SOURCES OF OBLIGATION

THE METROPOLITAN BANK AND TRUST COMPANY vs

ANA GRACE ROSALES AND YO YUK TO
G.R. No. 183204, January 13, 2014

FACTS:
Petitioner Metrobank is a domestic banking corporation duly organized and existing under
the laws of the Philippines. Respondent Rosales is the owner of a travel agency while Yo Yuk To is
her mother.
In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese
National applying for a retiree’s visa from the Philippine Leisure and Retirement Authority (PLRA), to
petitioner’s branch in Escolta to open a savings account. Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her.
On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar
Account with an initial deposit of US$14,000.00.
On July 31, 2003, petitioner issued a “Hold Out” order against respondents’ accounts.
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 casefor Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified Documents.
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang.
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
dismissing the criminal case for lack of probable cause. On September 10, 2004, respondents filed
before the RTC of Manila a complaint for Breach of Obligation and Contract with Damages.

ISSUE:
Whether Metrobank breached its contract with respondents.

HELD:
YES. The Court held that Metrobank’s reliance on the “Hold Out” clause in the Application
and Agreement for Deposit Account is misplaced.
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid
upon demand by the depositor.
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 1157 of the Civil Code, to wit: law, contracts, quasi-
contracts, 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, the Court found 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.

FALLO:
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.

QUASI- CONTRACT

ANTONIO LOCSIN II VS. MEKENI FOOD CORPORATION

[ G.R. No. 192105, December 09, 2013 ]

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DEL CASTILLO, J.:

In the absence of specific terms and conditions governing a car plan agreement between the
employer and employee, the former may not retain the installment payments made by the latter on
the car plan and treat them as rents for the use of the service vehicle, in the event that the employee
ceases his employment and is unable to complete the installment payments on the vehicle. The
underlying reason is that the service vehicle was precisely used in the former's business; any
personal benefit obtained by the employee from its use is merely incidental.

This Petition for Review on Certiorari[1] assails the January 27, 2010 Decision[2] of the Court of
Appeals (CA) in CA-G.R. SP No. 109550, as well as its April 23, 2010 Resolution [3] denying
petitioner's Motion for Partial Reconsideration.[4]

Factual Antecedents

In February 2004, respondent Mekeni Food Corporation (Mekeni) a Philippine company engaged in
food manufacturing and meat processing offered petitioner Antonio Locsin II the position of Regional
Sales Manager to oversee Mekeni's National Capital Region Supermarket/Food Service and South
Luzon operations. In addition to a compensation and benefit package, Mekeni offered petitioner a car
plan, under which one-half of the cost of the vehicle is to be paid by the company and the other half to
be deducted from petitioner's salary. Mekeni's offer was contained in an Offer Sheet [5] which was
presented to petitioner.

Petitioner began his stint as Mekeni Regional Sales Manager on March 17, 2004. To be able to
effectively cover his appointed sales territory, Mekeni furnished petitioner with a used Honda Civic car
valued at P280,000.00, which used to be the service vehicle of petitioner's immediate supervisor.
Petitioner paid for his 50% share through salary deductions of P5,000.00 each month.

Subsequently, Locsin resigned effective February 25, 2006. By then, a total of P112,500.00 had been
deducted from his monthly salary and applied as part of the employee's share in the car plan. Mekeni
supposedly put in an equivalent amount as its share under the car plan. In his resignation letter,
petitioner made an offer to purchase his service vehicle by paying the outstanding balance thereon.
The parties negotiated, but could not agree on the terms of the proposed purchase. Petitioner thus
returned the vehicle to Mekeni on May 2, 2006.

Petitioner made personal and written follow-ups regarding his unpaid salaries, commissions, benefits,
and offer to purchase his service vehicle. Mekeni replied that the company car plan benefit applied
only to employees who have been with the company for five years; for this reason, the balance that
petitioner should pay on his service vehicle stood at P116,380.00 if he opts to purchase the same.

On May 3, 2007, petitioner filed against Mekeni and/or its President, Prudencio S. Garcia, a
Complaint[6] for the recovery of monetary claims consisting of unpaid salaries, commissions,
sick/vacation leave benefits, and recovery of monthly salary deductions which were earmarked for his
cost-sharing in the car plan. The case was docketed in the National Labor Relations Commission
(NLRC), National Capital Region (NCR), Quezon City as NLRC NCR CASE NO. 00-05-04139-07.

On October 30, 2007, Labor Arbiter Cresencio G. Ramos rendered a Decision, [7] decreeing as follows:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered directing
respondents to turn-over to complainant x x x the subject vehicle upon the said complainant's
payment to them of the sum of P100,435.84.

SO ORDERED.[8]
Ruling of the National Labor Relations Commission

On appeal,[9] the Labor Arbiter's Decision was reversed in a February 27, 2009 Decision [10] of the
NLRC, thus:

WHEREFORE, premises considered, the appeal is hereby Granted. The assailed Decision dated
October 30, 2007 is hereby REVERSED and SET ASIDE and a new one entered ordering

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respondent-appellee Mekeni Food Corporation to pay complainant-appellee the following:

1. Unpaid Salary in the amount of P12,511.45;

2. Unpaid sick leave/vacation leave pay in the amount of P14,789.15;

3. Unpaid commission in the amount of P9,780.00; and

4. Reimbursement of complainant's payment under the car plan agreement in the amount of
P112,500.00; and

5. The equivalent share of the company as part of the complainant's benefit under the car plan 50/50
sharing amounting to P112,500.00.

Respondent-Appellee Mekeni Food Corporation is hereby authorized to deduct the sum of P4,736.50
representing complainant-appellant's cash advance from his total monetary award.

All other claims are dismissed for lack of merit.

SO ORDERED.[11]
The NLRC held that petitioner's amortization payments on his service vehicle amounting to
P112,500.00 should be reimbursed; if not, unjust enrichment would result, as the vehicle remained in
the possession and ownership of Mekeni. In addition, the employer's share in the monthly car plan
payments should likewise be awarded to petitioner because it forms part of the latter's benefits under
the car plan. It held further that Mekeni's claim that the company car plan benefit applied only to
employees who have been with the company for five years has not been substantiated by its
evidence, in which case the car plan agreement should be construed in petitioner's favor.

Mekeni moved to reconsider, but in an April 30, 2009 Resolution, [12] the NLRC sustained its original
findings.

Ruling of the Court of Appeals

Mekeni filed a Petition for Certiorari[13] with the CA assailing the NLRC's February 27, 2009 Decision,
saying that the NLRC committed grave abuse of discretion in holding it liable to petitioner as it had no
jurisdiction to resolve petitioner's claims, which are civil in nature.

On January 27, 2010, the CA issued the assailed Decision, decreeing as follows:

WHEREFORE, the petition for certiorari is GRANTED. The Decision of the National Labor Relations
Commission dated 27 February 2009, in NLRC NCR Case No. 00-05-04139-07, and
its Resolution dated 30 April 2009 denying reconsideration thereof, are MODIFIED in that the
reimbursement of Locsin's payment under the car plan in the amount of P112,500.00, and the
payment to him of Mekeni's 50% share in the amount of P112,500.00 are DELETED. The rest of the
decision is AFFIRMED.

SO ORDERED.[14]
In arriving at the above conclusion, the CA held that the NLRC possessed jurisdiction over petitioner's
claims, including the amounts he paid under the car plan, since his Complaint against Mekeni is one
for the payment of salaries and employee benefits. With regard to the car plan arrangement, the CA
applied the ruling in Elisco Tool Manufacturing Corporation v. Court of Appeals,[15] where it was held
that

First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in
question under a car plan for executives of the Elizalde group of companies. Under a typical car plan,
the company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have
been fully paid for. However, retention of registration of the car in the company's name is only a form
of a lien on the vehicle in the event that the employee would abscond before he has fully paid for it.
There are also stipulations in car plan agreements to the effect that should the employment of the

Page | 3
employee concerned be terminated before all installments are fully paid, the vehicle will be taken by
the employer and all installments paid shall be considered rentals per agreement. [16]

In the absence of evidence as to the stipulations of the car plan arrangement between Mekeni and
petitioner, the CA treated petitioner's monthly contributions in the total amount of P112,500.00 as
rentals for the use of his service vehicle for the duration of his employment with Mekeni. The
appellate court applied Articles 1484-1486 of the Civil Code, [17] and added that the installments paid
by petitioner should not be returned to him inasmuch as the amounts are not unconscionable. It made
the following pronouncement:

Having used the car in question for the duration of his employment, it is but fair that all of Locsin's
payments be considered as rentals therefor which may be forfeited by Mekeni. Therefore, Mekeni has
no obligation to return these payments to Locsin. Conversely, Mekeni has no right to demand the
payment of the balance of the purchase price from Locsin since the latter has already surrendered
possession of the vehicle.[18]
Moreover, the CA held that petitioner cannot recover Mekeni's corresponding share in the purchase
price of the service vehicle, as this would constitute unjust enrichment on the part of petitioner at
Mekeni's expense.

The CA affirmed the NLRC judgment in all other respects. Petitioner filed his Motion for Partial
Reconsideration,[19] but the CA denied the same in its April 23, 2010 Resolution.

Thus, petitioner filed the instant Petition; Mekeni, on the other hand, took no further action.

Issue

Petitioner raises the following solitary issue:

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS ERRED IN NOT
CONSIDERING THE CAR PLAN PRIVILEGE AS PART OF THE COMPENSATION PACKAGE
OFFERED TO PETITIONER AT THE INCEPTION OF HIS EMPLOYMENT AND INSTEAD LIKENED
IT TO A CAR LOAN ON INSTALLMENT, IN SPITE OF THE ABSENCE OF EVIDENCE ON
RECORD.[20]
Petitioner's Arguments

In his Petition and Reply,[21] petitioner mainly argues that the CA erred in treating his monthly
contributions to the car plan, totaling P112,500.00, as rentals for the use of his service vehicle during
his employment; the car plan which he availed of was a benefit and it formed part of the package of
economic benefits granted to him when he was hired as Regional Sales Manager. Petitioner submits
that this is shown by the Offer Sheet which was shown to him and which became the basis for his
decision to accept the offer and work for Mekeni.

Petitioner adds that the absence of documentary or other evidence showing the terms and conditions
of the Mekeni company car plan cannot justify a reliance on Mekeni's self-serving claims that the full
terms thereof applied only to employees who have been with the company for at least five years; in
the absence of evidence, doubts should be resolved in his favor pursuant to the policy of the law that
affords protection to labor, as well as the principle that all doubts should be construed to its benefit.

Finally, petitioner submits that the ruling in the Elisco Tool case cannot apply to his case because the
car plan subject of the said case involved a car loan, which his car plan benefit was not; it was part of
his compensation package, and the vehicle was an important component of his work which required
constant and uninterrupted mobility. Petitioner claims that the car plan was in fact more beneficial to
Mekeni than to him; besides, he did not choose to avail of it, as it was simply imposed upon him. He
concludes that it is only just that his payments should be refunded and returned to him.

Petitioner thus prays for the reversal of the assailed CA Decision and Resolution, and that the Court
reinstate the NLRC's February 27, 2009 Decision.

Respondent's Arguments

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In its Comment,[22] Mekeni argues that the Petition does not raise questions of law, but merely of fact,
which thus requires the Court to review anew issues already passed upon by the CA an unauthorized
exercise given that the Supreme Court is not a trier of facts, nor is it its function to analyze or weigh
the evidence of the parties all over again. [23] It adds that the issue regarding the car plan and the
conclusions of the CA drawn from the evidence on record are questions of fact.

Mekeni asserts further that the service vehicle was merely a loan which had to be paid through the
monthly salary deductions. If it is not allowed to recover on the loan, this would constitute unjust
enrichment on the part of petitioner.

Our Ruling

The Petition is partially granted.

To begin with, the Court notes that Mekeni did not file a similar petition questioning the CA Decision;
thus, it is deemed to have accepted what was decreed. The only issue that must be resolved in this
Petition, then, is whether petitioner is entitled to a refund of all the amounts applied to the cost of the
service vehicle under the car plan.

When the conclusions of the CA are grounded entirely on speculation, surmises and conjectures, or
when the inferences made by it are manifestly mistaken or absurd, its findings are subject to review
by this Court.[24]

From the evidence on record, it is seen that the Mekeni car plan offered to petitioner was subject to
no other term or condition than that Mekeni shall cover one-half of its value, and petitioner shall in
turn pay the other half through deductions from his monthly salary. Mekeni has not shown, by
documentary evidence or otherwise, that there are other terms and conditions governing its car plan
agreement with petitioner. There is no evidence to suggest that if petitioner failed to completely cover
one-half of the cost of the vehicle, then all the deductions from his salary going to the cost of the
vehicle will be treated as rentals for his use thereof while working with Mekeni, and shall not be
refunded. Indeed, there is no such stipulation or arrangement between them. Thus, the CA's reliance
on Elisco Tool is without basis, and its conclusions arrived at in the questioned decision are
manifestly mistaken. To repeat what was said in Elisco Tool

First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in
question under a car plan for executives of the Elizalde group of companies. Under a typical car plan,
the company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have
been fully paid for. However, retention of registration of the car in the company's name is only a form
of a lien on the vehicle in the event that the employee would abscond before he has fully paid for
it. There are also stipulations in car plan agreements to the effect that should the employment
of the employee concerned be terminated before all installments are fully paid, the vehicle will
be taken by the employer and all installments paid shall be considered rentals per agreement.
[25]
(Emphasis supplied)
It was made clear in the above pronouncement that installments made on the car plan may be treated
as rentals only when there is an express stipulation in the car plan agreement to such effect. It was
therefore patent error for the appellate court to assume that, even in the absence of express
stipulation, petitioner's payments on the car plan may be considered as rentals which need not be
returned.

Indeed, the Court cannot allow that payments made on the car plan should be forfeited by Mekeni
and treated simply as rentals for petitioner's use of the company service vehicle. Nor may they be
retained by it as purported loan payments, as it would have this Court believe. In the first place, there
is precisely no stipulation to such effect in their agreement. Secondly, it may not be said that the car
plan arrangement between the parties was a benefit that the petitioner enjoyed; on the contrary, it
was an absolute necessity in Mekeni's business operations, which benefited it to the fullest extent:
without the service vehicle, petitioner would have been unable to rapidly cover the vast sales territory
assigned to him, and sales or marketing of Mekeni's products could not have been booked or made
fast enough to move Mekeni's inventory. Poor sales, inability to market Mekeni's products, a high rate

Page | 5
of product spoilage resulting from stagnant inventory, and poor monitoring of the sales territory are
the necessary consequences of lack of mobility. Without a service vehicle, petitioner would have been
placed at the mercy of inefficient and unreliable public transportation; his official schedule would have
been dependent on the arrival and departure times of buses or jeeps, not to mention the availability of
seats in them. Clearly, without a service vehicle, Mekeni's business could only prosper at a snail's
pace, if not completely paralyzed. Its cost of doing business would be higher as well. The Court
expressed just such a view in the past. Thus

In the case at bar, the disallowance of the subject car plan benefits would hamper the officials in
the performance of their functions to promote and develop trade which requires mobility in the
performance of official business. Indeed, the car plan benefits are supportive of the
implementation of the objectives and mission of the agency relative to the nature of its
operation and responsive to the exigencies of the service.[26] (Emphasis supplied)
Any benefit or privilege enjoyed by petitioner from using the service vehicle was merely incidental and
insignificant, because for the most part the vehicle was under Mekeni's control and supervision. Free
and complete disposal is given to the petitioner only after the vehicle's cost is covered or paid in full.
Until then, the vehicle remains at the beck and call of Mekeni. Given the vast territory petitioner had to
cover to be able to perform his work effectively and generate business for his employer, the service
vehicle was an absolute necessity, or else Mekeni's business would suffer adversely. Thus, it is clear
that while petitioner was paying for half of the vehicle's value, Mekeni was reaping the full benefits
from the use thereof.

In light of the foregoing, it is unfair to deny petitioner a refund of all his contributions to the car plan.
Under Article 22 of the Civil Code, "[e]very person who through an act of performance by another, or
any other means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him." Article 2142 [27] of the same Code likewise clarifies
that there are certain lawful, voluntary and unilateral acts which give rise to the juridical relation of
quasi-contract, to the end that no one shall be unjustly enriched or benefited at the expense of
another. In the absence of specific terms and conditions governing the car plan arrangement between
the petitioner and Mekeni, a quasi-contractual relation was created between them. Consequently,
Mekeni may not enrich itself by charging petitioner for the use of its vehicle which is otherwise
absolutely necessary to the full and effective promotion of its business. It may not, under the claim
that petitioner's payments constitute rents for the use of the company vehicle, refuse to refund what
petitioner had paid, for the reasons that the car plan did not carry such a condition; the subject vehicle
is an old car that is substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni
for the most part; and any personal benefit obtained by petitioner from using the vehicle was merely
incidental.

Conversely, petitioner cannot recover the monetary value of Mekeni's counterpart contribution to the
cost of the vehicle; that is not property or money that belongs to him, nor was it intended to be given
to him in lieu of the car plan. In other words, Mekeni's share of the vehicle's cost was not part of
petitioner's compensation package. To start with, the vehicle is an asset that belonged to Mekeni. Just
as Mekeni is unjustly enriched by failing to refund petitioner's payments, so should petitioner not be
awarded the value of Mekeni's counterpart contribution to the car plan, as this would unjustly enrich
him at Mekeni's expense.

There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity and
good conscience." The principle of unjust enrichment requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of
another.

The main objective of the principle against unjust enrichment is to prevent one from enriching himself
at the expense of another without just cause or consideration. x x x [28]
WHEREFORE, the Petition is GRANTED IN PART. The assailed January 27, 2010 Decision and April
23, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 109550 are MODIFIED, in that
respondent Mekeni Food Corporation is hereby ordered to REFUND petitioner Antonio Locsin II's
payments under the car plan agreement in the total amount of P112,500.00.

Thus, except for the counterpart or equivalent share of Mekeni Food Corporation in the car plan

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agreement amounting to P112,500.00, which is DELETED, the February 27, 2009 Decision of the
National Labor Relations Commission is affirmed in all respects.

SO ORDERED.

GR No. 178031, Aug 28, 2013 ]

VIRGINIA M. VENZON v. RURA[ L BANK OF BUENAVISTA

DEL CASTILLO, J.:

Before us is a Petition for Review on Certiorari[1] questioning the December 14, 2006 Resolution [2] of
the Court of Appeals (CA) in CA-G.R. SP No. 01341-MIN which dismissed the Petition in said case,
as well as its May 7, 2007 Resolution[3] denying reconsideration thereof.

Factual Antecedents

On January 28, 2005, petitioner Virginia M. Venzon filed a Petition [4] to nullify foreclosure proceedings
and Tax Declaration Nos. 96-GR-06-003-7002-R and 96-GR-06-003-7003-R issued in the name of
respondent Rural Bank of Buenavista (Agusan del Norte), Inc. The case [5] was docketed as Civil Case
No. 5535 and raffled to Branch 5 of the Regional Trial Court (RTC) of Butuan City. Petitioner alleged
that in 1983 she and her late spouse, George F. Venzon, Sr., obtained a P5,000.00 loan from
respondent against a mortgage on their house and lot in Libertad, Butuan City, covered by Tax
Declaration Nos. 28289 and 42710 issued in their names, which were later on replaced with Tax
Declaration Nos. 96 GR-06-003-2884-R and 96 GR-06-003-2885-R; that she was able to pay
P2,300.00, thus leaving an outstanding balance of only P2,370.00; that sometime in March 1987, she
offered to pay the said balance in full, but the latter refused to accept payment, and instead shoved
petitioner away from the bank premises; that in March 1987, respondent foreclosed on the mortgage,
and the property was sold at auction for P6,472.76 to respondent, being the highest bidder; that the
foreclosure proceedings are null and void for lack of notice and publication of the sale, lack of sheriff's
final deed of sale and notice of redemption period; and that she paid respondent P6,000.00 on
October 9, 1995, as evidenced by respondent's Official Receipt No. 410848 [6] issued on October 9,
1995.

In its Answer with Counterclaims,[7] respondent claimed that petitioner did not make any payment on
the loan; that petitioner never went to the bank in March 1987 to settle her obligations in full; that
petitioner was not shoved and driven away from its premises; that the foreclosure proceedings were
regularly done and all requirements were complied with; that a certificate of sale was issued by the
sheriff and duly recorded in the Registry of Deeds; that petitioner's claim that she paid P6,000.00 on
October 9, 1995 is utterly false; that petitioner's cause of action has long prescribed as the case was
filed only in 2005 or 18 years after the foreclosure sale; and that petitioner is guilty of laches.
Respondent interposed its counterclaim for damages and attorney's fees as well.

In her Reply,[8] petitioner insisted that the foreclosure proceedings were irregular and that prescription
and laches do not apply as the foreclosure proceedings are null and void to begin with.

Ruling of the Regional Trial Court

On July 13, 2006, the trial court issued a Resolution [9] dismissing Civil Case No. 5535. It held that

The plaintiff, however, may have erroneously relied the [sic] mandatorily [sic] requirement of the
aforestated provision of law upon failure to consider that the other party is a Rural Bank. Under the
R.A. No. 720 as amended, (Rural Bank Act) property worth exceeding P100,000.00 [sic] is exempt
from the requirement of publication. This may have been the reason why the foreclosure prosper [sic]
without the observance of the required publication. Moreover, neither in the said applicable laws
provide [sic] for the impairment of the extrajudicial foreclosure and the subsequent sale to the public.
The Court ruled in Bonnevie, et al. vs. CA, et al. that Act [N]o. 3135 as amended does not require
personal notice to the mortgagor. In the same view, lack of final demand or notice of redemption are
[sic] not considered indispensable requirements and failure to observe the same does not render the
extrajudicial foreclosure sale a nullity.[10]
In other words, the trial court meant that under the Rural Banks Act, the foreclosure of mortgages
covering loans granted by rural banks and executions of judgments thereon involving real properties
Page | 7
levied upon by a sheriff shall be exempt from publication where the total amount of the loan, including
interests due and unpaid, does not exceed P10,000.00. [11] Since petitioner's outstanding obligation
amounted to just over P6,000.00 publication was not necessary.

Petitioner moved for reconsideration, [12] but in the September 6, 2006 Resolution,[13] the trial court
denied the same.

Ruling of the Court of Appeals

Petitioner went up to the CA via an original Petition for Certiorari.[14] On December 14, 2006, the CA
issued the first assailed Resolution[15] dismissing the Petition. It held that petitioner's remedy should
have been an appeal under Rule 41 of the Rules of Court since the July 13, 2006 Resolution is a final
order of dismissal. Petitioner received the Resolution denying her Motion for Reconsideration on
September 18, 2006;[16] but she filed the Petition for Certiorari on October 25, 2006 when she should
have interposed an appeal on or before October 3, 2006. Having done so, her Petition may not even
be treated as an appeal for the same was belatedly filed.

The CA added that the Petition does not provide a sufficient factual background of the case as it
merely alleges a chronology of the legal remedies she took before the trial court which does not
comply with the requirement under Section 3 of Rule 46. [17]

Petitioner moved for reconsideration[18] by submitting a rewritten Petition. However, in a Resolution

dated May 7, 2007, the CA denied the same, hence the present Petition.

Issues

Petitioner submits the following assignment of errors:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN

DISMISSING THE PETITION FOR CERTIORARI THEREBY PREVENTING THE COURT FROM
FINDING OUT THAT ACTUALLY NO EXTRAJUDICIAL FORECLOSURE WAS CONDUCTED BY
THE OFFICE OF THE PROVINCIAL SHERIFF ON PETITIONER'S PROPERTY AT THE INSTANCE
OF THE PRIVATE RESPONDENT.

II

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN NOT
DISREGARDING TECHNICALITIES IN ORDER TO ADMINISTER SUBSTANTIAL JUSTICE TO THE
PETITIONER.[19]

Petitioner's Arguments

Petitioner claims that no extrajudicial foreclosure proceedings ever took place, citing a February 2,
2005 Certification issued by the Office of the Clerk of Court of Butuan City stating that the record
pertaining to the foreclosure proceedings covering her property "could not be found [in spite] of
diligent efforts to find the same."[20] And because no foreclosure proceedings took place, there could
not have been notice and publication of the sale, and no sheriff's certificate of sale. For this reason,
she claims that the CA erred in dismissing her case.

Petitioner adds that, technicalities aside, a Petition for Certiorari is available to her in order to prevent
the denial of her substantial rights. She also argues that her payment to respondent of the amount of
P6,000.00 in 1995 should be considered as a valid redemption of her property.

Respondent's Arguments

For its part, respondent merely validates the pronouncements of the CA by citing and echoing the

Page | 8
same, and holding petitioner to a strict observance of the rules for perfecting an appeal within the
reglementary period, as it claims they are necessary for the orderly administration of justice, [21] as well
as that which requires that only questions of law may be raised in a Petition for Review on Certiorari.

Our Ruling

The Court denies the Petition.

The Court finds no error in the CA's treatment of the Petition for Certiorari. The trial court's July 13,
2006 Resolution dismissing the case was indeed to be treated as a final order, disposing of the issue
of publication and notice of the foreclosure sale which is the very core of petitioner's cause of action
in Civil Case No. 5535 and declaring the same to be unnecessary pursuant to the Rural Banks Act, as
petitioner's outstanding obligation did not exceed P10,000.00, and thus leaving petitioner without
basis to maintain her case. This constitutes a dismissal with the character of finality. As such,
petitioner should have availed of the remedy under Rule 41, and not Rule 65.

The Court is not prepared to be lenient in petitioner's case, either. Civil Case No. 5535 was instituted
only in 2005, while the questioned foreclosure proceedings took place way back in 1987. Petitioner's
long inaction and commission of a procedural faux pas certainly cannot earn the sympathy of the
Court.

Nor can the Court grant the Petition on the mere allegation that no foreclosure proceedings ever took
place. The February 2, 2005 Certification issued by the Office of the Clerk of Court of Butuan City to
the effect that the record of the foreclosure proceedings could not be found is not sufficient ground to
invalidate the proceedings taken. Petitioner herself attached the Sheriff's Certificate of Sale [22] as
Annex "A" of her Petition in Civil Case No. 5535; this should belie the claim that no record exists
covering the foreclosure proceedings. Besides, if petitioner insists that no foreclosure proceedings
took place, then she should not have filed an action to annul the same since there was no foreclosure
to begin with. She should have filed a different action.

However, petitioner is entitled to a return of the P6,000.00 she paid to respondent in 1995. While this
may not be validly considered as a redemption of her property as the payment was made long after
the redemption period expired, respondent had no right to receive the amount. In its Answer with
Counterclaims in Civil Case No. 5535, respondent simply alleged therein that

10. Defendant DENIES the allegations under paragraph 10 of the petition for being utterly
false, highly self-serving and patently speculative, the truth being ---

 Assumption cannot be had that there was an alleged foreclosure of the then property of the
petitioner for the truth of the matter is that a foreclosure proceeding was duly conducted, which
fact remains undisputable for so many years now.

 Without necessarily admitting that payment of P6,000.00 was made, the same however
could hardly and could never be considered as redemption price for the following reasons ---
The redemption period had long lapsed when the payment of P6,000.00 was allegedly made.
Thus, there is no point talking about redemption price when the redemption period had long
been gone at the time the alleged payment was made.
Even x x x granting, without conceding, that the amount of P6,000.00 was a redemption price,
said amount, however, could not constitute as a legal redemption price since the same was not
enough to cover the entire redemption price as mandated by the rules and laws. [23] (Emphases
supplied)
Interestingly, respondent did not deny being the issuer of Official Receipt No. 410848. Instead, it
averred that petitioner's payment to it of P6,000.00 was false and self-serving, but in the same breath
argued that, without necessarily admitting that payment of P6,000.00 was made, the same cannot be
considered as redemption price.

By making such an ambiguous allegation in its Answer with Counterclaims, respondent is deemed to
have admitted receiving the amount of P6,000.00 from petitioner as evidenced by Official Receipt No.
410848, which amount under the circumstances it had no right to receive. "If an allegation is not
Page | 9
specifically denied or the denial is a negative pregnant, the allegation is deemed admitted." [24] "Where
a fact is alleged with some qualifying or modifying language, and the denial is conjunctive, a 'negative
pregnant' exists, and only the qualification or modification is denied, while the fact itself is
admitted."[25] "A denial in the form of a negative pregnant is an ambiguous pleading, since it cannot be
ascertained whether it is the fact or only the qualification that is intended to be
denied."[26] "[P]rofession of ignorance about a fact which is patently and necessarily within the
pleader's knowledge, or means of knowing as ineffectual, [is] no denial at all." [27] In fine, respondent
failed to refute petitioner's claim of having paid the amount of P6,000.00.

Since respondent was not entitled to receive the said amount, as it is deemed fully paid from the
foreclosure of petitioner's property since its bid price at the auction sale covered all that petitioner
owed it by way of principal, interest, attorney's fees and charges, [28] it must return the same to
petitioner. "If something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises." [29] Moreover, pursuant to Circular No. 799, series of
2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of P6,000.00 shall
earn interest at the rate of 6% per annum computed from the filing of the Petition in Civil Case No.
5535 up to its full satisfaction.

WHEREFORE, premises considered, the Petition is DENIED. The December 14, 2006 and May 7,
2007 Resolutions of the Court of Appeals in CA-G.R. SP No. 01341-MIN are AFFIRMED.

However, respondent Rural Bank of Buenavista (Agusan del Norte), Inc. is ORDERED to return to
petitioner Virginia M. Venzon or her assigns the amount of P6,000.00, with interest at the rate of
6% per annum computed from the filing of the Petition in Civil Case No. 5535 up to its full satisfaction.

SO ORDERED.

DOMINGO GONZALO, Petitioner,

vs.
JOHN TARNATE, JR., Respondent.
G.R. No. 160600 January 15, 2014

PONENTE: Bersamin, J.
TOPIC: Void or inexistent contract

FACTS:
After the DPWH had awarded on July 22, 1997 the contract for the improvement of the
Sadsadan-Maba-ay Section of the Mountain Province-Benguet Road to his
company, Gonzalo Construction, petitioner Gonzalo subcontracted to respondent Tarnate on October
15, 1997, the supply of materials and labor for the project under the latter’s business known as
JNT Aggregates. Their agreement stipulated, among others, that Tarnate would pay to Gonzalo eight
percent and four percent of the contract price, respectively, upon Tarnate’s first and second billing in
the project.
In furtherance of their agreement, Gonzalo executed on April 6, 1999 a deed of assignment
whereby he, as the contractor, was assigning to Tarnate an amount equivalent to 10% of the total
collection from the DPWH for the project. This 10% retention fee was the rent for Tarnate’s
equipment that had been utilized in the project. In the deed of assignment, Gonzalo further authorized
Tarnate to use the official receipt of Gonzalo Construction in the processing of the documents relative
to the collection of the 10% retention fee and in encashing the check to be issued by the DPWH for
that purpose. The deed of assignment was submitted to the DPWH on April 15, 1999. During the
processing of the documents for the retention fee, however, Tarnate learned that Gonzalo had
unilaterally rescinded the deed of assignment by means of an affidavit of cancellation of deed of
assignment dated April 19, 1999 filed in the DPWH on April 22, 1999; and that the disbursement
voucher for the 10% retention fee had then been issued in the name of Gonzalo, and the retention fee
released to him.
Tarnate demanded the payment of the retention fee from Gonzalo, but to no avail.

ISSUE:
Whether or not the subcontract and deed of assignment are void contracts.
Page | 10
HELD:

YES. The Court held that the subcontract agreement and deed of assignment
between Gonzalo and Tarnate are void for being contrary to law. However, even though both parties
are in pare delicto the Court allowed Tarnate to recover his retention fee, as an exception, due to
unjust enrichment.

Contract is void
Every contractor is prohibited from subcontracting with or assigning to another person any
contract or project that he has with the DPWH unless the DPWH Secretary has approved the
subcontracting or assignment. Gonzalo, who was the sole contractor of the project in question,
subcontracted the implementation of the project to Tarnate in violation of the statutory prohibition.
Their subcontract was illegal, therefore, because it did not bear the approval of the DPWH Secretary.
Necessarily, the deed of assignment was also illegal, because it sprung from the subcontract.
Obviously, without the Sub-Contract Agreement there will be no Deed of Assignment to
speak of. The illegality of the Sub-Contract Agreement necessarily affects the Deed of Assignment
because the rule is that an illegal agreement cannot give birth to a valid contract. To rule otherwise is
to sanction the act of entering into transaction the object of which is expressly prohibited by law and
thereafter execute an apparently valid contract to subterfuge the illegality. The legal proscription in
such an instance will be easily rendered nugatory and meaningless to the prejudice of the general
public.
Under Article 1409 (1) of the Civil Code, a contract whose cause, object or purpose is
contrary to law is a void or inexistent contract. As such, a void contract cannot produce a valid one. To
the same effect is Article 1422 of the Civil Code, which declares that “a contract, which is
the direct result of a previous illegal contract, is also void and inexistent.”

Rigid application of in pare delicto in void contracts; exception

According to Article 1412 (1) of the Civil Code, the guilty parties to an illegal contract cannot
recover from one another and are not entitled to an affirmative relief because they are in pari delicto
or in equal fault. The doctrine of in pari delicto is a universal doctrine that holds that no action arises,
in equity or at law, from an illegal contract; no suit can be maintained for its specific performance, or
to recover the property agreed to be sold or delivered, or the money agreed to be paid, or damages
for its violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given
to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An
accepted exception arises when its application contravenes well-established public policy.
There is no question that Tarnate provided the equipment, labor and materials for the
project in compliance with his obligations under the subcontract and the deed of assignment; and that
it was Gonzalo as the contractor who received the payment for his contract with the DPWH as well as
the 10% retention fee that should have been paid to Tarnate pursuant to the deed of assignment.
Considering that Gonzalo refused despite demands to deliver to Tarnate the stipulated 10% retention
fee that would have compensated the latter for the use of his equipment in the project, Gonzalo would
be unjustly enriched at the expense of Tarnate if the latter was to be barred from recovering because
of the rigid application of the doctrine of in pari delicto. The prevention of unjust enrichment called for
the exception to apply in Tarnate’s favor.

Metropolitan Bank vs. Absolute Management Corp. | G.R. No. 170498 | January 9, 2013

Facts: Metrobank deposited the AMC checks to Ayala Lumber and Hardware’s account; because of
Chua’s control over AMC’s operations, Metrobank assumed that the checks payable to AMC could be
deposited to Ayala Lumber and Hardware’s account.

Ayala Lumber and Hardware had no right to demand and receive the checks that were deposited to
its account; despite Chua’s control over AMC and Ayala Lumber and Hardware, the two entities are
distinct, and checks exclusively and expressly payable to one cannot be deposited in the account of
the other.

In its fourth-party complaint, Metrobank claims that Chua’s estate should reimburse it if it becomes
liable on the checks that it deposited to Ayala Lumber and Hardware’s account.
Page | 11
Issue: Whether or not Ayala Lumber must return the amount of said checks to Metrobank.

Held: Metrobank acted in a manner akin to a mistake when it deposited the AMC checks to Ayala
Lumber and Hardware’s account because it assumed that the checks payable to AMC could be
deposited to Ayala Lumber and Hardware’s account. This disjunct created an obligation on the part of
Ayala Lumber and Hardware, through its sole proprietor, Chua, to return the amount of these checks
to Metrobank.

This fulfills the requisites of solutio indebiti. Metrobank’s fourth-party complaint falls under the quasi-
contracts enunciated in Article 2154 of the Civil Code. Article 2154 embodies the concept "solutio
indebiti" which arises when something is delivered through mistake to a person who has no right to
demand it. It obligates the latter to return what has been received through mistake. Solutio indebiti, as
defined in Article 2154 of the Civil Code, has two indispensable requisites: first, that something has
been unduly delivered through mistake; and second, that something was received when there was no
right to demand it.

G.R. No. 198799, March 20, 2017

BANK OF THE PHILIPPINE ISLANDS vs. AMADO M. MENDOZA AND
MARIA MARCOS VDA. DE MENDOZA.

PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 is the Decision2 dated February 4, 2011 and the
Resolution3 dated August 26, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 91704, which
reversed and set aside the Decision4 dated May 9, 2007 of the Regional Trial Court of Gapan City,
Nueva Ecija, Branch 87 (RTC) in Civil Case No. 1913, and consequently, dismissed the complaint
filed by petitioner Bank of the Philippine Islands (BPI) against respondents Amado M. Mendoza
(Amado) and his mother, Maria Marcos vda. de Mendoza (Maria; collectively, respondents).

The Facts
This case stemmed from a Complaint for Sum of Money with Application for Writ of Attachment 5 filed
by BPI against respondents before the RTC. BPI alleged that on April 8, 1997, respondents: (a)
opened a foreign currency savings account with Account No. 0584-0007-08 (US savings account) at
BPI-Gapan Branch and deposited therein the total amount of US$16,264.00, broken down as follows:
US$100.00 in cash and US$16,164.00 in US Treasury Check with No. 3149-09693369 payable to
"Ma. Marcos Vda. de Mendoza" (subject check); and (b) placed the amount of US$2,000.00 in a time
deposit account. After the lapse of the thirty (30)-day clearing period on May 9 and 13, 1997,
respondents withdrew the amount of US$16,244.00 from the US savings account, leaving only
US$20.00 for bank charges.6However, on June 26, 1997, BPI received a notice from its
correspondent bank, Bankers Trust Company New York (Bankers Trust), that the subject check was
dishonored due to "amount altered", 7 as evidenced by (1) an electronic mail (e-mail) advice from
Bankers Trust,8 and (2) a photocopy of the subject check with a notation "endorsement cancelled" by
Bankers Trust9 as the original copy of the subject check was allegedly confiscated by the government
of the United States of America (US government).10 This prompted BPI to inform respondents of such
dishonor and to demand reimbursement. 11 BPI then claimed that: (a) on July 18, 1997, respondents
allowed BPI to apply the proceeds of their time deposit account in the amount ofUS$2,015.00 to their
outstanding obligation;12 (b) upon the exhaustion of the said time deposit account, Amado gave BPI a
promissory note dated September 8, 1997 containing his promise to pay BPI-Gapan Branch the
amount of P1,000.00 monthly;13 and (c) when respondents failed to fulfill their obligation despite
repeated demands, BPI was constrained to give a final demand letter 14 to respondents on November
27, 1997.15

For their part, while respondents admitted the withdrawals and exchanged the same with BPI at the
rate of P26.159 per dollar, they did not receive the amount of P582,140.00 from the proceeds.
Respondents then maintained that Amado only affixed his signature in the letter dated July 18, 1997
in order to acknowledge its receipt, but not to give his consent to the application of the proceeds of
their time deposit account to their purported obligations to BPI. According to Amado, he would have
been willing to pay BPI, if only the latter presented proper and authenticated proof of the dishonor of

Page | 12
the subject check. However, since the bank failed to do so, Amado argued that BPI had no cause of
action against him and his mother, Maria.16

The RTC Ruling

In a Decision17 dated May 9, 2007, the RTC ruled in BPI's favor, and accordingly, ordered
respondents to pay: (a) P369,600.51 representing the peso equivalent of amounts withdrawn by
respondent less the amounts already recovered by BPI, plus legal interest of 12% per annum
reckoned from the time the money was withdrawn; and (b) 10% of the aforesaid monetary award
representing attorney's fees. 18
The RTC found that: (a) BPI duly notified respondents of the dishonor of the subject check, thus,
creating an obligation on the part of the respondents to return the proceeds that they had already
withdrawn; and (b) Amado unmistakably acknowledged the same by executing a promissory note
dated September 8, 1997 promising to pay BPI-Gapan Branch the amount of P1,000.00 monthly in
connection with such obligation. In this regard, the RTC opined that since respondents withdrew the
money prior to the dishonor and that BPI allowed such withdrawal by mistake, it is only proper that
respondents return the proceeds of the same pursuant to the principle of solutio indebiti under Article
2154 of the Civil Code. 19
Aggrieved, respondents appealed to the CA.20

The CA Ruling

In a Decision21 dated February 4, 2011, the CA reversed and set aside the RTC's ruling, and
consequently, dismissed BPI's complaint for lack of merit. 22 It held that BPI failed to prove the
dishonor of the subject check, since: (a) the presentation of a mere photocopy of the subject check is
in violation of the Best Evidence Rule; and (b) the e-mail advice from Bankers Trust was not properly
authenticated in accordance with the Rules on Electronic Evidence as the person who sent the e-mail
advice was neither identified nor presented in court. As such, the CA ordered the dismissal of the
complaint due to BPI's failure to prove its claim against respondents. 23
Dissatisfied, BPI moved for reconsideration,24 which was, however, denied in a Resolution25 dated
August 26, 2011; hence, this petition.

The Issue Before the Court

The primordial issue for the Court's resolution is whether or not the CA correctly dismissed BPI's
complaint for sum of money against respondents.

The Court's Ruling

The petition is meritorious.

As a general rule, the Court's jurisdiction in a petition for review on certiorari under Rule 45 of the
Rules of Court is limited to the review of pure questions of law. Otherwise stated, a Rule 45 petition
does not allow the review of questions of fact because the Court is not a trier of facts. 26 Case law
provides that "there is a 'question of law' when the doubt or difference arises as to what the law is on
a certain set of facts or circumstances; on the other hand, there is a 'question of fact' when the issue
raised on appeal pertains to the truth or falsity of the alleged facts. The test for determining whether
the supposed error was one of 'law' or 'fact' is not the appellation given by the parties raising the
same; rather, it is whether the reviewing court can resolve the issues raised without evaluating the
evidence, in which case, it is a question of law; otherwise, it is one of fact." 27 Where there is no
dispute as to the facts, the question of whether or not the conclusions drawn from these facts are
correct is a question of law. However, if the question posed requires a re-evaluation of the credibility
of witnesses, or the existence or relevance of surrounding circumstances and their relationship to
each other, the issue is factual.28

Notably, however, the foregoing general rule admits of several exceptions, such as where the factual
findings of the RTC and the CA are conflicting or contradictory, 29 which is evident in this case. As
such, the Court is constrained to make its own factual findings in order to resolve the issue presented
before it.

Page | 13
To recapitulate, the RTC declared that BPI was able to sufficiently establish by preponderance of
evidence that respondents were duly notified of the dishonor of the subject check, rendering them
liable to refund what they had withdrawn from BPI. Pertinently, it hinged its ruling on the pieces of
evidence presented during the trial, namely: the e-mail printout advice from Bankers Trust informing
BPI that the subject check was dishonored, the BPI letters dated June 27, 1997 and July 18, 1997
addressed to respondents, and the subject promissory note voluntarily executed by Amado. On the
contrary, the CA held that respondents were not liable to BPI for its failure to competently prove the
fact of the subject check's dishonor and its subsequent confiscation by the US government. In this
relation, the CA deemed that the printout of the e-mail advice is inadmissible in evidence for lack of
proper authentication pursuant to the Rules on Electronic Evidence.

After a judicious review of the records, including a re-evaluation of the evidence presented by the
parties, the Court is inclined to sustain the findings of the RTC over that of the CA, as will be
explained hereunder.

It is settled that in civil cases, the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendant's.30 Preponderance of evidence is the weight, credit, and value of the
aggregate evidence on either side and is usually considered to be synonymous with the term 'greater
weight of evidence' or 'greater weight of credible evidence.’ 31 Succinctly put, it only requires that
evidence be greater or more convincing than the opposing evidence. 32

Records evince that BPI was able to satisfactorily prove by preponderance of evidence the existence
of respondents' obligation in its favor. Verily, Amado acknowledged its existence and expressed his
conformity thereto when he voluntarily: (a) affixed his signature in the letters dated June 27,
199733 and July 18, 1997,34 where he acknowledged the dishonor of the subject check, and
subsequently, allowed BPI to apply the proceeds of their US time deposit account to partially offset
their obligation to the bank; and (b) executed a Promissory Note35 dated September 8, 1997 wherein
he undertook to pay BPI in installments of P1,000.00 per month until the remaining balance of his
obligation is fully paid.

On the other hand, aside from his bare testimony, Amado did not present any corroborative evidence
to support his claim that his performance of the aforesaid voluntary acts was subject to BPI's
presentment of the proper and authenticated proof of the dishonored subject check. Amado's
unsubstantiated testimony is self-serving at the most, and hence, cannot be relied upon. 36 In fact, the
RTC did not lend any credence to Amado's testimony in resolving this case. In this regard, it should
be borne in mind that the "findings of the trial court on the credibility of witnesses deserve great
weight, as the trial judge is in the best position to assess the credibility of the witnesses, and has the
unique opportunity to observe the witness firsthand and note his demeanor, conduct and attitude
under gruelling examination. Absent any showing that the trial court's calibration of credibility was
flawed, the appellate court is bound by its assessment," 37 as in this case.

Overall, assessing the pieces of evidence presented by BPI as opposed to the self-serving
allegations of respondents, the weight of evidence clearly preponderates in favor of the former.
Otherwise stated, BPI has proven by the required quantum of proof, i.e., preponderance of evidence,
respondents' obligation towards it, and as such, respondents must be made to fulfill the same.
In any event, the CA erred in concluding that BPI failed to prove the dishonor of the subject check by
merely presenting: (a) a photocopy thereof with its dorsal portion stamped "ENDORSEMENT
CANCELLED" by Bankers Trust;38 and (b) a print-out of the e-mail advice from Bankers Trust stating
that the subject check was returned unpaid because the amount was altered. 39

Anent the subject check, while the Best Evidence Rule under Section 3, Rule 130 40 of the Rules of
Court states that generally, the original copy of the document must be presented whenever the
content of the document is under inquiry, the rule admits of certain exceptions, such as "[w]hen the
original has been lost or destroyed, or cannot be produced in court, without bad faith on the part of
the offeror."41 In order to fall under the aforesaid exception, it is crucial that the offeror proves: (a) the
existence or due execution of the original; (b) the loss and destruction of the original, or the reason for
its non-production in court; and (c) the absence of bad faith on the part of the offeror to which the
unavailability of the original can be attributed. 42

Page | 14
In this case, BPI sufficiently complied with the foregoing requisites. First, the existence or due
execution of the subject check was admitted by both parties. Second, the reason for the non-
presentation of the original copy of the subject check was justifiable as it was confiscated by the US
government for being an altered check. The subject check, being a US Treasury Warrant, is not an
ordinary check, and practically speaking, the same could not be easily obtained. Lastly, absent any
proof to the contrary and for the reasons already stated, no bad faith can be attributed to BPI for its
failure to present the original of the subject check. Thus, applying the exception to the Best Evidence
Rule, the presentation of the photocopy of the subject check as secondary evidence was permissible.
As to the e-mail advice, while it may not have been properly authenticated in accordance with the
Rules on Electronic Evidence, the same was merely corroborative evidence, and thus, its
admissibility or inadmissibility should not diminish the probative value of the other evidence proving
respondents' obligation towards BPI, namely: (a) Amado's voluntary acts of conforming to BPI's
letters dated June 27, 1997 and July 18, 1997 and executing the promissory note to answer for such
obligation; and (b) the photocopy of the subject check, which presentation was justified as falling
under the afore-discussed exception to the Best Evidence Rule. As such, their probative value
remains.

Besides, it should be pointed out that respondents did not proffer any objection to the evidence
presented by BPI, as shown by their failure to file their comment or opposition to the latter's formal
offer of evidence.43 It is well-settled that evidence not objected to is deemed admitted and may validly
be considered by the court in arriving at its judgment, as what the RTC did in this case, since it was in
a better position to assess and weigh the evidence presented during the trial. 44
In sum, considering that BPI had proven its cause of action by preponderance of evidence, the Court
finds the CA to have erred in dismissing BPI's complaint against respondents. Accordingly, the RTC
ruling must be reinstated, subject to modification in the award of interest imposed on the adjudged
amount.

To recount, respondents were ordered by the RTC to pay BPI the amount of P369,600.51
representing the peso equivalent of the amounts withdrawn by respondents less the amounts already
recovered by BPI, plus legal interest of twelve percent (12%) per annum reckoned from the time the
money was withdrawn,45 thus, implying that such amount was a loan or a forbearance of money.
However, records reveal that BPI's payment of the proceeds of the subject check was due to a
mistaken notion that such check was cleared, when in fact, it was dishonored due to an alteration in
the amount indicated therein. Such payment on the part of BPI to respondents was clearly made by
mistake, giving rise to the quasi-contractual obligation of solutio indebiti under Article 215446 in
relation to Article 216347 of the Civil Code. Not being a loan or forbearance of money, an interest of six
percent (6%) per annum should be imposed on the amount to be refunded and on the damages and
attorney's fees awarded, if any, computed from the time of demand until its
satisfaction.48 Consequently, respondents must return to BPI the aforesaid amount, with legal interest
at the rate of six percent (6%) per annum from the date of extrajudicial demand – or on June 27,
1997, the date when BPI informed respondents of the dishonor of the subject check and demanded
the return of its proceeds – until fully paid.

WHEREFORE, the petition is GRANTED. The Decision dated February 4, 2011 and the Resolution
dated August 26, 2011 of the Court of Appeals in CA-G.R. CV No. 91704 is
hereby REVERSED and SET ASIDE. The Decision dated May 9, 2007 of the Regional Trial Court of
Gapan City, Nueva Ecija, Branch 87 in Civil Case No. 1913 is REINSTATED with MODIFICATION,
adjusting the interest imposed on the amount ordered to be returned, i.e., P369,600.51, to six percent
(6%) per annum reckoned from the date of extrajudicial demand on June 27, 1997, until fully paid.
SO ORDERED.

NATURE AND EFFECTS OF OBLIGATIONS

Page | 15
REMEDY:

DELAY:

Spouses Nameal and Lourdes Bonrostro, Petitioners,

vs.
Spouses Juan and Constancia Luna, Respondents.
G.R. No. 172346, July 24, 2013

Facts: Constancia Luna, as buyer, entered into a contract to sell with Bliss Development Corporation
involving a house located in Quezon City. A year after, Luna sold it to Lourdes Bonrostro under the ff.
terms:
The stipulated price of P1,250,000.00 shall be paid by the VENDEE to the VENDOR in the following
manner:
(a) P200,000.00 upon signing x x x [the] Contract To Sell,
(b) P300,000.00 payable on or before April 30, 1993,
(c) P330,000.00 payable on or before July 31, 1993,
(d) P417,000.00 payable to the New Capitol Estate, for 15 years at [P6,867.12] a month,
x x x [I]n the event the VENDEE fails to pay the second installment on time, [t]he VENDEE will pay
starting May 1, 1993 a 2% interest on the P300,000.00 monthly. Likewise, in the event the VENDEE
fails to pay the amount of P630,000.00 on the stipulated time, this CONTRACT TO SELL shall
likewise be deemed cancelled and rescinded and x x x 5% of the total contract price [of]
P1,250,000.00 shall be deemed forfeited in favor of the VENDOR. Unpaid monthly amortization shall
likewise be deducted from the initial down payment in favor of the VENDOR. After execution of the
contract, Bonrostro took possession of the property. However, except for P200,000.00 downpayment,
she failed to pay subsequent amortization. Luna then filed before the RTC a Complaint for Rescission
of Contract and Damages. This is a petition for review on certiorari assailing the decision of CA
affirming with modification the decision of RTC in favor herein respondents.

Issue: Whether or not delay in the payment of installment is a substantial breach of obligation as to
warrant its rescission.
Page | 16
Ruling: No, in a contract to sell, payment of the price is a positive suspensive condition. Failure of
which is not a breach of contract warranting rescission under Article 1191 of the Civil Code, but rather
just an event that prevents the supposed seller from being bound to convey title to the supposed
buyer. The contract to sell entered by the parties refers to real property on installment basis, in which
Art. 1191 cannot apply since they are governed by the Maceda Law. However, there being no breach,
Bonrostro is still not excused from being made liable for interest on the installments due from the date
of default until fully paid. Tender of payment, a manifestation by the debtor of a desire to comply with
or pay an obligation, asserted by Bonrostro for the accrual of interest to be suspended is not a valid
defense because for a tender of payment to take effect it must be accompanied by the means of
payment and debtor must take immediate step to make a consignation, the deposit of the proper
amount with a judicial authority, then interest is suspended from the time of such tender.

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
G.R. No. 160758 January 15, 2014

PONENTE: Bersamin, J.
TOPIC: Contracts, Delay

FACTS:
In July 1976, Guariña Corporation applied for a loan from DBP to finance the development
of its resort complex. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976.
Guariña Corporation executed a promissory note that would be due on November 3, 1988. On
October 5, 1976, Guariña 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, Guariña Corporation
executed a chattelmortgage 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. Prior
to the release of the loan, DBP required Guariña 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 installments, and Guariña Corporation used the proceeds
to defray the cost of additional improvements in the resort complex. In all, the amount released
totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the loan, but DBP refused.
Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s objection. DBP
found upon inspection of the resort project, its developments and improvements that Guariña
Corporation had not completed the construction works. In a letter dated February 27, 1978, and a
telegram dated June 9, 1978, DBP thus demanded that Guariña Corporation expedite the completion
of the project, and warned that it would initiate foreclosure proceedings should Guariña Corporation
not do so.10
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings

ISSUE:
Whether or not Guarina was in delay in performing its obligation making DBP’s action to
foreclose the mortgage proper.

HELD:
NO. The Court held that 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 agreement between DBP and Guariña 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. Loan
is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the
Page | 17
other the debtor. 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.
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. 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.
By its failure to release the proceeds of the loan in their entirety, DBP had no right yet
to exact on Guariña 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. In
other words, the latter party does not incur delay.

Page | 18
 Rivera vs. Chua, G.R. No. 184458 January 14, 2015

FACTS: The parties were friends and kumpadres for a long time already. Rivera obtained a loan from
the Spouses Chua evidenced by a Promissory Note. The relevant parts of the note are the following:
(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA
and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency
(_120,000.00) on December 31, 1995.
(b) It is agreed and understood that failure on my part to pay the amount of (_120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. I agree to pay the sum equivalent to

Page | 19
FIVEPERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid
for.
Three years from the date of payment stipulated in the promissory note, Rivera, issued
and delivered to Spouses Chua two (2) checks drawn against his account at Philippine Commercial
International Bank (PCIB) but upon presentment for payment, the two checks were dishonored forthe
reason “account closed.” As of 31 May 1999, the amount due the Spouses Chua was pegged at
P366,000.00 covering the principal of P120,000.00 plus five percent (5%) interest per month from 1
January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit before
the MeTC, Branch 30, Manila.
The MeTC ruled against Rivera requiring him to pay the spouses Chua P120,000.00 plus stipulated
interest at the rate of 5% per month from 1 January 1996, and legal interest at the rate of 12%
percent per annum from 11 June 1999 and was affirmed by the RTC of Manila. The Court of Appeals
further affirmed the decision upon appeal of the two inferior courts but with modification of lowering
the stipulated interest to 12% per annum. Hence, a petition at the Supreme Court.

ISSUES:
1. Whether or not the Promissory Note executed as evidence of loan falls under Negiotiable
Instruments Law.
2. Whether or not a demand from spouses Chua is needed to make Rivera liable.
3. Whether or not the stipulated interest is unconscionable and should really be lowered.

Held: 1. NO, the Promissory Note executed as evidence of loan does not fall under Negotiable
Instruments Law. The instrument is still governed by the Civil Code as to interpretation of their
obligations. The Supreme Court held that the Instrument was not able to meet the requisites laid
down by Section 1 of the Negotiable Instruments Law as the instrument was made out to specific
persons, herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the
Spouses Chua as payees.

cals not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the person liable on the instrument,
Rivera is still liable under the terms of the Promissory Note that he issued. Article 1169 of the Civil
Code explicitly provides that the demand by the creditor shall not be necessary in order that delay
may exist when the obligation or the law expressly so declare. The clause in the Promissory Note
containing the stipulation of interest (letter B in the above facts) which expressly requires the debtor
(Rivera) to pay a 5% monthly interest from the “date of default” until the entire obligation is fully paid
for. The parties evidently agreed that the maturity of the obligation at a date certain, 31 December
1995, will give rise to the obligation to pay interest.

3. YES, the stipulated interest is unconscionable and should really be lowered. The Supreme Court
held that as observed by Rivera, the stipulated interest of 5% per month or 60% per annum in
addition to legal interests and attorney’s fees is, indeed, highly iniquitous and unreasonable and
stipulated interest rates if illegal and are unconscionable the Court is allowed to temper interest rates
when necessary. Since the interest rate agreed upon is void, the parties are considered to have no
stipulation regarding the interest rate, thus, the rate of interest should be 12% per annum computed
from the date of judicial or extrajudicial demand. However, the 12% per annum rate of legal interest is
only applicable until 30 June 2013, before the advent and effectivity of Bangko Sentral ng Pilipinas
(BSP) Circular No. 799, Series of 2013 reducing the rate of legal interest to 6% per annum. Pursuant
to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is prospectively applied from 1 July
2013.

VICENTE D. CABANTING AND LALAINE V. CABANTING,

v.
BPI FAMILY SAVINGS BANK, INC.

G.R. No. 201927

Third Division
February 17, 2016
Peralta, J.
Page | 20
Facts:

Cabanting bought a Mitsubishi Adventure from Diamond Motors on installment basis. He also
executed a Promissory note with Chattel Mortgage on the vehicle in favor of Diamond Motors wherein
the parties stipulated that in case of failure to pay “the entire sum outstanding under this note shall
immediately become due and payable without the necessity of notice or demand which I/We hereby
waive." On the same day, Diamond motors assigned to BPI Bank all its right, title and interest to the
Promissory note.

When Cabanting failed to pay his monthly amortizations, BPI filed a case for Replevin and
damages against Cabanting. RTC rendered a decision in favor of BPI and ordered Cabanting to pay
his unpaid balance. The decision was affirmed by the CA on appeal. Cabanting now raised as error
that there was no proof of prior demand and that the stipulation on its waiver must be deemed invalid
for being a contract of adhesion.

Issues:

Whether or not prior demand by the respondent bank is necessary before the obligation of
Cabating becomes due and demandable.

Ruling:

No. The Supreme Court held that no prior demand was necessary. Decision of the CA
affirmed. According to the SC:

Petitioners are bound by the aforementioned stipulation in the Promissory Note with Chattel
Mortgage waiving the necessity of notice and demand to make the obligation due and payable. Agner
v. BPI Family Savings Bank, Inc., which is closely similar to the present case, is squarely applicable.
Petitioners therein also executed a Promissory Note with Chattel Mortgage containing the stipulation
waiving the need for notice and demand. The Court ruled:

xxx Even assuming, for argument's sake, that no demand letter was sent by respondent, there
is really no need for it because petitioners legally waived the necessity of notice or demand in the
Promissory Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of
respondent's predecessor-in-interest. Said contract expressly stipulates:

In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay
under this note and/or any other obligation which I/We or any of us may now or in the future owe to
the holder of this note or to any other party whether as principal or guarantor xxx then the entire sum
outstanding under this note shall, without prior notice or demand, immediately become due and
payable.

A provision on waiver of notice or demand has been recognized as legal and valid in Bank of
the Philippine Islands v. Court of Appeals, wherein We held:

The Civil Code in Article 1169 provides that one incurs in delay or is in default from the
time the obligor demands the fulfillment of the obligation from the obligee. However, the law
expressly provides that demand is not necessary under certain circumstances, and one of
these circumstances is when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was unnecessary for them to be in
default.

Further, the Court even ruled in Navarro v. Escobido that prior demand is not a condition
precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of the Rules
of Court that requires the applicant to make a demand on the possessor of the property before an
action for a writ of replevin could be filed.

Page | 21
 Clearly, as stated above, Article 1169 (1) of the Civil Code allows a party to waive the need for
notice and demand. Petitioners' argument that their liability cannot be deemed due and payable for
lack of proof of demand must be struck down.

G.R. No. 191274, December 06, 2017

ERMA INDUSTRIES, INC., ERNESTO B. MARCELO AND FLERIDA O.
MARCELO, Petitioners, v.SECURITY BANK CORPORATION AND SERGIO ORTIZ-LUIS,
JR., Respondents.
DECISION
LEONEN, J.:
This Petition for Review1 is an appeal from the Court of Appeals: (1) Decision 2 dated June 17, 2009,
which affirmed in toto the Decision3 dated May 31, 2004 of Branch 64, Regional Trial Court, Makati
City; and (2) Resolution4 dated February 3, 2010, which denied petitioners' motion for
reconsideration.

On May 5, 1992, Erma Industries, Inc. (Erma) obtained from Security Bank Corporation (Security
Bank) a credit facility, the conditions for which are embodied in the Credit Agreement 5 executed
between the parties.6

On the same date, a Continuing Suretyship 7 agreement was executed in favor of Security Bank, and
signed by Spouses Ernesto and Flerida Marcelo and Spouses Sergio and Margarita Ortiz-Luis. Under
the Continuing Suretyship Agreement, the sureties agreed to be bound by the provisions of the Credit
Agreement and to be jointly and severally liable with Erma in case the latter defaults in any of its
payments with Security Bank.

Following the execution of the two agreements and during the period covering May 1992 to July
1993, Erma obtained various peso and dollar denominated loans from Security Bank evidenced by
promissory notes,8 as follows:

Promissory Note No. Principal Amount Loaned Date Loan was obtained Maturity Date

(Batch One)
FCDL/82/013/92 US$175,000.00 5/14/92 8/10/92
FCDL/82/022/92 US$135,000.00 11/3/92 1/29/93
OACL/82/490/93 P7,300,000.00 7/26/93 10/25/93
OACL/82/509/92 P3,000,000.00 11/9/92 1/29/93
OACL/82/520/92 P1,700,000.00 11/13/92 1/29/93
OACL/82/548/92 P2,000,000.00 11/25/92 1/29/93
(Batch Two)
OACL/82/179/92 P5,580,000.00 8/10/92 11/8/92
OACL/82/341/93 P350,000.00 5/31/93 7/7/93
OACL/82/347/93 P120,000.00 6/2/93 7/7/93
OACL/82/352/93 P479,000.00 6/3/93 7/7/939
The promissory notes uniformly contain the following stipulations:
1. Interest on the principal at varying rates (7.5% per annum for dollar obligation and 16.75% or
21% per annum on peso obligation);
2. Interest not paid when due shall be compounded monthly from due date;
3. Penalty charge of 2% per month of the total outstanding principal and interest due and unpaid;
and
4. Attorney's fees equivalent to 20% of the total amount due plus expenses and costs of
collection.10
After defaulting in the payment of the loans, Erma, through its President, Ernesto Marcelo, wrote a
letter11 dated February 2, 1994 to Security Bank, requesting for the restructuring of the whole of
Page | 22
Erma's obligations and converting it into a five-year loan. 12 A certain property valued at P12 million
covered by TCT No. M-7021 and registered in the name of petitioner Ernesto Marcelo was also
offered as security.13The title was received by Security Bank and has since then remained in its
possession.14

In a letter15 dated April 27, 1994, Security Bank approved the partial restructuring of the loans or only
up to P5 million.16

On May 10, 1994, Erma reiterated its request for the restructuring of the entire obligation. Erma also
stated that the property they offered as collateral could answer for a far bigger amount than what
Security Bank had recommended. Nevertheless, Erma suggested that it could add another property
as additional security so long as the entire obligation is covered. 17

Through a letter18 dated November 8, 1994, Security Bank demanded payment, from Erma and the
sureties, of Erma's outstanding peso and dollar obligations in the total amounts of P17,995,214.47
and US$289,730.10, respectively, as of October 31, 1994.

On January 10, 1995, Security Bank filed a Complaint 19 with the Regional Trial Court of Makati City,
for payment of Erma's outstanding loan obligation plus interests and penalties.

Upon the filing of said Complaint and as "it became clear that the Bank would agree only to partial
restructuring,"20 Erma requested the return of the TCT in its letter dated June 10, 1996. 21 However,
Security Bank retained possession of TCT M-7021.

On June 24, 1999 (after the case was reraffled to Branch 64 from Branch 143), 22 Security Bank filed
its Amended Complaint23 for Sum of Money praying that Erma, Spouses Marcelo, and Spouses Ortiz
be compelled to execute a Real Estate Mortgage in its favor over the property covered by TCT M-
7021.

In Erma and Spouses Marcelo's Amended Answer 24 dated November 9, 1999, a counterclaim against
Security Bank was included for the return of said title to its rightful owner, petitioner Ernesto Marcelo.

Spouses Ortiz, for their part, essentially denied liability. Sergio claimed that he signed the Suretyship
Agreement only as an accommodation party and nominal surety; and his obligation, if any, was
extinguished by novation when the loan was restructured without his knowledge and consent.
Margarita, on the other hand, claimed that she signed the Suretyship Agreement only to signify her
marital consent.25

After trial, the Regional Trial Court rendered its Decision 26 dated May 31, 2004, where it adjudged
Erma liable to pay Security Bank the amounts of P17,995,214.47 and US$289,730.10, inclusive of
the stipulated interest and penalty as of October 31, 1994, plus legal interest of 12% per annum from
November 1, 1994 until full payment is made. 27 Given Erma's partial payments of its loan obligation,
and the serious slump suffered by its export business, the trial court considered iniquitous to still
require Erma to pay 2% penalty per month and legal interest on accrued interest after October
1994.28 The Regional Trial Court further denied Security Bank's prayer for attorney's fees on the
ground that "there was no conscious effort to evade payment of the obligation." 29 It likewise denied
Erma's prayer for attorney's fees.30

Ernesto Marcelo and Sergio Ortiz-Luis were also held liable to Security Bank as sureties. 31 Their
spouses, on the other hand, were not held liable as sureties as they affixed their signatures in the
Continuing Suretyship Agreement only to signify their marital consent. 32 The trial court further held
that there was no novation because the restructuring of Erma's loan obligation whether total or partial,
did not materialize.33 Consequently, Security Bank was ordered to return TCT No. M-7021 to Spouses
Marcelo.34

The Court of Appeals affirmed the Regional Trial Court's Decision in toto.35 It held that there was no
perfected agreement on the restructuring of the loans because Erma never complied with the
condition to submit documentary requirements;36 and Erma did not accept the partial restructuring of
the loan offered by Security Bank.37 On the issue of Sergio Ortiz's liability, the Court of Appeals held
that under the terms of the Continuing Suretyship agreement, Sergio Ortiz undeniably bound himself
Page | 23
jointly and severally with Ernesto Marcelo for the obligations of Erma. 38

Finally, the Court of Appeals agreed with the Regional Trial Court that "the 2% penalty per month ...
imposed by the [B]ank: on top of the 20% interest per annum on the peso obligation and 7.5%
interest per annum on the dollar obligation was iniquitous[.]" 39 Consequently, the Court of Appeals
held that a straight 12% per annum interest on the total amount due would be fair and equitable. In
this regard, Erma's prayer to remand the case to the court a quo for reception of additional evidence
that would further reduce their outstanding obligation was rejected by the Court of Appeals on the
grounds that Erma should have presented all evidence at the trial and that it would unduly delay the
case even further.40

On April 5, 2010, Erma and Spouses Marcelo filed their Petition for Review. In a Resolution 41 dated
April 28, 2010, the Court denied the petition for failure:
(1) to state the material dates when the assailed decision of the Court of Appeals was received and
when petitioners' motion for reconsideration was filed, in violation of Sections 4(b) and 5, Rule 45
in relation to Section 5(d), Rule 56 of the 1997 Rules of Civil Procedure, as amended; and
(2) to sufficiently show any reversible error committed by the Court of Appeals in its decision and
resolution.

However, in a Resolution dated September 27, 2010, the Court granted petitioners' Motion for
Reconsideration and reinstated the Petition. Security Bank Corporation and Sergio R. Ortiz-Luis, Jr.
filed their respective Comments; and petitioners their Consolidated Reply. 42

In compliance with the Court's Resolution43 dated October 8, 2012, petitioners and respondents filed
their respective memoranda.

The issues for resolution are:

First, whether the Court of Appeals and the Regional Trial Court erred in finding that petitioners are
liable to pay respondent Bank the amounts of P17,995,214.47 and US$289,730.10, inclusive of
interests and penalty charge as of October 31, 1994;

Second, whether the Court of Appeals and the Regional Trial Court erred in finding that petitioners
are liable to pay respondent Bank legal interest of twelve percent (12%) per annum from October
1994 until full payment is made;

Third, whether petitioners are entitled to attorney's fees; and

Fourth, whether the Court of Appeals erred in holding respondent Sergio Ortiz - Luis, Jr. solidarily
liable with the petitioners to pay the sums of P17,995,214.47 and US$289,730.10 plus 12% legal
interest.

We deny the petition. The Court of Appeals committed no reversible error in affirming in toto the
decision of the Regional Trial Court.
I

In its Amended Complaint, Security Bank claimed for payment of the total outstanding peso obligation
of P17,995,214.47 and total outstanding dollar obligation of US$289,730.10 as of October 31, 1994.
The Bank additionally claimed for:
(1) Interest of 20% per annum on the peso obligation and 7.5% per annum on the dollar obligation
from November 1, 1994 until fully paid;
(2) Penalty charges of 2% per month on the total outstanding obligation from November 1, 1994 until
fully paid;
(3) Legal interest on the accrued interest from the filing of the Complaint until fully paid; and
(4) Attorney's fees equivalent to 20% of total outstanding obligations, including interests and
penalties.44

Page | 24
The Regional Trial Court denied Security Bank's additional claims for interests and penalty charges
for being iniquitous, and imposed instead a 12% legal interest on the total outstanding obligation.
Agreeing with the trial court, the Court of Appeals explained that it would only be fair and equitable to
impose a straight 12% per annum on the total amount due starting October 1994, rather than the 2%
penalty per month on top of the 20% and 7.5% interest on the peso and dollar obligation, respectively,
being demanded by the Bank.

Petitioners now contend that since the trial and appellate courts found the stipulated interests and
penalty charges to be excessive and iniquitous,45 then the amounts of P17,995,214.47 and
US$289,730.10 adjudged against them (which already incorporated the interests and penalty
charges) should have been reduced to the actual unpaid principals of P12,957,500.00 and
US$209,941.55, respectively, devoid of any interests and penalty charges. 46

Security Bank counters that petitioners raise purely factual questions, which are not proper in a Rule
45 petition before this Court;47 and petitioners' arguments were a mere rehash of their arguments
before the Court of Appeals, which have already been judiciously passed upon. 48

Petitioners are mistaken.

The Regional Trial Court did not delete altogether the 2% monthly penalty charges and stipulated
interests of 7.5% (on the dollar obligations) and 20% (on peso obligations). The trial court, in fact,
adjudged petitioner Erma liable to pay the amounts of P17,995,214.47 and US$289,730.10, inclusive
of the stipulated interest and penalty as of October 31, 1994, on the basis of Article 1308 49 of the Civil
Code and jurisprudential pronouncements on the obligatory force of contracts - not otherwise contrary
to law, morals, good customs or public policy - between contracting parties. 50

The stipulated 7.5% or 21% per annum interest constitutes the monetary or conventional interest for
borrowing money and is allowed under Article 1956 of the New Civil Code. 51 On the other hand, the
penalty charge of 2% per month accrues from the time of Erma's default in the payment of the
principal and/or interest on due date. 52 This 2% per month charge is penalty or compensatory interest
for the delay in the payment of a fixed sum of money, which is separate and distinct from the
conventional interest on the principal of the loan. 53 In this connection, this Court, construing Article
220954 of he Civil Code, held that:
[T]he appropriate measure for damages in case of delay in discharging an obligation consisting of the
payment of a sum or money, is the payment of penalty interest at the rate agreed upon; and in the
absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest
at a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum. 55
Furthermore, the promissory notes provide for monthly compounding of interest: "Interest not paid
when due shall be compounded monthly from due date." 56 Compounding is sanctioned under Article
1959 of the Civil Code:
Article 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest. (Emphasis supplied)
What the trial court did was to stop the continued accrual of the 2% monthly penalty charges on
October 31, 1994, and to thereafter impose instead a straight 12% per annum on the total
outstanding amounts due. In making this ruling, the Regional Trial Court took into account the partial
payments made by petitioners, their efforts to settle/restructure their loan obligations and the serious
slump in their export business in 1993. The Regional Trial Court held that, under those
circumstances, it would be "iniquitous, and tantamount to merciless forfeiture of property" 57 if the
interests and penalty charges would be continually imposed. The Regional Trial Court held:
It is no longer disputed that defendant ERMA was paying interest on its loan obligation until October
1994; that defendant ERMA exerted efforts to settle its obligation to SBC, as in fact it proposed to
SBC the restructuring of its loan; and delivered to SBC, TCT No. M-7021 to manifest its sincere effort
to settle the obligation by way of restructuring its loan obligation into five-year term loan. Additionally,
plaintiff ERMA's export business suffered serious slump in 1993 which prompted it to seek a
restructuring of its entire loan. Were it not for said financial crisis, defendant ERMA would not have
defaulted in the payment of its obligation, or at least the interest thereon.

Page | 25
Recognizing the predicament which ERMA found itself, it is considered iniquitous, and tantamount to
merciless forfeiture of property to require defendant ERMA to continue paying 2% penalty per month
as well as payment of legal interest upon all accrued interest after October 1994. This court therefore
finds plaintiff SBC not entitled to the recovery of the amount corresponding to 2% penalty per month
and to the legal interest on the accrued interest. 58
The Regional Trial Court, as affirmed by the Court of Appeals, acted in accordance with Article 1229
of the Civil Code, which allows judges to equitably reduce the penalty when there is partial or irregular
compliance with the principal obligation, or when the penalty is iniquitous or unconscionable.

Whether a penalty charge is reasonable or iniquitous is addressed to the sound discretion of the
courts and determined according to the circumstances of the case. 59 The reasonableness or
unreasonableness of a penalty would depend on such factors as "the type, extent and purpose of the
penalty, the nature of the obligation, the mode of breach and its consequences, the supervening
realities, the standing and relationship of the parties[.]" 60

For instance, in Palmares v. Court of Appeals,61 the Court eliminated altogether the payment of the
penalty charge of 3% per month for being inequitable and unreasonable. It ruled that the purpose of
the penalty interest - that is to punish the obligor - have been sufficiently served by the compounded
interest of 6% per month on the P30,000 loan. 62

In Tan v. Court of Appeals,63 the continued monthly accrual of the 2% penalty on the total amount due
of about P7.996 million was held to be unconscionable. Considering the debtor's partial payments
and offer to settle his outstanding loan in good faith, the Court found it fair and equitable to reduce the
2% penalty charge, compounded monthly, to a straight twelve (12%) per annum. 64

Similarly, in this case, the Regional Trial Court and the Court of Appeals found it reasonable to reduce
the 2% penalty charges, compounded monthly as to interests due and unpaid, to 12% per annum of
the total outstanding obligations, in light of petitioners' partial payments and their good faith to settle
their obligations. This reduction is essentially discretionary with the trial court and, in the absence of
any abuse of discretion will not be disturbed.

Furthermore, we find no cogent reason to disturb the sums of Pl7,995,214.47 and US$289,730.10
adjudged against the petitioners in favor of Security Bank. Time and again, this Court has held that
factual determinations of the Regional Trial Court, especially when adopted and confirmed by the
Court of Appeals, are final and conclusive65 barring a showing that the findings were devoid of support
or that a substantial matter had been overlooked by the lower courts, which would have materially
affected the result if considered. This case does not fall within any of the recognized exceptions
justifying a factual review in a Rule 45 petition. 66

Petitioners further assert that they should be awarded at least P50,000.00 as attorney's fees for
having been forced to defend themselves in needless litigation. 67

The Court is not persuaded.

The award of attorney's fees under Article 2208 of the Civil Code demands factual, legal and
equitable justification. Even when a claimant is compelled to litigate to defend himself/herself, still
attorney's fees may not be awarded where there is no sufficient showing of bad faith of the other
party.68 It is well within Security Bank's right to institute an action for collection and to claim full
payment.69 Absent any proof that respondent Bank intended to prejudice or injure petitioners when it
rejected petitioners' offer and filed the action for collection, we find no basis to grant attorney's fees.
II

For his part, respondent Sergio Ortiz-Luis, Jr. insists that he is not liable to Security Bank because he
merely signed the Suretyship Agreement as an accommodation party being the Administrative Vice
President of Erma at that time; and there was novation of the Credit Agreement. 70

Respondent Ortiz's position had been consistently rejected by the Regional Trial Court and the Court
of Appeals. The lower courts found that while respondent Ortiz signed the Credit Agreement as an
officer of Erma, as shown by his signature under Erma Industries Inc. (Borrower), 71 this does not
absolve him from liability because he subsequently executed a Continuing Suretyship
Page | 26
agreement72 wherein he guaranteed the "due and full payment and performance" 73 of all credit
accommodations granted to Erma and bound himself solidarily liable with Ernesto Marcelo for the
obligations of Erma. Sections 3 and 11 of the Continuing Suretyship clearly state as follows:
3. Liability of the Surety. - The liability of the Surety is solidary and not contingent upon the pursuit by
the Bank of whatever remedies it may have against the Debtor or the collateralslliens it may possess.
If any of the Guaranteed Obligations is- not paid or performed on due date (at stated maturity or by
acceleration), the Surety shall, without need for any notice, demand or any other act or deed,
immediately become liable therefor and the Surety shall pay and perform the same.

11. Joint and Several Suretyship. - If the Surety is more than one person, all of their obligations under
this Suretyship shall be joint and several with the Debtor and with each other. The Bank may proceed
under this Suretyship against any of the sureties for the entire Guaranteed Obligations, without first
proceeding against the Debtor or any other surety or sureties of the Guaranteed Obligations, and
without exhausting the property of the Debtor, the Surety hereby expressly waiving all benefits under
Article 2058 and Article 2065 and Articles 2077 to 2081, inclusive, of the Civil Code. 74 (Emphasis
supplied)
Furthermore, respondent Ortiz's claim that he is a mere accommodation party is immaterial and does
not discharge him as a surety. He remains to be liable according to the character of his undertaking
and the terms and conditions of the Continuing Suretyship, which he signed in his personal capacity
and not in representation of Erma.

The Court has elucidated on the distinction between an accommodation and a compensated surety
and the reasons for treating them differently:
The law has authorized the formation of corporations for the purpose of conducting surety business,
and the corporate surety differs significantly from the individual private surety. First, unlike the private
surety, the corporate surety signs for cash and not for friendship. The private surety is regarded as
someone doing a rather foolish act for praiseworthy motives; the corporate surety, to the contrary, is
in business to make a profit and charges a premium depending upon the amount of guaranty and the
risk involved. Second, the corporate surety, like an insurance company, prepares the instrument,
which is a type of contract of adhesion whereas the private surety usually does not prepare the note
or bond which he signs. Third, the obligation of the private surety often is assumed simply on the
basis of the debtor's representations and without legal advice, while the corporate surety does not
bind itself until a full investigation has been made. For these reasons, the courts distinguish between
the individual gratuitous surety and the vocational corporate surety. In the case of the corporate
surety, the rule of strictissimi juris is not applicable, and courts apply the rules of interpretation . . . of
appertaining to contracts of insurance.75
Consequently, the rule of strict construction of the surety contract is commonly applied to an
accommodation surety but is not extended to favor a compensated corporate surety.
The rationale of this doctrine is reasonable; an accommodation surety acts without motive of
pecuniary gain and, hence, should be protected against unjust pecuniary impoverishment by
imposing on the principal duties akin to those of a fiduciary. This cannot be said of a compensated
corporate surety which is a business association organized for the purpose of assuming classified
risks in large numbers, for profit and on an impersonal basis, through the medium of standardized
written contractual forms drawn by its own representatives with the primary aim of protecting its own
interests.76
The nature and extent of respondent Ortiz's liability are set out in clear and unmistakable terms in the
Continuing Suretyship agreement. Under its express terms, respondent Ortiz, as surety, is "bound by
all the terms and conditions of the credit instruments." 77 His liability is solidary with the debtor and co-
sureties; and the surety contract remains in full force and effect until full payment of Erma's
obligations to the Bank.78

Respondent Ortiz's claim of novation was likewise rejected by the lower courts. The Regional Trial
Court and the Court of Appeals were in agreement that while there were ongoing negotiations
between Erma and Security Bank for the restructuring of the loan, the same did not
materialize.79 Erma offered to restructure its entire outstanding obligation and delivered TCT No. M-
7021 as collateral, to which Security Bank counter-offered a partial restructuring or only up to
P5,000,000. This counter-offer was not accepted by Erma. There was no new contract executed
between the parties evidencing the restructured loan. Neither did Erma execute a real estate
mortgage over the property covered by TCT No. M-7021.

Page | 27
WHEREFORE, the Petition is DENIED. The Decision dated June 17, 2009 and Resolution dated
February 3, 2010 of the Court of Appeals are AFFIRMED.

SO ORDERED.

[ G.R. No. 208638, January 24, 2018 ]

SPOUSES FRANCISCO ONG AND BETTY LIM ONG, AND SPOUSES JOSEPH ONG CHUAN
AND ESPERANZA ONG CHUAN, PETITIONERS, V. BPI FAMILY SAVINGS BANK, INC.,
RESPONDENT.

DECISION
REYES, JR., J:
This is a Petition for Review under Rule 45 of the Rules of Court, as amended, seeking to reverse
and set aside the Decision[1] dated January 31, 2013 and Resolution[2] dated August 16, 2013 of the
Court of Appeals (CA) in CA-G.R. CV No. 92348
The Facts
Spouses Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and Esperanza Ong
Chuan (collectively referred to as the petitioners) are engaged in the business of printing under the
name and style "MELBROS PRINTING CENTER. [3]
Sometime in December 1996, Bank of Southeast Asia's (BSA) managers, Ronnie Denila and Rommel
Nayve, visited petitioners' office and discussed the various loan and credit facilities offered by their
bank. In view of petitioners' business expansion plans and the assurances made by BSA's managers,
they applied for the credit facilities offered by the latter.
Sometime in April 1997, they executed a real estate mortgage (REM) over their property situated in
Paco, Manila, covered by Transfer Certificate of Title No. 143457, in favor of BSA as security for a
P15,000,000.00 term loan and P5,000,000.00 credit line or a total of P20,000,000.00.
With regard to the term loan, only P10,444,271.49 was released by BSA (the amount needed by the
petitioners to pay out their loan with Ayala life assurance, the balance was credited to their account
with BSA).
With regard to the P5,000,000.00 credit line, only P3,000,000.00 was released. BSA promised to
release the remaining P2,000,000.00 conditioned upon the payment of the P3,000,000.00 initially
released to petitioners.
Petitioners acceded to the condition and paid the P3,000,000.00 in full. However, BSA still refused to
release the P2,000,000.00. Petitioners then refused to pay the amortizations due on their term loan.
Later on, BPI Family Savings Bank (BPI) merged with BSA, thus, acquired all the latter's rights and
assumed its obligations. BPI filed a petition for extrajudicial foreclosure of the REM for petitioners'
default in the payment of their term loan.
In order to enjoin the foreclosure, petitioners instituted an action for damages with Temporary
Restraining Order and Preliminary Injunction against BPI praying for P23,570,881.32 as actual
damages; P1,000,000.00 as moral damages; P500,000.00 as attorney's fees, litigation expenses and
costs of suit.
On November 10, 2008, the trial court rendered its Decision, [4] disposing, thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves in favor of the plaintiffs and
against the defendant bank for the latter to pay the former the above-cited sum of Php20,469,498.00
by way of actual damages and Php500,000.00 by way of attorney's fees.
No pronouncement as to costs.
SO ORDERED.[5]
BPI thereafter appealed to the CA averring that the court a quo erred when it ruled that petitioners
were entitled to damages. BPI posited that petitioners are liable to them on the principal balance of
the mortgage loan agreement.
The CA reversed the decision of the lower court and ruled in favor of BPI, the dispositive portion of
which states:
WHEREFORE, in the light of the foregoing, the assailed Decision dated 10 November 2008 of the
Regional Trial Court, Branch 49, Manila, in Civil Case No. 02-105189 is hereby REVERSED and SET
ASIDE. The Complaint for Damages below is DISMISSEDfor lack of merit.
SO ORDERED.
Petitioners filed a Motion for Reconsideration but the same was denied by the CA in a Resolution
dated August 16, 2013, viz.:

Page | 28
Finding no new matter of substance which would warrant the modification much less the reversal of
the assailed decision, plaintiffs-appellees' motion for reconsideration is hereby DENIED for lack of
merit.
SO ORDERED.[6]
Aggrieved, petitioners filed the present petition.
The Issues
I. WHETHER OR NOT THERE WAS ALREADY AN EXISTING AND BINDING CONTRACT
BETWEEN PETITIONERS AND BSA WITH REGARD TO THE OMNIBUS CREDIT LINE;

II. WHETHER OR NOT BSA INCURRED DELAY IN THE PERFORMANCE OF ITS

OBLIGATIONS;

III. WHETHER OR NOT PETITIONERS ARE ENTITLED TO DAMAGES; and

IV. WHETHER OR NOT BPI CAN FORECLOSE THE MORTGAGE ON THE LAND OF HEREIN
PETITIONERS.[7]
Ruling of the Court
The Court finds merit in the petition.
In fine, petitioners contend that the CA in its assailed decision erred in ruling that that there was no
perfected contract between the parties with respect to the omnibus credit line and that being so, no
delay could be attributed to BPI, the successor-in-interest of BSA. Petitioners likewise pointed out that
it was error for the CA to delve into the matter regarding existence or perfection of a contract,
especially when such issue was never raised by BPI in any of its pleadings or proceedings in the
lower court.
As a rule, a contract is perfected upon the meeting of the minds of the two parties. It is perfected by
mere consent, that is, from the moment that there is a meeting of the offer and acceptance upon the
thing and the cause that constitute the contract. [8]
In the case of Spouses Palada v. Solidbank Corporation, et al.,[9] this Court held that under Article
1934 of the Civil Code, a loan contract is perfected only upon the delivery of the object of the
contract. In that case, although therein petitioners applied for a P3,000,000.00 loan, only the amount
of P1,000,000.00 was approved by therein respondent bank because petitioners became collaterally
deficient. Nonetheless, the loan contract was deemed perfected on March 17, 1997, the date when
petitioners received the P1,000,000.00 loan, which was the object of the contract and the date when
the REM was constituted over the property. [10]
Applying this to the case at bench, there is no iota of doubt that when BSA approved and released the
P3,000,000.00 out of the original P5,000,000.00 credit facility, the contract was perfected.
The conclusion reached by the appellate court that only the term loan of P15,000,000.00 was proved
to have materialized into an actual contract while the P5,000,000.00 omnibus line credit remained
non-existent is ludicrous. A careful perusal of the records reveal that the credit facility that BSA
extended to petitioners was a credit line of P20,000,000.00 consisting of a term loan in the sum of
P15,000,000.00 and a revolving omnibus line of P3,000,000.00 to be used in the petitioner's printing
business. In separate Letters both dated January 31, 1997, BSA approved the term loan and the
credit line. Such approval and subsequent release of the amounts, albeit delayed, perfected the
contract between the parties.
Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor and
the other the debtor.[11] 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.[12]
In this case, BSA did not only incur delay in releasing the pre-agreed credit line of P5,000,000.00 but
likewise violated the terms of its agreement with petitioners when it deliberately failed to release the
amount of P2,000,000.00 after petitioners complied with their terms and paid the first P3,000,000.00
in full. The default attributed to petitioners when they stopped paying their amortizations on the term
loan cannot be sustained by this Court because long before they sent a Letter to BSA informing the
latter of their refusal to continue paying amortizations, BSA had already reneged on its obligation to
release the amount previously agreed upon, i.e., the P5,000,000.00 covered by the credit line.
Article 1170 of the Civil Code enumerates the instances when parties to a contract may be held liable
for damages, viz.:
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.

Page | 29
It bears stressing that petitioners entered into a credit agreement with BSA to enable them to buy
machineries and equipment for their printing business. On its face, it can be gleaned that the purpose
of the credit agreement with BSA was indeed to assist and finance petitioner's business by way of
providing additional funds as working capital or revolving fund. [13]
The direct consequences therefore of the acts of BSA are: the machinery and equipment that were
essential to petitioners' business and requisite for its operations had to be procured so late in time
and had crippled the printing of school supplies, hence, petitioners were constrained to cancel
purchase orders of their clients to petitioners' damage. [14]
BSA claims that the release of the amount covered by the credit line was subject to the "availability of
funds" thus only a part of the proceeds of the entire omnibus line was released.
Assuming for the sake of discussion that the funds at the time were insufficient to cover the entire
P5,000,000.00, BSA should have at least informed petitioners in advance so that the latter could have
resorted to other means to secure the amount needed for their printing business. The omnibus line
was approved and became effective on January 1997 yet BSA did not allow petitioners to draw from
the line until November 1997. Moreover, BSA downgraded petitioners' drawdown to only
P3,000,000.00 despite the clear wordings of their credit agreement whereby petitioners were allowed
to draw any portion or all of the omnibus line not to exceed P5,000,000.00. The almost 10 months
delay in releasing the amount applied for by petitioners negates good faith on the part of BSA.
BPI insists that it acted in good faith when it sought extrajudicial foreclosure of the mortgage and that
it was not responsible for acts committed by its predecessor, BSA. Good faith, however, is not an
excuse to exempt BPI from the effects of a merger or consolidation, viz.:
Section 80. Effects of merger or consolidation. - The merger or consolidation shall have the following
effects:
1. The constituent corporations shall become a single corporation which, in case of merger, shall be
the surviving corporation designated in the plan of merge; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;
xxxx
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the right,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivable due on whatever account, including subscriptions to shares and other
choses in action, and all and every other interest of, or belonging to, or due to each constituent
corporation, shall be deemed transferred to and vested in such surviving or consolidated corporation
without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner as if
such surviving or consolidated corporation had itself incurred such liabilities or obligations;
and any pending claim, action, or proceeding brought by or against any of such constituent
corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of
creditors or liens upon the property of any of such constituent corporations shall not be impaired by
such merger or consolidation. Applying the pertinent provisions of the Corporation Code, BPI did not
only acquire all the rights, privileges and assets of BSA but likewise acquired the liabilities and
obligations of the latter as if BPI itself incurred it.
Moreover, Section 1(e) of the Articles of Merger dated November 21, 2001 provides that all liabilities
and obligations of BSA shall be transferred to and become the liabilities and obligations of BPI in the
same manner as if it had itself incurred such liabilities or obligations. [15]
Pursuant to such merger and consolidation, BPI's right to foreclose the mortgage on petitioner's
property depends on the status of the contract and the corresponding obligations of the parties
originally involved, that is, the agreement between its predecessor BSA and petitioner.
Since BSA incurred delay in the performance of its obligations and subsequently cancelled the
omnibus line without petitioners' consent, its successor BPI cannot be permitted to foreclose the loan
for the reason that its successor BSA violated the terms of the contract even prior to petitioners'
justified refusal to continue paying the amortizations.
The trial court pointed out that based on the evidence presented by petitioners, the latter conformed
to the acquisition of the loan precisely because BSA promised them working capital for the expansion
of their business, viz.:
Clear from the plaintiffs' evidence actually presented and marked is the fact that plaintiffs conformed
to the acquisition of the loan principally upon the promise by BSA that the working capital would be
made available to plaintiffs on time for the opening of classes, for plaintiffs to be able to secure their
machineries and meet the orders of their clients. [16]

Page | 30
The subsequent refusal of BSA in releasing the maximum amount agreed upon, transgressed the
very purpose of petitioners in availing the credit facility. Clearly, given the nature of petitioners'
business, time is of the essence as they needed to have the orders ready before opening of classes.
To emphasize the injury caused to the petitioners due to the bank's delay and subsequent refusal to
release the omnibus loan, the petitioners testified as follows:
And the 4.2 was released... When we originally received the Php 4. 2 Million, we could not push
through with our plan in our business, sir.
The fact that the bank did not allow you to avail of the omnibus line, what is the effect to your
Q
business?
Because I have already manufactured the notebooks for St. Michael and I already sent them
to supermarkets and family stores like SM and Gaisano and they have PO coming, I cannot
A
deliver the goods because of lack of funds. They kept calling and confirming about their PO
Because of this my reputation is going down.

(TSN dated November 28, 2002 pp. 28-29)

Witness And the 4.2 was released... When we originally received the Php 4. 2 Million, we could not
: push through with our plan in our business, sir.

Court: Why?
Because it was not sufficient and money came to us very late with the lines of our plans,
Witness because we are supposed to manufacture notebooks, school items in time for the school
: opening in June, and it was delayed, your Honor. We continued paying our amortization for
two years. We paid almost 7 million.

(TSN dated September 24, 2007 pp. 13 and 14)

Q How important is your working capital to your business?

A The omnibus line is the most important in the business.
Court: The question is, why is it important?
Because I need capital for my business to replenish my supply and to pay the labor and
A:
materials

Atty. and when you said the proceeds of the omnibus line was released only on November 10,
Cinco: 1997, how did this affect your business?
My business suffered badly because I already got the orders from the department stores and
A:
book stores.
(TSN dated September 17, 2004 pp. 43-44)[17]
The CA, on the other hand, is of the opinion that the delay and damages claimed by the petitioners
are mere cloaks to hide their obligations in the mortgage loan agreement.
The Court disagrees.
No evidence was ever presented in the lower courts showing that the petitioners defaulted in paying
their amortizations on the term loan prior to their refusal which was mainly grounded on BSA's failure
to release the amount covered by the omnibus line. Petitioners' continuous payment of amortizations
even during the period between January 1997 and November 1997 (when BSA incurred delay in
releasing the omnibus line credit) is inconsistent with the appellate court's finding that petitioners
intended to hide their obligations in the mortgage loan agreement. Petitioners' refusal to continue
paying was only prompted by BSA's refusal to abide by the terms of the contract. Thus, it would be
the height of injustice to allow BPI to foreclose on the mortgage despite violation of its predecessor
BSA of its principal obligation.
In the case of Development Bank of the Philippines v. Guariña Agricultural and Realty Development
Corp.,[18] the Court ruled that a debtor cannot incur delay unless the creditor has fully performed its
reciprocal obligation, viz.:
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, 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
Page | 31
release of the full loan amount - before it could demand that the borrower repay the loaned amount.
In other words, Guariña Corporation would not incur in delay before DBP fully performed its reciprocal
obligation.[19]
Since the credit facility that BSA extended to petitioners was a credit line total of P20,000,000.00, its
refusal to release the balance on the omnibus line prevented full performance of its obligation to
petitioners. There being no release of the full loan amount, no default could be attributed to
petitioners. In other words, foreclosure was premature.
In Metropolitan Bank v. Wong,[20] the Court declared:
While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagor's failure to
pay his obligation, it is imperative that such right be exercised according to its clear mandate. Each
and every requirement of the law must be complied with, lest, the valid exercise of the right would
end. It must be remembered that the exercise of a right ends when the right disappears, and it
disappears when it is abused especially to the prejudice of others. [21]
BPI was remiss in its duty of looking into the transaction involving the mortgage it sought to foreclose.
As BSA's successor-in-interest, it cannot feign ignorance of transactions entered into by the former
especially when it seeks to benefit from the same by foreclosing the mortgage thereon.
Anent the propriety of awarding damages, the Court upholds the ruling of the trial court that actual
damages in the amount of P2,772,000.00 is proper. Said amount is the computed total difference in
interest paid to other sources and that which should have only been paid to BSA had the latter
complied with the terms of the agreement. However, with regard to the claim of damages
representing petitioners' unrealized profits of P23,570,881.32, the Court agrees with the CA that
petitioners failed to prove with a reasonable degree of certainty, premised upon competent proof and
on the best evidence obtainable, the actual amount of loss. Although petitioners were able to present
in evidence purchase orders, company records and checks, the Court agrees with the appellate court
that these are insufficient as they are self-serving. Although petitioners claimed that these orders
were cancelled, no other evidence was adduced to prove such fact of cancellation.
The law allows the grant of exemplary damages to set an example for the public good. The banking
system has become an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized society. Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and commerce, banks have attained an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and most of all, confidence. For this reason, banks should guard against injury attributable
to negligence or bad faith on its part. [22] Thus, the Court finds it proper to likewise award exemplary
damages in the amount of P100,000.00.
Finally, as to the matter concerning attorney's fees, the Court finds the P500,000.00 awarded by the
trial court to be excessive and should accordingly be reduced to P300,000.00.
WHEREFORE, in light of the foregoing, the petition is hereby GRANTED. The Decision dated
January 31, 2013 of the Court of Appeals in CA-G.R. CV No. 92348 is hereby REVERSED and SET
ASIDE. The questioned extrajudicial foreclosure of real estate mortgage is likewise declared VOID.
Respondent BPI Family Savings Bank, Inc. is hereby ORDERED to pay petitioners Spouses
Francisco Ong and Betty Lim Ong and Spouses Joseph Ong Chuan and Esperanza Ong Chuan the
amount of P2,772,000.00 as actual or compensatory damages; P100,000.00 as exemplary damages;
P300,000.00 as attorney's fees; and interest of six percent (6%) per annum on all the amounts of
damages reckoned from the finality of this decision.
SO ORDERED.

PHILIPPINE NATIONAL BANK vs. CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.

SANTOS, NONENG S. DIANCO, ET AL. G.R. No. 208293, and LINA B. AGUILAR vs. CARMELITA
S. SANTOS, REMYE L. SANTOS, BUENVENIDO L. SANTOS, ET AL. G.R. No. 208295, 10
December 2014

Respondents are children of Angel C. Santos who died on 21 March 1991. Sometime in 1996,
respondents discovered that their father maintained a premium savings account with Philippine
National Bank (PNB), Sta. Elena-Marikina City Branch. As of July 1996, the deposit amounted to
1,759,082.63. Later respondents would also discover that their father also had a time deposit of
1,000,000.00 with PNB. Respondents went to PNB to withdraw their father’s deposit. Lina B. Aguilar,
the Branch Manager of PNB-Sta. Elena-Marikina, required them to submit the following: (1) original or
certified true copy of the Death Certificate of Angel C. Santos; (2) certificate of payment of, or
exemption from, estate tax issued by the Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial

Page | 32
Settlement; and (5) Surety bond effective for two years and in an amount equal to the balance of the
deposit to be withdrawn.

By April 1998, respondents had already obtained the necessary documents, however, when they tried
to withdraw, Aguilar informed them that the deposit had already “been released to a certain Bernardito
Manimbo (Manimbo) on 01 April 1997.” An amount of 1,882,002.05 was released upon presentation
of: (1) an affidavit of self-adjudication purportedly executed by one of the respondents, Remye L.
Santos; (2) a certificate of time deposit dated 14 December 1989 amounting to 1,000,000.00; and (3)
the death certificate of Angel C. Santos, among others. A special power of attorney was purportedly
executed by Reyme L. Santos in favor of Manimbo and a certain Angel P. Santos for purposes of
withdrawing and receiving the proceeds of the certificate of time deposit.

I. STATEMENT OF THE CASE

Respondents filed a complaint for the sum of money and damages against PNB before the Regional
Trial Court of Marikina City questioning the release of the deposit amount to Manibmo who had no
authority from them to withdraw their father’s deposit and who failed to present to PNB all the
requirements for such withdrawal. PNB and Aguilar denied that the deceased had two separate
accounts (premium deposit account and time deposit account) with PNB. They alleged that the
deceased’s deposit account was originally a time deposit account that was subsequently converted in
to a premium savings account. Also, they alleged that Aguilar did not know about Angel C. Santos’s
death in 1991 because she only assumed office in 1996. Manimbo was able to submit an affidavit of
self-adjudication, required surety bond, certificate of payment of estate tax dated 31 March 1997. All
documents appeared to be regular.

PNB and Aguilar filed a third-part complain against Manimbo, Angel P. Santos, and Capital Insurance
and Surety Co., Inc.

The trial court found PNB and Aguilar negligent in releasing the deposit to Manimbo as they failed to
notify the depositor about the maturity of the time deposit and the conversion of the time deposit into
a premium savings account. Subsequently, Aguilar filed a motion for reconsideration which was
denied by the RTC.

Upon appeal to the Court of Appeals, Aguilar contended that she merely implemented PNB’s Legal
Department’s directive to release the deposit to Manimbo. PNB, on the other hand, argued that the
release of the deposit to Manimbo was pursuant to existing policy. CA sustained the trial court’s
findings of negligence in both parties.

PNB and Aguilar filed their separate petitions for review before the Supreme Court.

II. ISSUE

Whether or not Philippine National Bank and Aguilar was negligent in releasing the deposit to
Benardito Manimbo.

III. RULING

Yes, PNB and Aguilar were negligent in handling the deposit of Angel C. Santos.

The contractual relationship between banks and their depositors is governed by the Civil Code
provisions on simple loan. Once a person makes a deposit of his money to the bank, he is considered
to have lent the bank a money. The bank becomes his debtor, and he becomes the creditor of the
bank, which is obligated to pay him on demand.

The default standard of diligence in the performance of obligations is “diligence of a good father of a
family.” However, other industries are bound by law to observe higher standards of diligence because
of the nature of their businesses. Banking is impressed with public interest as it affects the economy
and plays a significant role in commerce. The public reposes its faith and confidence upon banks that
is why the Court recognized the fiduciary nature of banks’ functions, and attached a special standard
of diligence for the exercise of their function––extraordinary diligence.
Page | 33
PNB and Aguilar’s treatment of Angel C. Santos’s account is inconsistent with the high standard of
diligence required of banks. They accepted Manimbo’s representations despite knowledge of the
existence of circumstances that should have raised doubts on such representations. They did not
doubt why no original death certificate could be submitted; why Reyme L. Santos would execute an
affidavit of self-adjudication when he, together with others, had previously asked for the release of
said deposit; and they relied on the certificate of time deposit and Manimbo’s representation that the
passbook was lost when the passbook had just been previously presented to Aguilar for updating.

Their negligence is not based on their failure to accept respondents’ documents as evidence of the
right to claim the subject deposit. Rather, it is based on their failure to exercise the diligence required
of banks when they accepted the fraudulent representations of Manimbo.

BJDC CONSTRUCTION, REPRESENTED BY ITS MANAGER/PROPRIETOR JANET S. DELA

CRUZ, Petitioner,
v.
NENA E. LANUZO, CLAUDETTE E. LANUZO, JANET E. LANUZO, JOAN BERNABE E. LANUZO,
AND RYAN JOSE E. LANUZO, Respondents.
G.R. No. 161151, March 24, 2014
PONENTE: Bersamin, J.
TOPIC: Negligence
FACTS:
This case involves a claim for damages arising from the death of a motorcycle rider in a
nighttime accident due to the supposed negligence of a construction company then undertaking re–
blocking work on a national highway. The plaintiffs insisted that the accident happened because the
construction company did not provide adequate lighting on the site, but the latter countered that
the fatal accident was caused by the negligence of the motorcycle rider himself.
Nena alleged that she was the surviving spouse of the late Balbino who figured in the
accident that transpired at the site of the re–blocking work at about 6:30 p.m. on October 30, 1997;
that Balbino’s Honda motorcycle sideswiped the road barricadeplaced by the company in the
right lane portion of the road, causing him to lose control of his motorcycle and to crash on the
newly cemented road, resulting in his instant death; and that the company’s failure to place
illuminated warning signs on the site of the project, especially during night time, was the proximate
cause of the death of Balbino.
In its answer, BJDC denied Nena’s allegations of negligence, insisting that it had installed
warning signs and lights along the highway and on the barricades of the project; that at the time of the
incident, the lights were working and switched on; that its project was duly inspected by
the Department of Public Works and Highways (DPWH), the Office of the Mayor of Pili, and the Pili
Municipal Police Station; and that it was found to have satisfactorily taken measures to ensure the
safety of motorists.
ISSUE:
Whether or not heirs of Balbino were able to establish by preponderance of evidence the
negligence of BJDC.
HELD:
NO. The party alleging the negligence of the other as the cause of injury has the burden to
establish the allegation with competent evidence. If the action based on negligence is civil in nature,
the proof required is preponderance of evidence.
In civil cases, the burden of proof is on the party who would be defeated if no evidence is
given on either side. The burden of proof is on the plaintiff if the defendantdenies the factual
allegations of the complaint in the manner required by the Rules of Court, but it may rest on
the defendant if he admits expressly or impliedly the essential allegations but
raises affirmative defense or defenses, which if proved, will exculpate him from liability.
The Court affirmed the findings of the RTC, and rules that the Lanuzo heirs, the parties
carrying the burden of proof, did not establish by preponderance of evidence that the negligence on
the part of the company was the proximate cause of the fatal accident of Balbino.
During the trial, the Lanuzo heirs attempted to prove inadequacy of illumination instead of
the total omission of illumination. In contrast, the company credibly refuted the allegation of
inadequate illumination. The Court observes, too, that SPO1 Corporal, a veteran police officer
detailed for more than 17 years at the Pili Police Station, enjoyed the presumption of regularity in the
Page | 34
performance of his official duties. In his report, it was mentioned that “upon arrival at the scene of the
incident it was noted that road sign/barricade installed on the road has a light.”

BIGNAY EX-IM PHILIPPINES, INC., Petitioner,

vs.
UNION BANK OF THE PHILIPPINES, Respondent.
G.R. No. 171590 February 12, 2014

PONENTE: Del Castillo, J.

TOPIC: Negligence
FACTS:
In 1988, Rosario filed against Alfonso and Union Bank, Civil Case No. Q-52702 for
annulment of the 1984 mortgage, claiming that Alfonso mortgaged the property without her consent,
and for reconveyance.
In a September 6, 1989 Letter-Proposal, Bignay Ex-Im Philippines, Inc. (Bignay), through
its President, Milagros Ong Siy (Siy), offered to purchase the property.
On December 20, 1989, a Deed of Absolute Sale6 was executed by and between Union
Bank and Bignay whereby the property was conveyed to Bignay for P4 million. The deed of sale was
executed by the parties through Bignay’s Siy and Union Bank’s Senior Vice President Anthony Robles
(Robles). One of the terms of the deed of sale is quoted below:
Section 1. The VENDEE hereby recognizes that the Parcel/s of Land with improvements
thereon is acquired through foreclosure proceedings and agrees to buy the Parcel/s of Land with
improvements thereon in its present state and condition. The VENDOR therefore does not make any
x x x representations or warranty with respect to the Parcel/s of Land but that it will defend its title to
the Parcel/s of Land with improvements thereon against the claims of any person whomsoever.
On December 12, 1991, a Decision8was rendered in Civil Case No. Q-52702 in favor
of Alfonso. Union Bank appealed the above Decision with the CA. It likewise sought a new trial of the
case, which the trial court denied. The CA appeal was dismissed for failure to file appellant’s brief; the
ensuing Petition for Review with this Court was similarly denied for late filing and payment of legal
fees.
Union Bank next filed with the CA an action to annul the trial court’s December 12,
1991 judgment. In a September 9, 1993 Resolution, however, the CA again dismissed the Petition for
failure to comply with Supreme Court Circular No. 28-91. The bank’s Motion for Reconsideration was
once more denied.
This time, Bignay filed a Petition for annulment of the December 12, 1991 Decision,
docketed as CA-G.R. SP No. 33901. In a July 15, 1994 Decision, the CA dismissed the Petition.
Bignay’s resultant Petition for Certiorari with this Court suffered the same fate.
Meanwhile, as a result of the December 12, 1991 Decision in Civil Case No. Q-52702,
Bignay was evicted from the property; by then, it had demolished the existing structure on the lot and
begun construction of a new building.
ISSUE:
Whether or not Union Bank was grossly negligent in this case.
HELD:
YES. The Court held that the gross negligence of the seller in defending its title to the
property subject matter of the sale – thereby contravening the express undertaking under the deed of
sale to protect its title against the claims of third persons resulting in the buyer’s eviction from the
property, amounts to bad faith, and the buyer is entitled to the remedies afforded under Article 1555 of
the Civil Code.
The record reveals that Union Bank was grossly negligent in the handling and prosecution
of Civil Case No. Q-52702. Its appeal of the December 12, 1991 Decision in said case was dismissed
by the CA for failure to file the required appellant’s brief. Next, the ensuing Petition for Review on
Certiorari filed with this Court was likewise denied due to late filing and payment of legal fees. Finally,
the bank sought the annulment of the December 12, 1991 judgment, yet again, the CA dismissed the
petition for its failure to comply with Supreme Court Circular No. 28-91. As a result, the December 12,
1991 Decision became final and executory, and Bignay was evicted from the property. Such
negligence in the handling of the case is far from coincidental; it is decidedly glaring, and amounts to
bad faith. “Negligence may be occasionally so gross as to amount to malice [or bad faith].” Indeed, in
culpa contractual or breach of contract, gross negligence of a party amounting to bad faith is a ground
for the recovery of damages by the injured party.

Page | 35
 EASTERN SHIPPING LINES INC., Petitioner,

vs.

BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD., Respondents.

G.R. No. 193986 January 15, 2014

PONENTE: Villarama Jr., J.

TOPIC: Negligence

FACTS:

Sumitomo Corporation shipped through vessels of Eastern Shipping Lines various steel
sheets in coil in favor of the consignee Calamba Steel. In each of the three shipments, several coils
were observed to be in bad condition as evidenced by the Turn Over Survey of Bad Order Cargo.
The cargoes were then turned over to Asian Terminals, Inc. (ATI) for stevedoring, storage and
safekeeping pending Calamba Steel’s withdrawal of the goods. When ATI delivered the cargo to
Calamba Steel, the latter rejected its damaged portion for being unfit for its intended purpose.

Calamba Steel filed an insurance claim with Mitsui through the latter’s 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.
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.

ISSUE:

Whether or not Eastern Shipping was solidarily liable with ATI on account of the damage
incurred by the goods.

HELD:

YES. The Court held that both Eastern Shipping and ATI were negligent in handling and
transporting the goods.

Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded
generally remain under the custody of the carrier. 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 1734 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.

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

Page | 36
proving that they observed such high level of diligence. In this case, petitioner failed to hurdle such
burden.

G.R. No. 192123 March 10, 2014

DR. FERNANDO P. SOLIDUM, Petitioner,

vs.

PEOPLE OF THE PHILIPPINES, Respondent.

Facts:
Gerald Albert Gercayo (Gerald) was born on June 2, 1992 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, enabling him to excrete through a colostomy bag attached to the side of
his body.

On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng Maynila for a pull-
through operation. Dr. Leandro Resurreccion headed the surgical team, and was assisted by Dr.
Joselito Luceño, Dr. Donatella Valeña and Dr. Joseph Tibio. The anesthesiologists included Dr.
Marichu Abella, Dr. Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum). During the
operation, Gerald experienced bradycardia, and went into a coma. His coma lasted for two weeks,
but he regained consciousness only after a month. He could no longer see, hear or move.

Agitated by her son’s helpless and unexpected condition, Ma. Luz Gercayo (Luz) lodged a complaint
for reckless imprudence resulting in serious physical injuries with the City Prosecutor’s Office of
Manila against the attending physicians.

On July 19, 2004, the RTC and CA rendered its judgment finding Dr. Solidum guilty beyond
reasonable doubt of reckless imprudence resulting in serious physical injuries and ordering her to
indemnify, jointly and severally with the Ospital ng Maynila, private complainant Luz Gercayo, for
damages.

Issue:
Whether Ospital ng Maynila shall be held jointly and severally liable with Dr. Solidum with regard to
indemnification for damages

Ruling:
No. The judgment 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. 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 judgment rendered against Ospital ng Maynila
void was the product of grave abuse of discretion amounting to lack of jurisdiction.

The 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. However, Ospital ng Maynila, being a public hospital, was not engaged in
industry conducted for profit but purely in charitable and humanitarian work. 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
Page | 37
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 him being insolvent.

BRION, J.:
These are consolidated petitions for review on certiorari assailing the Court of Appeals' (CA) August
30, 2012 decision and February 14, 2013 Resolution in CA-G.R. CV No. 93881.[1] The CA set aside
the Regional Trial Court's (RTC) dismissal of Civil Case No. Q-06-57154[2] and remanded the case
for further proceedings.

Antecedents

The respondent Narciso Kho is the sole proprietor of United Oil Petroleum, a business engaged in
trading diesel fuel. Sometime in December 2006, he entered into a verbal agreement to purchase
lubricants from Red Orange International Trading (Red Orange), represented by one Rudy Medel.
Red Orange insisted that it would only accept a Land Bank manager's check as payment.

On December 28, 2005, Kho, accompanied by Rudy Medel, opened Savings Account No. 0681-
0681-80 at the Araneta Branch of petitioner Land Bank of the Philippines (Land Bank).[3] His
initial P25,993,537.37 deposit[4] consisted of the following manager's checks:

UCPB Del Monte Branch

1 PHP 15,000,000
Check No. 19107
E-PCI Banawe Branch
2 PHP 2,900,000
Check No. 26200720
I.E. Bank Retiro Branch
3 PHP 8,093,537.37
Check No. 1466
These checks were scheduled for clearance on January 2, 2006.

Kho also purchased Land Bank Manager's Check No. 07410 leveraged by his newly opened savings
account. Recem Macarandan, the Acting Operations Supervisor of the Araneta branch, and Leida
Benitez, the Document Examiner, prepared and signed the check.[5]

The check was postdated to January 2, 2006, and scheduled for actual delivery on the same date
after the three checks were expected to have been cleared. It was valued at P25,000,000.00 and
made payable to Red Orange.[6]

Kho requested a photocopy of the manager's check to provide Red Orange with proof that he had
available funds for the transaction. The branch manager, petitioner Ma. Lorena Flores,
accommodated his request. Kho gave the photocopy of the check to Rudy Medel. [7]

On January 2, 2006, Kho returned to the bank and picked up check No. 07410. Accordingly,
P25,000,000.00 was debited from his savings account.

Unfortunately, his deal with Red Orange did not push through.

On January 3, 2006, an employee of the Bank of the Philippine Islands (BPI) called Land Bank,
Araneta Branch, to inform them that Red Orange had deposited check No. 07410 for payment. Flores
confirmed with BPI that Land Bank had issued the check to Kho. [8]

On January 4, 2006, the Central Clearing Department (CCD) of the Land Bank Head Office faxed a
copy of the deposited check to the Araneta branch for payment. The officers of the Araneta
branch examined the fax copy and thought that the details matched the check purchased by Kho.
Thus, Land Bank confirmed the deposited check.[9]

On January 5, 2006, Flores informed Kho by phone that Check No. 07410 was cleared and paid by
Page | 38
the BPI, Kamuning branch.[10]

Shocked, Kho informed Flores that he never negotiated the check because the deal did not
materialize. More importantly, the actual check was still in his possession.[11]

Kho immediately went to Land Bank with the check No. 07410. They discovered that what was
deposited and encashed with BPI was a spurious manager's check. [12] Kho demanded the
cancellation of his manager's check and the release of the remaining money in his account (then
P995,207.27).[13] However, Flores refused his request because she had no authority to do so at the
time.

Kho returned to the Land Bank, Araneta branch on January 12, 2006, with the same demands. He
was received by petitioner Alexander Cruz who was on his second day as the Officer in Charge (OIC)
of the Araneta branch.[14] Cruz informed him that there was a standing freeze order on his account
because of the (then) ongoing investigation on the fraudulent withdrawal of the manager's check. [15]

On January 16, 2006, Kho sent Land Bank a final demand letter for the return of his P25,000,000.00
and the release of the P995,207.27 from his account but the bank did not comply.

Hence, on January 23, 2006, Kho filed a Complaint for Specific Performance and Damages against
Land Bank, represented by its Araneta Avenue Branch Manager Flores and its OIC Cruz. He also
impleaded Flores and Cruz in their personal capacities. The complaint was docketed as Civil Case
No. Q-06-57154.

Kho asserted that the manager's check No. 07410 was still in his possession and that he had no
obligation to inform Land Bank whether or not he had already negotiated the check. [16]

On the other hand, Land Bank argued that Kho was negligent because he handed Medel a photocopy
of the manager's check and that this was the proximate cause of his loss. [17]

On April 30, 2009, the RTC dismissed the complaint. [18]

Citing Associated Bank v. Court of Appeals, the RTC reasoned that the failure of the
purchaser/drawer to exercise ordinary care that substantially contributed to the making of the forged
check precludes him from asserting the forgery. [19] It held that (1) Kho's act of giving Medel a
photocopy of the check and (2) his failure to inform the bank that the transaction with Red Orange did
not push through were the proximate causes of his loss. [20]

The RTC also found that Flores and Cruz acted in good faith in performing their duties as officers of
Land Bank when they refused to cancel the manager's check and disallowed Kho from withdrawing
from his account.[21]

Kho appealed to the CA where the case was docketed as CA-G.R. CV No. 93881.

On August 30, 2012, the CA set aside the RTC's decision and remanded the case for further
proceedings.

The CA pointed out that Land Bank was conducting an investigation to determine whether there was
a fraudulent negotiation of the manager's check No. 07410. It held that the outcome of the
investigation - which was not yet available during the trial - is crucial to the resolution of the case. It
noted that the RTC's ruling on Kho's negligence in dealing with Medel preempted the outcome of
Land Bank's investigation.[22] Thus, it remanded the case to the RTC with the directive to consider the
outcome of the investigation.

Dissatisfied, Land Bank, Flores, and Cruz, filed separately petitions for review on certiorari before this
Court.

The Arguments

Page | 39
Land Bank asserts that neither party denied the spurious nature of the manager's check that was
deposited with BPI. Therefore, the conclusion of its investigation as to the fraudulent negotiation
of check No. 07410 is immaterial to the resolution of the case.[23]

Land Bank adopts the RTC's conclusion that Kho is precluded from, asserting the forgery of check
No. 07410 because his negligence substantially contributed to his loss. [24]

The bank highlights the following instances of Kho's negligence:

Kho transacted with Rudy Medel, a person he barely knew, without verifying Medel's actual
(1)
relationship with Red Orange. In fact, Kho even mistook him as "Rudy Rodel" in his complaint;
Kho accorded Medel an unusual degree of trust. He brought Medel with him to the bank and
(2)
carelessly gave the latter a photocopy of the manager's check; and
When he picked up check No. 07410 on January 2, 2006, Kho did not even bother to inform
(3) Land Bank that his transaction with Red Orange did not push through. He could have prevented
or detected the duplication of the check if he had simply notified the bank. [25]

Flores and Cruz maintain that they did not incur any personal liability to Kho because they were only
performing their official duties in good faith. They insist that their alleged wrongdoing, if there was any,
were corporate acts performed within the scope of their official authority; therefore, only Land Bank
should be made liable for the consequences.[26]

For his part, Kho adopts the CA's arguments and reasoning in CA-G.R. CV No. 93881.[27]

Our Ruling

At the outset, we agree with Land Bank's contention that the result of its investigation is not
indispensable to resolving this case. After all, it was not conducted by an independent party but by a
party-litigant. We cannot expect the report to yield a completely impartial result. At best, the
investigation report will be of doubtful probative value.

More importantly, all the facts necessary to decide the case are already available. Although they have
reached different legal conclusions, both the RTC and the CA agree that:

 On December 28, 2005, Kho opened an account with Land Bank in order to leverage a
business deal with Red Orange;

 He purchased Land Bank Manager's check No. 07410 worth P25,000,000.00 payable to Red
Orange and dated January 2, 2006;

 He also gave Rudy Medel a photocopy of the check that the bank had given him;

 After his visit to the Bank, the deal with Medel and Red Orange did not push through;

 He picked up check No. 07410 from the bank on January 2, 2006, without informing the bank
that the deal did not materialize;

 Afterwards, Red Orange presented a spurious copy of check No. 07410 to BPI, Kamuning for
payment;

Page | 40
  Land Bank cleared the check;

 However, Kho never negotiated the actual check. It was in his possession the whole time.

This case can already be resolved based on these undisputed facts. Therefore, the CA erred when it
remanded the case for further proceedings.

That said, we cannot agree that the proximate causes of the loss were Kho's act of giving Medel a
photocopy of check No. 07410 and his failure to inform Land Bank that his deal with Red Orange did
not push through.

Proximate cause - which is determined by a mixed consideration of logic, common sense, policy, and
precedent — 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."[28]

We cannot understand how both the RTC and the CA overlooked the fact that Land Bank's officers
cleared the counterfeit check. We stress that the signatories of the genuine check No. 07410 were
Land Bank's officers themselves.

The business of banking is imbued with public interest; it is an industry where the general public's
trust and confidence in the system is of paramount importance. [29] Consequently, banks are expected
to exert the highest degree of, if not the utmost, diligence. They are obligated to treat their
depositors' accounts with meticulous care, always keeping in mind the fiduciary nature of their
relationship.[30]

Banks hold themselves out to the public as experts in determining the genuineness of checks and
corresponding signatures thereon.[31]Stemming from their primordial duty of diligence, one of a bank's
prime duties is to ascertain the genuineness of the drawer's signature on check being encashed.
[32]
This holds especially true for manager's checks.

A manager's check is a bill of exchange drawn by a bank upon itself, and is accepted by its issuance.
It is an order of the bank to pay, drawn upon itself, committing in effect its total resources, integrity,
and honor behind its issuance. The check is signed by the manager (or some other authorized officer)
for the bank. In this case, the signatories were Macarandan and Benitez.

The genuine check No. 07410 remained in Kho's possession the entire time and Land Bank admits
that the check it cleared was a fake. When Land Bank's CCD forwarded the deposited check to its
Araneta branch for inspection, its officers had every opportunity to recognize the forgery of their
signatures or the falsity of the check. Whether by error or neglect, the bank failed to do so, which led
to the withdrawal and eventual loss of the P25,000,000.00.

This is the proximate cause of the loss. Land Bank breached its duty of diligence and assumed the
risk of incurring a loss on account of a forged or counterfeit check. Hence, it should suffer the
resulting damage.

We cannot agree with the Land Bank and the RTC's positions that Kho is precluded from invoking the
forgery. A drawer or a depositor of the bank is precluded from asserting the forgery if the drawee bank
can prove his failure to exercise ordinary care and if this negligence substantially contributed to the
forgery or the perpetration of the fraud.

In Gempesaw v. Court of Appeals,[33] Natividad Gempesaw, a businesswoman, completely placed her

trust in her bookkeeper. Gempesaw allowed her bookkeeper to prepare the checks payable to her
suppliers. She signed the checks without verifying their amounts and their corresponding invoices.
Despite receiving her banks statements, Gempesaw never verified the correctness of the returned
checks nor confirmed if the payees actually received payment. This went on for over two years,
allowing her bookkeeper to forge the indorsements of over 82 checks.

Gempesaw failed to examine her records with reasonable diligence before signing the checks and
after receiving her bank statements. Her gross negligence allowed her bookkeeper to benefit from the
Page | 41
subsequent forgeries for over two years.

Gempesaw's negligence precluded her from asserting the forgery. Nevertheless, we adjudged the
drawee Bank liable to share evenly in her loss for its failure to exercise utmost diligence, which
amounted to a breach of its contractual obligations to the depositor. [34]

In Associated Bank v. Court of Appeals,[35] the province of Tarlac (the depositor) released 30 checks
payable to the order of a government hospital to a retired administrative officer/cashier of the hospital.
The retired officer forged the hospital's indorsement and deposited the checks into his personal
account. This took place for over three years resulting in the accumulated loss of P203,300.00. We
found the province of Tarlac grossly negligent, to the point of substantially contributing to its loss. [36]

Nevertheless, we apportioned the loss evenly between the province of Tarlac and the drawee bank
because of the bank's failure to pay according to the terms of the check. Tt violated its duty to charge
the customer's account only for properly payable items. [37]

Kho's negligence does not even come close to approximating those of Gempesaw or of the province
of Tarlac. While his act of giving Medel a photocopy of the check may have allowed the latter to
create a duplicate, this cannot possibly excuse Land Bank's failure to recognize that the check itself
- not just the signatures - is a fake instrument. More importantly, Land Bank itself furnished Kho the
photocopy without objecting to the latter's intention of giving it to Medel.

Kho's failure to inform Land Bank that the deal did not push through as of January 2, 2006, does not
justify Land Bank's confirmation and clearing of a fake check bearing the forged signatures of its own
officers. Whether or not the deal pushed through, the check remained in Kho's possession. He was
entitled to a reasonable expectation that the bank would not release any funds corresponding to the
check.

Lastly, we agree with the RTC's finding that neither Flores nor Cruz is liable to Kho in their private
capacities. Their refusal to honor Kho's demands was made in good faith pursuant to the directives of
the Land Bank's management.

As a pillar of economic development, the banking industry is impressed with public interest. The
general public relies on banks' sworn duty to serve with utmost diligence. Public trust and confidence
in banks is critical to a healthy, stable, and well-functioning economy. Let this serve as a reminder for
banks to always act with the highest degree of diligence and the most meticulous attention to detail.

WHEREFORE, we PARTLY GRANT the petitions. The Court of Appeals' August 30, 2012 decision
and February 14, 2013 resolution in CA-G.R. CV No. 93881 are SET ASIDE. The Regional Trial
Court's April 30, 2009 decision in Civil Case No. Q-06-57154 is REVERSED.

Petitioner Land Bank of the Philippines is ORDERED:

(1) to PAY Narciso Kho the sum of TWENTY FIVE MILLION PESOS (P25,000,000.00), plus interest
at the legal rate reckoned from the filing of the complaint; and

(2) to ALLOW Narciso Kho to withdraw his remaining funds from Savings Account No. 0681-0681-
80.

SO ORDERED.

ABROGAR vs. COSMOS BOTTLING COMPANY and INTERGAMES INC.

G.R. No. 064749
March 15, 2017

Facts:

Page | 42
This case involves a claim for damages arising from the negligence causing the death of a participant
in an organized marathon bumped by a passenger jeepney on the route of the race. The issues
revolve on whether the organizer and the sponsor of the marathon were guilty of negligence, and, if
so, was their negligence the proximate cause of the death of the participant; on whether the
negligence of the driver of the passenger jeepney was an efficient intervening cause; on whether the
doctrine of assumption of risk was applicable to the fatality; and on whether the heirs of the fatality
can recover damages for loss of earning capacity of the latter who, being then a minor, had no gainful
employment.

In the RTC decision dated May 10, 1991, judgment was rendered in favor of plaintiffs-spouses
Romulo Abrogar and Erlinda Abrogar and against defendants Cosmos Bottling Company, Inc. and
Intergames, Inc., ordering both defendants, jointly and severally, to pay and deliver to the plaintiffs the
amounts of Twenty Eight Thousand Sixty One Pesos and Sixty Three Centavos (P28,061.63) as
actual damages; One Hundred Thousand Pesos (P100,000.00) as moral damages; Fifty Thousand
Pesos (P50,000.00) as exemplary damages and Ten Percent (10%) of the total amount of One
Hundred Seventy Eight Thousand Sixty One Pesos and Sixty Three Centavos (P178,061,63) or
Seventeen Thousand Eight Hundred Six Pesos and Sixteen Centavos (P17,806.16) as attorney's
fees. On the cross-claim of defendant Cosmos Bottling Company, Inc., defendant Intergames, Inc, is
hereby ordered to reimburse to the former any and all amounts which may be recovered by the
plaintiffs from it by virtue of this Decision.

The RTC observed that the safeguards allegedly instituted by Intergames in conducting the marathon
had fallen short of the yardstick to satisfy the requirements of due diligence as called for by and
appropriate under the circumstances; that the accident had happened because of inadequate
preparation and Intergames' failure to exercise due diligence; that the respondents could not be
excused from liability by hiding behind the waiver executed by Rommel and the permission given to
him by his parents because the waiver could only be effective for risks inherent in the marathon, such
as stumbling, heat stroke, heart attack during the race, severe exhaustion and similar occurrences;
that the liability of the respondents towards the participants and third persons was solidary, because
Cosmos, the sponsor of the event, had been the principal mover of the event, and, as such, had
derived benefits from the marathon that in turn had carried responsibilities towards the participants
and the public; that the respondents' agreement to free Cosmos from any liability had been an
agreement binding only between them, and did not bind third persons; and that Cosmos had a cause
of action against Intergames for whatever could be recovered by the petitioners from Cosmos.

All parties appealed to the CA. The petitioners contended that the RTC erred in not awarding
damages for loss of earning capacity on the part of Rommel for the reason that such damages were
not recoverable due to Rommel not yet having finished his schooling; and that it would be premature
to award such damages upon the assumption that he would finish college and be gainfully employed.
The CA reduced the issues to four, namely:

1. Whether or not appellant Intergames were negligent in its conduct of the 1st Pop Cola Junior
Marathon" held on June 15, 1980 and if so, whether its negligence was the proximate cause of the
death of Rommel Abrogar.

2. Whether or not appellant Cosmos can be held jointly and solidarity liable with appellant Intergames
for the death of Rommel Abrogar, assuming that appellant Intergames is found to have been
negligent in the conduct of the Pop Cola marathon and such negligence was the proximate cause of
the death of Rommel Abrogar.

3. Whether or not the appellants Abrogar are entitled to be compensated for the "loss of earning
capacity" of their son Rommel.

4. Whether or not the appellants Abrogar are entitled to the actual, moral, and exemplary damages
granted to them by the Trial Court. In its assailed judgment on March 10, 2004 and in view of the fact
that both defendants are not liable for the death of Rommel Abrogar, appellants-spouses are not
entitled to actual, moral, exemplary damages as well as for the "loss of earning capacity" of their son.
The third and fourth issues are thus moot and academic. UPON THE VIEW OF THIS CASE, THUS,
the judgment appealed from must be, as it hereby is, REVERSED and SET ASIDE and another
entered DISMISSING the complaint a quo. The appellants shall bear their respective costs.
Page | 43
Issues:

1. Whether or not the CA gravely erred in reversing the RTC Decision, (and) in holding that
respondent Intergames was not negligent considering that:

A. Respondent Intergames failed to exercise the diligence of a good father of the family in the
conduct of the marathon in that it did not block off from traffic the marathon route; and

B. Respondent Intergames' preparations for the race, including the number of marshal during the
marathon, were glaringly inadequate to prevent the happening of the injury to its participants.

2. Whether or not the CA gravely erred in reversing the RTC Decision, (and) in holding that the
doctrine of assumption of risk finds application to the case at bar even though getting hit or run over
by a vehicle is not an inherent risk in a marathon race. Even assuming arguendo that deceased
Abrogar made such waiver as claimed, still there can be no valid waiver of one's right to life and limb
for being against public policy.

3. Whether or not the CA gravely erred in reversing the RTC Decision (and) in absolving respondent
Cosmos from liability to petitioners on the sole ground that respondent Cosmos' contract with
respondent Intergames contained a stipulation exempting the former from liability.

4. Whether or not the CA gravely erred in reversing the RTC Decision and consequently holding
respondents free from liability, (and) in not awarding petitioners with actual, moral and exemplary
damages for the death of their child, Rommel Abrogar.

Held:

1. Yes. Negligence is the failure to observe for the protection of the interests of another person that
degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other
person suffers injury. Under Article 1173 of the Civil Code, it consists of the "omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
person, of the time and of the place. The Civil Code makes liability for negligence clear under Article
2176, and Article 20.

2. Yes. The doctrine of assumption of risk means that one who voluntarily exposes himself to an
obvious, known and appreciated danger assumes the risk of injury that may result therefrom. It rests
on the fact that the person injured has consented to relieve the defendant of an obligation of conduct
toward him and to take his chance of injury from a known risk, and whether the former has exercised
proper caution or not is immaterial. In other words, it is based on voluntary consent, express or
implied, to accept danger of a known and appreciated risk; it may sometimes include acceptance of
risk arising from the defendant's negligence, but one does not ordinarily assume risk of any
negligence which he does not know and appreciate. As a defense in negligence cases, therefore, the
doctrine requires the concurrence of three elements, namely; the plaintiff must know that the risk is
present;he must further understand its nature; and his choice to incur it must be free and voluntary.
Neither was the waiver by Rommel, then a minor, an effective form of express or implied consent in
the context of the doctrine of assumption of risk. There is ample authority, cited in Prosser, to the
effect that a person does not comprehend the risk involved in a known situation because of his youth,
or lack of information or experience, and thus will not be taken to consent to assume the risk. Clearly,
the doctrine of assumption of risk does not apply to bar recovery by the petitioners.

3. No. The sponsorship of the marathon by Cosmos was limited to financing the race. Cosmos did
nothing beyond that, and did not involve itself at all in the preparations for the actual conduct of the
race. This verity was expressly confirmed by Intergames, through Castro, Jr.

4. Yes. Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which are
the natural and probable consequences of the act or omission complained of. It is not necessary that
such damages have been foreseen or could have reasonably been foreseen by the defendant.
Page | 44
PERALTA, J.:
Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated
August 12, 2015, of petitioner Al Dela Cruz that seeks to reverse and set aside the Decision [1] dated
January 30, 2014 and Resolution[2] dated June 22, 2015 of the Court of Appeals (CA) reversing the
Decision dated February 24, 2009 of the Regional Trial Court (RTC), Branch 275, Las Piñas City in a
civil case for damages.
The facts follow.
Around 9:00 p.m. on April 1, 1999, respondent Captain Renato Octaviano, a military dentist assigned
at the Office of the Chief Dental Service, Armed Forces of the Philippines, Camp Aguinaldo, Quezon
City, respondent Wilma Octaviano, Renato's mother and Janet Octaviano, Renato's sister, rode a
tricycle driven by Eduardo Y. Padilla. Respondent Wilma and Janet were inside the sidecar of the
vehicle, while Renato rode at the back of the tricycle driver. They then proceeded to Naga Road
towards the direction of CAA and BF Homes. Renato was asking his mother for a change to complete
his P10.00 bill when he looked at the road and saw a light from an oncoming car which was going too
fast. The car, driven by petitioner, hit the back portion of the tricycle where Renato was riding. The
force of the impact caused the tricycle to turn around and land on the pavement near the gutter. Thus,
Renato was thrown from the tricycle and landed on the gutter about two meters away. Renato felt
severe pain in his lower extremities and went momentarily unconscious and when he regained
consciousness, he heard his sister shouting for help. A man came followed by other people. The first
man who answered Janet's call for help shouted to another man at a distance saying: "Ikaw, dalhin
mo yung sasakyan mo dito. Ikaw ang nakabangga sa kanila. Dalhin mo sila sa ospital." They pulled
Renato out of the gutter and carried him to the car. Petitioner brought them to his house and alighted
thereat for two to three minutes and then he brought the passengers to a clinic. Renato insisted on
being brought to a hospital because he realized the severity of his injuries. Thus, Renato, his mother,
and Janet were brought to Perpetual Help Medical Center where Renato's leg was amputated from
below the knee on that same night. After his treatment at Perpetual Help Medical Center, Renato was
brought to the AFP Medical Center at V. Luna General Hospital and stayed there for nine months for
rehabilitation. Shortly before his discharge at V. Luna, he suffered bone infection. He was brought to
Fort Bonifacio Hospital where he was operated on thrice for bone infection. Thereafter, he was
treated at the same hospital for six months. In the year 2000, he had a prosthesics attached to his leg
at V. Luna at his own expense. Renato spent a total of P623,268.00 for his medical bills and
prosthetics.
Thus, Renato and his mother Wilma filed with the RTC a civil case for damages against petitioner and
the owner of the vehicle.
Aside from their testimonies, the complainants, herein respondents presented the testimonies of
S/Sgt. Joselito Lacuesta (S/Sgt. Lacuesta) and Antonio Fernandez.
According to S/Sgt. Lacuesta, he was somewhere along Naga Road around 9:00 p.m. when the
incident occurred. He was talking with his three friends when he felt like urinating, so he moved a few
paces away from his companions. When he was about to relieve himself, he saw an oncoming
vehicle with bright lights and also saw a tricycle which was not moving fast and after the latter passed
him by, it collided with the vehicle. He then saw someone fell down near him and when he saw that
the car was about to move, he told his companions to stop the car from leaving. Thereafter, he
noticed that the person who landed in front of him was already unconscious so he helped him and
called one of his companions to carry the injured man to the car. He told the driver of the car "Isakay
mo ito, nabangga mo ito," and then proceeded to board the injured man in front of the car, while he
told the other passengers of the tricycle to board at the back of the car. His companions forcibly took
("pinilas") the license plate of the car and he also noticed that the driver of the car was drunk
("nakainom"). After the car left, he and his companions stayed in the area wherein a policeman later
arrived and towed the tricycle.
Witness Antonio Fernandez, one of S/Sgt. Lacuesta's companions, corroborated the latter's
testimony.
Petitioner, on the other hand, testified that on April 1, 1999, he borrowed the car of Dr. Isagani Cirilo,
a Honda Civic registered under the name of the latter, to bring his mother to church. Thus, he then
Page | 45
brought his mother to the Jehovah's Witness church in Greenview which was about 20 to 25 minute
drive from their house in Naga Road, Pulanlupa. Around 6:25 p.m., he went home directly from the
church and waited for the call of his mother. Thereafter, he left the house around 8:30 p.m. and went
to pick up fish food that he previously ordered before fetching his mother. When he was along Naga
Road, he noticed a tricycle from a distance of about 100 to 120 meters away and was going the
opposite direction. He also noticed an Elf van parked along the road on the opposite side. He flashed
his low beam and high beam light to signal the tricycle. The tricycle then slowed down and stopped a
bit, hence, he also slowed down. Suddenly, the tricycle picked up speed from its stop position and the
two vehicles collided. He then stopped his car a few meters away from the collision site and made a
u-turn to confront the driver of the tricycle. He also noticed that there were already about a dozen
people around the site of the collision. He saw a man sitting on the gutter and proceeded to move the
car towards the former and asked him and his companions to help board the injured man and the
latter's co-passengers of the tricycle in the car he was driving. Thereafter, he drove them to Perpetual
Help Hospital where the man was treated for his injuries.
The testimony of Imelda Cirilo, the wife of the owner of the car, was also presented. She testified,
among others, that on the night of the accident, petitioner borrowed their car to bring the latter's
mother to the church and that upon learning of the incident, she went to Perpetual Help Hospital and
signed on the Admission Slip so that respondent Renato could be operated on without the former
admitting any liability. She also testified that she offered to help the victims, but the latter refused and
that she admitted that she did not give any financial assistance for the hospital bills nor for medicines.
Renato Martinez, a traffic enforcer, was also presented and testified that he received a call through
radio about an incident along Naga Road, Pulanlupa, Las Pinas City around 8:30 p.m. so he
proceeded to the area and arrived there around 9:00 p.m. When he arrived at the scene, nobody was
there and that the vehicles involved in the collision were no longer there. At the scene of the accident,
he saw splinters of glass on the road but there was no blood and he also saw an Elf van parked along
the street fronting CAA. He then proceeded to Perpetual Help Hospital after he received a call on his
radio that the people involved in the accident were already at the said hospital. At the hospital, he was
able to talk with petitioner. Thereafter, he called up his base and informed the base that the driver of
the Honda Civic was at the hospital. Later on, Sgt. Soriano, the investigator-on-duty arrived at the
hospital and instructed Sgt. Martinez to accompany petitioner to the headquarters because some
relatives of respondents were asking that petitioner be brought to Fort Bonifacio. Thus, Sgt. Martinez
and petitioner boarded the Honda Civic involved in the accident and proceeded to the headquarters.
The RTC, in its Decision dated February 24, 2009, dismissed the claim of respondents. According to
the RTC, petitioner's version of the incident was more believable because it was corroborated by Sgt.
Martinez who testified that he saw an Elf van parked along the street. The RTC also ruled that
petitioner did everything that was expected of a cautious driver. The court further ruled that the owner
of the Honda Civic, Isagani Cirilo could not be held liable because petitioner was a family friend who
merely borrowed the car and not his driver nor his employee. It was also ruled that the liability rests
on the tricycle driver who drove without license and petitioner's contributory negligence in riding at the
back of the driver in violation of Municipal Ordinance No. 35-88 that limits the passengers of a tricycle
to three persons including the driver.
Respondents appealed the RTC decision to the CA.
In its Decision dated January 30, 2014, the CA reversed the RTC's decision. According to the CA,
petitioner was negligent as shown in the police report. It also found that petitioner was positive for
alcoholic breath, thus, he violated Republic Act (R.A.) No. 4136 that prohibits any person from driving
a motor vehicle while under the influence of alcohol or narcotic drug. It also ruled that the owner of
the vehicle is equally responsible and liable for the accident and the resulting injuries that the victims
sustained. As such, the CA disposed of the case as follows:
WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET
ASIDE. Defendants are held solidarily liable to plaintiffs and ordered to pay the plaintiffs in the
following manner:
1. pay plaintiff Wilma Octaviano the following: medical expenses, P1,500.00, hospital expenses,
P1,450.00 and transportation expenses, P6,000.00;
2. pay plaintiff Renato Octaviano the following: hospital expenses, P369,354.00, medical expenses,
P60,462.23, loss of income, P90,000.00;
3. pay [plaintiff] Wilma Octaviano P50,000.00 as and by way of moral damages;
Page | 46
4. pay plaintiff Renato Octaviano P100,000.00 as and by way of moral damages;
5. pay plaintiffs P20,000.00 each as and by way of exemplary damages; and
6. pay plaintiffs P100,000.00 as attorney's fees.
SO ORDERED.[3]
Thus, the present petition after the CA denied petitioner's motion for reconsideration.
Petitioner relies upon the following grounds:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE PETITIONER WAS
NEGLIGENT WHILE DRIVING HIS CAR.
II
THE FINDINGS OF FACT OF THE COURT OF APPEALS ARE NOT SUPPORTED BY THE
EVIDENCE ADDUCED.
III
THE COURT OF APPEALS GRAVELY ERRED IN FAILING TO CONSIDER THAT THE PROXIMATE
CAUSE OF THE INCIDENT WAS THE FAULT OR GROSS NEGLIGENCE OF THE TRICYCLE
DRIVER.
IV
THE COURT OF APPEALS MANIFESTLY OVERLOOKED CERTAIN FACTS NOT DISPUTED BY
THE PARTIES AND WHICH, IF PROPERLY CONSIDERED, WOULD JUSTIFY A DIFFERENT
CONCLUSION.[4]
Petitioner insists that he was not negligent and that the driver of the tricycle was the one at fault. He
also argues that the investigation report relied upon by the CA should not have been used in
determining what actually transpired because the traffic investigator was not presented as a witness
and petitioner was not able to confront or cross-examine him regarding the report. Petitioner further
denies that he was drunk when the incident happened and that the CA erred in appreciating the mere
opinions of the witnesses that he appeared drunk at that time.
In their Comment, respondents contend that the issues raised by petitioner are factual in nature and
are not the proper subjects of a petition for review under Rule 45. They also contend that the CA did
not err in their finding that petitioner was negligent at the time of the incident.
A close reading of the present petition would show that the issues raised are factual in nature. This
Court has recognized exceptions to the rule that the findings of fact of the CA are conclusive and
binding in the following instances: (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 facts are conflicting; (6) when in making its findings the CA 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 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 petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and contradicted
by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different conclusion. [5] Inasmuch
as the RTC and the CA arrived at conflicting findings of fact on who was the negligent party, the Court
holds that an examination of the evidence of the parties needs to be undertaken to properly
determine the issue.[6]
The concept of negligence has been thoroughly discussed by this Court in Romulo Abrogar, et al. v.
Cosmos Bottling Company, et al.,[7]thus:
Negligence is the failure to observe for the protection of the interests of another person that degree of
care, precaution, and vigilance which the circumstances justly demand, whereby such other person
suffers injury.[8] Under Article 1173 of the Civil Code, it consists of the "omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the person, of
Page | 47
the time and of the place."[9] The Civil Code makes liability for negligence clear under Article 2176,
[10]
and Article 20.[11]
To determine the existence of negligence, the following time-honored test has been set in Picart v.
Smith:[12]
The test by which to determine the existence of negligence in a particular case may be stated as
follows: Did the defendant in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of
negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The existence of negligence in a given case is
not determined by reference to the personal judgment of the actor in the situation before him. The law
considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and
prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a given situation must of
course be always determined in the light of human experience and in view of the facts involved in the
particular case. Abstract speculation cannot here be of much value but this much can be profitably
said: Reasonable men govern their conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the future. Hence, they can be
expected to take care only when there is something before them to suggest or warn of danger. Could
a prudent man, in the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against that harm.
Reasonable foresight of harm, followed by the ignoring of the suggestion born of this prevision, is
always necessary before negligence can be held to exist. Stated in these terms, the proper criterion
for determining the existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to
another was sufficiently probable to warrant his foregoing the conduct or guarding against its
consequences.[13]
xxxx
In order for liability from negligence to arise, there must be not only proof of damage and negligence,
but also proof that the damage was the consequence of the negligence. The Court has said in Vda.
de Gregorio v. Go Chong Bing:[14]
x x x Negligence as a source of obligation both under the civil law and in American cases was
carefully considered and it was held:
We agree with counsel for appellant that under the Civil Code, as under the generally accepted
doctrine in the United States, the plaintiff in an action such as that under consideration, in order to
establish his right to a recovery, must establish by competent evidence:
(1) Damages to the plaintiff.
(2) Negligence by act or omission of which defendant personally or some person for whose acts it
must respond, was guilty.
(3) The connection of cause and effect between the negligence and the damage."
In this case, the RTC found no reason to conclude that petitioner was negligent. The CA, however,
found the contrary. This Court must then ascertain whose evidence was preponderant, for Section 1,
[15]
Rule 133 of the Rules of Court mandates that in civil cases, like this one, the party having the
burden of proof must establish his case by a preponderance of evidence. Burden of proof is the duty
of a party to present evidence on the facts in issue necessary to establish his claim or defense by the
amount of evidence required by law.[16] It is basic that whoever alleges a fact has the burden of
proving it because a mere allegation is not evidence. [17] Generally, the party who denies has no
burden to prove.[18] In civil cases, the burden of proof is on the party who would be defeated if no
evidence is given on either side.[19]The burden of proof is on the plaintiff if the defendant denies the
factual allegations of the complaint in the manner required by the Rules of Court, but it may rest on
the defendant if he admits expressly or impliedly the essential allegations but raises affirmative
defense or defenses, which if proved, will exculpate him from liability. [20]
By preponderance of evidence, according to Raymundo v. Lunaria:[21]
x x x is meant that the evidence as a whole adduced by one side is superior to that of the other. It
refers to the weight, credit and value of the aggregate evidence on either side and is usually
Page | 48
considered to be synonymous with the term "greater weight of evidence" or "greater weight of the
credible evidence." It is evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto.
In addition, according to United Airlines, Inc. v. Court of Appeals,[22] the plaintiff must rely on the
strength of his own evidence and not upon the weakness of the defendant's.
After reviewing the records of the case, this Court affirms the findings of the CA. In ruling that
petitioner was negligent, the CA correctly appreciated the pieces of evidence presented by the
respondents, thus:
First, with regard to the damage or injury, there is no question that the plaintiffs suffered damage due
to the incident on April 1, 1999. Plaintiff Renato Octaviano's right leg was crushed by the impact of the
Honda Civic driven by defendant Dela Cruz against the tricycle where the Octavianos were riding and
as a result thereof, Renato's right leg was amputated. Plaintiff Wilma Octaviano suffered traumatic
injuries/hematoma on different parts of her body as borne by the evidence submitted to the trial court.
The damages or injuries were duly proved by preponderant evidence.
Second, with regard to the wrongful act or omission imputable to the negligence of defendant Al Dela
Cruz, We hold that the trial court missed the glaring fact that defendant Dela Cruz was guilty of
negligence.
The police report prepared by the traffic investigator SPO2 Vicente Soriano detailed what happened
on the night of April 1, 1999, to wit:
xxxx
On the Spot Investigation conducted by the undersigned, showed that Vehicle 2 while moving ahead
and upon arriving in front of said motor shop, Vehicle 2 avoided hitting another tricycle which vehicle
(Tricycle) was standing while waiting for a would-be passenger. Said Veh-2 driver swerved the car to
the left and it was at this instance when said Veh-1 was sideswiped by said Veh-2.
xxx
Weather Condition: Fair
Road condition: Concrete and Dry
Driver's Condition: Veh-1, Normal; Veh-2 Positive for Alcoholic Breath (AB)"
For a clearer understanding of the said police report, Vehicle-1 referred to by Soriano is the tricycle
where plaintiffs were riding, and Vehicle-2 is the Honda Civic driven by Dela Cruz.
Was the statement in the police report that Al Dela Cruz was positive for alcoholic breath
substantiated/corroborated?
Yes. Two witnesses testified that Dela Cruz appeared to be drunk on that fateful night. Joey Lacuesta
and Antonio Fernandez were there on the spot when the incident happened. They were the first ones
to assist the victim Renato Octaviano who was slumped unconscious in the gutter. Lacuesta was the
one who boarded the injured Renato into the front seat of the car and he noticed that the driver was
drunk:
Q: You said that you placed the injured person in front of the Honda Civic, the driver was there in the
car, what, if anything did you notice about the condition of the driver of the car?
A: Nakainom, I noticed that because when I boarded the injured person into the front passenger seat,
I noticed that he is drunk.
Antonio Fernandez heard his friend Aries Sy shout at the driver of the car to stop when it appeared to
by continuously moving. Fernandez also noted that the driver appeared to be drunk, thus:
Q: Now you said that the driver of the car was drunk. Did you say that when you testified?
A: Yes, sir. Lasing yung driver.
Q: What made you think that this driver of the car was drunk?
A: Because of his actions and he was also mad.
Q: Because he was mad, then you thought that he was drunk, x x x?
A: No, Sir. You can see or you can observe the actions of a person if he is drunk.
xxxx
Page | 49
More importantly, the law prohibits drunk driving. Republic Act No. 4136, Chapter IV, Article V, Section
53 known as Land Transportation and Traffic Code provides that no person shall drive a motor vehicle
while under the influence of liquor or narcotic drug. It is established by plaintiffs evidence that
defendant Dela Cruz drove the Honda Civic while under the influence of alcohol thus proving his
negligence.
With regard to the third requisite, that there be a direct relation of cause and effect between the
damage or injury and the fault or negligence is clearly present in the case at bar. Had defendant Dela
Cruz exercised caution, his Honda Civic would not have collided with the tricycle and plaintiffs leg
would not be crushed necessitating its amputation. The cause of the injury or damage to the plaintiffs
leg is the negligent act of defendant Dela Cruz.
The last requisite is that there be no pre-existing contractual relation between the parties. It is
undeniable that defendant and plaintiffs had no prior contractual relation, that they were strangers to
each other before the incident happened. Thus, the four requisites that must concur under Article
2176 are clearly established in the present case. Plaintiffs are entitled to claim damages. [23]
Petitioner argues that the CA erred in relying on the police report without petitioner having the chance
to cross-examine the police officer who prepared the same. Be that as it may, the contents of the said
police report are corroborated by the testimonies of the other witnesses presented before the court.
The said contents of the police report are more believable than the version of petitioner of what
transpired. As correctly observed by the CA:
Dela Cruz narrated in his testimony that he saw a parked Elf van on the opposite road and the tricycle
also on the opposite road going to the opposite direction. He claims that he flashed his low beam and
high beam to warn the tricycle, the tricycle stopped momentarily and then picked up speed
"umarangkada" and that was why the two vehicles collided. However, he admitted that the point of
impact of the two vehicles was "lagpas lang konti" from the front of the parked Elf. He could not stop.
He did not know what to do. He slowed down. He did not stop but continued driving. If it were true
that as far as about 100-120 meters away he already saw the parked Elf van and the tricycle, he
could have slowed down or stopped to give way to the tricycle to avoid collision. In fact, if the collision
point was right ahead of the front of the parked Elf van, it means that the tricycle was already past the
parked Elf and it was Dela Cruz who forced his way into the two-way road. More evident is that the
tricycle was hit at the back portion meaning it was already turning after passing the parked Elf. Had
Dela Cruz slowed down or stopped a short while to let the tricycle pass clear of the van, then the
incident would not have happened. The reasonable foresight required of a cautious driver was not
exercised by defendant Dela Cruz.[24]
As to the denial of petitioner that he was drunk at the time of the accident, whether or not he was in a
state of inebriation is inconsequential given the above findings. His being sober does not and will not
erase the fact that he was still negligent and that the proximate cause of the collision was due to his
said negligence. Proximate cause is "that which, in natural and continuous sequence, unbroken by
any new cause, produces an event, and without which the event would not have occurred." [25] As
such, petitioner is wrong when he claims that the proximate cause of the accident was the fault of the
tricycle driver.
Neither is it correct to impute contributory negligence on the part of the tricycle driver and respondent
Renato when the latter had violated a municipal ordinance that limits the number of passengers for
each tricycle for hire to three persons including the driver. Contributory negligence is conduct on the
part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below
the standard to which he is required to conform for his own protection. [26] To hold a person as having
contributed to his injuries, it must be shown that he performed an act that brought about his injuries in
disregard of warning or signs of an impending danger to health and body. [27] To prove contributory
negligence, it is still necessary to establish a causal link, although not proximate, between the
negligence of the party and the succeeding injury. In a legal sense, negligence is contributory only
when it contributes proximately to the injury, and not simply a condition for its occurrence. [28] In this
case, the causal link between the alleged negligence of the tricycle driver and respondent Renato
was not established. This court has appreciated that negligence per se, arising from the mere
violation of a traffic statute, need not be sufficient in itself in establishing liability for damages. [29] Also,
noteworthy is the ruling of the CA as to the matter, thus:
The trial court absolved defendants of liability because of the failure of the plaintiffs to present the
tricycle driver and thus concluding that plaintiffs suppressed evidence adverse to them. This is error
Page | 50
on the part of the trial court. The non-presentation of the tricycle driver as a witness does not affect
the claim of the plaintiffs-appellants against herein defendants-appellees. Even granting that the
tricycle driver was presented in court and was proved negligent, his negligence cannot cancel out the
negligence of defendant Dela Cruz, because their liabilities arose from different sources. The
obligation or liability of the tricycle driver arose out of the contract of carriage between him and
petitioners whereas defendant Dela Cruz is liable under Article 2176 of the Civil Code or under quasi-
delicts. There is ample evidence to show that defendant Dela Cruz was negligent within the purview
of Article 2176 of the Civil Code, hence, he cannot escape liability. [30]
This Court further agrees with the CA that the respondents are entitled to the award of moral and
exemplary damages. Moral damages, x x x, may be awarded to compensate one for manifold injuries
such as physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded feelings
and social humiliation. These damages must be understood to be in the concept of grants, not
punitive or corrective in nature, calculated to compensate the claimant for the injury suffered.
Although incapable of exactness and no proof of pecuniary loss is necessary in order that moral
damages may be awarded, the amount of indemnity being left to the discretion of the court, it is
imperative, nevertheless, that (1) injury must have been suffered by the claimant, and (2) such injury
must have sprung from any of the cases expressed in Article 2219 [31] and Article 2220[32] of the Civil
Code, x x x[33] Also known as "punitive" or "vindictive" damages, exemplary or corrective damages are
intended to serve as a deterrent to serious wrongdoings, and as a vindication of undue sufferings and
wanton invasion of the rights of an injured or a punishment for those guilty of outrageous conduct.
These terms are generally, but not always, used interchangeably. In common law, there is preference
in the use of exemplary damages when the award is to account for injury to feelings and for the sense
of indignity and humiliation suffered by a person as a result of an injury that has been maliciously and
wantonly inflicted,[34] the theory being that there should be compensation for the hurt caused by the
highly reprehensible conduct of the defendant - associated with such circumstances as willfulness,
wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud [35] -
that intensifies the injury. The terms punitive or vindictive damages are often used to refer to those
species of damages that may be awarded against a person to punish him for his outrageous conduct.
In either case, these damages are intended in good measure to deter the wrongdoer and others like
him from similar conduct in the future.[36]
In awarding the above, the CA correctly ruled that:
It is extant in the records that defendants did not overturn or disprove the plaintiffs' claim for actual
damages such as the hospital bills/expenses which were duly supported by documentary evidence
(receipts). It was also duly proven that defendant Al Dela Cruz acted with gross disregard for the
suffering of his victims when he refused to board them in his car and only did so when forced by the
by-standers who assisted the victims, when he drove to his house first before driving to a clinic then
to [the] hospital when it was obvious that Renato Octaviano's wound was severe and needed
immediate professional attention. These insensitivity of defendant caused suffering to the plaintiffs
that must be compensated.[37]
As to the award of attorney's fees, Article 2208 of the New Civil Code provides the following:
ART. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly
valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses
of litigation should be recovered.

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In this case, since exemplary damages are awarded, the award of attorney's fees is necessary.
WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated
August 12, 2015, of petitioner Al Dela Cruz is DENIED for lack of merit. Consequently, the Decision
dated January 30, 2014 and Resolution dated June 22, 2015 of the Court of Appeals in CA-G.R. CV
No. 93399 are AFFIRMED.
SO ORDERED.

G.R. No. 209910

VISAYAN ELECTRIC COMPANY, INC., Petitioner

vs.
EMILIO G. ALFECHE, GILBERT ALFECHE, EMMANUEL MANUGAS, AND M. LHUILLIER
PAWNSHOP AND JEWELRY, Respondents

DECISION

LEONEN, J.:

An electric distribution company is a public utility presumed to have the necessary expertise and
resources to enable a safe and effective installation of its facilities. Absent an indication of fault or
negligence by other actors, it is exclusively liable for fires and other damages caused by its
haphazardly installed posts and wires.

This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure
praying that the assailed Court of Appea October 25, 2012 Decision 2 and October 8, 2013
Resolution3 in CA-G.R. CV No. 02583 be reversed and set aside.

The assailed Court of Appeals October 25, 2012 Decision reversed the January 4, 2006 Decision 4 of
Branch 11, Regional Trial Court, Cebu City in Civil Case No. CEB-23694, which found herein
respondent M. Lhuillier Pawnshop and Jewelry (M. Lhuillier) negligent and liable for the fire which
burned down the properties of Emilio G. Alfeche (Emilio), Gilbert Alfeche (Gilbert), and Emmanuel
Manugas (Manugas). The Court of Appeals reversed the trial court decision and found herein
petitioner Visayan Electric Company, Inc. (VECO) liable in M. Lhuillier's stead.

The assailed Court of Appeals October 8, 2013 Resolution denied VECO's Motion for
Reconsideration.5

On the night of January 6, 1998, a fire broke out at 11th Street, South Poblacion, San Fernando,
Cebu, which burned down the house and store of respondent Emilio and his son, respondent Gilbert
(the Alfeches),6 and the adjacent watch repair shop owned by respondent Manugas. 7 It was alleged
that the cause of the fire was the constant abrasion of VECO' s electric wire with M. Lhuillier's
signboard.8

The next day, the Alfeches and Manugas reported the incident to the police 9 and to the Sangguniang
Bayan of San Fernando.10 Upon Emilio, Gilbert, and Manugas' request for site inspection, the
Sangguniang Bayan of San Fernando eventually passed Resolution No. 12 requesting VECO to
inspect the area and to repair faulty wires. The Alfeches and Manugas sent a letter to the
management of VECO asking for financial assistance, which VECO denied. VECO asserted that the
fire was due, not to its fault, but to that of M. Lhuillier. 11

As their initial claim for financial assistance was not satisfied, the Alfeches and Manugas filed a
Complaint for Damages against VECO and M. Lhuillier before the Regional Trial Court of Cebu City. 12

During pre-trial, M. Lhuillier admitted that it was the owner of the signboard at its branch in San
Fernando, Cebu. M. Lhuillier and VECO admitted that a fire destroyed the Alfeches' and Manugas'
properties on January 6, 1998.13

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The Alfeches and Manugas presented testimonial, documentary, and object evidence. They
presented as witnesses Emilio, Manugas, Mignonette Alfeche (Mignonette), and Rodolfo Rabor
(Rabor ).14

Emilio testified that between 9:00 p.m. and 10:00 p.m. of January 6, 1998, he was awakened as their
house was buming.15 He went out and saw a cut wire swinging and burning at the top of his roof,
about three (3) to four (4) meters away.16 He explained that his house was also used by his son,
Gilbert, as a store for various merchandise such as food, beverages, and feeds. His house adjoined
an M. Lhuillier pawnshop, which had a big signboard. 17Emilio presented a module simulating how the
fire broke out in relation to the location of the electric posts and his house. 18 He alleged that VECO
posts were transferred to their current location because of a roadwidening project. This transfer
caused the sagging wire of VECO to constantly touch M. Lhuillier's signboard, which, in tum, led to
the breaking and burning of the wire. 19 The burning cut wire went swinging on top of and landed on
Emilio's roof; thus, it caused the fire that burned his house. 20

Mignonette, the wife of Gilbert, corroborated Emilio's testimony that the fire came from the burning
end of the electric wire near M. Lhuillier's signage. She presented pictures showing the location of
their store and an electric post near M. Lhuillier's signage. 21

Rabor testified that while in the highway on his way home, he noticed a spark in the electric line near
M. Lhuillier's signboard. He ran towards Emilio's house to warn the Alfeches, but before getting there,
the wire had dropped on the roof and caused a fire. 22

Manugas attested that he owned the shop composed of "a small booth with a roof and glass
window"23 beside Emilio's house. This shop was burned along with his tools, watches, and other
equipment. He identified the police blotter stating the extent of the damage. 24

VECO countered with testimonies of the following persons, in addition to other documentary and
object evidence: Engr. Benedicto Banaag (Engr. Banaag), Engr. Simeon Lauronal (Engr. Lauronal),
Candelario L. Melencion (Melencion), Engr. Felipe Constantino (Engr. Constantino), Engr. Edwin
Chavez (Engr. Chavez), and Engr. Miguel Ornopia (Engr. Ornopia).

Engr. Banaag, an electrical engineer and a lawyer who had been working with VECO for 35
years,25 testified that VECO sent two (2) superintendents and a general foreman to inspect the
site.26 The inspectors found that the cause of the incident was the constant rubbing of the wires of
VECO with M. Lhuillier's signage.27 He also stated that M. Lhuillier's signage "was placed long after
VECO installed their poles,"28 the relocation of which was made after the fire broke out. 29 He claimed
that their wirings and installations are in full compliance with the National Building Code and the
Philippine Electrical Code, which allowed them to install their poles one half (Y2) meter inside the
road-right-of-way and at least three (3) meters away from any structure. 30 According to him, it was M.
Lhuillier which violated the National Building Code by placing their signage near their pole, thereby
causing the abrasion and the fire.31

The Municipal Engineer of San Fernando, Cebu, Engr. Lauronal, averred that there was a road-
widening project, which started in September 1997, and an accompanying construction of the
drainage system, which commenced on October 6, 1997, in the Alfeches' and Manugas' area. 32 Their
team asked the mayor to seek the relocation of VECO's posts as these would be affected by the
drainage construction. VECO relocated its posts and consequently, its wires moved closer to the
signage of M. Lhuillier with a distance of only eight (8) inches between them. 33 He also mentioned
that the old location of VECO posts left a hole in the middle of the drainage. 34

Melencion, an employee of VECO for 41 years, attested that he knew of the installation of the electric
wires in the area.35

Engr. Constantino, also a VECO employee, testified that sometime in the last week of December,
there was a complaint that the voltage in 11th Street, South Poblacion, San Fernando, Cebu was low.
Upon inspection, he noticed that VECO's wires near the signage of M. Lhuillier were newly installed.
He noted that the wire used in the area was "a No. 4 aluminum standard, secondary system." 36

Page | 53
Engr. Chavez was presented by VECO as an expert witness. 37 He noted that there were two (2) kinds
of secondary systems used by utility companies: the line-to-line system and the line-to-ground
system.38 According to him, in a line-to-ground system, if one (1) of its wires was cut off, the flow of
electricity would just continue; hence, this system was more likely to cause fire. 39

Engr. Ornopia asserted that VECO used the line-to-line system for safety purposes. 40 Further, he
stated that he personally conducted area inspections and that there was no report regarding any
irregularity in the signage of M. Lhuillier.41

M. Lhuiller presented as its witnesses Ernesto G. Solon (Solon), Jose Edgar Camuta (Camuta),
Randy Adlawan (Adlawan), and Rolando Baranquil (Baranquil).

Solon verified that he installed the signage of M. Lhuillier and emphasized that it was free from any
obstacle upon installation.42 He noted that, in every installation, he would consider several factors:

[T]hat the signage would not touch the electrical wirings of VECO, both primary and secondary wires,
for safety purposes; that no pipes of [Metropolitan Cebu Water District] would be hit in making a hole;
that the primary wires would have a distance of at least two (2) meters from the high tension wires;
the secondary wires would not touch the signage and, that the signage [would] not be hit by the
passing vehicles.43

Camuta claimed that he won the contract to install M. Lhuillier's signage in 1995. He testified that
before installing the signage, they had to ensure that it was "free from any obstacle." 44

Adlawan, an M. Lhuillier employee, 45 held that "[the fire] started at the back of the house at the right
portion [and spread] towards the firewall at the left side where the signage of M. Lhuillier was
situated."46

The Regional Trial Court ruled that the proximate cause of the injury suffered by the Alfeches and
Manugas was the negligence of M. Lhuillier. It noted that based on Engr. Banaag's testimony, M.
Lhuillier installed its signage long after VECO moved its poles. 47 Thus, it was its negligence in
installing and positioning its signage which led to the abrasion of VECO's power line and, ultimately,
the fire.48

On appeal, the Court of Appeals reversed the Regional Trial Court decision and found VECO liable in
M. Lhuillier's stead.49 The Court of Appeals gave greater credence to the testimonies of Rabor and
Engr. Lauronal, considering them to be impartial witnesses. 50 It noted that the relocation of the posts
came before the fire, occasioned by the road widening and drainage projects. 51 Thus, VECO
transferred the poles and the lines to a distance of merely eight (8) inches from M. Lhuillier's
signboard. This, in turn, caused the abrasion of power lines and the fire:

These pieces of evidence move this Court to rule that it was VECO, not defendant-appellant M.
Lhuillier, which was extremely remiss of its duty to ensure safe and secure transmission lines. It was
utterly negligent of VECO to have allowed the transfer of the posts closer to the households without
ensuring that they followed the same safety standards they used during the original installation of the
posts. It must be emphasized that VECO, as the only electric distribution company in San Fernando,
takes full charge and control of all the electric wires installed in the locality. It has the sole power and
responsibility to transfer its wires to safe and secured places for all its consumers. However, they
undoubtedly failed to observe the reasonable care and caution required of it under the circumstances.
Hence, they are negligent.52

The dispositive portion of the assailed Court of Appeals Decision read:

WHEREFORE, the instant appeal is GRANTED. The Decision of the Regional Trial Court Branch 11
of Cebu City dated 04 January 2006 is SET ASIDE and a New One Entered declaring defendant-
appellee VISA YAN ELECTRIC COMP ANY (VECO) negligent and liable for the damages suffered by
the plaintiffs-appellees. The defendant-appellee VECO is ordered to pay the plaintiffs-appellees the
following as temperate damages, to wit:

1. To Emilio Alfeche, the amount of ₱185,000.00

Page | 54
2. To Gilbert Alfeche, the amount of ₱800,000.00

3. To Emmanuel Manugas, the amount of ₱65,000.00

The award of moral damages is deleted.

SO ORDERED.53

Following the denial of its Motion for Reconsideration, VECO filed the present Petition. 54

VECO insists that it is M. Lhuillier, and not itself, which should be held liable for the fire. 55 Asserting
that it was impossible for its negligence to have caused the fire, it claims that its posts were relocated
only after the fire occurred.56 It adds that it was an error for the Court of Appeals to rely on Emilio's
testimony, which it characterized as "self-serving." 57 It asserts that no witness ever corroborated
Emilio's testimony that the posts were relocated before the fire. 58 It also challenges the findings of the
Court of Appeals regarding Engr. Lauronal's testimony, claiming that he lacked personal knowledge
as to when the posts were relocated and that he never testified that they were relocated before the
fire.59 It adds that although the picture shown by Engr. Lauronal was alleged to have been taken one
(1) day after the fire occurred, it was only presented three (3) years after trial had commenced. This
was supposedly the only basis of Engr. Lauronal' s testimony pointing to the hole where the posts
were previously located.60 VECO also argues that the picture was not properly authenticated as
required under the Rules on Evidence. 61

M. Lhuillier counters that Engr. Lauronal's statements clearly showed that the relocation of the posts
was made before the fire. It emphasizes that Engr. Lauronal stated during cross-examination that the
relocation was made because of the drainage project which was undertaken from October 6, 1997 to
November 28, 1997.62 It further underscores that the contact between VECO's cables and its own
signage would not have happened had VECO not relocated its posts. 63

For resolution is the sole issue of whether or not the Court of Appeals erred in ruling that petitioner
Visayan Electric Company Inc.'s negligence, rather than that of respondent M. Lhuillier Pawnshop
and Jewelry, was the proximate cause of the fire which razed the properties of respondents Emilio
Alfeche, Gilbert Alfeche, and Emmanuel Manugas.

The case before this Court is replete with factual issues. Ordinarily, it is not for this Court to review
factual issues in petitions such as the present Rule 45 Petition which may only raise questions of
law.64 This rule, however, admits certain exceptions:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken,
absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

Page | 55
(9) when the findings of fact are conclusions without citation of the specific evidence on which they
are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on record. 65

The findings of the Regional Trial Court and of the Court of Appeals differ in this case. The Regional
Trial Court found that "had not defendant [M.] Lhuillier installed its signage in such a manner that it
will come in contact with the secondary lines of defendant VECO, there could have been no short
circuit which caused the fire."66 On the other hand, the Court of Appeals found that "one VECO post
was affected by the road widening work. Due to the transfer, the VECO wire already touched the
signboard of M. Lhuillier pawnshop."67 In the interest of arriving at a definite determination of the
attendant liabilities, this Court exercises its power of review.

II

Despite the Regional Trial Court's and the Court of Appeals' divergence on the liabilities of VECO and
M. Lhuillier, they are consistent in finding that the immediate cause of the fire was the short circuiting
of VECO's wires. This short circuiting, in turn, happened because VECO's wires had been abraded or
stripped of their insulation by their constant rubbing with M. Lhuillier's signage. The Regional Trial
Court and the Court of Appeals are consistent in this regard.

The Regional Trial Court's statement that "there could have been no short circuit which caused the
fire"68 had M. Lhuillier installed its signage in a way that it would not touch VECO's secondary lines
accepts as truth how the confluence of proximity, abrasion, and short circuiting led to the fire. For its
part, the Court of Appeals stated:

The constant abrasion led to the failure of the insulation thereby causing a short circuit which
eventually led to the breaking and the burning of the wire. The burned and cut wire which fell on the
roof of plaintiff-appellees' house was proven to be the main cause of the fire. These flow[s] of events
reveal that the negligent act of defendant-appellee VECO in transferring its pole without providing the
necessary precautionary and safety measure was the natural and probable result of the fire which
caused damage to plaintiffs-appellees.69

This Court's inquiry proceeds from settled truth as to the immediate, factual cause of the fire. What is
in dispute is whether VECO or M. Lhuillier was negligent to have engendered the confluence of
proximity, abrasion, and short circuiting.

III

VECO attempts to altogether skirt any imputation of negligence by painting a scenario of impossibility.
It claims that its wires could not have caused the fire by touching M. Lhuillier's signage as its posts
were not transferred until after the fire occurred.

VECO's position is negated not only by the entire corpus of evidence but, more basically, by common
sense.

To reiterate, the Regional Trial Court and the Court of Appeals are consistent in holding that proximity,
abrasion, and short circuiting led to the fire. Common sense dictates that the wires and signage could
never have rubbed against each other, or the wires abraded and short circuited, had they not been in
close proximity. Common sense also shows that they could not have been in close proximity had not
either the wires or the signage moved closer to the other. The testimonies of Solon and Camuta were
definite that when M. Lhuillier's signage was installed in 1995, it was free from any obstacle. No
allegation was made, let alone proof presented, that the signage had been relocated in the interim. In
contrast, a plethora of evidence attests to the relocation of VECO's posts and wires. Heeding VECO's
position demands not only this Court's disregard of the preponderant evidence against VECO but
also this Court's acceptance of the absurdity and the impossibility that VECO's posts and wires must
have moved closer to M. Lhuillier' s signage by some unseen, even supernatural, force.

Page | 56
VECO's position is not only inherently impossible. Credible testimonies also militate against it. These
testimonies remain credible despite VECO' s attempts at undermining them.

VECO attempts to discredit Emilio by characterizing him as a biased witness, he being one (1) of the
plaintiffs.

The fact of Emilio's being a plaintiff does not amount to bias against VECO vis-a-vis M. Lhuillier. That
is, Emilio has not been shown to be actively impeding VECO's attempt to evade liability and to impute
it instead to M. Lhuillier. In fact, his act of suing both VECO and M. Lhuillier indicates a lack of
preference for any of them. It indicates, rather, his sole interest in the satisfaction of his claim for
damages. Having brought an action against both VECO and M. Lhuillier, Emilio manifests intent to
submit to judicial wisdom the determination of which between VECO and M. Lhuillier has been
negligent and is liable.

VECO has also attempted to discredit the statements of its own witness, Engr. Lauronal.

On cross examination, Engr. Lauronal indicated that VECO's posts were transferred ahead of the fire.
He definitely stated that VECO's posts were affected by the drainage project and that they had to be
relocated.70 According to him, the project commenced on October 6, 1997 and was already
completed on November 28, 1997,71 well ahead of the occurrence of the fire in the evening of January
6, 1998. He also stated that had it not been for the transfer, VECO's wires would not have touched M.
Lhuillier's signage.72

Atty. Dalawampu (to the witness)

Q- Mr. Witness, you said that there was a road widening project at 11th Street, am I correct?

A- Yes, ma'am.

Q- You also said that there was a drainage project along the area, correct?

A- Yes, ma' am.

Q-You said that there was a monitoring, were you aware that in the construction of the drainage at
11th Street, the VECO posts were affected, were you aware of that?

A-Our monitoring team requested the mayor of San Fernando to request VECO to relocate their
posts, ma'am.

Q-Your monitoring team of your office requested the municipal mayor of San Fernando to ask VECO
to relocate the posts because they were affected by the construction of drainage, meaning the
drainage project had to pass through on that area where the VECO posts were located, am I correct?

A-Yes, ma'am.

....

Q- Here is a VECO post as shown on this picture marked as Exhibit N-1. Can you tell this Honorable
Court in the monitoring done by your office if this VECO post marked as Exhibit N-1 used to be
located here on this hole marked as Exhibit N-5?

A-We didn't care anymore where the VECO post will be relocated, ma[']am.

Q-My question is, can you tell this Honorable Court if this post marked as Exhibit N-1 used to be in
this hole, located in this hole marked as Exhibit N-5, that is the question?

A-Yes, the previous location of the post was this hole marked as N-5, ma[']am.

Q-This post which you are referring to is this Exhibit N-1, correct?

Page | 57
A-Yes, ma'am.

Q- But as shown on this picture Exhibit N, the VECO post at the other end of the street which was
marked as Exhibit N-6 was not removed nor relocated?

A-Only the VECO post was relocated, ma'am.

Q- So, the only post that was relocated was Exhibit N-1, correct?

A-Yes, ma'am.

....

Q- Because of the relocation, the wire connecting the two (2) posts, Exhibit N-1 and Exhibit N-6, was
necessarily moved also closer to the houses along the area at the left?

A-Of course, it will be moved also because the VECO post was moved.

Q-And the movement of the post on Exhibit N-1 was towards or closer to the houses along the area?

A-Yes, ma'am.

Q-The drainage project which you are testifying before this Honorable Court was constructed or was
undertaken on October 6, 1997, am I correct?

A- Yes, ma'am.

....

Q-You mean to say that the duration of the construction should be up to November 28, 1997?

A-Yes, ma'am.

Q-Because of the transfer of this VECO post marked as Exhibit N-1, the wire connecting the two (2)
posts Exhibit N-7 and N-1, had to touch the signage of M. Lhuillier, am I correct?

A-The distance of the wire from the M. Lhuillier signage was about 8 inches, the clearance, and they
also placed a plastic material so that the wires will not touch the signage of M. Lhuillier, Ma'am.

Q- Engr. Lauronal, you are aware that the fire took place on January 6, 1998, in that area?

A-- Yes, ma'am.

Q-Engr. Lauronal, there was no change in the location or situation of the wires connecting the 2
VECO posts after the fire, there was none yet?

A- Yes, there was no change, ma’am.73

On further cross-examination, Engr. Lauronal stated:

Atty. Dinsay (to the witness)

Q-Because of the drainage project they have to move the post a little bit inward to the left, correct?

A-Yes, sir.

Q-Engr. Lauronal, there was a gap from the electrical line to the signage of M. Lhuillier at about 8
inches, correct?

A-That's correct, sir.

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Q-Since you are an engineer, can you estimate from this pole where you said the poles used to be
and to the present location of the post marked as Exhibit N-1, can you please give us an estimate as
to how far that is?

A-I can't give you an estimate, all I know is that the post was transferred.

Q-Can you tell whether the transfer from that former hole to the present position would be more than
8 inches?

A-I think more than 8 inches, sir.

Q-And, therefore, you would also say that had it not been for the fact that the post was moved more
than 8 inches where it is now located, the electrical wire would not have touched the signage of M.
Lhuillier, correct?

A-Yes, Sir.74

Different from what VECO suggests, Engr. Lauronal was not entirely dependent on Exhibit "N." On
the contrary, when initially presented with Exhibit "N," he attempted to shrug it off by answering, "We
didn't care anymore where the VECO post will be relocated." 75 Moreover, while he referenced Exhibit
"N," the substance of Engr. Lauronal's testimony was not the intricacies of Exhibit "N" and the veracity
or the peculiarities of its features. The substance of his testimony, rather, was how VECO's posts and
wires were transferred on account of road-widening and drainage projects, well ahead of the fire on
January 6, 1998 and how these transfers brought VECO's wires closer to M. Lhuillier's signage.

Also contrary to VECO's suggestion that Engr. Lauronal was incompetent on the matters he had
testified to, his testimony deserves great weight, he having testified in his capacity as the municipal
engineer overseeing and liaising local projects. It is also particularly notable that Engr. Lauronal
maintained a sense of objectivity and neutrality, speaking plainly of the facts, as he knew them,
despite having been presented as VECO's own witness.

Engr. Banaag was VECO's sole witness on when it relocated its posts, claiming that the relocation
happened after the fire.76 While VECO has made much of the supposed biases of other witnesses, it
is Engr. Banaag's testimony which should be treated with skepticism, he having admittedly worked for
and represented VECO for 35 years.77

In any case, even Engr. Banaag's own testimony militates against VECO. In his testimony, he
conceded that "the proximate cause of the fire was the breaking of the secondary wire forcibly caused
by the abrasion of the signage of M. Lhuillier." 78 Engr. Banaag's conclusion, juxtaposed with VECO's
claim that its posts and wires were not transferred until after the fire, strains credulity. Again, it runs
afoul of common sense to claim that the wires and signage rubbed against each other if they had not
been previously placed in close proximity. Certainly, someone must have placed them close to each
other before they rubbed at each other. With an utter dearth of evidence indicating that it was the
signage that moved, no reasonable conclusion is left other than that the wires and posts were moved.
This transfer could not have been effected by anyone other than the electricity utility company
responsible for their installation and maintenance, VECO.

IV

Thus, the Court of Appeals was correct in ruling that VECO's negligence was the proximate cause of
the injury suffered by respondents Emilio, Gilbert, and Manugas. All the elements for liability for a
quasidelict under Article 2176 of the Civil Code 79 have been shown to be attendant on VECO's part.
The elements of a quasi-delict are:

(1) the damages suffered by the plaintiff; (2) the fault or negligence of the defendant or some other
person for whose act he must respond; and

(3) the connection of cause and effect between the fault or negligence and the damages incurred. 80

Page | 59
On the first element, it is undisputed that the Alfeches and Manugas suffered damage because of the
fire. What has hitherto remained unresolved is which between VECO and M. Lhuillier is liable to
indemnify them.

Fault is "a voluntary act or omission which causes damage to the right of another giving rise to an
obligation on the part of [another]." 81 On the other hand, "[n]egligence is the failure to observe for the
protection of the interest of another person that degree of care, precaution and vigilance which the
circumstances justly demand."82

Between VECO and M. Lhuillier, it is VECO which this Court finds to have been negligent.

M. Lhuillier was not negligent in installing its signage. It installed its signage in 1995 well before the
road-widening and drainage projects commenced and ahead of VECO's relocation of its posts. Solon
and Camuta both emphasized that the signage was installed free of any obstacle. Other than VECO's
evasive accusations, there is no proof to the contrary.

It was VECO that was negligent. It is apparent that it transferred its posts and wires without regard for
the hazards that the transfer entailed, particularly with respect to the installations which had
previously been distant from the wires and posts but which had since come into close proximity.

VECO is a public utility tasked with distributing electricity to consumers. It is its duty to ensure that its
posts are properly and safely installed. As the holder of a public franchise, it is to be presumed that it
has the necessary resources and expertise to enable a safe and effective installation of its facilities.
By installing its posts and wires haphazardly, without regard to how its wires could come in contact
with a previously installed signage, VECO failed to act in keeping with the diligence required of it.

Proximate cause is defined as "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."83

VECO' s negligence was the proximate cause of the damage suffered by the Alfeches and Manugas.
It is settled that the confluence of proximity, abrasion, and short-circuiting led to the fire. The first of
these-proximity arose because of VECO's relocation of posts and wires. Installed in such a manner
that its wires constantly touched M. Lhuillier's signage, this "led to the failure of the insulation thereby
causing a short circuit which eventually led to the breaking and burning of the wire." 84 It was this
burning wire that fell on the Alfeches' residence's roof and burned down their house and store, as well
as Manugas' adjacent shop.

VECO would have this Court sustain a flimsy excuse for evading liability. Attempting to break the all
too apparent causal connection between its negligence and the injury suffered by the plaintiffs, it
would insist on absurdities that strain common sense and vainly attempt to discredit even its own
witness. This Court finds no merit in VECO's pretenses and sustains the Court of Appeals decision.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Court of Appeals October 25,
2012 Decision and October 8, 2013 Resolution in CA-G.R. CV No. 02583 are AFFIRMED.

SO ORDERED.

G.R. No. 205838, November 29, 2017

JOSEPH HARRY WALTER POOLE-BLUNDEN, Petitioner, v. UNION BANK OF THE

PHILIPPINES, Respondent.

DECISION

LEONEN, J.:

Banks are required to observe a high degree of diligence in their affairs. This encompasses their
dealings concerning properties offered as security for loans. A bank that wrongly advertises the area
of a property acquired through foreclosure because it failed to dutifully ascertain the property's
Page | 60
specifications is grossly negligent as to practically be in bad faith in offering that property to
prospective buyers. Any sale made on this account is voidable for causal fraud. In actions to void
such sales, banks cannot hide under the defense that a sale was made on an as-is-where-is basis.
As-is-where-is stipulations can only encompass physical features that are readily perceptible by an
ordinary person possessing no specialized skills.

This resolves a Petition for Review on Certiorari 1 under Rule 45 of the 1997 Rules of Civil Procedure
praying that the assailed November 15, 2012 Decision 2 and February 12, 2013 Resolution3 of the
Court of Appeals in CA-G.R. CV No. 95369 be reversed and set aside and that judgment be rendered
annulling or rescinding the Contract to Sell between petitioner Joseph Harry Walter Poole-Blunden
(Poole-Blunden) and respondent Union Bank of the Philippines (UnionBank).

The assailed Court of Appeals Decision affirmed the April 20, 2010 Decision of the Regional Trial
Court, Branch 65, Makati City which dismissed the Complaint for Rescission of Contract and
Damages filed by Poole-Blunden against respondent UnionBank. 4 The assailed Court of Appeals
Resolution denied Poole-Blunden's Motion for Reconsideration. 5

Sometime in March 2001, Poole-Blunden came across an advertisement placed by Union Bank in the
Manila Bulletin. The ad was for the public auction of certain properties. One of these properties was a
condominium unit, identified as Unit 2-C of T-Tower Condominium (the "Unit"), located at 5040 P.
Burgos corner Calderon Streets, Makati City. 6 UnionBank had acquired the property through
foreclosure proceedings "after the developer defaulted in the payment of its loan from [UnionBank]." 7

The Unit was advertised to have an area of 95 square meters. Thinking that it was sufficient and
spacious enough for his residential needs, Poole-Blunden decided to register for the sale and bid on
the unit.8

About a week prior to the auction, Poole-Blunden visited the unit for inspection. He was accompanied
by a representative of UnionBank. The unit had an irregular shape; it was neither a square nor a
rectangle and included a circular terrace. Poole-Blunden did not doubt the unit's area as advertised.
However, he found that the ceiling was in bad condition, that the parquet floor was damaged, and that
the unit was in need of other substantial repairs to be habitable. 9

On the day of the auction, Poole-Blunden inspected the Master Title of the project owner to the
condominium in the name of Integrated Network (TCT No. 171433) and the Condominium Certificate
of Title of UnionBank (CCT No. 36151) to verify once again the details as advertised and the
ownership of the unit. Both documents were on display at the auction venue. 10

Poole-Blunden placed his bid and won the unit for P2,650,000.00. 11 On May 7, 2001, Poole-Blunden
entered into a Contract to Sell with UnionBank. This Contract stipulated that Poole-Blunden would
pay 10% of the purchase price as down payment 12 and that the balance shall be paid over a period
of 15 years in equal monthly instalments, with interest of 15% per annum starting July 7, 2001. 13

Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he was able to fully pay for
the Unit, paying a total amount of P3,257,142.49. 14

In late 2003, Poole-Blunden decided to construct two (2) additional bedrooms in the Unit. Upon
examining it, he noticed apparent problems in its dimensions. He took rough measurements of the
Unit, which indicated that its floor area was just about 70 square meters, not 95 square meters, as
advertised by UnionBank.15

Poole-Blunden got in touch with an officer of UnionBank to raise the matter, but no action was
taken.16On July 12, 2004, Poole-Blunden wrote to UnionBank, informing it of the discrepancy. He
asked for a rescission of the Contract to Sell, along with a refund of the amounts he had paid, in the
event that it was conclusively established that the area of the unit was less than 95 square meters. 17

In a letter dated December 6, 2004,18 UnionBank informed Poole-Blunden that after inquiring with the
Housing and Land Use Regulatory Board (HLURB), the Homeowners' Association of T-Tower
Condominium, and its appraisers, the Unit was confirmed to be 95 square meters, inclusive of the
terrace and the common areas surrounding it. 19
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Poole-Blunden was not satisfied with UnionBank's response as the condominium's Master Title
expressly stated that the "boundary of each unit are the interior surfaces of the perimeter walls, floors,
ceilings, windows and doors thereof." 20 Thus, he hired an independent geodetic engineer, Engr. Gayril
P. Tagal (Engr. Tagal) of the Filipinas Dravo Corporation, to survey the Unit and measure its actual
floor area. Engr. Tagal issued a certification stating that the total floor area of the Unit was only 74.4
square meters.21 Poole-Blunden gave UnionBank a copy of Engr. Tagal's certification on July 12,
2005.22

In a letter dated February 1, 2006, UnionBank explained:

[T]he total area of the subject unit based on the ratio allocation maintenance cost submitted by the
developer to HLURB is 98 square meters (60 square meters as unit area and 38 square meters as
share on open space). On the other hand, the actual area thereof based on the measurements made
by its surveyor is 74.18 square meters which was much higher than the unit area of 60 square meters
that was approved by HLURB.23

Poole-Blunden's dissatisfaction with UnionBank's answer prompted him to file his Complaint for
Rescission of Contract and Damages with the Regional Trial Court, Makati City. 24

On April 20, 2010, the Regional Trial Court dismissed Poole-Blunden's complaint for lack of merit. The
dispositive portion of its Decision read:

WHEREFORE, premises considered, the instant complaint for rescission of contract and damages is
hereby DISMISSED for lack of merit. The counterclaim is likewise DENIED.

SO ORDERED.25

On appeal, the Court of Appeals affirmed the ruling of the Regional Trial Court. 26 It noted that the sale
was made on an "as-is-where-is" basis as indicated in Section 12 of the Contract to Sell. 27 Thus,
Poole-Blunden supposedly waived any errors in the bounds or description of the unit. 28 The Court of
Appeals added that Poole-Blunden failed to show, by clear and convincing evidence that causal fraud
can be attributed to UnionBank.29 It added that the sale was made for a lump-sum amount and that, in
accordance with Article 1542, paragraph 1 of the Civil Code, 30 Poole-Blunden could not demand a
reduction in the purchase price.31

Following the denial of his Motion for Reconsideration, Poole-Blunden filed the present Petition before
this Court.32

Poole-Blunden charges UnionBank with fraud in failing to disclose to him that the advertised 95
square meters was inclusive of common areas. 33 With the vitiation of his consent as to the object of
the sale, he asserts that the Contract to Sell may be voided. He insists that UnionBank is liable for
breach of warranty despite the "as-is-where-is" clause in the Contract to Sell. 34 Finally, he assails the
Court of Appeals' application of Article 1542 of the Civil Code. 35

For resolution is the sole issue of whether or not respondent Union Bank of the Philippines committed
such a degree of fraud as would entitle petitioner Joseph Harry Walter Poole-Blunden to the voiding
of the Contract to Sell the condominium unit identified as Unit 2C, T-Tower Condominium, 5040 P.
Burgos corner Calderon Streets, Makati City.

No longer in dispute at this juncture is how the Unit's interior area is only 74.4 square meters. While
respondent has maintained that the Unit's total area is in keeping with the advertised 95 square
meters, it has conceded that these 95 square meters is inclusive of outside spaces and common
areas.

Even before litigation commenced, in a December 6, 2004 letter, 36 respondent informed petitioner
that, following inquiries with the HLURB, the Homeowners' Association of T-Tower Condominium, and
its appraisers, it had confirmed that the Unit's 95 square meters was inclusive of "the terrace and the
common areas surrounding it."37
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During trial, respondent's former Assistant Vice President of the Asset and Recovery Group, Atty. Elna
N. Cruz (Atty. Cruz), testified on how there would have been documents (such as an appraisal report)
relating to inspections made by respondent's personnel at the time the unit was being offered as a
collateral to a loan. These would have concerned the unit's area. 38 She affirmed respondent's
statements in its December 6, 2004 letter and indicated that, based on an appraisal report, the
declared 95 square meters was not exclusive to the Unit's interiors but included common areas:

Q: So my impression, Madam Witness, is that before you accepted the property as a collateral, Union
Bank already knew what was the actual area of the unit?
A: Yes, sir.

Q: But you do not know what was the actual area as found by your inspector?
A: It would be 95 square meters as per the record, sir.

Q: That was the actual findings of your inspector, Madam Witness?

A: Yes, sir.

Q: What's your basis for saying that?

A: The appraisal report, sir.

Q: Do you have now with you that appraisal report showing that the actual area of the unit is indeed
95 square meters?
A: We gathered the appraisal report and in the December 06, 2004 letter that we gave Mr. Blunden,
we consulted the appraiser of the Bank and we were informed that the area was indeed 95 square
meters. But that area was brought about by measuring not just the inside of the unit, sir, but
including also the terrace, and the common area.39 (Emphasis supplied)

Respondent has not disavowed Atty. Cruz's testimony. In its Comment, it merely asserted that the
"[e]xtensive reference to the [transcript of stenographic notes] is unmistakable proof that the litigated
issue is one of fact, not of law" and insisted that this Court should not take cognizance of the present
Petition.40

Respondent's insistence on how common spaces should be included in reckoning the Unit's total
area runs afoul of how Republic Act No. 4726, otherwise known as the Condominium Act, reckons
what forms part of a condominium unit.

Section 3(b) of the Condominium Act defines a condominium unit, as follows:

Section 3. As used in this Act, unless the context otherwise requires:

....

(b) "Unit" means a part of the condominium project intended for any type of independent use or
ownership, including one or more rooms or spaces located in one or more floors (or part or parts
of floors) in a building or buildings and such accessories as may be appended thereto.

Section 6(a) of the Condominium Act specifies the reckoning of a condominium unit's bounds. It also
specifies that areas of common use "are not part of the unit":

Section 6. Unless otherwise expressly provided in the enabling or master deed or the declaration of
restrictions, the incidents of a condominium grant are as follows:

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(a) The boundary of the unit granted are the interior surfaces of the perimeter walls, floors, ceilings,
windows and doors thereof. The following are not part of the unitbearing walls, columns, floors,
roofs, foundations and other common structural elements of the building; lobbies, stairways,
hallways, and other areas of common use, elevator equipment and shafts, central heating, central
refrigeration and central air-conditioning equipment, reservoirs, tanks, pumps and other central
services and facilities, pipes, ducts, flues, chutes, conduits, wires and other utility installations,
wherever located, except the outlets thereof when located within the unit. (Emphasis supplied.)

Thus, the unit sold to petitioner was deficient in relation to its advertised area. This advertisement
having been made by respondent, it is equally settled there was a falsity in the declarations made by
respondent prior to, and with the intention of enticing buyers to the sale. What remains in issue is
whether or not this falsity amounts to fraud warranting the voiding of the Contract to Sell.

II

For there to be a valid contract, all the three (3) elements of consent, subject matter, and price must
be present.41 Consent wrongfully obtained is defective. The party to a contract whose consent was
vitiated is entitled to have the contract rescinded. Accordingly, Article 1390 of the Civil
Code42 stipulates that a contract is voidable or annullable even if there is no damage to the
contracting parties where "consent is vitiated by mistake, violence, intimidation, undue influence or
fraud."

Under Article 1338 of the Civil Code "[t]here is fraud when, through insidious words or machinations
of one of the contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to." However, not all instances of fraud enable the voiding of contracts. Article
1344 clarifies that in order to make a contract voidable, the fraud "should be serious and should not
have been employed by both contracting parties." 43

Thus, Tankeh v. Development Bank of the Philippines 44 explained, "There are two types of fraud
contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo causante or
fraud serious enough to render a contract voidable." 45 The fraud required to annul or avoid a contract
"must be so material that had it not been present, the defrauded party would not have entered into
the contract."46 The fraud must be "the determining cause of the contract, or must have caused the
consent to be given."47

Petitioner's contention on how crucial the dimensions and area of the Unit are to his decision to
proceed with the purchase is well-taken. The significance of space and dimensions to any buyer of
real property is plain to see. This is particularly significant to buyers of condominium units in urban
areas, and even more so in central business districts, where the scarcity of space drives vertical
construction and propels property values. It would be immensely guileless of this Court to fail to
appreciate how the advertised area of the Unit was material or even indispensable to petitioner's
consent. As petitioner emphasized, he opted to register for and participate in the auction for the Unit
only after determining that its advertised area was spacious enough for his residential needs. 48

III

The significance of the Unit's area as a determining cause of the Contract to Sell is readily
discernible. Falsity on its area is attributable to none but to respondent, which, however, pleads that it
should not be considered as having acted fraudulently given that petitioner conceded to a sale on an
as-is-where-is basis, thereby waiving "warranties regarding possible errors in boundaries or
description of property."49

Section 12 of the Contract to Sell spells out the "as-is-where-is" terms of the purchase:

Section 12. The BUYER recognizes that he is buying the property on an "as-is-where-is" basis
including errors in boundaries or description of property, if any etc. and among others, he shall be
responsible for the eviction of the occupants on the property, if any, or for the repair of the property, if
needed. It shall be understood that the SELLER makes no warranty whatsoever on the authenticity,
accuracy, or title over property.50 (Emphasis supplied.)

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Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2) reasons. First, a
stipulation absolving a seller of liability for hidden defects can only be invoked by a seller who has no
knowledge of hidden defects. Respondent here knew that the Unit's area, as reckoned in accordance
with the Condominium Act, was not 95 square meters. Second, an as-is-where-is stipulation can only
pertain to the readily perceptible physical state of the object of a sale. It cannot encompass matters
that require specialized scrutiny, as well as features and traits that are immediately appreciable only
by someone with technical competence.

A seller is generally responsible for warranty against hidden defects of the thing sold. As stated in
Article 1561 of the New Civil Code:

Article 1561. The vendor shall be responsible for warranty against the hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they diminish
its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent
defects or those which may be visible, or for those which are not visible if the vendee is an expert
who, by reason of his trade or profession, should have known.

Article 1566, paragraph 2 states the seller's liability for hidden defects shall be inapplicable if there is
a stipulation made to the contrary. However, a mere stipulation does not suffice. To be fully absolved
of liability, Article 1566, paragraph 2 also requires a seller to be unaware of the hidden defects in the
thing sold.

Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold. (Emphasis supplied.)

It is clear from the records that respondent fully knew that the Unit's area, reckoned strictly in
accordance with the Condominium Act, did not total 95 square meters. Respondent admits that the
only way the Unit's area could have amounted to 95 square meters was if some areas for common
use were added to its interior space. It acknowledged knowing this fact through the efforts of its
appraisers and even conceded that their findings were documented in their reports.

In Hian v. Court of Tax Appeals,51 this Court construed an as-is-where-is stipulation as pertaining to
the "physical condition" of the thing sold and "not to [its] legal situation." 52 As further explained
in National Development Company v. Madrigal Wan Hai Lines Corporation:53

In Hian vs. Court of Tax Appeals, we had the occasion to construe the phrase "as is, where is" basis,
thus:

"We cannot accept the contention in the Government's Memorandum of March 31, 1976 that
Condition No. 5 in the Notice of Sale to the effect that 'The above-mentioned articles (the tobacco)
are offered for sale 'AS IS' and the Bureau of Customs gives no warranty as to their condition'
relieves the Bureau of Customs of liability for the storage fees in dispute. As we understand said
Condition No. 5, it refers to the physical condition of the tobacco and not to the legal situation in which
it was at the time of the sale, as could be implied from the right of inspection to prospective bidders
under Condition No. 1 [.]" (Emphasis ours)

The phrase "as is, where is" basis pertains solely to the physical condition of the thing sold, not to its
legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to
NSCP's legal situation, not to its physical aspect. Thus, respondent as a buyer, has no obligation to
shoulder the same.54

A condominium unit's area is a physical attribute. In Hian's contemplation, it appeared that the total
area of a condominium unit is a valid object of an as-is-where-is clause. However, while as-is-where-
is clauses exclusively apply to the physical attributes of a thing sold, they apply only to physical
features that are readily observable. The significance of this Court's pronouncements
in Hian and National Development Company are in clarifying that legal status, which is a technical
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matter perceptible only by lawyers and regulators, cannot be encompassed by an as-is-where-is
stipulation. Hian and National Development Company are not a sweeping approbation of such
stipulations' coverage of every corporeal attribute or tangible trait of objects being sold. Thus,
in Asset Privatization v. T.J. Enterprises,55 the as-is-where-is stipulation was understood as one which
"merely describes the actual state and location of the machinery and equipment sold," 56 and nothing
else. Features that may be physical but which can only be revealed after examination by persons with
technical competence cannot be covered by as-is-where-is stipulations. A buyer cannot be
considered to have agreed "to take possession of the things sold 'in the condition where they are
found and from the place where they are located'" 57 if the critical defect is one which he or she cannot
even readily sense.

In inspecting the Unit prior to the auction sale, petitioner took note of its actual state: "he noticed that
the ceilings were down, [that] there was water damage from the leaks coming from the unit above,
and [that] the parquet floor was damaged." 58 He also took note of its irregular shape and the circular
terrace outside it. These observations represent the full extent of what was readily perceptible to
petitioner. The precise measurement of the Unit's area, in contrast, could only be determined by
someone with specialized or technical capabilities. While ordinary persons, such as petitioner, may
hold such opinions that the Unit looks small, their perception could not be ascertained until after an
examination by someone equipped with peculiar skills and training to measure real property. Indeed,
petitioner's suspicions were not roused until years after he had occupied the Unit and confirmed until
after a certification was issued by a surveyor.

Any waiver of warranties under Section 12 of the Contract to Sell could have only been concerned
with the readily apparent subpar condition of the Unit. A person not equipped with technical
knowledge and expertise to survey real property could not reasonably be expected to recognize
deficiencies in measurement at the first instance especially if that property was of "irregular shape,"
"neither square nor rectangle," and having a "circular terrace." 59

IV

Contrary to the Court of Appeals' assertion, Article 1542 of the Civil Code does not bar the voiding of
the Contract to Sell.

Article 1542 of the Civil Code states:

Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a
unit of measure or number, there shall be no increase or decrease of the price, although there be a
greater or less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables are sold for a single price; but if,
besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its
area or number should be designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number specified in the contract;
and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is
lacking in the area or number, unless the contract is rescinded because the vendee does not accede
to the failure to deliver what has been stipulated. (Emphasis supplied.)

Article 1542 has nothing to do with annulling fraudulently made sales. What it is concerned with is the
proportionate reduction of the purchase price in relation to the measurable units of the thing sold.
Petitioner does not seek a reduction of the purchase price. He seeks judicial relief to have the entirety
of his purchase annulled, his consent having been fraudulently obtained. By filing an action under
Article 1390 of the Civil Code, petitioner declared that his consent to the entire subject matter of the
contract was vitiated. What suffices as relief is the complete annulment of the sale, not the partial
reimbursement upon which Article 1542 is premised.

Likewise, Article 1542 does not contemplate the seller's delivery to the buyer of things other than the
agreed object of the sale. While it is true that petitioner did not buy the unit on a per-square-meter
basis, it remains that what he bought was a condominium unit. A condominium unit's bounds are
reckoned by "the interior surfaces of [its] perimeter walls, floors, ceilings, windows and doors." 60 It
excludes common areas. Thus, when petitioner agreed to purchase the Unit at a lump-sum price, he
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never consented to including common areas as part of his purchase. Article 1542's concern with a
ratable reduction of the price delivered by the buyer assumes that the seller correctly delivered, albeit
deficiently, the object of the sale.

In any case, for Article 1542 to operate, "the discrepancy must not be substantial." 61 Article 1542
remains anchored on a sense of what is reasonable. An estimate given as a premise for a sale should
be "more or less" the actual area of the thing sold. 62 Here, the area advertised and stipulated in the
Contract to Sell was 95 square meters but the actual area of the unit was only 74.4 square
meters.63 By no stretch of the imagination can a 21.68% deficiency be discounted as a mere minor
discrepancy.

By definition, fraud presupposes bad faith or malicious intent. It transpires when insidious words or
machinations are deliberately employed to induce agreement to a contract. Thus, one could
conceivably claim that respondent could not be guilty of fraud as it does not appear to have crafted a
deceptive strategy directed specifically at petitioner. However, while petitioner was not a specific
target, respondent was so callously remiss of its duties as a bank. It was so grossly negligent that its
recklessness amounts to a wrongful willingness to engender a situation where any buyer in
petitioner's shoes would have been insidiously induced into buying a unit with an actual area so
grossly short of its advertised space.

In Spouses Carbonell v. Metropolitan Bank and Trust Company,64 this Court considered gross
negligence, in relation to the fiduciary nature of banks:

Gross negligence connotes want of care in the performance of one's duties; 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 wilfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected. It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them.

In order for gross negligence to exist as to warrant holding the respondent liable therefor, the
petitioners must establish that the latter did not exert any effort at all to avoid unpleasant
consequences, or that it wilfully and intentionally disregarded the proper protocols or procedure . . .
and in selecting and supervising its employees. 65 (Emphasis supplied)

Banks assume a degree of prudence and diligence higher than that of a good father of a family,
because their business is imbued with public interest 66 and is inherently fiduciary.67 Thus, banks have
the obligation to treat the accounts of its clients "meticulously and with the highest degree of
care."68 With respect to its fiduciary duties, this Court explained:

The law imposes on banks high standards in view of the fiduciary nature of banking. Section 2 of
Republic Act No. 8791 ("RA 8791"), 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."
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,
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.

This fiduciary relationship means that the bank's 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. 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.69(Citations omitted)

The high degree of diligence required of banks equally holds true in their dealing with mortgaged real
properties, and subsequently acquired through foreclosure, such as the Unit purchased by petitioner.
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In the same way that banks are "presumed to be familiar with the rules on land registration," given
that they are in the business of extending loans secured by real estate mortgage, 70 banks are also
expected to exercise the highest degree of diligence. This is especially true when investigating real
properties offered as security, since they are aware that such property may be passed on to an
innocent purchaser in the event of foreclosure. Indeed, "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 a bank's
operations":71

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for
value is applied more strictly. Being in the business of extending loans secured by real estate
mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking
business is impressed with public interest, they are expected to be more cautious, to exercise a
higher degree of diligence, care and prudence, than private individuals in their dealings, even those
involving registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they
cannot assume that, simply because the title offered as security is on its face free of any
encumbrances or lien, they are relieved of the responsibility of taking further steps to verify the title
and inspect the properties to be mortgaged. As expected, 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 a bank's
operations. It is of judicial notice that the standard practice for banks before approving a loan is to
send its representatives to the property offered as collateral to assess its actual condition, verify the
genuineness of the title, and investigate who is/are its real owner/s and actual
possessors.72 (Citations omitted)

Credit investigations are standard practice for banks before approving loans and admitting properties
offered as security. It entails the assessment of such properties: an appraisal of their value, an
examination of their condition, a verification of the authenticity of their title, and an investigation into
their real owners and actual possessors.73 Whether it was unaware of the unit's actual interior area;
or, knew of it, but wrongly thought that its area should include common spaces, respondent's
predicament demonstrates how it failed to exercise utmost diligence in investigating the Unit offered
as security before accepting it. This negligence is so inexcusable; it is tantamount to bad faith.

Even the least effort on respondent's part could have very easily confirmed the Unit's true area.
Similarly, the most cursory review of the Condominium Act would have revealed the proper reckoning
of a condominium unit's area. Respondent could have exerted these most elementary efforts to
protect not only clients and innocent purchasers but, most basically, itself. Respondent's failure to do
so indicates how it created a situation that could have led to no other outcome than petitioner being
defrauded.

VI

The Regional Trial Court and the Court of Appeals gravely erred in finding that causal fraud is not
attendant in this case. Quite the contrary, it is evident that respondent orchestrated a situation rife for
defrauding buyers of the advertised unit. Therefore, the assailed Decision and Resolution must be
reversed, the Contract to Sell between petitioner and respondent be annulled, and petitioner be
refunded all the amounts he paid to respondent in respect of the purchase of the Unit.

Under Article 2232, in relation to Article 2229 of the Civil Code, "[i]n contracts and quasi-contracts, the
court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner," "by way of example or correction for the public good." By
awarding exemplary damages to petitioner, this case shall serve as an example and warning to banks
to observe the requisite care and diligence in all of their affairs.

Consistent with Article 2208 of the Civil Code, 74 respondent is equally liable to petitioner for attorney's
fees and the costs of litigation.

WHEREFORE, the Petition is GRANTED. The assailed November 15, 2012 Decision and February
12, 2013 Resolution of the Court of Appeals in CA-G.R. CV No. 95369 are REVERSED and SET
ASIDE.

Page | 68
The Contract to Sell entered into by petitioner Joseph Harry Walter Poole-Blunden and respondent
Union Bank of the Philippines is declared null and void. Respondent is ordered to pay petitioner the
amount of P3,257,142.49 to refund the amounts petitioner has paid to purchase Unit 2C of T-Tower
Condominium located at 5040 P. Burgos corner Calderon Streets, Makati City. This refund shall earn
legal interest at twelve percent (12%) per annum from the date of the filing of petitioner's Complaint
for Rescission of Contract and Damages up to June 30, 2013; and six percent (6%) per annum,
reckoned from July 1, 2013 until fully paid.

Respondent is ordered to pay petitioner P100,000.00 as exemplary damages, P100,000.00 as

attorney's fees, and the costs of litigation.

SO ORDERED.

G.R. No. 227990, March 07, 2018

CITYSTATE SAVINGS BANK, Petitioner, v. TERESITA TOBIAS AND SHELLIDIE

VALDEZ, Respondents.

DECISION

REYES, JR., J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court seeking to annul and set
aside the Decision2 dated May 31, 2016 and Resolution3 dated October 10, 2016 issued by the Court
of Appeals (CA) in CA-G.R. CV No. 102545.

The Antecedent Facts

Rolando Robles (hereinafter referred to as Robles), a certified public accountant, has been employed
with Citystate Savings Bank (hereinafter referred to as the petitioner) since July 1998 then as
Accountant-trainee for its Chino Roces Branch. On September 6, 2000, Robies was promoted as
acting manager for petitioner's Baliuag, Bulacan branch, and eventually as manager. 4

Sometime in 2002, respondent Teresita Tobias (hereinafter referred to as Tobias), a meat vendor at
the Baliuag Public Market, was introduced by her youngest son to Robies, branch manager of
petitioner's Baliuag, Bulacan branch. 5

Robies persuaded Tobias to open an account with the petitioner, and thereafter to place her money in
some high interest rate mechanism, to which the latter yielded. 6

Thereafter, Robies would frequent Tobias' stall at the public market to deliver the interest earned by
her deposit accounts in the amount of Php 2,000.00. In turn, Tobias would hand over her passbook to
Robies for updating. The passbook would be returned the following day with typewritten entries but
without the corresponding counter signatures. 7

Tobias was later offered by Robies to sign-up in petitioner's back-to-back scheme which is
supposedly offered only to petitioner's most valued clients. Under the scheme, the depositors
authorize the bank to use their bank deposits and invest the same in different business ventures that
yield high interest. Robies allegedly promised that the interest previously earned by Tobias would be
doubled and assured her that he will do all the paper work. Lured by the attractive offer, Tobias signed
the pertinent documents without reading its contents and invested a total of Php 1,800,000.00 to
petitioner through Robies. Later, Tobias became sickly, thus she included her daughter and herein
respondent Shellidie Valdez (hereinafter referred to as Valdez), as co-depositor in her accounts with
the petitioner.8

In 2005, Robies failed to remit to respondents the interest as scheduled. Respondents tried to reach
Robies but he can no longer be found; their calls were also left unanswered. In a meeting with
Robies' siblings, it was disclosed to the respondents that Robies withdrew the money and
appropriated it for personal use. Robies later talked to the respondents, promised that he would
return the money by installments and pleaded that they do not report the incident to the petitioner.
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Robies however reneged on his promise. Petitioner also refused to make arrangements for the return
of respondents' money despite several demands. 9

On January 8, 2007, respondents filed a Complaint for sum of money and damages. against Robles
and the petitioner.10 In their Complaint, respondents alleged that Robles committed fraud in the
performance of his duties as branch manager when he lured Tobias in signing several pieces of blank
documents, under the assurance as bank manager of petitioner, everything was in order. 11

After due proceedings, the Regional Trial Court (RTC), on February 12, 2014, rendered its
Decision,12viz.:
WHEREFORE, in light of the foregoing, judgment is hereby rendered ordering defendant Robles to
pay plaintiff the following:

1. the amount of Php1,800,000.00 as actual damages plus legal rate of interest from the filing of
the complaint until fully paid;

2. the amount of Php100,000.00 as moral damages; and

3. the amount of Php50,000.00 as exemplary damages.

The plaintiffs claim for attorney's fees and litigation expenses are DENIED for lack of merit.

Further, defendant bank is absolved of any liability. Likewise, all counterclaims and cross-claims are
DENIED for lack of merit.

SO ORDERED.13
Ruling of the CA

The matter was elevated to the CA. The CA in its Decision 14 dated May 31, 2016, found the appeal
meritorious and accordingly, reversed and set aside the RTC's decision, in this wise:
WHEREFORE, the Appeal is hereby GRANTED. The Decision Dated 12 February 2014 of the [RTC],
Third Judicial Region, Malolos City, Bulacan, Branch 83, in Civil Case No. 11-M-07, is MODIFIED in
that [petitioner] and [Robles] are JOINTLY and SOLIDARILY to pay [respondents] the amounts set
forth in the assailed Decisions as well as attorney's fees in the amount of ONE HUNDRED
THOUSAND PESOS (P 100,000.00).

SO ORDERED.15
Petitioner sought a reconsideration of the decision, but it was denied by the CA in its
Resolution16 dated October 10, 2016.

In the instant petition, respondents put forward the following arguments to support their position:
V
ARGUMENTS

IN RENDERING THE ASSAILED DECISION AND RESOLUTION, THE CA DECIDED QUESTIONS

OF SUBSTANCE WHICH ARE NOT IN ACCORD WITH APPLICABLE LAWS AND
JURISPRUDENCE.

[A]

THE CA SERIOUSLY ERRED IN RULING THAT THE DOCTRINE OF APPARENT AUTHORITY IS

APPLICABLE IN THIS CASE.

[B]

THE CA SERIOUSLY ERRED IN RULING THAT RESPONDENT TOBIAS IS NOT GUILTY OF

CONTRIBUTORY NEGLIGENCE.

[C]

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THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY LIABLE
WITH ROBLES TO PAY FOR THE DAMAGE SUPPOSEDLY SUFFERED BY RESPONDENTS.

[D]

THE CA SERIOUSLY ERRED IN RULING THAT CITYSTATE IS JOINTLY AND SOLIDARILY LIABLE
FOR ATTORNEY'S FEES.17
In this petition for review on certiorari, petitioner alleged that it should not be held liable considering
that it has exercised a high degree of diligence in the selection and supervision of its employees,
including Robles, and that it took proper measures in hiring the latter. Further, it posits that it has
complied with standard bank operating procedures in the conduct of its operations.

Petitioner also argues that Robles acted in his personal capacity in dealing with Tobias, who agreed
with full knowledge and consent to the back-to-back loans and that it was not privy to the transactions
between them. Therefore, petitioner submits that the CA erred in applying the doctrine of apparent
authority.

Ruling of the Court

The petition is denied.

The business of banking is one imbued with public interest. As such, banking institutions are obliged
to exercise the highest degree of diligence as well as high standards of integrity and performance in
all its transactions.18

The law expressly imposes upon the banks a fiduciary duty towards its clients 19 and to treat in this
regard the accounts of its depositors with meticulous care. 20

The contract between the bank and its depositor is governed by the provisions of the Civil Code on
simple loan or mutuum, with the bank as the debtor and the depositor as the creditor. 21

In light of these, banking institutions may be held liable for damages for failure to exercise the
diligence required of it resulting to contractual breach or where the act or omission complained of
constitutes an actionable tort.22

The nature of a bank's liability is illustrated in the consolidated cases of Philippine Commercial
International Bank v. CA, et al., Ford Philippines, Inc. v. CA, et al. and Ford Philippines, Inc. v.
Citibank, N.A., et al.23 The original actions a quo were instituted by Ford Philippines, Inc. (Ford) to
recover the value of several checks it issued payable to the Commissioner of Internal Revenue (CIR)
which were allegedly embezzled by an organized syndicate.

The first two of the three consolidated cases mentioned above involve twin petitions for review
assailing the decision and resolution of the CA ordering the collecting bank, Philippine Commercial
International Bank (PCIB) to pay the amount of a crossed Citibank N.A. (Citibank) check (No. SN-
04867) drawn by Ford in favor of CIR as payment for its taxes.

The said check was deposited with PCIB and subsequently cleared by the Central Bank. Upon
presentment with Citibank, the proceeds of the check were released to PCIB as the
collecting/depository bank.

However, it was later discovered that the check was not paid to the CIR. Ford was-then forced to
make another payment to the CIR.

Investigation revealed that the check was recalled by the General Ledger Accountant of Ford on the
pretext that there has been an error in the computation of tax, he then directed PCIB to issue two
manager's checks in replacement thereof.

Both Citibank and PCIB deny liability, the former arguing that payment was in due course as it merely
relied on the latter's guarantee as to "all prior indorsements and/or lack of indorsements." Thus,
Citibank submits that the proximate cause of the injury is the gross negligence of PCIB in indorsing
Page | 71
the check in question. The CA agreed and adjudged PCIB solely liable for the amount of the check.

On the other hand, the last of the three consolidated cases, assails the decision and resolution of the
CA which held Citibank, the drawee bank, solely liable for the amount of crossed check nos. SN-
10597 and 16508 as actual damages, the proceeds of which have been misappropriated by a
syndicate involving the employees of the drawer Ford, and the collecting bank PCIB.

This Court in resolving the issue of liability in PCIB v. CA, considered the degree of negligence of the
parties.

While recognizing that the doctrine of imputed negligence makes a principal liable for the wrongful
acts of its agents, this Court noted that the liability of the principal would nonetheless depend on
whether the act of its agent is the proximate cause of the injury to the third person.

In the case of Ford, this Court ruled that its negligence, if any, cannot be considered as the proximate
cause, emphasizing in this regard the absence of confirmation on the part of Ford to the request of its
General Ledger Accountant for replacement of the checks issued as payment to the CIR. In absolving
Ford from liability, this Court clarified that the mere fact that the forgery was committed by the
drawer/principal's employee or agent, who by virtue of his position had unusual facilities for
perpetrating the fraud and imposing the forged paper upon the bank, does not automatically shift the
loss to such drawer-principal, in the absence of some circumstance raising estoppel against the latter.

In contrast, this Court found PCIB liable for failing to exercise the necessary care and prudence
required under the circumstances. This Court noted that the action of Ford's General Ledger
Accountant in asking for the replacement of the crossed Citibank check No. SN-04867, was not in the
ordinary course of business and thus should have prompted PCIB to validate the same. Likewise,
considering that the questioned crossed check was deposited with PCIB in its capacity as collecting
agent for the Bureau of Internal Revenue, it has the responsibility to ensure that the check is
deposited in the payee's account only; and is bound to consult BIR, as its principal, of unwarranted
instructions given by the pay or or its agent, especially so as neither of the latter is its client. Having
established PCIB's negligence, this Court then held the latter solely liable for the proceeds of Citibank
check (No. SN-04867).

Insofar as Citibank check Nos. SN-10597 and 16508, this Court affirmed the findings of the CA and
the trial court that PCIB cannot be faulted for the embezzlement as it did not actually receive nor held
the subject checks. Adopting the conclusion of the trial court, this Court advanced that the act of
misappropriation was in fact "the clandestine or hidden actuations performed by the members of the
syndicate in their own personal, covert and private capacity and done without the knowledge of the
defendant PCIB."24

While this Court admitted that there was no evidence confirming the conscious participation of PCIB
in the embezzlement, it nonetheless found the latter liable pursuant to the doctrine of imputed
negligence, as it was established that its employees performed the acts causing the loss in their
official capacity or authority albeit for their personal and private gain or benefit.

Yet, finding that the drawee, Citibank was remiss of its contractual duty to pay the proceeds of the
crossed checks only to its designated payee, this Court ruled that Citibank should also bear liability
for the loss incurred by Ford. It ratiocinated:
Citibank should have scrutinized Citibank Check Numbers SN 10597 and 16508 before paying the
amount of the proceeds thereof to the collecting bank of the BIR. One thing is clear from the record:
the clearing stamps at the back of Citibank Check Nos. SN 10597 and 16508 do not bear any initials.
Citibank failed to notice and verify the absence of the clearing stamps. Had this been duly examined,
the switching of the worthless checks to Citibank Check Nos. 10597 and 16508 would have been
discovered in time. For this reason, Citibank had indeed failed to perform what was incumbent upon
it, which is to ensure that the amount of the checks should be paid only to its designated payee. The
fact that the drawee bank did not discover the irregularity seasonably, in our view, constitutes
negligence in carrying out the bank's duty to its depositors. The point is that as a business affected
with public interest and because of the nature of its functions, 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.25
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Then, applying the doctrine of comparative negligence, this Court adjudged PCIB and Citibank
equally liable for the proceeds of Citibank Check Nos. SN 10597 and 16508.

It is without question that when the action against the bank is premised on breach of contractual
obligations, a bank's liability as debtor is not merely vicarious but primary, in that the defense of
exercise of due diligence in the selection and supervision of its employees is not available. 26 Liability
of banks is also primary and sole when the loss or damage to its depositors is directly attributable to
its acts, finding that the proximate cause of the loss was due to the bank's negligence or breach. 27

The bank, in its capacity as principal, may also be adjudged liable under the doctrine of apparent
authority. The principal's liability in this case however, is solidary with that of his employee. 28

The doctrine of apparent authority or what is sometimes referred to as the "holding out" theory, or the
doctrine of ostensible agency, imposes liability, not "as the result of the reality of a contractual
relationship, but rather because of the actions of a principal or an employer in somehow misleading
the public into believing that the relationship or the authority exists." 29 It is defined as:
[T]he power to affect the legal relations of another person by transactions with third persons arising
from the other's manifestations to such third person such that the liability of the principal for the acts
and contracts of his agent extends to those which are within the apparent scope of the authority
conferred on him, although no actual authority to do such acts or to make such contracts has been
conferred.30 (Citations omitted)
Succinctly stating the foregoing principles, the liability of a bank to third persons for acts done by its
agents or employees is limited to the consequences of the latter's acts which it has ratified, or those
that resulted in performance of acts within the scope of actual or apparent authority it has vested.

In PCIB v. CA,31 however, it is evident and striking that for purposes of holding the principal/banks
liable, no distinction has been made whether the act resulting to injury to third persons was performed
by the agent/employee was pursuant to, or outside the scope of an apparent or actual official
authority. It must be noted nonetheless that this is because of the peculiar circumstance attendant in
that case, that is, the direct perpetrators of the offense therein are fugitives from justice. Thus, this
Court is left to determine who of the parties must bear the burden for the loss incurred by Ford.

In the case at bar, petitioner does not deny the validity of respondents' accounts, in fact it suggests
that transactions with it have all been accounted for as it is based on official documents containing
authentic signatures of Tobias. The point is well-taken. In fine, respondents' claim for damages is not
predicated on breach of their contractual relationship with petitioner, but rather on Robles' act of
misappropriation.

At any rate, it cannot be said that the petitioner is guilty of breach of contract so as to warrant the
imposition of liability solely upon it.32

Records show that respondents entered into two types of transactions with the petitioner, the first
involving savings accounts, and the other loan agreements. Both of these transactions were entered
into outside the petitioner bank's premises, through Robles.

In the first, the respondents, as the depositors, acts as the creditor, and the petitioner, as the
debtor.33In these agreements, the petitioner, by receiving the deposit impliedly agrees to pay upon
demand and only upon the depositor's order. 34 Failure by the bank to comply with these obligations
would be considered as breach of contract.

The second transaction which involves three loan agreements, are the subject of contention. These
loans were obtained by respondents, secured by their deposits with the petitioner, and executed with
corresponding authorization letters allowing the latter to debit from their account in case of default.
Respondents do not contest the genuineness of their signature in the relevant documents; rather they
submit that they were merely lured by Robles into signing the same without knowing their import. The
loans were approved and released by the petitioner, but instead of reinvesting the same, the
proceeds were misappropriated by Robles, as a result, respondents' accounts were debited and
applied as payment for the loan.

Under the premises, the petitioner had the authority to debit from the respondents' accounts having
Page | 73
been appointed as their attorney-in-fact in a duly signed authentic document. 35 Furthermore, there is
nothing irregular or striking that transpired which should have impelled petitioner into further inquiry
as to the authenticity of the attendant transactions. Suffice it is to state that the questioned withdrawal
was not the first time in which Robles has acted as the authorized representative of the petitioner or
as intermediary between the petitioner and the respondents, who is also not merely an employee but
petitioner's branch manager.

Moreover, that the respondents have been lured by Robles into signing the said documents without
knowing the implications thereof does not prove complicity or knowledge on the part of the petitioner
of Robles' inappropriate acts.

Nonetheless, while it is clear that the proximate cause of respondents' loss is the misappropriation of
Robles, petitioner is still liable under Article 1911 of the Civil Code, to wit:
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarity liable with the
agent if the former allowed the latter to act as though he had full powers.
The case of Prudential Bank v. CA36 lends support to this conclusion. There, this Court first laid down
the doctrine of apparent authority, with specific reference to banks, viz.:
Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agent's apparent representation yields to the principal's true
representation and the contract is considered as entered into between the principal and the third
person,

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of
dealings of the officers in their representative capacity but not for acts outside the scope of their
authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to
profit by the frauds they may thus be enabled to perpetuate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit
may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third
persons where the representation is made in the course of its business by an agent acting
within the general scope of his authority even though, in the particular case, the agent is
secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some
other person, for his own ultimate benefit.

Application of these principles in especially necessary because banks have a fiduciary relationship
with the public and their stability depends on the confidence of the people in their honesty and
efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors. 37 (Citations omitted, and
emphasis and underscoring Ours)
Petitioner, in support of its position, cites Banate v. Philippine Countryside Rural Bank (Liloan, Cebu),
Inc.,38 this Court finds however that the case presents a different factual milieu and is not applicable in
the case at bar.

In Banate, this Court ruled that the doctrine of apparent authority does not apply and absolved the
bank from liability resulting from the alteration by its branch manager of the terms of a mortgage
contract which secures a loan obtained from the bank. In so ruling, this Court found "[n]o proof of the
course of business, usages and practices of the bank about, or knowledge that the board had or is
presumed to have of its responsible officers' acts regarding the branch manager's apparent
authority"39 to cause such alteration. Further, "[n]either was there any allegation, much less
proof"40 that the bank ratified its manager's acts or is estopped to make a contrary claim.

In contrast, in this controversy, the evidence on record sufficiently established that Robles as branch
manager was 'clothed' or 'held out' as having the power to enter into the subject agreements with the
respondents.

The existence of apparent or implied authority is measured by previous acts that have been ratified or
approved or where the accruing benefits have been accepted by the principal. It may also be
established by proof of the course of business, usages and practices of the bank; or knowledge that
the bank or its officials have, or is presumed to have of its responsible officers' acts regarding bank
branch affairs.41

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As aptly pointed by the CA, petitioner's evidence bolsters the case against it, as they support the
finding that Robles as branch manager, has been vested with the apparent or implied authority to act
for the petitioner in offering and facilitating banking transactions.

The testimonies of the witnesses presented by petitioner establish that there was nothing irregular in
the manner in which Robles transacted with the respondents. 42 In fact, petitioner's witnesses admitted
that while the bank's general policy requires that transactions be completed inside the bank premises,
exceptions are made in favor of valued clients, such as the respondents. In which case, banking
transactions are allowed to be done in the residence or place of business of the depositor, since the
same are verified subsequently by the bank cashier. 43

Moreover, petitioner admitted that for valued clients, the branch manager has the authority to transact
outside of the bank premises.44 In fact, Robles previously transacted business on behalf of the
petitioner as when it sought and facilitated the opening of respondents' accounts. Petitioner
acknowledged Robles' authority and it honored the accounts so opened outside the bank premises.

To recall, prior to the alleged back-to-back scheme entered into by the respondents, Robles has
consistently held himself out as representative of the petitioner in seeking and signing respondents as
depositors to various accounts.45 It bears to stress that in the course of the said investment, the
practice has been for Tobias to surrender the passbook to Robles' for updating. 46 All of which
accounts have been in order until after the respondents was lured into entering the back-to-back
scheme.

In this light, respondents cannot be blamed for believing that Robles has the authority to transact for
and on behalf of the petitioner47 and for relying upon the representations made by him. After all,
Robles as branch manager is recognized "within his field and as to third persons as the general agent
and is in general charge of the corporation, with apparent authority commensurate with the ordinary
business entrusted him and the usual course and conduct thereof." 48

Consequently, petitioner is estopped from denying Robles' authority. 49 As the employer of Robles,
petitioner is solidarity liable to the respondents for damages caused by the acts of the former,
pursuant to Article 1911 of the Civil Code.50

The ruling in PCIB v. CA51 insofar as it imposes liability directly and solely upon the employer does not
apply considering that Robles, while not a petitioner in this case, has been validly been served with
summons by publication52 and joined as party in the case before the trial court 53 and the
CA.54Jurisdiction having been acquired over his person, this Court consequently has the authority to
rule upon his liability.55

On a final note, it must be pointed out that the irregularity has only been discovered by the petitioner
on March 30, 2006 when Valdez went to petitioner's Mabini branch to have her account with Tobias
updated.56 It bears to stress that petitioner had the opportunity to discover such irregularity at the time
the loan application was submitted for its approval or at the latest, when the respondents defaulted
with the payment of their obligation. With the extreme repercussions of the transactions entered into
by the respondents, instead of just relying on the supposed authority of Robles and examining the
documents submitted, petitioner should have at least communicated with the respondents in order to
verify with them the genuineness of their signatures therein and whether they understood the
implications of affixing the same. Nothing short is expected of petitioner considering that the nature of
the banking business is imbued with public interest, and as such the highest degree of diligence is
demanded.57

WHEREFORE, in view of the foregoing disquisitions, the petition for review on certiorari is
hereby DENIED. The Decision dated May 31, 2016 and Resolution dated October 10, 2016 issued by
the Court of Appeals in CA-G.R. CV No. 102545 are AFFIRMED.

SO ORDERED.

Medical Malpractice/ Negligence

Solidum VS People
Page | 75
NILO B ROSIT vs DAVAO DOCTORS HOSPITAL and DR. ROLANDO GESTUVO
GR No. 210445, December 7, 2015

FACTS:
Rosit figured in a motorcycle accident where he fractured his jaw. He was referred to Dr.
Gestuvo, a specialist in mandibular injuries, who operated on Rosit. As the operation required the
smallest screws available, Dr. Gestuvo cut the screws on hand to make them smaller. Dr. Gestuvo
knew that there were smaller titanium screws available in Manila, but did not so inform Rosit
supposing that the latter would not be able to afford the same.
Following the procedure, Rosit could not properly open and close his mouth and was in pain.
Xrays showed that his jaw was aligned by the screws used on him touched his molar. Dr. Gestuvo
referred Rosit to Dr. Pangan, a dentist who then opined that another operation is necessary and that it
is to be performed in Cebu. Rosit went to Cebu and underwent the operation successfully.
On his return to Davao, Rosit demanded the Dr. Gestuvo reimburse him for the cost of the
operation and the expenses incurred in Cebu amounting to P140,000. Dr. Gestuvo refused to pay.
Thus, Rosit filed a civil case for damages. RTC adjudged Dr. Gestuvo negligent holding that res ipsa
loquitur principle applies, thus, expert medical testimony may be dispensed with because the injury
itself provides the proof of negligence. CA reversed the decision. Hence, this appeal.

ISSUE:
Whether or not CA correctly absolved Dr. Gestuvo from liability.

RULING:
Petition granted.

RATIO DECIDENDI:
CA erred in absolving Dr. Gestuvo from liability. A medical negligence is a type of claim to
redress a wrong committed by a medical professional, that has caused bodily harm to or the death of
a patient. There are four elements involved in a medical negligence case, namely: duty, breach,
injury, and proximate causation.
To establish medical negligence, the Court has held that an expert testimony is generally
required to define the standard of behaviour by which the court may determine whether the physician
has properly performed the requisite duty toward the patient. But, 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 exception may be availed of if the following requisites
concur:
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
3. The injury suffered must not have been due to any voluntary action or contribution of the
person injured

In this case, the essential requisites for the application of the doctrine of res ipsa loquitur are
present.
The first element was sufficiently established when Rosit proved that one of the screws
installed by Dr. Gestuvo struck his molar. An average man of common intelligence would know that
striking a tooth with any foreign object much less a screw would cause severe pain.
Anent the second element, it is sufficient that the operation which resulted in the screw hitting
Rosit’s molar was, indeed, performed by Dr. Gestuvo.
Lastly, the third element, it was not shown that Rosit’s lung disease could have contributed to
the pain. What is clear is that he suffered because one of the screws that Dr. Gestuvo installed hit
Rosit’s molar.
Clearly then, the res ipsa loquitur doctrine finds application in the instant case and no expert
testimony is required to establish the negligence of defendant Dr. Gestuvo.
Carlos Borromeo v Family Care Hospital Inc. (G.R. No. 191018)
Date: January 25, 2016
Ponente: Justice Brion

Page | 76
Facts:
On July 13, 1999, the Borromeo brought his wife to the Family Care Hospital because she had been
complaining of acute pain at the lower stomach area and fever for two days. She was admitted at the
hospital and placed under the care of Dr. Inso.
Dr. Inso suspected that Lilian might be suffering from acute appendicitis. However, there was
insufficient data to rule out other possible causes and to proceed with an appendectomy. Thus, he
ordered Lilian’s confinement for testing and evaluation. However, the tests were not conclusive
enough to confirm that she had appendicitis. Lilian abruptly developed an acute surgical abdomen.
On July 15, 1999, Dr. Inso decided to conduct an exploratory laparotomy on Lilian because of the
findings on her abdomen and his fear that she might have a ruptured appendix. During the operation,
Dr. Inso confirmed that Lilian was suffering from acute appendicitis. He proceeded to remove her
appendix which was already infected and congested with pus. The operation was successful.
Six hours after Lilian was brought back to her room, Dr. Inso was informed that her blood pressure
was low. After assessing her condition, he ordered the infusion of more intravenous (IV) fluids which
somehow raised her blood pressure. Subsequently, a nurse informed him that Lilian was becoming
restless. Dr. Inso immediately went to Lilian and saw that she was quite pale. He immediately
requested a blood transfusion. Lilian did not respond to the blood transfusion even after receiving two
500 cc-units of blood.
Eventually, an endotracheal tube connected to an oxygen tank was inserted into Lilian to ensure her
airway was clear and to compensate for the lack of circulating oxygen in her body from the loss of red
blood cells. Nevertheless, her condition continued to deteriorate.
At this point, Dr. Inso suspected that Lilian had Disseminated Intravascular Coagulation (DIC), a
blood disorder characterized by bleeding in many parts of her body caused by the consumption or the
loss of the clotting factors in the blood. However, Dr. Inso did not have the luxury to conduct further
tests because the immediate need was to resuscitate Lilian.
Dr. Inso and the nurses performed CPR on Lilian. Dr. Inso also informed her family that there may be
a need to re-operate on her, but she would have to be put in an Intensive Care Unit (ICU).
Unfortunately, Family Care did not have an ICU because it was only a secondary hospital and was
not required by the Department of Health to have one. Dr. Inso then personally coordinated with the
Muntinlupa Medical Center (MMC) which had an available bed. Upon reaching the MMC, a medical
team was on hand to resuscitate. Unfortunately, Lilian passed away despite efforts to resuscitate her.
According to the autopsy report, Dr. Reyes concluded that the cause of Lilian’s death was
haemorrhage due to bleeding petechial blood vessels: internal bleeding. He further concluded that
the internal bleeding was caused by the 0.5 x 0.5 cm opening in the repair site. He opined that the
bleeding could have been avoided if the site was repaired with double suturing instead of the single
continuous suture repair that he found.
Based on the autopsy, the petitioner filed a complaint for damages against Family Care and against
Dr. Inso for medical negligence.

Issue: Whether or not respondents are guilty of medical negligence (NO)

Ruling: A medical professional has the duty to observe the standard of care and exercise the degree
of skill, knowledge, and training ordinarily expected of other similarly trained medical professionals
acting under the same circumstances. A breach of the accepted standard of care constitutes
negligence or malpractice and renders the defendant liable for the resulting injury to his patient.
The standard is based on the norm observed by other reasonably competent members of the
profession practicing the same field of medicine. Because medical malpractice cases are often highly
technical, expert testimony is usually essential to establish: (1) the standard of care that the
defendant was bound to observe under the circumstances; (2) that the defendant’s conduct fell below
the acceptable standard; and (3) that the defendant’s failure to observe the industry standard caused
injury to his patient.
The expert witness must be a similarly trained and experienced physician. Thus, a pulmonologist is
not qualified to testify as to the standard of care required of an anesthesiologist and an autopsy
expert is not qualified to testify as a specialist in infectious diseases.
xxxx
Dr. Reyes is not an expert witness who could prove Dr. Inso’s alleged negligence. His testimony could
not have established the standard of care that Dr. Inso was expected to observe nor assessed Dr.
Inso’s failure to observe this standard. His testimony cannot be relied upon to determine if Dr. Inso
committed errors during the operation, the severity of these errors, their impact on Lilian’s probability
of survival, and the existence of other diseases/condition.
Page | 77
xxxx
The petitioner cannot invoke the doctrine of res ipsa loquitur to shift the burden of evidence onto the
respondent. Res ipsa loquitur, literally, “the thing speaks for itself;” is a rule of evidence that presumes
negligence from the very nature of the accident itself using common human knowledge or experience.
The application of this rule requires: (1) that the accident was of a kind which does not ordinarily
occur unless someone is negligent; (2) that the instrumentality or agency which caused the injury was
under the exclusive control of the person charged with negligence; and (3) that the injury suffered
must not have been due to any voluntary action or contribution from the injured person. The
concurrence of these elements creates a presumption of negligence that, if unrebutted, overcomes
the plaintiff’s burden of proof.
xxxx
The rule is not applicable in cases such as the present one where the defendant’s alleged failure to
observe due care is not immediately apparent to a layman. These instances require expert opinion to
establish the culpability of the defendant doctor. It is also not applicable to cases where the actual
cause of the injury had been identified or established. While this Court sympathizes with the
petitioner’s loss, the petitioner failed to present sufficient convincing evidence to establish: (1) the
standard of care expected of the respondent and (2) the fact that Dr. Inso fell short of this expected
standard. Considering further that the respondents established that the cause of Lilian’s
uncontrollable bleeding (and, ultimately, her death) was a medical disorder – Disseminated
Intravascular Coagulation – we find no reversible errors in the CA’s dismissal of the complaint on
appeal.
G.R. No. 189218 OUR LADY OF LOURDES HOSPITAL vs. SPOUSES ROMEO AND
REGINA CAPANZANA

Facts: Regina was scheduled for her third caesarean section (C-section) on 2 January 1998.
However, a week earlier, on 26 December 1997, she went into active labor and was brought to
petitioner hospital for an emergency C-section. She first underwent a preoperative physical
examination by Dr. Miriam Ramos (Dr. Ramos) and Dr. Milagros Joyce Santos, (Dr. Santos) the same
attending physicians in her prior childbirths. She was found fit for anesthesia after she responded
negatively to questions about tuberculosis, rheumatic fever, and cardiac diseases. On that same day,
she gave birth to a baby boy. When her condition stabilized, she was discharged from the recovery
room and transferred to a regular hospital room.

At 2:30 a.m. the following day, or 13 hours after her operation, Regina who was then under watch by
her niece, Katherine L. Balad (Balad), complained of a headache, a chilly sensation, restlessness,
and shortness of breath. She asked for oxygen and later became cyanotic. After undergoing an x-ray,
she was found to be suffering from pulmonary edema. She was eventually transferred to the Intensive
Care Unit, where she was hooked to a mechanical ventilator. The impression then was that she was
showing signs of amniotic fluid embolism.

On 2 January 1998, when her condition still showed no improvement, Regina was transferred to the
Cardinal Santos Hospital. The doctors thereat found that she was suffering from rheumatic heart
disease mitral stenosis with mild pulmonary hypertension, which contributed to the onset of fluid in
her lung tissue (pulmonary edema). This development resulted in cardiopulmonary arrest and,
subsequently, brain damage. Regina lost the use of her speech, eyesight, hearing and limbs. She
was discharged, still in a vegetative state, on 19January 1998.

Respondent spouses Capanzana filed a complaint for damages against petitioner hospital, along with
co-defendants: Dr. Miriam Ramos, an obstetrician/gynecologist; Dr. Milagros Joyce Santos, an
anesthesiologist; and Jane Does, the nurses on duty stationed on the second floor of petitioner
hospital on 26-27 December 1997.

RTC held Drs and nurses liable.

Page | 78
CA ruled that petitioner hospital should be held liable based on the doctrine of corporate
responsibility. It was found that while there was evidence to prove that petitioner hospital showed
diligence in its selection and hiring processes, there was no evidence to prove that it exercised the
required diligence in the supervision of its nurses. Also, the appellate court ruled that the non-
availability of an oxygen unit on the hospital floor, a fact that was admitted, constituted gross
negligence on the part of petitioner hospital. The CA stressed that, as borne out by the records, there
was only one tank in the ward section of 27 beds. It said that petitioner hospital should have devised
an effective way for the staff to properly and timely respond to a need for an oxygen tank in a situation
of acute distress.

Issue: Whether or not the hospital is liable.

Rulings: The Supreme Court ruled in affirmative. The Court has emphasized that a higher degree of
caution and an exacting standard of diligence in patient management and health care are required of
a hospital’s staff, as they deal with the lives of patients who seek urgent medical assistance. It is
incumbent upon nurses to take precautions or undertake steps to safeguard patients under their care
from any possible injury that may arise in the course of the latter’s treatment and care.

The Court further notes that the immediate response of the nurses was especially imperative, since
Regina herself had asked for oxygen. They should have been prompted to respond immediately
when Regina herself expressed her needs, especially in that emergency situation when it was not
easy to determine with certainty the cause of her breathing difficulty. Indeed, even if the patient had
not asked for oxygen, the mere fact that her breathing was labored to an abnormal degree should
have impelled the nurses to immediately call the doctor and to administer oxygen.

In this regard, both courts found that there was a delay in the administration of oxygen to the patient,
caused by the delayed response of the nurses of petitioner hospital. They committed a breach of their
duty to respond immediately to the needs of Regina, considering her precarious situation and her
physical manifestations of oxygen deprivation.

We affirm the findings of the courts below that the negligent delay on the part of the nurses was the
proximate cause of the brain damage suffered by Regina.

Metro Concast Steel Corporation vs. Allied Bank

(Art. 1174 Fortuitous Event)

Facts:
Metro Concast obtained several loans from allied bank secured by promissory notes and trust
receipts. They however, failed to settle their obligation despite receiving demand letters from Allied
Bank. This prompted Allied Bank to file a case to compel Metro Concast to pay. The petitioner then
alleged that the economic reverses suffered by the Philippine economy as well as the devaluation of
the peso against the US dollar contributed greatly to the downfall of the steel industry, directly
affecting their business and eventually leading to its cessation. Hence, in order to settle their debts
with Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets, consisting of
machineries and equipment, to Allied Bank, which the latter, however, refused. Instead, Allied Bank
advised them to sell the equipment and apply the proceeds of the sale to their outstanding
obligations. Accordingly, petitioners offered the equipment for sale. Peakstar expressed interest in
buying the scrap metal. During the negotiations with Peakstar, petitioners claimed that Atty. Saw, a
member of Allied Bank’s legal department, acted as the latter’s agent. Eventually, through Atty. Saw, a
Memorandum of Agreement was drawn between Metro Concast and Peakstar under which Peakstar
obligated itself to purchase the scrap metal.
Unfortunately, Peakstar reneged on all its obligations under the MoA.
Page | 79
 In the present case, petitioners essentially argue that their loan obligations to Allied Bank had
already been extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstar’s default as a form of force majeure in the
sense that they have, beyond their control, lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to pay their own loan obligations to Allied
Bank.

Issue: WON there was force majeure

Ruling: NO
Petitioners’ arguments are untenable. At the outset, the Court must dispel the notion that the
MoA would have any relevance to the performance of petitioners’ obligations to Allied Bank. The MoA
is a sale of assets contract, while petitioners’ obligations to Allied Bank arose from various loan
transactions. Absent any showing that the terms and conditions of the latter transactions have been,
in any way, modified or novated by the terms and conditions in the MoA, said contracts should be
treated separately and distinctly from each other, such that the existence, performance or breach of
one would not depend on the existence, performance or breach of the other. Now, anent petitioners’
reliance on force majeure, suffice it to state that Peakstar’s breach of its obligations to Metro
Concast arising from the MoA cannot be classified as a fortuitous event under jurisprudential
formulation.

While it may be argued that Peakstar’s breach of the MoA was unforseen by petitioners,
the same is clearly not "impossible"to foresee or even an event which is independent of
human will." Neither has it been shown that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank and thus, negates the former’s force
majeure theory altogether.

[ G.R. No. 182395, October 05, 2015 ]

MARITO T. BERNALES, PETITIONER, VS. NORTHWEST AIRLINES, RESPONDENT.

DECISION
BRION, J.:*
This petition for review on certiorari seeks to reverse the 31 March 2008 decision of the Court of
Appeals (CA) in CA-G.R. CV No. 86861,[1] which reversed the 26 January 2006 decision of the
Regional Trial Court (RTC) of Iriga City, Branch 60 in Civil Case No. 3355.[2] This RTC ruling, in turn,
ordered the respondent Northwest Airlines (NWA) to pay the petitioner moral and exemplary
damages plus attorney's fees in the sum of twelve million five hundred thirty thousand pesos
(P12,530,000.00).

ANTECEDENTS

The petitioner Marito T. Bernales is a lawyer, a university dean, and a board member of
the Sangguniang Panlalawigan of Camarines Sur. On 1 October 2002, he and several other
prominent personalities from Bicol were on their way to Honolulu, Hawaii, as the delegates of a trade
Page | 80
and tourism mission for the province. They were economy class passengers of Northwest Airlines
Flight No. 10 from Manila to Honolulu via Narita, Japan.

The delegation arrived at Narita International Airport (NRT) at around 11:00 a.m. Their connecting
flight was scheduled at 8:40 p.m., later that evening.

At around 6:00 p.m., a typhoon hit Japan, leading to the cancellation of most flights, including NWA
Flight No. 10. However, NWA did not cancel Flight No. 22, also bound for Honolulu later that night, to
minimize delays and to accommodate stranded passengers in case the typhoon would subside.

Under NWA policy, affected passengers are protected in their booking for the next available flight in
case of cancellations. This means that if there are available seats in the next flight, the delayed
passengers would be accommodated with priority given to first class and business class passengers.
If only limited seats are available, the delayed passengers are wait-listed according to their priority
level and in the sequence of their check-in. In all cases, the original passengers of the next flight are
prioritized over the delayed passengers.

At around 9:00 p.m., the storm subsided and the airport resumed its operations. Ordinarily, NRT has
an 11:00 p.m. cut-off for flights to give the city a reprieve from airplane noise. On this day, the Narita
Airport Authority extended the airplane curfew to 1:00 a.m., in order to accommodate the delayed
flights and to make up for lost time. This opened up the possibility that the petitioner's group could still
push through to Honolulu.

The delegates opted to be wait-listed for Flight No. 22. The petitioner was placed last in the wait-list
as he was the last economy class passenger to check in for Flight No. 10. To ensure departure before
the 1:00 a.m. curfew, NWA gave out "dummy" boarding passes to the wait-listed passengers even
before the priority passengers boarded the plane.

The passengers of Flight 22 were called for boarding at around 11:00 p.m. and the delegates boarded
the shuttle taking them to the airplane. But before the shuttle bus could leave, NWA Customer Service
Agent Tsuruki Ohashi entered the shuttle and informed the petitioner that he could not take Flight 22
as no available seat was left for him.

According to the petitioner's version of events, Ohashi barged into the bus and shouted "Marito,
Marito Bernales, where are you?" When the petitioner identified himself, Ohashi allegedly
yelled, "Bullshit, Marito Bernales, you are not included in the manifest. Get out! Get out!" Ohashi
allegedly took the petitioner's boarding pass and grabbed him by the arm before ejecting him from the
shuttle. The shuttle bus carrying his hand-carried bag left the petitioner alone outside the terminal
without his money, passport, and other travel documents.

Because of the incident, the other delegates refused to board the airplane unless the petitioner was
physically brought to them at the tarmac. After a stalemate between the delegates and the airline's
employees, the petitioner was transported by shuttle to the aircraft to rejoin his group.

NWA narrates in its narration of events, that Ohashi politely approached the petitioner in the shuttle
bus and informed him that they needed to accommodate two original priority passengers who arrived.
Ohashi politely asked the petitioner to alight. Ohashi assured the petitioner that he would look for a
volunteer passenger who would give up his seat to accommodate the petitioner and asked him to wait
inside the terminal. NWA alleges that the petitioner gracefully complied without objections. Ohashi
found a volunteer passenger within ten minutes. NWA immediately transported the petitioner to the
airplane for the flight.

NWA maintains that Ohashi has an impeccable service record in customer relations and has received
multiple commendations.

In either case, the petitioner was given a dummy boarding pass for Seat No. 35 in the name of "Eddie
Page | 81
Tanno." The dummy boarding pass was issued out of necessity due to the lack of time to issue a new
one. The petitioner, however, thought it was a real boarding pass. He proceeded to Seat No. 35-H
and found it occupied by Eddie Tanno. He showed the dummy boarding pass to Tanno who, noticing
his name irately asked, "Can't you read? " An attendant noticed the commotion and immediately
escorted the petitioner to Seat No. 15-H, his allotted vacant seat.

Unfortunately, Flight No. 22 failed to depart in time to beat the Narita curfew. The pilot thus instructed
the passengers to disembark and wait for the next flight. The passengers of Flight No. 22 were
returned to the terminal where they had to wait with 1,500 other stranded passengers.

All the nearby hotels were fully booked from the many flight cancellations. Because it was already
late, NWA failed to find billeting for the stranded Flight No. 22 passengers and they had to spend the
night at the airport; they were given blankets, pillows, snacks, water, and food coupons. The petitioner
claims that he was made to sleep on the terminal floor "akin to the beggars of Quiapo and
Baclaran" and had to suffer the discomfort of using the public toilets.

In the morning of 2 October 2002, NWA gave the delegates two options: (1) take a direct flight to
Honolulu scheduled for 3 October 2002; or (2) take a 3:35 p.m. flight later that day to Los Angeles,
California, with an immediate connecting flight to Honolulu. The delegates chose the second option
so they could leave immediately.

The delegates arrived at Honolulu on 2 October 2002 between 3:00 and 4:00 p.m., Honolulu time. But
they had already missed the courtesy calls they were to make on the governor and the mayor, which
were scheduled for earlier that day.

On 12 February 2003, the petitioner filed a complaint for moral and exemplary damages against the
respondent NWA for breach of their contract of carriage. The petitioner alleged that Ohashi's rude
treatment, his ejection from the shuttle bus, the resulting missed obligations due to the flight's delay,
and the humiliation from the ordeal caused him immense mental anguish and moral shock. He prayed
for P10,000,000.00 as moral damages, P2,000,000.00 as exemplary damages, and P500,000.00 as
attorney's fees plus P5,000.00 per court appearance. The complaint was docketed as Civil Case No.
3355.

On 30 April 2003, NWA filed its answer denying that Ohashi, or any of its employees, forcibly ejected
the petitioner or treated him rudely. NWA insisted that it acted in good faith and never in a wanton,
fraudulent, oppressive, or malevolent manner.

After proceedings, the RTC rendered its decision on 3 October 2005 in favor of the petitioner. The
RTC believed the petitioner's version of events and blamed the respondent for: (1) the humiliation
caused by Eddie Tanno; (2) the failure to billet the passengers to a nearby hotel; and (3) for causing
the petitioner to miss his scheduled obligations in Honolulu. The RTC awarded him P10,000,000.00
as moral damages, P2,000,000.00 as exemplary damages, P530,000.00 as attorney's fees.

NWA appealed the case to the CA. The appeal was docketed as CA-G.R. CV No. 86861.

On 31 March 2008, the CA reversed the RTC decision and dismissed the complaint. The CA held
that: (1) moral damages cannot be awarded in breaches of contracts of carriage except in cases of
the death of a passenger or when the common carrier acted in bad faith; [3](2) the typhoon was the
real and proximate cause of the cancellation of flights and NWA's failure to bring the petitioner to
Honolulu in time; (3) the petitioner's accusation that Mr. Ohashi verbally abused him is not believable
and contrary to ordinary human experience; (4) the airline cannot be responsible for the remarks of
Eddie Tanno, a fellow passenger; and (5) 1,500 other passengers similarly experienced the
discomfort of spending the night at the airport, and NWA did not maliciously single him out. The CA
concluded that NWA did not act in bad faith; therefore, there was no basis to grant moral and
exemplary damages.

Page | 82
On 23 April 2008, the petitioner filed this petition for review on certiorari arguing that the CA erred in
finding that NWA acted in good faith and in dismissing his complaint. The petitioner also adopts the
RTC's decision and asserts that this case is an exception to the rule that the factual findings of the CA
are conclusive on this Court.

In its comment, NWA pointed out that the petition should be dismissed outright because it only raises
questions of fact. NWA also maintained in its memorandum that the CA did not err in concluding that
the former acted in good faith and that the petitioner's version of the events was incredible and
contrary to human experience.

OUR RULING

At the outset, we also note that the petitioner only raised questions of fact, which are not proper in a
petition for review on certiorari. Under Section 1 of Rule 45, such petition shall only raise questions of
law. The Supreme Court is not a trier of facts and it is not our function to analyze and weigh the
evidence that the lower courts have passed upon. Ordinarily, the factual findings of the Court of
Appeals are conclusive upon this Court. However, jurisprudence has carved out recognized
exceptions[4] to this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises
or conjectures;[5] (2) when the inference made is manifestly mistaken, absurd or impossible; [6] (3)
when there is grave abuse of discretion; [7] (4) when the judgment is based on a misapprehension of
facts;[8] (5) when the findings of facts are conflicting; [9] (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;[10] (7) when the findings are contrary to those of the trial court; [11] (8)
when the findings are conclusions without citation of specific evidence on which they are based; [12] (9)
when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not
disputed by the respondent;[13] (10) when the findings of fact are premised on the supposed absence
of evidence and contradicted by the evidence on record; [14] and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.[15]

In the present case, the RTC believed the petitioner's version of events while the CA believed the
respondent. Considering that the lower courts differ in their factual conclusions, this case qualifies as
an exception to the general rule.

After a review of the records and considering the conflicting versions of events, we agree with the CA.

Moral damages predicated upon a breach of a carriage contract is only recoverable in instances
where the mishap results in the death of a passenger, [16] or where the carrier is guilty of fraud or bad
faith.[17] Bad faith is not simple negligence or bad judgment; it involves ill intentions and a conscious
design to do a wrongful act for a dishonest purpose.. [18]

Under the carriage contract, NWA had the obligation to transport the petitioner from Narita
International Airport to Honolulu, Hawaii, on 1 October 2002 at 8:40 p.m. NWA failed to perform this
duty because a strong typhoon hit Japan that evening, forcing widespread flight cancellations.
Nevertheless, NWA attempted to fly the petitioner to Honolulu on a later flight after the typhoon
passed. This attempt failed because NWA was prevented by the mandatory airport curfew. NWA was
only able to fulfill its obligation at 3:35 p.m. the following day

The primary cause of NWA's delay in the fulfillment of its obligation was the unusually strong typhoon
that struck Japan that evening. We take notice that this was Typhoon Higos, one of the most powerful
typhoons to hit Japan as of that date.[19] Typhoon Higos resulted in the cancellation of more than 200
flights.[20]

From this perspective, we cannot attribute bad faith or ill motives on NWA for cancelling Flight No. 10.
Page | 83
Pushing through would have recklessly endangered the lives of the passengers and the crew.
Evidently, the real and proximate cause of NWA's breach of contract was a fortuitous event.

Moreover, NWA demonstrated good faith when it exerted its best efforts to accommodate the delayed
Flight No. 10 passengers on Flight No. 22. While Flight No. 22 also failed to leave, the failure was
caused by the 1:00 p.m. Narita curfew. Again, we cannot attribute malice on NWA for the cancellation
of Flight No. 22.

As the CA did, we do not believe the petitioner's accusations that Ohashi barged into shuttle bus,
verbally abused him, and forced him off the bus. It makes no sense for Ohashi to suddenly
yell, "Bullshit, Marito Bernales, you are not included in the manifest. Get out! Get out!"out of nowhere
without any prior exchanges. Moreover, we find it hard to believe that neither the petitioner nor the
other delegates protested on the spot against the alleged abusive treatment. As the CA observed, this
version of events is contrary to ordinary human experience.

Moreover, Ohashi has a good track record in customer service and was the recipient of several
commendation letters that were presented in court. We agree with the petitioner that under the rules
of evidence, his previous acts are not admissible to prove how Ohashi behaved during the incident.
But as the respondent pointed out, previous conduct may be received as evidence to prove specific
intent, habit, and tendencies.[21] Ohashi's track record contradicts the petitioner's portrayal of him as
an unreasonably rude person.

We also find it hard to swallow the petitioner's theory that Ohashi only brought him to the plane
because the other delegates stayed on the tarmac and refused to board unless the petitioner was
with them. These delegates did not object when the petitioner was allegedly maltreated and ejected
from the shuttle bus, yet the petitioner would have us believe that they protested on the tarmac for
thirty to forty minutes in his behalf. We find it contrary to common experience for people to do or say
nothing when a companion is being abused, then suddenly protest after the fact when they were
already away from the incident. These, to us, are inconsistent reactions. Thus, we find NWA's
account to be more credible.

On the insulting remark from Eddie Tanno, we cannot possibly hold NWA responsible for the actions
of the other passengers. The RTC blames the mistake of NWA's agents in the issuance of the dummy
boarding pass for putting the petitioner in that situation. Moral damages, however, cannot be awarded
for simple mistakes in the absence of bad faith.

Finally, we also cannot impute bad faith on NWA's failure to house the passengers in any nearby
hotels. Flight No. 22 was cancelled at around 1 a.m. Considering the number of flights cancelled
earlier that evening, it is understandable that hotel rooms had already been booked by the other
airlines also billeting their passengers.

The petitioner paints the dismal picture that he was forced to use the public comfort rooms and sleep
on the floor like "the beggars of Quiapo and Baclaran." He fails to mention though that the 1,500 other
stranded passengers had to endure the same discomforts that he experienced; NWA did not
maliciously single him out. All the stranded passengers suffered the same experience because of
Typhoon Higos. NWA did the next best thing it could and provided the passengers with blankets,
snacks, and other comforts available under the circumstances.

The arrival of Typhoon Higos was an extraordinary and unavoidable event. Its occurrence made it
impossible for NWA to bring the petitioner to Honolulu in time for his commitments. We cannot hold
the respondent liable for a breach of contract resulting from a fortuitous event. Moreover, we find that
NWA did not act in bad faith or in a wanton, fraudulent, reckless, or oppressive manner. On the
contrary, it exerted its best efforts to accommodate the petitioner on Flight No. 22 and to lessen the
petitioner's discomfort when he and the other passengers were left to pass the night at the terminal.
Thus, the CA did not err in dismissing the complaint.

Page | 84
WHEREFORE, considering that the Court of Appeals committed no reversible errors, we DENY the
petition for lack of merit. Costs against the petitioner.

SO ORDERED.

SPS. MALLARI vs. PRUDENTIAL BANK

[G.R. No. 197861. June 5, 2013. 697 SCRA 555]

DOCTRINE:
Unconscionable interest rates – The SC has ruled in the following cases that the interest is
unconscionable: 3% and 3.81% per month on a P10 Million loan (Toring vs. Sps. Ganzon-
Olan, 2008); 66% per annum or 5.5% per month on a P500 thousand loan (Medel vs. Court of
Appeals, 1998) and; 7% and 5% or 84% and 60% per annum (Chua vs. Timan, 2008). The Court has
also ruled affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are
excessive, unconscionable and exorbitant.

Conscionable interest rates – In this case 23% per annum or 2% per month as agreed upon by
petitioner and respondent bank is NOT unconscionable. It is much lower than the above mentioned
unconscionable interest rates and there is no similarity of factual milieu.

FACTS:
[Decided 2013] In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential
Bank in the amount of P300,000.00. It was subject to an interest rate of 21% per annum and, in case
of default, a penalty of 12% per annum of the total amount due and attorneys fees equivalent of 15%
of the total amount due. This was secured by a Deed of Assignment (DOA) over petitioner's time
deposit account. In 1989, Spouses Florentino and Aurea Mallari obtained another loan from
respondent for P1.7 million, stipulating interest of 23% per annum with the same penalties in case of
default. This was secured by Real Estate Mortgage (REM).

Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and P2,991,294.82
for the first and second loans respectively.

Respondent tried to extrajudicially foreclose the mortgage. Petitioners on the other hand tried to
nullify the mortgage claiming that the Bank imposed onerous terms and conditions and that the bank
was unilaterally increasing its charges and interest over and above those stipulated. The Bank
claimed that the basis for its computation was all written in the Promissory Notes.

The RTC ruled in favor of respondent bank. CA affirmed.

ISSUE: Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.

HELD:
No. The Court has also ruled affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, unconscionable and exorbitant. thus, the 23% per annum interest
rate imposed on petitioners’ loan in this case can by no means be considered excessive or
unconscionable. And neither is the 12% per annum penalty charge unconscionable as the counrt
found in DBP vs. Family Foods (2009) and Ruiz vs. Court of Appeals (2003).

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[G.R. No. 192304. August 13, 2014.]

ANCHOR SAVINGS BANK (now Equicom Savings Bank), petitioner, vs. PINZMAN REALTY AND
DEVELOPMENT CORPORATION, MARYLIN MAÑALAC AND RENATO GONZALES,
respondents.

VILLARAMA, JR., J p:

FACTS:
1. The private respondents Mañalac obtained a loan from the petitioner in the amount of
P3,000,000 secured by a real estate mortgage over parcels of land. Private respondent
executed a Promissory Note and Disclosure Statement in favor of the petitioner in the total
amount of P3,308,447.74, which amount already included payment for 3 months interest. The
loan document stipulated 3 installments and imposed a monthly 5% late-payment charge,
25% attorney’s fees, and 25% liquidated damages in case of unpaid installments on the part of
private respondent Mañalac. The proceeds for the loan were released to private respondent
who then issued 3 checks. However, among the 3 checks, only the first one was cleared for
payment.
2. Subsequently, private respondents received a Notice of Extrajudicial sale for the satisfaction of
an obligation. Thereafter, a foreclosure sale was held where the petitioner emerged as the
highest bidder. As private respondent Mañalac failed to redeem the properties, ownership of
the foreclosed properties was eventually consolidated in petitioner’s name.
3. Private respondent filed a complaint for the Annulment of the Extrajudicial Foreclosure of
Mortgaged Properties, Auction Sale, Certificate of Sale and Damages against the petitioner
before the RTC.
4. RTC dismissed the complaint and ruled that private respondents did not take any measures to
enjoin the foreclosure sale despite their knowledge of the alleged usurious interest charges.
5. On appeal, CA revered the RTC decision and held that petitioner erred in unilaterally imposing
an interest rate of 30.33% on the unpaid portion of the loan. The CA held that the said rate was
excessive, iniquitous, unconscionable and blatantly contrary to law and morals. Further, the CA
ruled that the imposition of such unlawful interest rate will nullify the foreclosure arising
therefrom.

ISSUE: Whether the imposition of usurious interest rates on a loan obligation secured by a real estate
mortgage will result in the invalidity of the subsequent foreclosure sale of the mortgage.

HELD: Yes.
It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage cannot be given
legal effect. Relevantly, in Heirs of Zoilo Espiritu v. Sps. Landrito, we struck down a foreclosure sale
where the amount declared as mortgage indebtedness involved excessive, unreasonable, and
unconscionable interest charges. In no uncertain terms, we ruled that a mortgagor cannot be legally
compelled to pay for a grossly inflated loan: xx xxx xx. A judgment ordering a foreclosure sale is
conditioned upon a finding on the correct amount of the unpaid obligations and the failure of the
debtor to pay the said amount. xx xxx xx. Moreover, if the proceeds of the sale together with its
reasonable rate of interest were applied to the obligations, only a small part of its original loans would
actually remain outstanding, but because of the unconscionable interest rate, the larger part
correspondent to said excessive and iniquitous interest.

In the case at bar, the unlawful interest charge which led to the demand for P4,577,269.42 as stated
in the Notice if Extrajudicial Sale resulted in the invalidity of the subsequent foreclosure sale held on
June 1, 1999. The private respondent cannot be obliged to pay an inflated or overstated mortgage
indebtedness on account of excessive interest charges without offending the basic tenets of due
process and equity.

DISPOSITIVE: WHEREFORE, the petition for review on certiorari is hereby DENIED. The Decision
dated September 11, 2009 and Resolution dated May 17, 2010 of the Court of Appeals in CA-G.R.
CV No. 89420 are AFFIRMED.
With costs against petitioner.
SO ORDERED.
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 Rey vs. Anson (2018)
Petitioners: ROSEMARIE Q. REY
Respondents: CESAR G. ANSON
Topic: Civil Law

SUMMARY: This case involves the validity of interest rates agreed upon by the parties. The first loan
had a 7.5% monthly interest rate or 90% interest per annum, while the second loan had a 7% monthly
interest rate or 84% interest per annum. Meanwhile, the agreement of 3% monthly interest on the
third loan and 4% monthly interest on the fourth loan was not reduced to writing.
DOCTRINE: Interest rates of 7.5% and 7% monthly are excessive, unconscionable, iniquitous, and
contrary to law and morals; and, therefore, void ab initio.
Article 1956 of the Civil Code provides that " [n]o interest shall be due unless it has been stipulated in
writing."
Article 1253 of the Civil Code states that “[i]f the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.”
FACTS:
Rosemarie Rey is the President and one of the owners of Southern Luzon Technological
College Foundation Incorporated, a computer school in Legazpi City. Sometime in August 2002, she
needed a quick infusion of cash for the said school. She approached a friend, Ben Del Castillo, who
introduced her to his acquaintance, Cesar Anson.
On August 23, 2002, Rosemarie Rey borrowed from Cesar Anson the amount of P200,000.00
payable in one year, and subject to 7.5% interest per month or Pl 5,000.00 monthly interest, which
would be paid bi-monthly by way of postdated checks. The loan was secured by a real estate
mortgage on Spouses Teodoro and Rosemarie Rey's property, Lot 1271-C-4, covered by Transfer
Certificate of Title (TCT) No. 50872. In the event of default, the Spouses Rey would pay a penalty
charge of 10% of the total amount, plus 12% attorney's fees. The terms and conditions of the loan
were embodied in a Deed of Real Estate Mortgage" dated August 23, 2002. Rosemarie Rey
thereafter issued 24 postdated checks for P7,500.00 each, as well as another postdated check for the
principal amount of P200,000.00.
Three days later, or on August 26, 2002, Rosemarie Rey again borrowed from Cesar Anson
P350,000.00, subject to 7% interest per month, and payable in four months. The second loan was
secured by a real estate mortgage over a parcel of land covered by TCT No. 2776, registered in the
name of Rosemarie Rey's mother, Isabel B. Quinto. The parties executed a second Deed of Real
Estate Mortgage dated August 26, 2002.
Rosemarie Rey faithfully paid the interest on the first loan for twelve (12) months. She was,
however, unable to pay the principal amount of P200,000.00 when it became due on August 24,
2003. She appealed to Cesar Anson not to foreclose the mortgage or to impose the stipulated penalty
charges, but instead to extend the terms thereof. Cesar Anson agreed and Rosemarie Rey later
signed a promissory note" dated April 23, 2004 and executed a Deed of Real Estate Mortgage dated
May 3, 2004, stating that the Spouses Rey's principal obligation of P200,000.00 shall be payable in
four (4) months from the execution of the Deed of Real Estate Mortgage, and it shall be subject to
interest of 7.5% per month. These two documents cancelled, updated and replaced the original
agreement on the first loan. Rosemarie Rey once again issued postdated checks to cover the interest
payments on the amended first loan, the latest of which was dated August 23, 2004, and another
postdated check for P200,000.00 for the principal amount. Rosemarie Rey was able to make good on
her interest payments, but thereafter failed to pay the principal amount of P200,000.00.
Anent the second loan of P350,000.00, Rosemarie Rey failed to faithfully pay monthly interest
thereon and she was unable to pay the principal amount thereof when it became due on December
26, 2002. Rosemarie Rey appealed to Cesar Anson not to foreclose the mortgage securing the same
or to impose the penalty charges, but instead to extend the terms thereof. Cesar Anson agreed, and
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the parties executed anew a Deed of Real Estate Mortgage" dated January 19, 2003 wherein
Rosemarie Rey acknowledged her indebtedness to Cesar Anson in the amount of P611,340.00,
payable within four months from the execution of the Deed of Real Estate Mortgage, and subject to
7% interest per month.
Four months thereafter, Rosemarie Rey again failed to fulfill her obligation on the second loan.
The same was extended once more in a Deed of Real Estate Mortgage" dated June 19, 2003
wherein Rosemarie Rey acknowledged indebtedness to Cesar Anson in the amount of P761,450.00,
payable within six months from the execution of the Deed of Real Estate Mortgage, and subject to the
same 7% interest per month.
On February 24, 2004, Rosemarie Rey obtained a third loan from Cesar Anson in the amount
of Pl 00,000.00. The third loan was not put in writing, but the parties verbally agreed that the same
would be subject to 3% monthly interest.
A week later or on March 2, 2004, Rosemarie Rey obtained a fourth loan from Cesar Anson for
P100,000.00. It was also not put in writing, but there was an oral agreement of 4% monthly interest.
On February 25, 2005, Cesar Anson sent Rosemarie Rey a Statement of Account" seeking full
payment of all four loans amounting to P2,214,587.50. Instead of paying her loan obligations,
Rosemarie Rey, through counsel, sent Cesar Anson a letter dated August 8, 2005, stating that the
interest rates imposed on the four loans were irregular, if not contrary to law. The 7.5% and 7%
monthly interest rates imposed on the first and second loans, respectively, were excessive and
unconscionable and should be adjusted to the legal rate. Moreover, no interest should have been
imposed on the third and fourth loans in the absence of any written agreement imposing interest. Per
Rosemarie Rey's computation using the legal rate of interest, all four loans were already fully paid, as
well as the interests thereon. Rey contended that she had overpaid the amount of P283,434.19. She
demanded from Cesar Anson the return of the excess payment; otherwise, she would be compelled
to seek redress in court.
On August 16, 2005, the Spouses Rey and Isabel Quinto filed a Complaint for Recomputation
of Loans and Recovery of Excess Payments and Cancellation of Real Estate Mortgages and Checks
against Cesar Anson with the RTC of Legazpi City.
RTC ruled for Spouses Rey. CA reversed.
ISSUES:
 WoN the interest rates on the first and second loans are unconscionable and contrary to
morals

o YES. As case law instructs, the imposition of an unconscionable rate of interest on a

money debt, even if knowingly and voluntarily assumed, is immoral and unjust.

o In this case, the first loan had a 7.5% monthly interest rate or 90% interest per annum,
while the second loan had a 7% monthly interest rate or 84% interest per annum, which
rates are very much higher than the 3% monthly interest rate imposed in Ruiz v. Court
of Appeals and the 5% monthly interest rate imposed in Sps. Albos v. Sps. Embisan, et
al. Based on the ruling of the Spouses Albos case, the Court holds that the interest
rates of 7.5% and 7% are excessive, unconscionable, iniquitous, and contrary to law
and morals; and, therefore, void ab initio. Hence, the Court of Appeals erred in
sustaining the imposition of the said interest rates, while the RTC correctly imposed the
legal interest of 12% per annum in place of the said interest rates.

 WoN the interest rates on the third and fourth loans are valid

o NO. Anent the third and fourth loans both in the amount of P100,000.00, the Court of
Appeals correctly held that as the agreement of 3% monthly interest on the third loan

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 and 4% monthly interest on the fourth loan was merely verbal and not put in writing, no
interest was due on the third and fourth loans.

o This is in accordance with Article 1956 of the Civil Code which provides that " [n]o
interest shall be due unless it has been stipulated in writing."

o Hence, the payments made as of March 18, 2005 in the third loan amounting to
P141,360.00 resulted in the overpayment of P41,360.00. Moreover, the payments made
as of February 2, 2005 in the fourth loan amounting to P117,960.00 resulted in an
overpayment of P17,960.00. Consequently, as found by the Court of Appeals, there was
a total overpayment of P59,320.00 for the third and fourth loans.

 WoN the computation of payment of interest and the principal amount is correct in Loan 1 and
Loan 2

o YES. Rey contends that the manner by which the RTC recomputed the four loans after
the reduction of the interest rates to 12% per annum was erroneous and contrary to law.
It simply added the principal amount of the four loans with the 12% per annum legal
interest on Loan 1 and Loan 2, and thereafter deducted from the sum the total amount
paid by Rey. It did not take into consideration the principle that each particular payment
should be applied and credited on the precise time it is made, to be applied first on the
interest and thereafter on the principal of the loan, pursuant to Article 1253 of the Civil
Code.

o Thus, Rey contends that she has made excess payments for the four loans in the total
sum of P269,700.68, which ought to be returned by Cesar Anson in accordance with the
principle of solutio indebiti under Article 2154 of the Civil Code.

o The Court agrees with Rey that Articles 1253 and 2154 of the Civil Code apply to this
case, and Cesar Anson is obliged to return to Rey excess payments received by him.

o Article 1253 of the Civil Code states that “[i]f the debt produces interest, payment of the
principal shall not be deemed to have been made until the interests have been
covered.” The Court reviewed the computation above made by Rey for Loan 1 and Loan
2, and found the computation to be correct.

o The Court finds that in Loan 1, Rey already paid in full the principal amount of
P200,000.00 and monthly interest thereon on November 8, 2003, leaving an excess
payment of P1,759.64. Further payments made by Rey from November 23, 2003 to
August 23, 2004 resulted in overpayment amounting to P144,259.64. The excess
payment of P9,259.64 as of November 23, 2003 plus excess payments made from
December 23, 2003 to April 23, 2004 amounting to P84,259.64 in Loan 1 may be
applied to Loan 2, leaving a final excess payment of P60,000.00 for Loan 1.

o As regards Loan 2, Rey fully paid the principal amount of P350,000.00 and monthly
interest thereon on May 26, 2004, leaving an excess payment of P31,856.68. Payments
made thereafter, from June 26, 2004 to September 26, 2004, resulted in excess
payments amounting to Pl 50,380.68 for Loan 2. Rey also made excess payments of
P41,360.00 in Loan 3, and P17,960.00 in Loan 4. Hence, the total excess payments
made by Rey in the four loans amounted to P269,700.68.

o Since Cesar Anson received a total overpayment of P269,700.68 from Rey, he is

obliged to return the amount in accordance with the principle of olution indebiti under
Article 2154 of the Civil Code, to wit:

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  Article 2154. If something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it arises.

 WoN Anson is liable to pay interest on the overpayment made by Rey

o YES. In this case, the excess payments made by Rey were also borne out of a mistake
that they were due; hence, following the ruling in Sps. Abella v. Sps. Abella, the Court
deems it in the better interest of equity not to hold Cesar Anson liable for interest on the
excess payments. Nevertheless, an interest at the rate of 6% per annum is imposable
on the total judgment award pursuant to Nacar v. Gallery Frames, et al., which held that
"[w]hen the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest x xx shall be 6% per annum from such finality until
its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit."

NOTES: Decision of CA REVERSED AND SET ASIDE.

Presumption regarding interests

Marquez vs Elisan Credit Corporation

Case Digest GR 194642 Apr 6 2015
Facts:
Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and subject to
annual interest with monthly penalties and attorney’s in case of nonpayment. A chattel mortgage was
also executed stipulating that “the motor vehicle shall stand as a security for all other obligations of
every kind already incurred or which hereafter may be incurred”. The payment of that loan was
acknowledged by both parties.
Subsequently, Marquez obtained another loan evidenced by a promissory note with the same terms
and conditions as the first loan. When the second loan matured, there still remained an unpaid
balance. Marquez requested the creditor to pay the unpaid balance by daily installments until the loan
is paid; the creditor agreed. Thus, several months after the maturity of the loan, Marquez had already
paid a total amount which is greater than the amount of the principal.
Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that Marquez
allegedly failed to pay the principal of the second loan despite demand. It was also prayed that the
unpaid balance plus accrued penalties and interests be paid because, allegedly, Marquez’ failure to
pay upon maturity triggered the imposition of monthly penalties and attorney’s fees.
Marquez, citing Art 1176 and 1235 of the Civil Code, insists that his daily payments should be
deemed to have been credited against the principal, as the official receipts issued by the creditor
were silent with respect to the payment of interest and penalties.
Issue 1: W/N the creditor waived the payment of the interest
No. The fact that the official receipts did not indicate whether the payments were made for the
principal or the interest does not prove that the creditor waived the interest. There is no presumption
of waiver of interest without any evidence showing that the creditor accepted the daily instruments as
payments for the principal.
Issue 2: W/N the daily payments made by the debtor be applied to the interest
Yes. Notwithstanding the fact it was not indicated in the receipts whether the payments were applied
to the principal or the interest, such failure should not be taken against the creditor. Under Article
1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be deemed to

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have been made until the interests have been covered. Thus, the creditor in this case has a right to
credit the payments to the interest first.
Issue 3: W/N an order for foreclosure is proper
No. Foreclosure in this case is without legal and factual basis because the chattel mortgage was
already extinguished when the obligation under the first loan was duly paid.
A CM can only cover obligations existing at the time the mortgage is constituted. For a CM to cover
debts yet to be contracted, a fresh chattel mortgage may be executed or the old contract be amended
conformably to the form prescribed by the CM Law. Here, since there was no showing that a new
agreement was executed, the security can no longer apply to the second loan. The chattel mortgage
was already extinguished because being merely an accessory in nature, it cannot exist independently
of the principal obligation.
Although a promise expressed in a chattel mortgage to include debts that are yet to be contracted
can be a binding commitment that can be compelled upon, the security itself, however, does not
come into existence or arise until after a chattel mortgage agreement covering the newly contracted
debt is executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law.
Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred
obligation can constitute an act of default on the part of the borrower of the financing agreement
whereon the promise is written, but the remedy of foreclosurecan only cover the debts extant at the
time of constitution and during the life of the chattel mortgage sought to be foreclosed.
The Chattel Mortgage Law requires the parties to the contract to attach an affidavit of good faith and
execute an oath that –
“… the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purposes, and that the same is a just and valid obligation, and one not
entered into for the purposes of fraud.”
It is obvious therefore that the debt referred in the law is a current, not an obligation that is yet merely
contemplated.
The only obligation specified in the chattel mortgage contract was the first loan which the petitioner
later fully paid. By virtue of Section 3 of the Chattel Mortgage Law, the payment of the obligation
automatically rendered the chattel mortgage terminated; the chattel mortgage had ceased to exist
upon full payment of the first loan. Being merely an accessory in nature, it cannot exist independently
of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage to
comply with the Chattel Mortgage Law which requires that the obligation must be specified in the
affidavit of good faith. Simply put, there no longer was any chattel mortgage that could cover the
second loan upon full payment of the first loan. The order to foreclose the motor vehicle therefore
had no legal basis.
Relevant Laws
Article 1176, Civil Code:
The receipt of the principal by the creditor, without reservation with respect to the interest, shall give
rise to the presumption that said interest has been paid.
Article 1235, Civil Code:
When the obligee accepts the performance of an obligation, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully complied
with.
Article 1253, Civil Code:

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If the debt produces interest, payment of the principal shall not be deemed to have been made until
the interests have been covered.

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