for approval to respondents
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33
a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was transmitted to
respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had already left Coster,
and 78 minutes from the time the purchases were electronically transmitted by the jewelry store to
respondents Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use his
AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth $87.00
at a store in Boston, and it took 20 minutes before this transaction was approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and his
family thereby suffered" for respondents refusal to provide credit authorization for the aforementioned
purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating among others that
the delay in authorizing the purchase from Coster was attributable to the circumstance that the
charged purchase of US $13,826.00 "was out of the usual charge purchase pattern established."10
Since respondent refused to accede to Pantaleons demand for an apology, the aggrieved cardholder
instituted an action for damages with the Regional Trial Court (RTC) of Makati City, Branch 145. 11
Pantaleon prayed that he be awarded P2,000,000.00, as moral damages; P500,000.00, as exemplary
damages; P100,000.00, as attorneys fees; and P50,000.00 as litigation expenses.12

On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding him
P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as attorneys
fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon
moved for partial reconsideration, praying that the trial court award the increased amount of moral and
exemplary damages he had prayed for.14 The RTC denied Pantaleons motion for partial
reconsideration, and thereafter gave due course to respondents Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence, this
petition.
The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even assuming
that respondent had not been in breach of its obligations, it still remained liable for damages under
Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of
seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the
part of respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had
established for himself, as exemplified by the fact that at Coster, he was "making his very first single
charge purchase of US$13,826," and "the record of [petitioner]s past spending with [respondent] at
the time does not favorably support his ability to pay for such purchase."17
On the premise that there was an obligation on the part of respondent "to approve or disapprove with
dispatch the charge purchase," petitioner argues that the failure to timely approve or disapprove the
purchase constituted mora solvendi on the part of respondent in the performance of its obligation. For
its part, respondent characterizes the depiction by petitioner of its obligation to him as "to approve
purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are that
the obligation is demandable and liquidated; the debtor delays performance; and the creditor judicially
or extrajudicially requires the debtors performance. 18 Petitioner asserts that the Court of Appeals had
wrongly applied the principle of mora accipiendi, which relates to delay on the part of the obligee in
accepting the performance of the obligation by the obligor. The requisites of mora accipiendi are: an
offer of performance by the debtor who has the required capacity; the offer must be to comply with the
prestation as it should be performed; and the creditor refuses the performance without just cause. 19
The error of the appellate court, argues petitioner, is in relying on the invocation by respondent of "just
cause" for the delay, since while just cause is determinative of mora accipiendi, it is not so with the
case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor,20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is obliged to
repay the creditor. This relationship already takes exception to the general rule that as between a bank
and its depositors, the bank is deemed as the debtor while the depositor is considered as the
creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and again see the credit
card company as the debtor/obligor, insofar as it has the obligation to the customer as creditor/obligee
to act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent as
the creditor in the context of this cause of action. If there was delay on the part of respondent in its

normal role as creditor to the cardholder, such delay would not have been in the acceptance of the
performance of the debtors obligation (i.e., the repayment of the debt), but it would be delay in the
extension of the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit, has already
been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry) had
not yet been perfected, as it remained pending the approval or consent of the respondent credit card
company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first recognize
that there was indeed an obligation on the part of respondent to act on petitioners purchases with
"timely dispatch," or for the purposes of this case, within a period significantly less than the one hour it
apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customers purchase request, whether such action
be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a matter
of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for charges would be 3 to 4
seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by the
time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the Credit
Authorization System (CAS) record of defendant at Phoenix Amex shows that defendants Amsterdam
office received the request to approve plaintiffs charge purchase at 9:20 a.m., Amsterdam time or
01:20, Phoenix time, and that the defendant relayed its approval to Coster at 10:38 a.m., Amsterdam
time, or 2:38, Phoenix time, or a total time lapse of one hour and [18] minutes. And even then, the
approval was conditional as it directed in computerese [sic] "Positive Identification of Card holder
necessary further charges require bank information due to high exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive queries of
Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how long
will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix.
Manila Amexco could be unaware of the need for speed in resolving the charge purchase referred to
it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for authorization, defendants own record
shows:
01:22 the authorization is referred to Manila Amexco

01:32 Netherlands gives information that the identification of the cardmember has been presented
and he is buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to act on
his use of the card abroad "with special handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit card
company to approve or disapprove a customers purchase, much less one specifically contracted upon
by the parties. Yet this is one of those instances when "youd know it when youd see it," and one hour
appears to be an awfully long, patently unreasonable length of time to approve or disapprove a credit
card purchase. It is long enough time for the customer to walk to a bank a kilometer away, withdraw
money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase "in
timely dispatch," and not "to approve the purchase instantaneously or within seconds." Certainly, had
respondent disapproved petitioners purchase "within seconds" or within a timely manner, this
particular action would have never seen the light of day. Petitioner and his family would have returned
to the bus without delay internally humiliated perhaps over the rejection of his card yet spared the
shame of being held accountable by newly-made friends for making them miss the chance to tour the
city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and that
the cardholder is within his means to make such transaction. The culpable failure of respondent herein
is not the failure to timely approve petitioners purchase, but the more elemental failure to timely act on
the same, whether favorably or unfavorably. Even assuming that respondents credit authorizers did
not have sufficient basis on hand to make a judgment, we see no reason why respondent could not
have promptly informed petitioner the reason for the delay, and duly advised him that resolving the
same could take some time. In that way, petitioner would have had informed basis on whether or not
to pursue the transaction at Coster, given the attending circumstances. Instead, petitioner was left
uncomfortably dangling in the chilly autumn winds in a foreign land and soon forced to confront the
wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in bad
faith, and the court should find that under the circumstances, such damages are due. The findings of
the trial court are ample in establishing the bad faith and unjustified neglect of respondent, attributable
in particular to the "dilly-dallying" of respondents Manila credit authorizer, Edgardo Jaurique. 23 Wrote
the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the object
of credit or charge cards would be lost; it would be so inconvenient to use that buyers and consumers
would be better off carrying bundles of currency or travellers checks, which can be delivered and
accepted quickly. Such right was not accorded to plaintiff in the instances complained off for reasons
known only to defendant at that time. This, to the Courts mind, amounts to a wanton and deliberate
refusal to comply with its contractual obligations, or at least abuse of its rights, under the contract.24
xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since it
alleges to have consumed more than one hour to simply go over plaintiffs past credit history with
defendant, his payment record and his credit and bank references, when all such data are already
stored and readily available from its computer. This Court also takes note of the fact that there is
nothing in plaintiffs billing history that would warrant the imprudent suspension of action by defendant
in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account.25
It should be emphasized that the reason why petitioner is entitled to damages is not simply because
respondent incurred delay, but because the delay, for which culpability lies under Article 1170, led to
the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster that
there was a deadline for the completion of that purchase by petitioner before any delay would redound
to the injury of his several traveling companions gave rise to the moral shock, mental anguish,
serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as concluded by
the RTC.27 Those circumstances are fairly unusual, and should not give rise to a general entitlement
for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-fast
rule in determining what would be a fair and reasonable amount of moral damages, since each case
must be governed by its own peculiar facts, however, it must be commensurate to the loss or injury
suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages is excessive under the
circumstances, and the amount awarded by the trial court of P500,000.00 in moral damages more
seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount of
P300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is
REVERSED and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil
Case No. 92-1665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.
G.R. No. 199650

June 26, 2013

J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,

vs.
UTILITY ASSURANCE CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil

Procedure, as amended, assailing the Decision1 dated January 27,2011 and Resolution 2 dated
December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.
The Facts
On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its Chairman,
Joo Han Lee, and Martin E. Mabunay, doing business under the name and style of Seven Shades of
Blue Trading and Services, entered into a Construction Agreement3 whereby the latter undertook to
build the former's 72-room condominium/hotel (Condotel Building 25) located at the Fairways &
Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The project, costing P42,000,000.00, was
to be completed within one year or 365 days reckoned from the first calendar day after signing of the
Notice of Award and Notice to Proceed and receipt of down payment (20% of contract price). The
P8,400,000.00 down payment was fully paid on January 14, 2008.4 Payment of the balance of the
contract price will be based on actual work finished within 15 days from receipt of the monthly
progress billings. Per the agreed work schedule, the completion date of the project was December
2008.5 Mabuhay also submitted the required Performance Bond6 issued by respondent Utility
Assurance Corporation (UTASSCO) in the amount equivalent to 20% down payment or P8.4 million.
Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th
monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner had paid the total
amount of P15,979,472.03 inclusive of the 20% down payment. However, as of said date, Mabunay
had accomplished only 27.5% of the project.7
In the Joint Construction Evaluation Result and Status Report 8 signed by Mabunay assisted by Arch.
Elwin Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were accepted as
true, accurate and correct:
III STATUS OF PROJECT AS OF 14 NOVEMBER 2008
1) After conducting a joint inspection and evaluation of the project to determine the actual percentage
of accomplishment, the contracting parties, assisted by their respective technical groups, SSB
assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs. Joey Rojas and Shiela Botardo,
concluded and agreed that as of 14 November 2008, the project is only Thirty One point Thirty Nine
Percent (31.39%) complete.
2) Furthermore, the value of construction materials allocated for the completion of the project and
currently on site has been determined and agreed to be ONE MILLION FORTY NINE THOUSAND
THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS (P1,049,364.45)
3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and 9th
billings, is Three point Eighty Five Percent (3.85%) with a gross value of P1,563,553.34 amount
creditable to SSB after deducting the withholding tax is P1,538,424.84
4) The unrecouped amount of the down payment is P2,379,441.53 after deducting the cost of
materials on site and the net billable amount reflected in the reconciled and consolidated 8th and 9th
billings. The uncompleted portion of the project is 68.61% with an estimated value per construction
agreement signed is P27,880,419.52.9 (Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay and
respondent surety. As its demands went unheeded, petitioner filed a Request for Arbitration 10 before
the Construction Industry Arbitration Commission (CIAC). Petitioner prayed that Mabunay and
respondent be ordered to pay the sums of P8,980,575.89 as liquidated damages and P2,379,441.53
corresponding to the unrecouped down payment or overpayment petitioner made to Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision works
ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009 to finish the project
since the 365 days period of completion started only on May 2, 2008 after clearing the retrofitted old
structure. Hence, the termination of the contract by petitioner was premature and the filing of the

complaint against him was baseless, malicious and in bad faith.

Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no cause of
action and the complaint states no cause of action against it. The CIAC denied the motion to dismiss.
Respondents motion for reconsideration was likewise denied.13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Cross-claims, 14
respondent argued that the performance bond merely guaranteed the 20% down payment and not the
entire obligation of Mabunay under the Construction Agreement. Since the value of the projects
accomplishment already exceeded the said amount, respondents obligation under the performance
bond had been fully extinguished. As to the claim for alleged overpayment to Mabunay, respondent
contended that it should not be credited against the 20% down payment which was already exhausted
and such application by petitioner is tantamount to reviving an obligation that had been legally
extinguished by payment. Respondent also set up a cross-claim against Mabunay who executed in its
favor an Indemnity Agreement whereby Mabunay undertook to indemnify respondent for whatever
amounts it may be adjudged liable to pay petitioner under the surety bond.
Both petitioner and respondent submitted their respective documentary and testimonial evidence.
Mabunay failed to appear in the scheduled hearings and to present his evidence despite due notice to
his counsel of record. The CIAC thus declared that Mabunay is deemed to have waived his right to
present evidence.15
On February 2, 2010, the CIAC rendered its Decision16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges,
orders and directs:
1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:
a) P4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per annum
computed from the date of this decision up to the time this decision becomes final, and 12% per
annum computed from the date this decision becomes final until fully paid, and
b) P2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per annum
computed from the date of this decision up to the time this decision becomes final, and 12% per
annum computed from the date this decision becomes final until fully paid.
It being understood that respondent Utasscos liability shall in no case exceed P8.4 million.
2. Respondent Mabunay to pay to claimant the amount of P98,435.89, which is respondent Mabunays
share in the arbitration cost claimant had advanced, with legal interest thereon from January 8, 2010
until fully paid.
3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will
have paid to claimant under this decision, plus interest thereon at the rate of 12% per annum
computed from the date he is notified of such payment made by respondent Utassco to claimant until
fully paid, and to pay Utassco P100,000.00 as attorneys fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of Civil
Procedure, as amended.
In the assailed decision, the CA agreed with the CIAC that the specific condition in the Performance
Bond did not clearly state the limitation of the suretys liability. Pursuant to Article 1377 18 of the Civil
Code, the CA said that the provision should be construed in favor of petitioner considering that the
obscurely phrased provision was drawn up by respondent and Mabunay. Further, the appellate court
stated that respondent could not possibly guarantee the down payment because it is not Mabunay
who owed the down payment to petitioner but the other way around. Consequently, the completion by

Mabunay of 31.39% of the construction would not lead to the extinguishment of respondents liability.
The P8.4 million was a limit on the amount of respondents liability and not a limitation as to the
obligation or undertaking it guaranteed.
However, the CA reversed the CIACs ruling that Mabunay had incurred delay which entitled petitioner
to the stipulated liquidated damages and unrecouped down payment. Citing Aerospace Chemical
Industries, Inc. v. Court of Appeals,19 the appellate court said that not all requisites in order to consider
the obligor or debtor in default were present in this case. It held that it is only from December 24, 2008
(completion date) that we should reckon default because the Construction Agreement provided only
for delay in the completion of the project and not delay on a monthly basis using the work schedule
approved by petitioner as the reference point. Hence, petitioners termination of the contract was
premature since the delay in this case was merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed
Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is
hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24 November 2010
issued by the same tribunal is hereby ANNULLED and SET ASIDE.
SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for partial
reconsideration. Both motions were denied.
The Issues
Before this Court petitioner seeks to reverse the CA insofar as it denied petitioners claims under the
Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC Decision. Specifically,
petitioner alleged that
A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE ALTERNATIVE
DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON ALTERNATIVE DISPUTE
RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF JURISDICTION TO REVIEW
ARBITRAL AWARDS.
B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD ON AN
ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS OF
REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN ANY OF THE PLEADINGS
FILED BEFORE THE COURT.
C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF AEROSPACE
CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94, WHICH HAS NOTHING TO
DO WITH CONSTRUCTION AGREEMENTS.21
Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No. 9285, 22 otherwise
known as the Alternative Dispute Resolution Act of 2004, the CA was divested of jurisdiction to review
the decisions or awards of the CIAC. Petitioner erroneously relied on the provision in said law allowing
any party to a domestic arbitration to file in the Regional Trial Court (RTC) a petition either to confirm,
correct or vacate a domestic arbitral award.
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards or
decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof expressly declares
that confirmation by the RTC is not required, thus:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be governed by

Section 23 of R.A. 876.

A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance with the
Rules of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as provided
under E.O. No. 1008. (Emphasis supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the
Philippines, whether the dispute arises before or after the completion of the contract, or after the
abandonment or breach thereof. By express provision of Section 19 thereof, the arbitral award of the
CIAC is final and unappealable, except on questions of law, which are appealable to the Supreme
Court. With the amendments introduced by R.A. No. 7902 and promulgation of the 1997 Rules of Civil
Procedure, as amended, the CIAC was included in the enumeration of quasijudicial agencies whose
decisions or awards may be appealed to the CA in a petition for review under Rule 43. Such review of
the CIAC award may involve either questions of fact, of law, or of fact and law.23
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated by this
Court and which took effect on October 30, 2009. Since R.A. No. 9285 explicitly excluded CIAC
awards from domestic arbitration awards that need to be confirmed to be executory, said awards are
therefore not covered by Rule 11 of the Special ADR Rules, 24 as they continue to be governed by EO
No. 1008, as amended and the rules of procedure of the CIAC. The CIAC Revised Rules of Procedure
Governing Construction Arbitration25 provide for the manner and mode of appeal from CIAC decisions
or awards in Section 18 thereof, which reads:
SECTION 18.2 Petition for review. A petition for review from a final award may be taken by any of
the parties within fifteen (15) days from receipt thereof in accordance with the provisions of Rule 43 of
the Rules of Court.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or litigated
before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred delay in the
performance of his obligations under the Construction Agreement was the very first issue stipulated in
the Terms of Reference26 (TOR), which is distinct from the issue of the extent of respondents liability
under the Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to the
liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs findings, the CA
opined that delay should be reckoned only after the lapse of the one-year contract period, and
consequently Mabunays liability for liquidated damages arises only upon the happening of such
condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a
cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.27
Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
xxxx
It is a general rule that one who contracts to complete certain work within a certain time is liable for the
damage for not completing it within such time, unless the delay is excused or waived. 28

The Construction Agreement provides in Article 10 thereof the following conditions as to completion
time for the project
1. The CONTRACTOR shall complete the works called for under this Agreement within ONE (1) YEAR
or 365 Days reckoned from the 1st calendar day after signing of the Notice of Award and Notice to
Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by OWNER
within Seven (7) days after signing of this Agreement and full payment of 20% of the agreed contract
price. Said detailed work schedule shall follow the general schedule of activities and shall serve as
basis for the evaluation of the progress of work by CONTRACTOR.29
In this jurisdiction, the following requisites must be present in order that the debtor may be in default:
(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 extrajudicially.30
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to perform
or complete the project was not yet demandable as of November 19, 2008 when petitioner terminated
the contract, because the agreed completion date was still more than one month away (December 24,
2008). Since the parties contemplated delay in the completion of the entire project, the CA concluded
that the failure of the contractor to catch up with schedule of work activities did not constitute delay
giving rise to the contractors liability for damages.
We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of the
Construction Agreement. Article 1374 of the Civil Code requires that the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense which may result from
all of them taken jointly. Here, the work schedule approved by petitioner was intended, not only to
serve as its basis for the payment of monthly progress billings, but also for evaluation of the progress
of work by the contractor. Article 13.01 (g) (iii) of the Construction Agreement provides that the
contractor shall be deemed in default if, among others, it had delayed without justifiable cause the
completion of the project "by more than thirty (30) calendar days based on official work schedule duly
approved by the OWNER."31
Records showed that as early as April 2008, or within four months after Mabunay commenced work
activities, the project was already behind schedule for reasons not attributable to petitioner. In the
succeeding months, Mabunay was still unable to catch up with his accomplishment even as petitioner
constantly advised him of the delays, as can be gleaned from the following notices of delay sent by
petitioners engineer and construction manager, Engr. Sheila N. Botardo:
April 30, 2008
Seven Shades of Blue
Boracay Island
Malay, Aklan
1wphi1
Attention

: Mr. Martin Mabunay

General Manager

Thru

: Engr. Reynaldo Gapasin

Project

: Villa Beatriz

Subject

: Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008
regarding the delay in the implementation of major activities based on your submitted construction
schedule. Substantial delay was noted in concreting works that affects your roof framing that should
have been 40% completed as of this date. This delay will create major impact on your over-all
schedule as the finishing works will all be dependent on the enclosure of the building.
In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery of
critical materials on site. We would highly appreciate if you could attend our next regular meeting so
we could immediately address this matter. Thank you.
Very truly yours,
Engr. Sheila N. Botardo
Construction Manager LMI/FEPI32
October 15, 2008
xxxx
Dear Mr. Mabunay,
We have noticed continuous absence of all the Engineers that you have assigned on-site to administer
and supervise your contracted work. For the past two (2) weeks, your company does not have a
Technical Representative manning the jobsite considering the critical activities that are in progress and
the delays in schedule that you have already incurred. In this regard, we would highly recommend the
immediate replacement of your Project Engineer within the week.
We would highly appreciate your usual attention on this matter.
x x x x33
November 5, 2008
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30, 2008
regarding the construction of the Field Office and Stock Room for Materials intended for Villa Beatriz
use only. We understand that you have committed to complete it November 5, 2008 but as of this date
there is no improvement or any ongoing construction activity on the said field office and stockroom.
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom is badly
needed. We will highly appreciate if this matter will be given your immediate attention.
Thank you.
x x x x34
November 6, 2008
xxxx
Dear Mr. Mabunay,
We would like to call your attention regarding the decrease in your manpower assigned on site. We
have observed that for the past three (3) weeks instead of increasing your manpower to catch up with
the delay it was reduced to only 8 workers today from an average of 35 workers in the previous
months.
Please note that based on your submitted revised schedule you are already delayed by approximately
57% and this will worsen should you not address this matter properly.

We are looking forward for [sic] your cooperation and continuous commitment in delivering this project
as per contract agreement.
x x x x35
Subsequently, a joint inspection and evaluation was conducted with the assistance of the architects
and engineers of petitioner and Mabunay and it was found that as of November 14, 2008, the project
was only 31.39% complete and that the uncompleted portion was 68.61% with an estimated value per
Construction Agreement as P27,880,419.52. Instead of doubling his efforts as the scheduled
completion date approached, Mabunay did nothing to remedy the delays and even reduced the
deployment of workers at the project site. Neither did Mabunay, at anytime, ask for an extension to
complete the project. Thus, on November 19, 2008, petitioner advised Mabunay of its decision to
terminate the contract on account of the tremendous delay the latter incurred. This was followed by
the claim against the Performance Bond upon the respondent on December 18, 2008.
Petitioners claim against the Performance Bond included the liquidated damages provided in the
Construction Agreement, as follows:
ARTICLE 12 LIQUIDATED DAMAGES:
12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the
PROJECT within the period stipulated herein or within the period of extension granted by the OWNER,
plus One (1) Week grace period, without any justifiable reason, the CONTRACTOR hereby agrees
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of One
Percent (1/10 of 1%) of the Contract Amount for each day of delay after any and all extensions and the
One (1) week Grace Period until completed by the CONTRACTOR.
b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works and/or
delays shall not relieve it of the obligation to complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from the amounts
retained under Article 9 or retained by the OWNER when the works called for under this Agreement
have been finished and completed.
Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the contractors
collectibles without prior consent and concurrence by the CONTRACTOR.
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without necessity of
any further act and deed, authorizes the OWNER to deduct any amount that may be due under Item
(a) above, from any and all money or amounts due or which will become due to the CONTRACTOR by
virtue of this Agreement and/or to collect such amounts from the Performance Bond filed by the
CONTRACTOR in this Agreement.36 (Emphasis supplied.)
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which provide:
ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case
of breach thereof.
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
ART. 2228. When the breach of the contract committed by the defendant is not the one contemplated
by the parties in agreeing upon the liquidated damages, the law shall determine the measure of
damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure performance and
has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force
of the obligation by the threat of greater responsibility in the event of breach. 37 The amount agreed
upon answers for damages suffered by the owner due to delays in the completion of the project. 38 As a

precondition to such award, however, there must be proof of the fact of delay in the performance of the
obligation.39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the contractor
to complete the project within the stipulated period or the extension granted by the owner. However,
this will not defeat petitioners claim for damages nor respondents liability under the Performance
Bond. Mabunay was clearly in default considering the dismal percentage of his accomplishment
(32.38%) of the work he contracted on account of delays in executing the scheduled work activities
and repeated failure to provide sufficient manpower to expedite construction works. The events of
default and remedies of the Owner are set forth in Article 13, which reads:
ARTICLE 13 DEFAULT OF CONTRACTOR:
13.01 Any of the following shall constitute an Event of Default on the part of the CONTRACTOR.
xxxx
g. In case the CONTRACTOR has done any of the following:
(i.) has abandoned the Project
(ii.) without reasonable cause, has failed to commence the construction or has suspended the
progress of the Project for twenty-eight days
(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30)
calendar days based on official work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the construction works in
accordance with the Agreement or is persistently or flagrantly neglecting to carry out its obligations
under the Agreement.
(v.) has, to the detriment of good workmanship or in defiance of the Owners instructions to the
contrary, sublet any part of the Agreement.
13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the OWNER
may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR, enter upon the
site and expel the CONTRACTOR therefrom without voiding this Agreement, or releasing the
CONTRACTOR from any of its obligations, and liabilities under this Agreement. Also without
diminishing or affecting the rights and powers conferred on the OWNER by this Agreement and the
OWNER may himself complete the work or may employ any other contractor to complete the work. If
the OWNER shall enter and expel the CONTRACTOR under this clause, the OWNER shall be entitled
to confiscate the performance bond of the CONTRACTOR to compensate for all kinds of damages the
OWNER may suffer. All expenses incurred to finish the Project shall be charged to the CONTRACTOR
and/or his bond. Further, the OWNER shall not be liable to pay the CONTRACTOR until the cost of
execution, damages for the delay in the completion, if any, and all; other expenses incurred by the
OWNER have been ascertained which amount shall be deducted from any money due to the
CONTRACTOR on account of this Agreement. The CONTRACTOR will not be compensated for any
loss of profit, loss of goodwill, loss of use of any equipment or property, loss of business opportunity,
additional financing cost or overhead or opportunity losses related to the unaccomplished portions of
the work.40 (Emphasis supplied.)
As already demonstrated, the contractors default in this case pertains to his failure to substantially
perform the work on account of tremendous delays in executing the scheduled work activities. Where
a party to a building construction contract fails to comply with the duty imposed by the terms of the
contract, a breach results for which an action may be maintained to recover the damages sustained
thereby, and of course, a breach occurs where the contractor inexcusably fails to perform substantially
in accordance with the terms of the contract.41
The plain and unambiguous terms of the Construction Agreement authorize petitioner to confiscate the

Performance Bond to answer for all kinds of damages it may suffer as a result of the contractors
failure to complete the building. Having elected to terminate the contract and expel the contractor from
the project site under Article 13 of the said Agreement, petitioner is clearly entitled to the proceeds of
the bond as indemnification for damages it sustained due to the breach committed by Mabunay. Such
stipulation allowing the confiscation of the contractors performance bond partakes of the nature of a
penalty clause. A penalty clause, expressly recognized by law, is an accessory undertaking to assume
greater liability on the part of the obligor in case of breach of an obligation. It functions to strengthen
the coercive force of obligation and to provide, in effect, for what could be the liquidated damages
resulting from such a breach. The obligor would then be bound to pay the stipulated indemnity without
the necessity of proof on the existence and on the measure of damages caused by the breach. It is
well-settled that so long as such stipulation does not contravene law, morals, or public order, it is
strictly binding upon the obligor.42
Respondent, however, insists that it is not liable for the breach committed by Mabunay because by the
terms of the surety bond it issued, its liability is limited to the performance by said contractor to the
extent equivalent to 20% of the down payment. It stresses that with the 32.38% completion of the
project by Mabunay, its liability was extinguished because the value of such accomplishment already
exceeded the sum equivalent to 20% down payment (P8.4 million).
The appellate court correctly rejected this theory of respondent when it ruled that the Performance
Bond guaranteed the full and faithful compliance of Mabunays obligations under the Construction
Agreement, and that nowhere in law or jurisprudence does it state that the obligation or undertaking by
a surety may be apportioned.
The pertinent portions of the Performance Bond provide:
The conditions of this obligation are as follows:
Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE CONSTRUCTION AND
DEVELOPMENT, INC. to post a bond of the abovestated sum to guarantee 20% down payment for
the construction of Building 25 (Villa Beatriz) 72-Room Condotel, The Lodgings inside Fairways and
Bluewater, Boracay Island, Malay, Aklan.
Whereas, said contract required said Principal to give a good and sufficient bond in the above-stated
sum to secure the full and faithful performance on his part of said contract.
It is a special provision of this undertaking that the liability of the surety under this bond shall in no
case exceed the sum of P8,400,000.00 Philippine Currency.
Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings, covenants,
terms, conditions and agreements stipulated in said contract, then this obligation shall be null and
void; otherwise to remain in full force and effect.43 (Emphasis supplied.)
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays obligations under
the Construction Agreement with petitioner. By its nature, a performance bond guarantees that the
contractor will perform the contract, and usually provides that if the contractor defaults and fails to
complete the contract, the surety can itself complete the contract or pay damages up to the limit of the
bond.44 Moreover, the rule is that if the language of the bond is ambiguous or uncertain, it will be
construed most strongly against a compensated surety and in favor of the obligees or beneficiaries
under the bond, in this case petitioner as the Project Owner, for whose benefit it was ostensibly
executed.45
The imposition of interest on the claims of petitioner is likewise in order. As we held in Commonwealth
Insurance Corporation v. Court of Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds
was made on the condition that its liability shall in no case exceed the amount of the said bonds.

We are not persuaded. Petitioners argument is misplaced.

Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and
reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc., and more
recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., we have
sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest,
even if in thus paying, its liability becomes more than the principal obligation. The increased liability is
not because of the contract but because of the default and the necessity of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under the law.1wphi1
There is no question that as a surety, petitioner should not be made to pay more than its assumed
obligation under the surety bonds. However, it is clear from the above-cited jurisprudence that
petitioners liability for the payment of interest is not by reason of the suretyship agreement itself but
because of the delay in the payment of its obligation under the said agreement. 47 (Emphasis supplied;
citations omitted.)
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January 27,
2011 and Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No. 112808 are
hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry Arbitration
Commission Is hereby REINSTATED with the following MODIFICATIONS:
"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby adjudges,
orders and directs:
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full amount of
the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction Agreement dated
December 24, 2007, with interest at the rate of 6% per annum computed from the date of the filing of
the complaint until the finality of this decision, and 12% per annum computed from the date this
decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco will
have paid to claimant under this decision, plus interest thereon at the rate of 12% per annum
computed from the date he is notified of such payment made by respondent Utassco to claimant until
fully paid, and to pay Utassco P100,000.00 as attorney's fees.
SO ORDERED.
With the above modifications, the Writ of Execution dated November 24, 2010 issued by the CIAC
Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 160758

January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is premature,

and should be undone for being void and ineffectual. The mortgagee who has been meanwhile given
possession of the mortgaged property by virtue of a writ of possession issued to it as the purchaser at
the foreclosure sale may be required to restore the possession of the property to the mortgagor and to
pay reasonable rent for the use of the property during the intervening period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the adverse decision
promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491, 1 whereby the Court of Appeals (CA)
upheld the judgment rendered on January 6, 1998 2 by the Regional Trial Court, Branch 25, in Iloilo
City (RTC) annulling the extra-judicial foreclosure of the real estate and chattel mortgages at the
instance of DBP because the debtor-mortgagor, Guaria Agricultural and Realty Development
Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the development of its resort
complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was approved on
August 5, 1976.3 Guaria Corporation executed a promissory note that would be due on November 3,
1988.4 On October 5, 1976, Guaria Corporation executed a real estate mortgage over several real
properties in favor of DBP as security for the repayment of the loan. On May 17, 1977, Guaria
Corporation executed a chattel mortgage over the personal properties existing at the resort complex
and those yet to be acquired out of the proceeds of the loan, also to secure the performance of the
obligation.5 Prior to the release of the loan, DBP required Guaria Corporation to put up a cash equity
of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the proceeds to defray
the cost of additional improvements in the resort complex. In all, the amount released totalled
P3,003,617.49, from which DBP withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP
directly paid some suppliers of Guaria Corporation over the latter's objection. DBP found upon
inspection of the resort project, its developments and improvements that Guaria Corporation had not
completed the construction works.7 In a letter dated February 27, 1978, 8 and a telegram dated June 9,
1978,9 DBP thus demanded that Guaria Corporation expedite the completion of the project, and
warned that it would initiate foreclosure proceedings should Guaria Corporation not do so.10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guaria Corporation. The notice was
eventually published, leading the clients and patrons of Guaria Corporation to think that its business
operation had slowed down, and that its resort had already closed.11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific performance of
the latter's obligations under the loan agreement, and to stop the foreclosure of the mortgages (Civil
Case No. 12707).12 However, DBP moved for the dismissal of the complaint, stating that the
mortgaged properties had already been sold to satisfy the obligation of Guaria Corporation at a
public auction held on January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due
to this, Guaria Corporation amended the complaint on February 6, 1979 14 to seek the nullification of
the foreclosure proceedings and the cancellation of the certificate of sale. DBP filed its answer on
December 17, 1979,15 and trial followed upon the termination of the pre-trial without any agreement
being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At first, the RTC
denied the application but later granted it upon DBP's motion for reconsideration. Aggrieved, Guaria
Corporation assailed the granting of the application before the CA on certiorari (C.A.-G.R. No. 12670SP entitled Guaria Agricultural and Realty Development Corporation v. Development Bank of the
Philippines). After the CA dismissed the petition for certiorari, DBP sought the implementation of the

order for the issuance of the writ of possession. Over Guaria Corporation's opposition, the RTC
issued the writ of possession on June 16, 1982.17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial sales of the
mortgaged properties of the plaintiff by the Office of the Provincial Sheriff of Iloilo on January 15, 1979
are null and void, so with the consequent issuance of certificates of sale to the defendant of said
properties, the registration thereof with the Registry of Deeds and the issuance of the transfer
certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the actual possession
and enjoyment of all the properties foreclosed and possessed by it. To pay the plaintiff the reasonable
rental for the use of its beach resort during the period starting from the time it (defendant) took over its
occupation and use up to the time possession is actually restored to the plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it takes
possession and management of the beach resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP TO
JUSTIFY FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE WAS
FORECLOSED BY EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE
CONTRACT AND SECTION 2 OF P.D. 385 IN ADDITION TO THE QUESTIONED PAR. NO. 26
PRINTED AT THE BACK OF THE FIRST PAGE OF THE MORTGAGE CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES TO
DBP AS INVALID UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV
THE TRIAL COURT GRAVELY ERRED AND COMMITTED [REVERSIBLE] ERROR IN ORDERING
DBP TO RETURN TO PLAINTIFF THE ACTUAL POSSESSION AND ENJOYMENT OF ALL THE
FORECLOSED PROPERTIES AND TO PAY PLAINTIFF REASONABLE RENTAL FOR THE USE OF
THE FORECLOSED BEACH RESORT.
V
THE TRIAL COURT ERRED IN AWARDING ATTORNEY'S FEES AGAINST DBP WHICH MERELY
EXERCISED ITS RIGHTS UNDER THE MORTGAGE CONTRACT.19
In its decision promulgated on March 26, 2003,20 however, the CA sustained the RTC's judgment but
deleted the award of attorney's fees, decreeing:

WHEREFORE, in view of the foregoing, the Decision dated January 6, 1998, rendered by the
Regional Trial Court of Iloilo City, Branch 25 in Civil Case No. 12707 for Specific Performance with
Preliminary Injunction is hereby AFFIRMED with MODIFICATION, in that the award for attorney's fees
is deleted.
SO ORDERED.21
DBP timely filed a motion for reconsideration, but the CA denied its motion on October 9, 2003.
Hence, this appeal by DBP.
Issues
DBP submits the following issues for consideration, namely:
WHETHER OR NOT THE DECISION OF THE COURT OF APPEALS DATED MARCH 26, 2003 AND
ITS RESOLUTION DATED OCTOBER 9, DENYING PETITIONER'S MOTION FOR
RECONSIDERATION WERE ISSUED IN ACCORDANCE WITH LAW, PREVAILING
JURISPRUDENTIAL DECISION AND SUPPORTED BY EVIDENCE;
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ADHERED TO THE USUAL
COURSE OF JUDICIAL PROCEEDINGS IN DECIDING C.A.-G.R. CV NO. 59491 AND THEREFORE
IN ACCORDANCE WITH THE "LAW OF THE CASE DOCTRINE."22
Ruling
The appeal lacks merit.
1.
Findings of the CA were supported by the
evidence as well as by law and jurisprudence
DBP submits that the loan had been granted under its supervised credit financing scheme for the
development of a beach resort, and the releases of the proceeds would be subject to conditions that
included the verification of the progress of works in the project to forestall diversion of the loan
proceeds; and that under Stipulation No. 26 of the mortgage contract, further loan releases would be
terminated and the account would be considered due and demandable in the event of a deviation from
the purpose of the loan,23 including the failure to put up the required equity and the diversion of the
loan proceeds to other purposes.24 It assails the declaration by the CA that Guaria Corporation had
not yet been in default in its obligations despite violations of the terms of the mortgage contract
securing the promissory note.
Guaria Corporation counters that it did not violate the terms of the promissory note and the mortgage
contracts because DBP had fully collected the interest notwithstanding that the principal obligation did
not yet fall due and become demandable.25
The submissions of DBP lack merit and substance.
The agreement between DBP and Guaria Corporation was a loan. Under the law, a loan requires the
delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid. 26 Loan is a reciprocal
obligation, as it arises from the same cause where one party is the creditor, and the other the debtor.27
The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and
the performance should ideally be simultaneous. This means that in a loan, the creditor should release
the full loan amount and the debtor repays it when it becomes due and demandable.28
In its assailed decision, the CA found and held thusly:
xxxx

x x x It is undisputed that appellee obtained a loan from appellant, and as security, executed real
estate and chattel mortgages. However, it was never established that appellee was already in default.
Appellant, in a telegram to the appellee reminded the latter to make good on its construction works,
otherwise, it would foreclose the mortgage it executed. It did not mention that appellee was already in
default. The records show that appellant did not make any demand for payment of the promissory
note. It appears that the basis of the foreclosure was not a default on the loan but appellee's failure to
complete the project in accordance with appellant's standards. In fact, appellant refused to release the
remaining balance of the approved loan after it found that the improvements introduced by appellee
were below appellant's expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case bound
itself to grant appellee the loan amount of P3,387,000.00 condition on appellee's payment of the
amount when it falls due. Furthermore, the loan was evidenced by the promissory note which was
secured by real estate mortgage over several properties and additional chattel mortgage. Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the other
(Areola vs. Court of Appeals, 236 SCRA 643). They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous fulfilment of the other (Jaime Ong vs. Court
of Appeals, 310 SCRA 1). The promise of appellee to pay the loan upon due date as well as to
execute sufficient security for said loan by way of mortgage gave rise to a reciprocal obligation on the
part of appellant to release the entire approved loan amount. Thus, appellees are entitled to receive
the total loan amount as agreed upon and not an incomplete amount.
The appellant did not release the total amount of the approved loan. Appellant therefore could not
have made a demand for payment of the loan since it had yet to fulfil its own obligation. Moreover, the
fact that appellee was not yet in default rendered the foreclosure proceedings premature and
improper.
The properties which stood as security for the loan were foreclosed without any demand having been
made on the principal obligation. For an obligation to become due, there must generally be a demand.
Default generally begins from the moment the creditor demands the performance of the obligation.
Without such demand, judicial or extrajudicial, the effects of default will not arise (Namarco vs.
Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis Occidental,
88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the approved loan.
As a consequence, the real estate mortgage of appellee becomes unenforceable, as it cannot be
entirely foreclosed to satisfy appellee's total debt to appellant (Central Bank of the Philippines vs.
Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows that appellee is
still entitled to possession of the foreclosed properties. However, appellant took possession of the
same by virtue of a writ of possession issued in its favor during the pendency of the case. Thus, the
trial court correctly ruled when it ordered appellant to return actual possession of the subject
properties to appellee or its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's fees is the
exception rather than the rule and counsel's fees are not to be awarded every time a party wins a suit.
Attorney's fees cannot be recovered as part of damages because of the policy that no premium should
be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38).29
xxxx
We uphold the CA.

To start with, considering that the CA thereby affirmed the factual findings of the RTC, the Court is
bound to uphold such findings, for it is axiomatic that the trial court's factual findings as affirmed by the
CA are binding on appeal due to the Court not being a trier of facts.
Secondly, by its failure to release the proceeds of the loan in their entirety, DBP had no right yet to
exact on Guaria Corporation the latter's compliance with its own obligation under the loan. Indeed, if
a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be
obliged to perform what is expected of it while the other's obligation remains unfulfilled. 30 In other
words, the latter party does not incur delay.31
Still, DBP called upon Guaria Corporation to make good on the construction works pursuant to the
acceleration clause written in the mortgage contract (i.e., Stipulation No. 26), 32 or else it would
foreclose the mortgages.
DBP's actuations were legally unfounded. It is true that loans are often secured by a mortgage
constituted on real or personal property to protect the creditor's interest in case of the default of the
debtor. By its nature, however, a mortgage remains an accessory contract dependent on the principal
obligation,33 such that enforcement of the mortgage contract will depend on whether or not there has
been a violation of the principal obligation. While a creditor and a debtor could regulate the order in
which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender
should perform its obligation - the release of the full loan amount - before it could demand that the
borrower repay the loaned amount. In other words, Guaria Corporation would not incur in delay
before DBP fully performed its reciprocal obligation.34
Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an
effective demand for payment upon Guaria Corporation to perform its obligation under the loan.
According to Development Bank of the Philippines v. Licuanan,35 it would only be when a demand to
pay had been made and was subsequently refused that a borrower could be considered in default,
and the lender could obtain the right to collect the debt or to foreclose the mortgage.1wphi1 Hence,
Guaria Corporation would not be in default without the demand.
Assuming that DBP could already exact from the latter its compliance with the loan agreement, the
letter dated February 27, 1978 that DBP sent would still not be regarded as a demand to render
Guaria Corporation in default under the principal contract because DBP was only thereby requesting
the latter "to put up the deficiency in the value of improvements."36
Under the circumstances, DBP's foreclosure of the mortgage and the sale of the mortgaged properties
at its instance were premature, and, therefore, void and ineffectual.37
Being a banking institution, DBP owed it to Guaria Corporation to exercise the highest degree of
diligence, as well as to observe the high standards of integrity and performance in all its transactions
because its business was imbued with public interest. 38 The high standards were also necessary to
ensure public confidence in the banking system, for, according to Philippine National Bank v. Pike: 39
"The stability of banks largely depends on the confidence of the people in the honesty and efficiency of
banks." Thus, DBP had to act with great care in applying the stipulations of its agreement with Guaria
Corporation, lest it erodes such public confidence. Yet, DBP failed in its duty to exercise the highest
degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the
foreclosure sale of the mortgaged properties despite Guaria Corporation not being yet in default.
DBP wrongly relied on Stipulation No. 26 as its basis to accelerate the obligation of Guaria
Corporation, for the stipulation was relevant to an Omnibus Agricultural Loan, to Guaria Corporation's
loan which was intended for a project other than agricultural in nature.
Even so, Guaria Corporation did not elevate the actionability of DBP's negligence to the CA, and did
not also appeal the CA's deletion of the award of attorney's fees allowed by the RTC.1wphi1 With the
decision of the CA consequently becoming final and immutable as to Guaria Corporation, we will not
delve any further on DBP's actionable actuations.

2.
The doctrine of law of the case
did not apply herein
DBP insists that the decision of the CA in C.A.-G.R. No. 12670-SP already constituted the law of the
case. Hence, the CA could not decide the appeal in C.A.-G.R. CV No. 59491 differently.
Guaria Corporation counters that the ruling in C.A.-G.R. No. 12670-SP did not constitute the law of
the case because C.A.-G.R. No. 12670-SP concerned the issue of possession by DBP as the winning
bidder in the foreclosure sale, and had no bearing whatsoever to the legal issues presented in C.A.G.R. CV No. 59491.
Law of the case has been defined as the opinion delivered on a former appeal, and means, more
specifically, that whatever is once irrevocably established as the controlling legal rule of decision
between the same parties in the same case continues to be the law of the case, whether correct on
general principles or not, so long as the facts on which such decision was predicated continue to be
the facts of the case before the court.40
The concept of law of the case is well explained in Mangold v. Bacon,41 an American case, thusly:
The general rule, nakedly and boldly put, is that legal conclusions announced on a first appeal,
whether on the general law or the law as applied to the concrete facts, not only prescribe the duty and
limit the power of the trial court to strict obedience and conformity thereto, but they become and
remain the law of the case in all other steps below or above on subsequent appeal. The rule is
grounded on convenience, experience, and reason. Without the rule there would be no end to
criticism, reagitation, reexamination, and reformulation. In short, there would be endless litigation. It
would be intolerable if parties litigants were allowed to speculate on changes in the personnel of a
court, or on the chance of our rewriting propositions once gravely ruled on solemn argument and
handed down as the law of a given case. An itch to reopen questions foreclosed on a first appeal
would result in the foolishness of the inquisitive youth who pulled up his corn to see how it grew.
Courts are allowed, if they so choose, to act like ordinary sensible persons. The administration of
justice is a practical affair. The rule is a practical and a good one of frequent and beneficial use.
The doctrine of law of the case simply means, therefore, that when an appellate court has once
declared the law in a case, its declaration continues to be the law of that case even on a subsequent
appeal, notwithstanding that the rule thus laid down may have been reversed in other cases. 42 For
practical considerations, indeed, once the appellate court has issued a pronouncement on a point that
was presented to it with full opportunity to be heard having been accorded to the parties, the
pronouncement should be regarded as the law of the case and should not be reopened on remand of
the case to determine other issues of the case, like damages.43 But the law of the case, as the name
implies, concerns only legal questions or issues thereby adjudicated in the former appeal.
The foregoing understanding of the concept of the law of the case exposes DBP's insistence to be
unwarranted.
To start with, the ex parte proceeding on DBP's application for the issuance of the writ of possession
was entirely independent from the judicial demand for specific performance herein. In fact, C.A.-G.R.
No. 12670-SP, being the interlocutory appeal concerning the issuance of the writ of possession while
the main case was pending, was not at all intertwined with any legal issue properly raised and litigated
in C.A.-G.R. CV No. 59491, which was the appeal to determine whether or not DBP's foreclosure was
valid and effectual. And, secondly, the ruling in C.A.-G.R. No. 12670-SP did not settle any question of
law involved herein because this case for specific performance was not a continuation of C.A.-G.R.
No. 12670-SP (which was limited to the propriety of the issuance of the writ of possession in favor of
DBP), and vice versa.
3.

Guarifia Corporation is legally entitled to the

restoration of the possession of the resort complex
and payment of reasonable rentals by DBP
Having found and pronounced that the extrajudicial foreclosure by DBP was premature, and that the
ensuing foreclosure sale was void and ineffectual, the Court affirms the order for the restoration of
possession to Guarifia Corporation and the payment of reasonable rentals for the use of the resort.
The CA properly held that the premature and invalid foreclosure had unjustly dispossessed Guarifia
Corporation of its properties. Consequently, the restoration of possession and the payment of
reasonable rentals were in accordance with Article 561 of the Civil Code, which expressly states that
one who recovers, according to law, possession unjustly lost shall be deemed for all purposes which
may redound to his benefit to have enjoyed it without interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and ORDERS the
petitioner to pay the costs of suit.
SO ORDERED.
G.R. No. 174433

February 24, 2014

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J.
MANALO, and ARMA J. MANALO, Respondents.
DECISION
BERSAMIN, J.:
Although banks are free to determine the rate of interest they could impose on their borrowers, they
can do so only reasonably, not arbitrarily. They may not take advantage of the ordinary borrowers' lack
of familiarity with banking procedures and jargon. Hence, any stipulation on interest unilaterally
imposed and increased by them shall be struck down as violative of the principle of mutuality of
contracts.
Antecedents
Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for an AllPurpose Credit Facility in the amount of P1,000,000.00 with Philippine National Bank (PNB) to finance
the construction of their house. After PNB granted their application, they executed a Real Estate
Mortgage on November 3, 1993 in favor of PNB over their property covered by Transfer Certificate of
Title No. S- 23191 as security for the loan. 1 The credit facility was renewed and increased several
times over the years. On September 20, 1996, the credit facility was again renewed for
P7,000,000.00. As a consequence, the parties executed a Supplement to and Amendment of Existing
Real Estate Mortgage whereby the property covered by TCT No. 171859 was added as security for
the loan.
The additional security was registered in the names of respondents Arnold, Arnel, Anthony, and Arma,
all surnamed Manalo, who were their children.2
It was agreed upon that the Spouses Manalo would make monthly payments on the interest. However,
PNB claimed that their last recorded payment was made on December, 1997. Thus, PNB sent a
demand letter to them on their overdue account and required them to settle the account. PNB sent
another demand letter because they failed to heed the first demand.3

After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters,
PNB foreclose the mortgage. During the foreclosure sale, PNB was the highest bidder for
P15,127,000.00 of the mortgaged properties of the Spouses Manalo. The sheriff issued to PNB the
Certificate of Sale dated November 13, 2000.4
After more than a year after the Certificate of Sale had been issued to PNB, the Spouses Manalo
instituted this action for the nullification of the foreclosure proceedings and damages. They alleged
that they had obtained a loan for P1,000,000.00 from a certain Benito Tan upon arrangements made
by Antoninus Yuvienco, then the General Manager of PNBs Bangkal Branch where they had
transacted; that they had been made to understand and had been assured that the P1,000,000.00
would be used to update their account, and that their loan would be restructured and converted into a
long-term loan;5 that they had been surprised to learn, therefore, that had been declared in default of
their obligations, and that the mortgage on their property had been foreclosed and their property had
been sold; and that PNB did not comply with Section 3 of Act No. 3135, as amended.6
PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the Spouses Manalo
from Benito Tan had been credited to their account; that they did not make any assurances on the
restructuring and conversion of the Spouses Manalos loan into a long-term one; 7 that PNBs right to
foreclose the mortgage had been clear especially because the Spouses Manalo had not assailed the
validity of the loans and of the mortgage; and that the Spouses Manalo did not allege having fully paid
their indebtedness.8
Ruling ofthe RTC
After trial, the RTC rendered its decision in favor of PNB, holding thusly:
In resolving this present case, one of the most significant matters the court has noted is that while
during the pre-trial held on 8 September 2003, plaintiff-spouses Manalo with the assistance counsel
had agreed to stipulate that defendants had the right to foreclose upon the subject properties and that
the plaintiffs[] main thrust was to prove that the foreclosure proceedings were invalid, in the course of
the presentation of their evidence, they modified their position and claimed [that] the loan document
executed were contracts of adhesion which were null and void because they were prepared entirely
under the defendant banks supervision. They also questioned the interest rates and penalty charges
imposed arguing that these were iniquitous, unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are presumably
estopped from allowing these matters to serve as part of their evidence, more so because at the pretrial they expressly recognized the defendant banks right to foreclose upon the subject property (See
Order, pp. 193-195).
However, considering that the defendant bank did not interpose any objection to these matters being
made part of plaintiffs evidence so much so that their memorandum contained discussions rebutting
plaintiff spouses arguments on these issues, the court must necessarily include these matters in the
resolution of the present case.9
The RTC held, however, that the Spouses Manalos "contract of adhesion" argument was unfounded
because they had still accepted the terms and conditions of their credit agreement with PNB and had
exerted efforts to pay their obligation; 10 that the Spouses Manalo were now estopped from questioning
the interest rates unilaterally imposed by PNB because they had paid at those rates for three years
without protest;11 and that their allegation about PNB violating the notice and publication requirements
during the foreclosure proceedings was untenable because personal notice to the mortgagee was not
required under Act No. 3135.12
The Spouses Manalo appealed to the CA by assigning a singular error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF-APPELLANTS COMPLAINT
FOR BEING (sic) LACK OF MERIT NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY

SHOWN THAT THE FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.13

The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements they entered
into with PNB were contracts of adhesion; 14 (2) no interest was due from them because their credit
agreements with PNB did not specify the interest rate, and PNB could not unilaterally increase the
interest rate without first informing them; 15 and (3) PNB did not comply with the notice and publication
requirements under Section 3 of Act 3135.16 On the other hand, PNB and Yuvienco did not file their
briefs despite notice.17
Ruling ofthe CA
In its decision promulgated on March 28, 2006, 18 the CA affirmed the decision of the RTC insofar as it
upheld the validity of the foreclosure proceedings initiated by PNB, but modified the Spouses Manalos
liability for interest. It directed the RTC to see to the recomputation of their indebtedness, and ordered
that should the recomputed amount be less than the winning bid in the foreclosure sale, the difference
should be immediately returned to the Spouses Manalo.
The CA found it necessary to pass upon the issues of PNBs failure to specify the applicable interest
and the lack of mutuality in the execution of the credit agreements considering the earlier cited
observation made by the trial court in its decision. Applying Article 1956 of the Civil Code, the CA held
that PNBs failure to indicate the rate of interest in the credit agreements would not excuse the
Spouses Manalo from their contractual obligation to pay interest to PNB because of the express
agreement to pay interest in the credit agreements. Nevertheless, the CA ruled that PNBs
inadvertence to specify the interest rate should be construed against it because the credit agreements
were clearly contracts of adhesion due to their having been prepared solely by PNB.
The CA further held that PNB could not unilaterally increase the rate of interest considering that the
credit agreements specifically provided that prior notice was required before an increase in interest
rate could be effected. It found that PNB did not adduce proof showing that the Spouses Manalo had
been notified before the increased interest rates were imposed; and that PNBs unilateral imposition of
the increased interest rate was null and void for being violative of the principle of mutuality of contracts
enshrined in Article 1308 of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added
that the Spouses Manalos being in dire need of money rendered them to be not on an equal footing
with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v. Court of Appeals, 19 fixed the
interest rate to be paid by the Spouses Manalo at 12% per annum, computed from their default.
The CA deemed to be untenable the Spouses Manalos allegation that PNB had failed to comply with
the requirements for notice and posting under Section 3 of Act 3135. The CA stated that Sheriff
Norberto Magsajos testimony was sufficient proof of his posting of the required Notice of Sheriffs Sale
in three public places; that the notarized Affidavit of Publication presented by Sheriff Magsajo was
prima facie proof of the publication of the notice; and that the Affidavit of Publication enjoyed the
presumption of regularity, such that the Spouses Manalos bare allegation of non-publication without
other proof did not overcome the presumption.
On August 29, 2006, the CA denied the Spouses Manalos Motion for Reconsideration and PNBs
Partial Motion for Reconsideration.20
Issues
In its Memorandum,21 PNB raises the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING THE INTEREST
RATES IMPOSED ON RESPONDENT SPOUSES LOAN AND IN FIXING THE SAME AT TWELVE
PERCENT (12%) FROM DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS RAISED BY THE
RESPONDENTS ONLY FOR THE FIRST TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR
COMPLAINT (iii) WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv) THERE

WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.

II
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THERE WAS NO
MUTUALITY OF CONSENT IN THE IMPOSITION OF INTEREST RATES ON THE RESPONDENT
SPOUSES LOAN DESPITE THE EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY
SHOWING RESPONDENTS ASSENT TO THE RATES OF INTEREST SO IMPOSED BY PNB ON
THE LOAN.
Anent the first issue, PNB argues that by passing upon the issue of the validity of the interest rates,
and in nullifying the rates imposed on the Spouses Manalo, the CA decided the case in a manner not
in accord with Section 15, Rule 44 of the Rules of Court, which states that only questions of law or fact
raised in the trial court could be assigned as errors on appeal; that to allow the Spouses Manalo to
raise an issue for the first time on appeal would "offend the basic rules of fair play, justice and due
process;"22 that the resolution of the CA was limited to the issues agreed upon by the parties during
pre-trial;23 that the CA erred in passing upon the validity of the interest rates inasmuch as the Spouses
Manalo did not present evidence thereon; and that the Judicial Affidavit of Enrique Manalo, on which
the CA relied for its finding, was not offered to prove the invalidity of the interest rates and was,
therefore, inadmissible for that purpose.24
As to the substantive issues, PNB claims that the Spouses Manalos continuous payment of interest
without protest indicated their assent to the interest rates imposed, as well as to the subsequent
increases of the rates; and that the CA erred in declaring that the interest rates and subsequent
increases were invalid for lack of mutuality between the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNBs argument, the validity of the interest rates and of the increases, and on the lack of
mutuality between the parties were not raised by the Spouses Manalos for the first time on appeal.
Rather, the issues were impliedly raised during the trial itself, and PNBs lack of vigilance in voicing out
a timely objection made that possible.
It appears that Enrique Manalos Judicial Affidavit introduced the issues of the validity of the interest
rates and the increases, and the lack of mutuality between the parties in the following manner, to wit:
5. True to his words, defendant Yuvienco, after several days, sent us a document through a personnel
of defendant PNB, Bangkal, Makati City Branch, who required me and my wife to affix our signature
on the said document;
6. When the document was handed over me, I was able to know that it was a Promissory Note which
was in ready made form and prepared solely by the defendant PNB;
xxxx
21. As above-noted, the rates of interest imposed by the defendant bank were never the subject of any
stipulation between us mortgagors and the defendant PNB as mortgagee;
22. The truth of the matter is that defendant bank imposed rate of interest which ranges from 19% to
as high as 28% and which changes from time to time;
23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest was
aggravated by the fact that we were not informed, notified, nor the same had our prior consent and
acquiescence therefor. x x x25

PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that PNB raised
any objection in the course of the cross examination. 26 Consequently, the RTC rightly passed upon
such issues in deciding the case, and its having done so was in total accord with Section 5, Rule 10 of
the Rules of Court, which states:
Section 5. Amendment to conform to or authorize presentation of evidence. When issues not raised
by the pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to raise these issues may be made upon
motion of any party at any time, even after judgment; but failure to amend does not affect the result of
the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the pleadings to be amended and shall do so with
liberality if the presentation of the merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the amendment to be made.
In Bernardo Sr. v. Court of Appeals,27 we held that:
It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff,
without objection, introduces sufficient evidence to constitute the particular cause of action which it
intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet
the cause of action thus established, an issue is joined as fully and as effectively as if it had been
previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall be treated in all respects as if they had
been raised in the pleadings.
The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. Section 5,
Rule 10 of the Rules of Court specifically declares that the "failure to amend does not affect the result
of the trial of these issues." According to Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de
Talisay-Silay, Inc.:28
The failure of a party to amend a pleading to conform to the evidence adduced during trial does not
preclude an adjudication by the court on the basis of such evidence which may embody new issues
not raised in the pleadings, or serve as a basis for a higher award of damages. Although the pleading
may not have been amended to conform to the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of the issues alleged but also on the basis of issues
discussed and the assertions of fact proved in the course of trial.1wphi1 The court may treat the
pleading as if it had been amended to conform to the evidence, although it had not been actually so
amended. Former Chief Justice Moran put the matter in this way:
When evidence is presented by one party, with the expressed or implied consent of the adverse party,
as to issues not alleged in the pleadings, judgment may be rendered validly as regards those issues,
which shall be considered as if they have been raised in the pleadings. There is implied, consent to
the evidence thus presented when the adverse party fails to object thereto." (Emphasis supplied)
Clearly, a court may rule and render judgment on the basis of the evidence before it even though the
relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby
caused to the adverse party. Put a little differently, so long as the basic requirements of fair play had
been met, as where litigants were given full opportunity to support their respective contentions and to
object to or refute each other's evidence, the court may validly treat the pleadings as if they had been
amended to conform to the evidence and proceed to adjudicate on the basis of all the evidence before
it.
There is also no merit in PNBs contention that the CA should not have considered and ruled on the
issue of the validity of the interest rates because the Judicial Affidavit of Enrique Manalo had not been
offered to prove the same but only "for the purpose of identifying his affidavit." 29 As such, the affidavit
was inadmissible to prove the nullity of the interest rates.

We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two situations.1wphi1 The first is when
evidence is introduced on an issue not alleged in the pleadings and no objection is interposed by the
adverse party. The second is when evidence is offered on an issue not alleged in the pleadings but an
objection is raised against the offer.30 This case comes under the first situation. Enrique Manalos
Judicial Affidavit would introduce the very issues that PNB is now assailing. The question of whether
the evidence on such issues was admissible to prove the nullity of the interest rates is an entirely
different matter. The RTC accorded credence to PNBs evidence showing that the Spouses Manalo
had been paying the interest imposed upon them without protest. On the other hand, the CAs
nullification of the interest rates was based on the credit agreements that the Spouses Manalo and
PNB had themselves submitted.
Based on the foregoing, the validity of the interest rates and their increases, and the lack of mutuality
between the parties were issues validly raised in the RTC, giving the Spouses Manalo every right to
raise them in their appeal to the CA. PNBs contention was based on its wrong appreciation of what
transpired during the trial. It is also interesting to note that PNB did not itself assail the RTCs ruling on
the issues obviously because the RTC had decided in its favor. In fact, PNB did not even submit its
appellees brief despite notice from the CA.
2.
Substantive Issue
The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a
rate "determined by the Bank to be its prime rate plus applicable spread, prevailing at the current
month."31 This stipulation was carried over to or adopted by the subsequent renewals of the credit
agreement. PNB thereby arrogated unto itself the sole prerogative to determine and increase the
interest rates imposed on the Spouses Manalo. Such a unilateral determination of the interest rates
contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code.32
The Court has declared that a contract where there is no mutuality between the parties partakes of the
nature of a contract of adhesion,33 and any obscurity will be construed against the party who prepared
the contract, the latter being presumed the stronger party to the agreement, and who caused the
obscurity.34 PNB should then suffer the consequences of its failure to specifically indicate the rates of
interest in the credit agreement. We spoke clearly on this in Philippine Savings Bank v. Castillo, 35 to
wit:
The unilateral determination and imposition of the increased rates is violative of the principle of
mutuality of contracts under Article 1308 of the Civil Code, which provides that [t]he contract must
bind both contracting parties; its validity or compliance cannot be left to the will of one of them. A
perusal of the Promissory Note will readily show that the increase or decrease of interest rates hinges
solely on the discretion of petitioner. It does not require the conformity of the maker before a new
interest rate could be enforced. Any contract which appears to be heavily weighed in favor of one of
the parties so as to lead to an unconscionable result, thus partaking of the nature of a contract of
adhesion, is void. Any stipulation regarding the validity or compliance of the contract left solely to the
will of one of the parties is likewise invalid. (Emphasis supplied)
PNB could not also justify the increases it had effected on the interest rates by citing the fact that the
Spouses Manalo had paid the interests without protest, and had renewed the loan several times. We
rule that the CA, citing Philippine National Bank v. Court of Appeals, 36 rightly concluded that "a
borrower is not estopped from assailing the unilateral increase in the interest made by the lender since
no one who receives a proposal to change a contract, to which he is a party, is obliged to answer the
same and said partys silence cannot be construed as an acceptance thereof."37
Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided that prior
notice would be necessary before PNB could increase the interest rates. In failing to notify the

Spouses Manalo before imposing the increased rates of interest, therefore, PNB violated the
stipulations of the very contract that it had prepared. Hence, the varying interest rates imposed by
PNB have to be vacated and declared null and void, and in their place an interest rate of 12% per
annum computed from their default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals.38
The CAs directive to PNB (a) to recompute the Spouses Manalos indebtedness under the oversight
of the RTC; and (b) to refund to them any excess of the winning bid submitted during the foreclosure
sale over their recomputed indebtedness was warranted and equitable. Equally warranted and
equitable was to make the amount to be refunded, if any, bear legal interest, to be reckoned from the
promulgation of the CAs decision on March 28, 2006. 39 Indeed, the Court said in Eastern Shipping
Lines, Inc. v. Court of Appeals40 that interest should be computed from the time of the judicial or
extrajudicial demand. However, this case presents a peculiar situation, the peculiarity being that the
Spouses Manalo did not demand interest either judicially or extrajudicially. In the RTC, they specifically
sought as the main reliefs the nullification of the foreclosure proceedings brought by PNB, accounting
of the payments they had made to PNB, and the conversion of their loan into a long term one. 41 In its
judgment, the RTC even upheld the validity of the interest rates imposed by PNB. 42 In their appellants
brief, the Spouses Manalo again sought the nullification of the foreclosure proceedings as the main
relief.43 It is evident, therefore, that the Spouses Manalo made no judicial or extrajudicial demand from
which to reckon the interest on any amount to be refunded to them. Such demand could only be
reckoned from the promulgation of the CAs decision because it was there that the right to the refund
was first judicially recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc. v. Court of
Appeals,44 the amount to be refunded and the interest thereon should earn interest to be computed
from the finality of the judgment until the full refund has been made.
Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the Court, in
Nacar v. Gallery Frames45 and S.C. Megaworld Construction v. Parada, 46 already applied Monetary
Board Circular No. 799 by reducing the interest rates allowed in judgments from 12% per annum to
6% per annum.47 According to Nacar v. Gallery Frames, MB Circular No. 799 is applied prospectively,
and judgments that became final and executory prior to its effectivity on July 1, 2013 are not to be
disturbed but continue to be implemented applying the old legal rate of 12% per annum. Hence, the
old legal rate of 12% per annum applied to judgments becoming final and executory prior to July 1,
2013, but the new rate of 6% per annum applies to judgments becoming final and executory after said
dater.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada, therefore, the
proper interest rates to be imposed in the present case are as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum computed
from March 28, 2006, the date of the promulgation of the CA decision, until June 30, 2013; and 6% per
annum computed from July 1, 2013 until finality of this decision; and
2. The amount to be refunded and its accrued interest shall earn interest of 6% per annum until full
refund.
WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on March 28,
2006 in CA-G.R. CV No. 84396, subject to the MODIFICATION that any amount to be refunded to the
respondents shall bear interest of 12% per annum computed from March 28, 2006 until June 30, 2013,
and 6% per annum computed from July 1, 2013 until finality hereof; that the amount to be refunded
and its accrued interest shall earn interest at 6o/o per annum until full refund; and DIRECTS the
petitioner to pay the costs of suit.
SO ORDERED.