METROPOLITAN BANK and TRUST COMPANY vs.

CENTRO DEVELOPMENT CORPORATION,

CHONGKING KEHYENG, MANUEL CO KEHYENG and QUIRINO KEHYENG
G.R. No. 180974, June 13, 2012

PONENTE: Sereno, J.
TOPIC: Negligence

FACTS:
On 20 March 1990, in a special meeting of the board of directors of respondent Centro
Development Corporation (Centro), its president Go Eng Uy was authorized to mortgage its
properties and assets to secure the medium-term loan of ₱84 million of Lucky Two
Corporation and Lucky Two Repacking. This authorization was subsequently approved on the
same day by the stockholders. Thus, on 21 March 1990, respondent Centro, represented by Go
Eng Uy, executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines Islands
(BPI). To secure these obligations from different creditors, respondent Centro constituted a
continuing mortgage on all or substantially all of its properties and assets enumerated above
unto and in favor of BPI, the trustee. Should respondent Centro or any of its affiliates fail to
pay their obligations when due, the trustee shall cause the foreclosure of the mortgaged
property.
Petitioner contends that the stockholders Resolution No. 005, s. 1994 did not
constitute a new mortgage in favor of petitioner. Instead, the stockholders merely amended
the existing MTI by appointing petitioner as the new trustee for the MTI, which was already
existing and held by BPI. Thus, there was no need to secure a 2/3 vote from the stockholders.
Petitioner posits that the authority to mortgage the properties was granted in 1990, upon the
execution of the first MTI between respondent Centro and BPI.
Petitioner also maintains that the CA erred in interpreting the phrase at which meeting
a quorum was present contained in the Secretarys Certificate dated 18 August 1994. The bank
points out that the phrase indicates that at least a quorum was present, rather than that only
a quorum was present. Thus, the Secretarys Certificate did not in any way limit the number of
those actually present.
Additionally, petitioner argues that Perla Saballe, whose testimony was considered by
the CA, was not a competent witness to interpret the directors Resolution. Allegedly, she was
never present during the meetings of Centro regarding the present issue, and she was not in
a position to answer the questions propounded to her in relation to the requirements of
Section 40 of the Corporation Code.
Moreover, petitioner cites the CA Decision in CA-G.R. SP No. 84447, which upheld the
validity of the foreclosure of the mortgage. It also challenges the CA ruling that the former
failed to exercise due diligence in transacting with respondent Centro. Finally, petitioner
insists that laches attached when respondents failed to question the MTI and the stockholders
Resolution at the earliest possible time.
On the other hand, respondents contend that, based on the Pre-Trial Brief and the
Amended Pre-Trial Order, petitioner admitted that the subject properties were mortgaged
under the MTI of 27 September 1994, and not under that of 21 March 1990. Second, on the
issue of whether the 2/3 voting requirement was met, respondents claim that petitioner
cannot impugn the testimony of its own officer and witness, Perla Saballe, on the
interpretation of the term quorum as referred to in the Secretarys Certificate dated 18 August
1994. Respondents also allege that petitioner failed to controvert the testimony of Chongking
Kehyeng, a member and vice-chairperson of the board of directors, that he was unaware of
any stockholders meeting ever being held, and that he and the other Kehyengs were not
informed of that meeting. Respondents further insist that petitioner was negligent when it
merely relied on the Secretarys Certificate, instead of exercising due diligence to ensure that
all legal requirements had been complied with under the MTI. On the issue of laches,
respondents contend that it was not raised before the trial court, and is thus improperly
invoked in the present Petition. Nevertheless, they allegedly undertook a number of measures
to question the transactions between petitioner and CENTRO. Moreover, they argue that the
MTI, being null and void, cannot be given effect through laches.

ISSUE:
Whether petitioner was negligent or failed to exercise due diligence.

RULING:
Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role
of banks in providing an environment conducive to the sustained development of the
national economy and the fiduciary nature of banking; thus, the law requires banks to have
high standards of integrity and performance. The fiduciary nature of banking requires banks
to assume a degree of diligence higher than that of a good father of a family. In the case at
bar, petitioner itself was negligent in the conduct of its business when it extended
unsecured loans to the debtors. Worse, it was in serious breach of its duty as the trustee of
the MTI. It was not able to protect the interests of the parties and was even instrumental in
violating the terms of the MTI, to the detriment of the parties thereto. Thus, petitioner has
only itself to blame for being left with insufficient recourse against petitioner under the
assailed MTI.
 PHILIPPINE NATIONAL BANK vs. CARMELITA S. SANTOS, REYME L.
SANTOS, ANGEL L. SANTOS, NONENG S. DIANCO, ET AL.
G.R. No. 208293, December 10, 2014

PONENTE: Leonen, J.
TOPIC: Negligence

FACTS:
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 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.
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.

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

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.

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
v. NENA E. LANUZO, CLAUDETTE E. LANUZO, JANET E. LANUZO, JOAN BERNABE E.
LANUZO, AND RYAN JOSE E. LANUZO
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 barricade placed 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 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.
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 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 vs. UNION BANK OF THE PHILIPPINES
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.
 EASTERN SHIPPING LINES INC. vs. BPI/MS INSURANCE CORP. and
MITSUI SUM TOMO INSURANCE CO. LTD
G.R. No. 193986, 15 January 2014

PONENTE: Perez, J.
TOPIC: Negligence

FACTS:
Through vessels owned by petitioner Eastern Shipping Lines, Inc. there were three
shipments of steel sheets in coil from Japan for delivery in favor of the consignee Calamba
Steel. However, upon arrival at the port of Manila, there were coils observed to be in bad
condition as evidenced by the Turn Over Survey of Bad Order Cargo. The cargo was 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, on each shipment.
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 sum of
US$30,210.32 for the damage suffered by all three shipments. Correlatively, as insurer and
subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages against
petitioner and ATI. Petitioner prayed to be absolved; that it had no participation whatsoever
in the discharging operations and that petitioner did not have a choice in selecting the
stevedore since ATI is the only arrastre operator mandated to conduct discharging operations
in the South Harbor.
The RTC ruled in favor of Mitsui and BPI/MS. On appeal, the CA affirmed the RTC’s
factual findings that both petitioner and ATI were both negligent in handling the goods
pointing to the affidavit of the Cargo Surveyor.

ISSUE:
Whether or not the carrier is responsible for the damage of certain goods considering
it did not participate in the discharging operations.

HELD:
Yes. In the case at bar, the Supreme Court said that it is settled in maritime law
jurisprudence that cargoes while being unloaded generally remain under the custody of the
carrier. As 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 proving that they
observed such high level of diligence. In this case, petitioner failed to hurdle such burden.
 LAND BANK OF THE PHILIPPINES vs. NARCISO L. KHO
G.R. No. 205839, July 7, 2016

PONENTE: Brion, J.
TOPIC: Negligence

FACTS:
Narciso L. Kho (Kho) purchased a manager’s check from Land Bank of the Philippines
(LBP) worth Php 25,000,000.00 paid using the money from his savings account in the same
bank. The check was purchased in order to negotiate a deal with Red Orange. LBP gave Kho
the check and a photocopy of the check. The photocopy was given to Red Orange. The deal
between Kho and Red Orange did not push through. Rudy Medel (representing Red Orange)
went to LBP to negotiate the check, LBP cleared the check and notified Kho of the
transaction. Kho was surprised as the original check was still with him. It turns out that the
check negotiated by Medel with LBP is spurious. Kho tried to recover the Php 25,000,000.00
from LBP, but the latter claims that the former was negligent for giving Medel the
photocopy of the check which was used to make the spurious check and thus they cannot
be held liable for the lost amount.

ISSUE:
Whether or not LBP should pay for the Php 25,000,000.00

HELD:
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 Php
25,000,000.00. 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.

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. 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.
MANILA ELECTRIC COMPANY vs. MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY,
ROMANA RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE PANADO
G.R. No. 158911 : March 4, 2008

PONENTE: Austria-Martinez, J.
TOPIC: Negligence

FACTS:
In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City
a case for ejectment against several persons allegedly illegally occupying its properties in
Baesa, Quezon City. among the defendants in the ejectment case was Leoncio Ramoy, one of
the plaintiffs in the case at bar. On April 28, 1989 the MTC rendered judgment for MERALCO
to demolish or remove the building and structure they built on the land of the plaintiff and to
vacate the premises. On June 20, 1999 NPC wrote to MERALCO requesting the immediate
disconnection of electric power supply to all residential and commercial establishments
beneath the NPC transmission lines along Baesa, Quezon City.
In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to
determine all the establishments which are considered under NPC property. In due time, the
electric service connection of the plaintiffs was disconnected. During the ocular inspection
ordered by the Court, it was found out that the residence of the plaintiffs-spouses was indeed
outside the NPC property.

ISSUES:
(1) WON the Court of Appeals gravely erred when it found MERALCO negligent when
it disconnected the subject electric service of respondents.

(2) WON the Court of Appeals gravely erred when it awarded moral and exemplary
damages and attorney’s fees against MERALCO under the circumstances that the
latter acted in good faith in the disconnection of the electric services of the
respondents.

RULING:
(1) No. The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it, pursuant
to Articles 1170 & 1173 of the Civil Code. It was not enough for MERALCO to merely rely on the
Decision of the MTC without ascertaining whether it had become final and executory. Verily,
only upon finality of the said Decision can it be said with conclusiveness that respondents have
no right or proper interest over the subject property, thus, are not entitled to the services of
MERALCO.

(2) No. MERALCO willfully caused injury to Leoncio Ramoy by withholding from him and
his tenants the supply of electricity to which they were entitled under the Service Contract.
This is contrary to public policy because, MERALCO, being a vital public utility, is expected to
exercise utmost care and diligence i the performance of its obligation. Thus, MERALCO’s
failure to exercise utmost care and diligence in the performance of its obligation to Leoncio
Ramoy is tantamount to bad faith. Leoncio Ramoy testified that he suffered wounded feelings
because of MERALCO’s actions. Furthermore, due to the lack of power supply, the lessees of
his four apartments on subject lot left the premises. Clearly, therefore Leoncio Ramoy is
entitled to moral damages in the amount awarded by the CA. Nevertheless, Leoncio is the sole
person entitled to moral damages as he is the only who testified on the witness stand of his
wounded feelings. Pursuant to Article 2232 of the Civil Code, exemplary damages cannot be
awarded as MERALCO’s acts cannot be considered wanton, fraudulent, reckless, oppressive
or malevolent. Since the Court does not deem it proper to award exemplary damages in this
case then the CA’s award of attorney’s fees should likewise be deleted, as pursuant to Article
2208 of the Civil Code of which the grounds were not present.
 MINDANAO TERMINAL and BROKERAGE vs. PHOENIX ASSURANCE
GR No. 162467 May 8, 2009

PONENTE: Tinga, J.
TOPIC: Negligence

FACTS:
Del Monte Philippines contracted petitioner Mindanao Terminal and Brokerage
Service, Inc, a stevedoring company, to load and stow a shipment of 146,288 cartons of fresh
green Bananas and 15,202 cartons of fresh pineapples belonging to Del Monte Produce into
the cargo hold of the vessel M/v Mistrau. The vessel was docked at the port of Davao and
goods were to be transported to Incheon, Korea in favour of consignee Taegu Industries. Del
Monte Produce insured the shipment under an “open cargo policy” with private respondent
Phoenix Assurance Company of New York, a non-life insurance company, and private
respondent McGee & Co, the underwriting manager/agent of Phoenix. Upon arrival of M/V
Mistrau in Incheon, it was discovered upon discharge that some of the cargo was in bad
condition. The damage surveyor of Korea, Byeong, surveyed that 16,069 cartons of the
banana shipment and 2,185 cartons of the pineapple shipment were so damaged that they no
longer had commercial value. Del Monte Produce filed a claim under the open cargo policy.
McGee’s Marine Claims evaluated the claim and recommended that payment in the amount
of $210,266.43 be made. Del Monte issued a subrogation receipt to Phoenix and McGee.
Phoenix and McGee instiuted an action for damages against Mindanao Terminal. RTC ruled
that the only participation of Mindanao Terminal was to load the cargoes on board the vessel
and signed the foreman’s report unless they were properly arranged and tightly secured to
withstand voyage across the open seas. It was found that the cargoes were damages on
account of a typhoon which M/V Mistrau had encountered during the voyage. It was held that
Phoenix and McGee had no cause of action against Mindanao Terminal because the latter,
whose services were contracted by Del Monte, a distinct corporation from Del Monte
Produce, had no contract with the assured Del Monte Produce. CA reversed the RTC’s decision
which sustained Phoenix’s and McGee’s argument that the damage in the cargoes was the
result of the improper stowage by Mindanao Terminal. It imposed on Mindanao Terminal, as
the stevedore of the cargo, the duty to exercise extraordinary diligence in loading and
stowing the cargoes. It further held that even with the absence of a contractual relationship
between Mindanao Terminal and Del Monte Produce, the cause of action of Phoenix and
McGee could be based on quasi-delict under Article 2176 of the Civil Code.

ISSUE:
Whether or not Mindanao Terminal was careless and negligent in the loading and
stowage of the cargoes onboard M/V Mistrau making it liable for damages?

Whether Phoenix and McGee has a cause of action against Mindanao Terminal under
CC 2176 on quasi-delict?
 Whether Mindanao Terminal observed the degree of diligence required by law of a
stevedoring company?

RULING:
The company filed by Phoenix and McGee against Mindanao Terminal states a cause
of action. The present action is based on quasi-delict, arising from the negligent and careless
loading and stowing of the cargoes belonging to Del Monte Produce. Even assuming that both
Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is
not a party to the contract of service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Court’s consistent ruling that the
act that breaks the contract may be also a tort. In fine, a liability for tort may arise even under
a contract, where tort is that which breaches the contract. In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the breach of the contract of service
but from the alleged negligent manner by which Mindanao Terminal handled the cargoes
belonging to Del Monte Produce. Despite the absence of contractual relationship between
Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the
defendant should be sufficient to establish a cause of action arising from quasi-delict. Article
1173 of the Civil Code is very clear that if the law or contract does not state the degree of
diligence which is to be observed in the performance of an obligation then that which is
expected of a good father of a family or ordinary diligence shall be required. Mindanao
Terminal, a stevedoring company which was charged with the loading and stowing the
cargoes of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in
the case at bar. There is no specific provision of law that imposes a higher degree of diligence
than ordinary diligence for a stevedoring company or one who is charged only with the
loading and stowing of cargoes. It was neither alleged nor proven by Phoenix and McGee that
Mindanao Terminal was bound by contractual stipulation to observe a higher degree of
diligence than that required of a good father of a family. We therefore conclude that following
Article 1173, Mindanao Terminal was required to observe ordinary diligence only in loading and
stowing the cargoes of Del Monte Produce aboard M/V Mistrau. Mindanao Terminal, as a
stevedore, was only charged with the loading and stowing of the cargoes from the pier to the
ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce. The
loading and stowing of cargoes would not have a far reaching public ramification as that of a
common carrier and a warehouseman; the public is adequately protected by our laws on
contract and on quasi-delict. The public policy considerations in legally imposing upon a
common carrier or a warehouseman a higher degree of diligence is not present in a
stevedoring outfit which mainly provides labor in loading and stowing of cargoes for its
clients. Phoenix and McGee failed to prove by preponderance of evidence that Mindanao
Terminal had acted negligently. Phoenix and McGee relied heavily on the deposition of
Byeong Yong Ahn and on the survey report of the damage to the cargoes. Byeong, whose
testimony was refreshed by the survey report, found that the cause of the damage was
improper stowage due to the manner the cargoes were arranged. As admitted by Phoenix
and McGee in their Comment before us, the latter is merely a stevedoring company which was
tasked by Del Monte to load and stow the shipments of fresh banana and pineapple of Del
Monte Produce aboard the M/V Mistrau. How and where it should load and stow a shipment
in a vessel is wholly dependent on the shipper and the officers of the vessel. We are of the
opinion that damage occurred aboard the carrying vessel during sea transit, being caused by
ship’s heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs
on 7th October to 0700 hrs on 12th October, 1994 as described in the sea protest. As it is clear
that Mindanao Terminal had duly exercised the required degree of diligence in loading and
stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of
the petition is in order.
 ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC vs.
LULU V. JORGE and CESAR JORGE
GR NO. 159617, August 8, 2007

PONENTE: Austria-Martinez, J.
TOPIC: Negligence

FACTS:
Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located in BF
Homes Parañaque, Metro Manila to secure a loan. On October 19, 1987, two armed men
entered the pawnshop and took away whatever cash and jewelry were found inside the
pawnshop vault. Sicam sent Lulu a letter informing her of the loss of her jewelry due to the
robbery incident in the pawnshop on the same date. Respondent Lulu then wrote back
expressing disbelief, then requested Sicam to prepare the pawned jewelry for withdrawal on
November 6, but Sicam failed to return the jewelry. Lulu, joined by her husband Cesar, filed a
complaint against Sicam with the RTC of Makati seeking indemnification for the loss of
pawned jewelry amounting to P272, 000.00, and attorney’ fees (AF) of P27, 200.00. The RTC
rendered its decision dismissing respondents’ complaint as well as petitioners’ counterclaim.
Respondents appealed the RTC Decision to the CA which reversed the RTC, ordering the
appellees to pay appellants the actual value of the lost jewelry and AF. Petitioners denied,
hence the instant petition for review on Certiorari.

ISSUE:
Whether or not the petitioners liable for the loss of the pawned articles in their
possession.

HELD:
Yes. The Decision of the CA is AFFIRMED. Article 1174 of the Civil Code provides: Except
in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be responsible
for those events which could not be foreseen or which, though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been foreseen or anticipated, but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening
is not impossibility to foresee the same. Petitioners failed to show that they were free from
any negligence to the loss of the pawned jewelry. In order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no negligence or misconduct that
may have occasioned the loss. The very measures which petitioners had allegedly adopted
show that to them the possibility of robbery was not only foreseeable, but actually foreseen
and anticipated.
In connection to Article 1173 of the Civil Code further provides: The fault or negligence
of the obligor consists in the omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall
apply. If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required. The records
show that the petitioners failed to exercise reasonable care and caution that an ordinarily
prudent person would have used in the same situation. Sicam’s testimony revealed that there
were no security measures adopted by petitioners in the operation of the pawnshop. It was
also established that there is no sufficient precaution and vigilance that were adopted by
petitioners to protect the pawnshop from the robbery because Sicam admits that the vault
was open at the time of robbery. Hence, Petitioners were guilty of negligence in the operation
of their pawnshop business.
 REYES VS. SISTERS OF MERCY HOSPITAL
G.R No. 130547, October 3, 2000
PONENTE: Mendoza, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Petitioner, Leah Alesna Reyes, is the wife of the deceased patient, Jorge Reyes. Five
days before the latter’s death, Jorge has been suffering from recurring fever with chills. The
doctors confirmed through the Widal test that Jorge has typhoid fever. However, he did not
respond to the treatment and died. The cause of his death was “Ventricular Arrythemia
Secondary to Hyperpyrexia and typhoid fever.” Consequently, petitioner filed the instant case
for damages before the Regional Trial Court of Cebu City, which dismissed the case and was
affirmed by the Court of Appeals.
The contention was that Jorge did not die of typhoid fever. Instead, his death was due
to the wrongful administration of chloromycetin. They contended that had respondent
doctors exercised due care and diligence, they would not have recommended and rushed the
performance of the Widal Test, hastily concluded that Jorge was suffering from typhoid fever,
and administered chloromycetin without first conducting sufficient tests on the patient’s
compatibility with said drug.

ISSUE:
Whether or not Sisters of Mercy Hospital is liable for the death of Jorge Reyes.

RULING:
There is no showing that the attending physician in this case deviated from the usual
course of treatment with respect to typhoid fever. Jorge was given antibiotic choloromycetin
and some dose of triglobe after compatibility test was made by the doctor and found that no
adverse reactions manifested which would necessitate replacement of the medicines. Indeed,
the standard contemplated is not what is actually the average merit among all known
practitioners from the best to the worst and from the most to the least experienced, but the
reasonable average merit among the ordinarily good physicians. Here, the doctors did not
depart from the reasonable standard recommended by the experts as they in fact observed
the due care required under the circumstances.
In Medical Negligence cases, it is incumbent upon the plaintiff to establish that the
usual procedure in treating the illness is not followed by the doctor. Failure to prove this, the
doctor is not liable. Physicians are not insurers of the success of every procedure undertaken
and if the procedure was shown to be properly done but did not work, they cannot be faulted
for such result.
 DR. RUBI LI vs. SPOUSES REYNALDO and LINA SOLIMAN,
as parents/heirs of deceased Angelica Soliman
G.R. No. 165279, June 7, 2011

PONENTE: Villarama, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
On July 7, 1993, respondents' 11-year old daughter, Angelica Soliman, underwent a
biopsy of the mass located in her lower extremity at the St. Luke's Medical Center (SLMC).
Results showed that Angelica was suffering from osteosarcoma, osteoblastic type, a high-
grade cancer of the bone which usually afflicts teenage children. Following this diagnosis and
as primary intervention, Angelica's right leg was amputated by Dr. Jaime Tamayo in order to
remove the tumor. As adjuvant treatment to eliminate any remaining cancer cells, and hence
minimize the chances of recurrence and prevent the disease from spreading to other parts of
the patient's body (metastasis), chemotherapy was suggested by Dr. Tamayo. Dr. Tamayo
referred Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a medical
oncologist.
On August 18, 1993, Angelica was admitted to SLMC. However, she died on September
1, 1993, just eleven (11) days after the administration of the first cycle of the chemotherapy
regimen.
On February 21, 1994, respondents filed a damage suit against petitioner, Dr. Leo
Marbella, Mr. Jose Ledesma, a certain Dr. Arriete and SLMC. Respondents charged them with
negligence and disregard of Angelica's safety, health and welfare by their careless
administration of the chemotherapy drugs, their failure to observe the essential precautions
in detecting early the symptoms of fatal blood platelet decrease and stopping early on the
chemotherapy, which bleeding led to hypovolemic shock that caused Angelica's untimely
demise. Further, it was specifically averred that petitioner assured the respondents that
Angelica would recover in view of 95% chance of healing with and when asked regarding the
side effects, petitioner mentioned only slight vomiting, hair loss and weakness. Respondents
thus claimed that they would not have given their consent to chemotherapy had petitioner
not falsely assured them of its side effects. In dismissing the complaint, the trial court held
that petitioner was not liable for damages as she observed the best known procedures and
employed her highest skill and knowledge in the administration of chemotherapy drugs on
Angelica but despite all efforts said patient died.

ISSUE:
Whether or not Dr. Rubi Li is negligent and is liable for damages.

HELD:
NO. There are four essential elements a plaintiff must prove in a malpractice action
based upon the doctrine of informed consent: "(1) the physician had a duty to disclose
material risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and
proximate result of the failure to disclose, the patient consented to treatment she otherwise
would not have consented to; and (4) plaintiff was injured by the proposed treatment." The
gravamen in an informed consent case requires the plaintiff to "point to significant
undisclosed information relating to the treatment which would have altered her decision to
undergo it.
Examining the evidence on record, the Court held that there was adequate disclosure
of material risks inherent in the chemotherapy procedure performed with the consent of
Angelica's parents. Respondents could not have been unaware in the course of initial
treatment and amputation of Angelica's lower extremity, that her immune system was
already weak on account of the malignant tumor in her knee.On the other hand, it is difficult
to give credence to respondents' claim that petitioner told them of 95% chance of recovery
for their daughter, as it was unlikely for doctors like petitioner who were dealing with grave
conditions such as cancer to have falsely assured patients of chemotherapy's success rate.
Besides, informed consent laws in other countries generally require only a reasonable
explanation of potential harms, so specific disclosures such as statistical data, may not be
legally necessary.
 PROFESSIONAL SERVICES, INC. vs. NATIVIDAD AND ENRIQUE AGANA
G.R. No. 126297, January 31, 2007
&
PROFESSIONAL SERVICES, INC. vs. COURT OF APPEALS
G.R. No. 126297, February 11, 2008

PONENTE: Sandoval-Gutierrez, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Natividad Agana was rushed to the Medical City General Hospital (Medical City
Hospital) because of difficulty of bowel movement and bloody anal discharge. After a series
of medical examinations, Dr. Miguel Ampil diagnosed her to be suffering from "cancer of the
sigmoid."
Dr. Ampil, assisted by medical staff, performed an anterior resection surgery on
Natividad. He found that the malignancy in her sigmoid area had spread on her left ovary,
necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent of
Natividad’s husband, Enrique Agana, to permit Dr. Juan Fuentes to perform hysterectomy on
her. However, the operation appeared to be flawed, with the attending nurses including in
the Record of Operation that 2 sponges were missing, but closure was nonetheless ordered.
Natividad was released from the hospital. Her hospital and medical bills, including the doctors’
fees, amounted to P60,000.00. After a couple of days, Natividad complained of excruciating
pain in her anal region. Natividad, accompanied by her husband, went to the United States to
seek further treatment. After four months of consultations and laboratory examinations,
Natividad was told she was free of cancer. Hence, she was advised to return to the Philippines.
Natividad flew back to the Philippines, still suffering from pains. Two weeks thereafter, her
daughter found a piece of gauze protruding from her vagina. Upon being informed about it,
Dr. Ampil proceeded to her house where he managed to extract by hand a piece of gauze
measuring 1.5 inches in width. He then assured her that the pains would soon vanish.
Dr. Ampil’s assurance did not come true. Instead, the pains intensified, prompting Natividad
to seek treatment at the Polymedic General Hospital. A foul-smelling gauze was detected,
measuring 1.5 inches in width which badly infected her vaginal vault. A rectovaginal fistula had
formed in her reproductive organs which forced stool to excrete through the vagina. Another
surgical operation was needed to remedy the damage. Thus, in October 1984, Natividad
underwent another surgery. Natividad and her husband filed with the RTC, Branch 96, Quezon
City a complaint for damages against the Professional Services, Inc. (PSI), owner of the
Medical City Hospital, Dr. Ampil, and Dr. Fuentes for negligence in leaving 2 pieces of gauze
inside Natividad’s body, and malpractice for concealing their acts of negligence.
Enrique Agana also filed with the Professional Regulation Commission (PRC) an administrative
complaint for gross negligence and malpractice against Dr. Ampil and Dr. Fuentes.
The RTC found PSI, Dr. Ampil and Dr. Fuentes guilty. Pending appeal before the CA, a motion
for partial execution of the RTC decision was granted. The PRC Board of Medicine held that
the prosecution failed to show that Dr. Fuentes was the one who left the 2 pieces of gauze
inside Natividad’s body; and that he concealed such fact from Natividad.
ISSUE:
Will Dr. Ampil, Dr. Fuentes, and PSI be liable for negligence and malpractice?

RULING:
Dr. Ampil is liable for negligence and malpractice. The glaring truth is that all the major
circumstances, taken together, as specified by the Court of Appeals, directly point to Dr. Ampil
as the negligent party. An operation requiring the placing of sponges in the incision is not
complete until the sponges are properly removed, and it is settled that the leaving of sponges
or other foreign substances in the wound after the incision has been closed is at least prima
facie negligence by the operating surgeon. To put it simply, such act is considered so
inconsistent with due care as to raise an inference of negligence. There are even legions of
authorities to the effect that such act is negligence per se. Even if it has been shown that a
surgeon was required by the urgent necessities of the case to leave a sponge in his patient’s
abdomen, because of the dangers attendant upon delay, still, it is his legal duty to so inform
his patient within a reasonable time thereafter by advising her of what he had been compelled
to do. This is in order that she might seek relief from the effects of the foreign object left in
her body as her condition might permit. This is a clear case of medical malpractice or more
appropriately, medical negligence. To successfully pursue this kind of case, a patient must only
prove that a health care provider either failed to do something which a reasonably prudent
health care provider would have done, or that he did something that a reasonably prudent
provider would not have done; and that failure or action caused injury to the patient. Simply
put, the elements are duty, breach, injury and proximate causation. Dr, Ampil, as the lead
surgeon, had the duty to remove all foreign objects, such as gauzes, from Natividad’s body
before closure of the incision. When he failed to do so, it was his duty to inform Natividad
about it. Dr. Ampil breached both duties. Such breach caused injury to Natividad, necessitating
her further examination by American doctors and another surgery. That Dr. Ampil’s
negligence is the proximate cause of Natividad’s injury could be traced from his act of closing
the incision despite the information given by the attending nurses that two pieces of gauze
were still missing. That they were later on extracted from Natividad’s vagina established the
causal link between Dr. Ampil’s negligence and the injury. And what further aggravated such
injury was his deliberate concealment of the missing gauzes from the knowledge of Natividad
and her family.
Dr. Fuentes is not liable for negligence & malpractice. Under the "Captain of the Ship"
rule, the operating surgeon is the person in complete charge of the surgery room and all
personnel connected with the operation. Their duty is to obey his orders.16 As stated before,
Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship."
PSI is liable for the negligence of Dr. Ampil. It is worthy to note that Dr. Ampil and Dr.
Fuentes operated on Natividad with the assistance of the Medical City Hospital’s staff,
composed of resident doctors, nurses, and interns. As such, it is reasonable to conclude that
PSI, as the operator of the hospital, has actual or constructive knowledge of the procedures
carried out, particularly the report of the attending nurses that the two pieces of gauze were
missing. The plaintiffs did plead that the operation was performed at the hospital with its
knowledge, aid, and assistance, and that the negligence of the defendants was the proximate
cause of the patient’s injuries. The Court found that such general allegations of negligence,
along with the evidence produced at the trial of this case, are sufficient to support the
hospital’s liability based on the theory of negligent supervision.
 RAMOS vs. COURT OF APPEALS
G.R. No. 124354. December 29, 1999.

PONENTE: Kapunan, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Erlinda Ramos underwent a surgical procedure to remove stone from her gall bladder
(cholecystectomy). They hired Dr. Hosaka, a surgeon, to conduct the surgery at the De Los
Santos Medical Center (DLSMC). Hosaka assured them that he would find a good
anesthesiologist. But the operation did not go as planned, Dr. Hosaka arrived 3 hours late for
the operation, Dra. Gutierrez, the anesthesiologist “botched” the administration of the
anesthesia causing Erlinda to go into a coma and suffer brain damage. The botched operation
was witnessed by Herminda Cruz, sister in law of Erlinda and Dean of College of Nursing of
Capitol Medical Center.
The family of Ramos (petitioners) sued the hospital, the surgeon and the
anesthesiologist for damages. The petitioners showed expert testimony showing that
Erlinda's condition was caused by the anesthesiologist in not exercising reasonable care in
“intubating” Erlinda. Eyewitnesses heard the anesthesiologist saying “Ang hirap ma-intubate
nito, mali yata ang pagkakapasok. O lumalaki ang tiyan”. Diagnostic tests prior to surgery
showed that Erlinda was robust and fit to undergo surgery. The RTC held that the
anesthesiologist ommitted to exercise due care in intubating the patient, the surgeon was
remiss in his obligation to provide a “good anesthesiologist” and for arriving 3 hours late and
the hospital is liable for the negligence of the doctors and for not cancelling the operation
after the surgeon failed to arrive on time. The surgeon, anesthesiologist and the DLSMC were
all held jointly and severally liable for damages to petitioners. The CA reversed the decision of
the Trial Court.

ISSUES:
Whether or not the private respondents were negligent and thereby caused the
comatose condition of Ramos.

HELD:
Yes, private respondents were all negligent and are solidarily liable for the damages.
Res ipsa loquitur – a procedural or evidentiary rule which means “the thing or the transaction
speaks for itself.” It is a maxim for the rule that the fact of the occurrence of an injury, taken
with the surrounding circumstances, may permit an inference or raise a presumption of
negligence, or make out a plaintiff’s prima facie case, and present a question of fact for
defendant to meet with an explanation, where ordinarily in a medical malpractice case, the
complaining party must present expert testimony to prove that the attending physician was
negligent.
This doctrine finds application in this case. On the day of the operation, Erlinda Ramos
already surrendered her person to the private respondents who had complete and exclusive
control over her. Apart from the gallstone problem, she was neurologically sound and fit.
Then, after the procedure, she was comatose and brain damaged—res ipsa loquitur!—the
thing speaks for itself!
Negligence – Private respondents were not able to disprove the presumption of
negligence on their part in the care of Erlinda and their negligence was the proximate cause
of her condition. One need not be an anesthesiologist in order to tell whether or not the
intubation was a success. [res ipsa loquitur applies here]. The Supreme Court also found that
the anesthesiologist only saw Erlinda for the first time on the day of the operation which
indicates unfamiliarity with the patient and which is an act of negligence and irresponsibility.
The head surgeon, Dr. Hosaka was also negligent. He failed to exercise the proper
authority as the “captain of the ship” in determining if the anesthesiologist observed the
proper protocols. Also, because he was late, he did not have time to confer with the
anesthesiologist regarding the anesthesia delivery.
The hospital failed to adduce evidence showing that it exercised the diligence of a
good father of the family in hiring and supervision of its doctors (Art. 2180). The hospital was
negligent since they are the one in control of the hiring and firing of their “consultants”. While
these consultants are not employees, hospitals still exert significant controls on the selection
and termination of doctors who work there which is one of the hallmarks of an employer-
employee reationship. Thus, the hospital was allocated a share in the liability.
 NOGALES vs. CAPITOL MEDICAL CENTER
GR No. 142625 December 19, 2006

PONENTE: Carpio, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Pregnant with her fourth child, Corazon Nogales, who was then 37 y/o was under the
exclusive prenatal care of Dr. Oscar Estrada beginning on her fourth month of pregnancy or
as early as December 1975. While Corazon was on her last trimester of pregnancy, Dr. Estrada
noted an increase in her blood pressure and development of leg edemas indicating
preeclampsia which is a dangerous complication of pregnancy. Around midnight of May 26,
1976, Corazon started to experience mild labor pains prompting Corazon and Rogelio Nogales
to see Dr. Estrada at his home. After examining Corazon, Dr. Estrada advised her immediate
admission to Capitol Medical Center (CMC). Upon her admission, an internal examination was
conducted upon her by a resident-physician. Based on the doctor’s sheet, around 3am, Dr.
Estrada advised for 10mg valium to be administered immediately by intramuscular injection,
he later ordered the start of intravenous administration of syntociron admixed with dextrose,
5% in lactated ringer’s solution, at the rate of 8-10 micro-drops per minute. When asked if he
needed the services of anesthesiologist, he refused. Corazon’s bag of water ruptured
spontaneously and her cervix was fully dilated and she experienced convulsions. Dr. Estrada
ordered the injection of 10g of magnesium sulfate but his assisting Doctor, Dr. Villaflor, only
administered 2.5g. She also applied low forceps to extract Corazon’s baby. In the process, a
10 x 2.5cm piece of cervical tissue was allegedly torn. The baby came out in an apric, cyanatic
weak and injured condition. Consequently the baby had to be intubated and resuscitated.
Corazon had professed vaginal bleeding where a blood typing was ordered and she was
supposed to undergo hysterectomy, however, upon the arrival of the doctor, she was already
pronounced dead due to hemorrhage.

ISSUE:
Whether or not in the conduct of child delivery, the doctors and the respondent
hospital is liable for negligence.

HELD:
Yes. In general, a hospital is not liable for the negligence of an independent contractor-
physician. There is, however an exception to this principle. The hospital may be liable if the
physician is the ostensible agent of the hospital. This exception is also known as the doctrine
of apparent authority.
Under the doctrine of apparent authority a hospital can be held vicariously liable for
the negligent acts of a physician providing care at the hospital, regardless of whether the
physician is an independent contractor, unless the patient knows, or should have known, that
the physician is an independent contractor.
 For a hospital to be liable under the doctrine of apparent authority, a plaintiff must
show that 1.) the hospital, or its agent, acted in a manner that would lead a reasonable person
to conclude that the individual who was alleged to be negligent was an employee or agent of
the hospital; 2.) Where the acts of the agent create the appearance of authority, the plaintiff
must also prove that the hospital had knowledge of and acquired in them; and 3.) the plaintiff
acted in reliance upon the conduct of the hospital or its agent, consistent with ordinary care
and prudence.
Borrowed servant doctrine provides that once a surgeon enters the operating room
and takes charge of the acts or omissions of operating room personnel and any negligence
associated with each acts or omissions are imputable to the surgeon, while the assisting
physicians and nurses may be employed by the hospital, or engaged by the patient, they
normally become the temporary servants or agents of the surgeon in charge while the
operation is in progress, and liability may be imposed upon the surgeon for their negligent
acts under the doctrine of respondent superior.
 CANTRE vs. GO
GR No. 160889 April 27, 2007

PONENTE: Quisumbing, J.
TOPIC: Medical Malpractice/ Medical Negligence

FACTS:
Petitioner Dr. Milagros L. Cantre is a specialist in obstetrics and gynecology at the Dr.
Jesus Delgado memorial Hospital. She was the attending physician of respondent Nora Go,
who was admitted at the said hospital on April 19, 1992. At 1:30am of April 20, 1992, Nora gave
birth to her fourth child, a baby boy. However, at around 3:30am Nora suffered profuse
bleeding insider her womb due to some parts of the placenta were not completely expelled
from her womb after delivery consequently, Nora suffered hypovolemic shock, resulting in a
drop in her blood pressure to 40/0. Petitioner said the assisting resident physician performed
various medical procedures to stop the bleeding and to restore Nora and her baby. Nora
remained unconscious until she recovered. While in the recovery room, her husband,
respondent John David Z. Go noticed a fresh gasping wound 2 1/2″ x 3 1/2″ in the inner portion
of her left arm, close to the armpit. He asked the nurses what caused the injury. He was
informed, it was a burn. An investigation was filed by Nora’s husband and found out from the
petitioner that it was caused by the blood pressure cuff, however, this was contrary to the
findings from a medico-legal report which stated that it was indeed a burn and that a drop
light when placed near a skin for about 10mins could cause such burn. Nora was referred to a
plastic surgeon from the hospital and skin grafting was done on her and scar revision but both
still left a mark on Nora’s arm compelling the respondent spouse to file a complaint for
damages against petitioner.

ISSUE:
Whether or not petitioner is liable for the injury referred by Nora.

HELD:
Yes. The Hippocratic oath mandates physicians to give primordial consideration to the
well-being of their patients. If a doctor fails to live up to his precept, he is accountable for his
acts. This is notwithstanding, courts face a unique restraint in adjudicating medical negligence
cases because physicians are not guardians of care and they never set out to intentionally
cause injury to their patients. However, intent is immaterial in negligence cases because
where negligence exist and is proven, it automatically gives the injured a right to reparation
for the damage caused.In cases, involving medical negligence, the doctrine of res ipsa liquitor
allows the mere existence of an injury to justify a presumption of negligence on the part of
the person who controls the instrument causing the injury, provided that the following
requisites concur: The accident is of a kind which ordinarily does not occur in the absence of
someone’s negligence; It is caused by an instrumentality within the exclusive control of the
defendant or defendants; The possibility of contributing conduct which would make the
plaintiff responsible is eliminated. All of these three requisites were present in the case at bar.
 DR. FERNANDO P. SOLIDUM vs. PEOPLE OF THE PHILIPPINES
G.R. No. 192123 March 10, 2014

PONENTE: Bersamin, J.
TOPIC: Medical Malpractice/ Medical Negligence

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 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.
 NILO B ROSIT vs DAVAO DOCTORS HOSPITAL and DR. ROLANDO GESTUVO
GR No. 210445, December 7, 2015

PONENTE: Velasco, Jr.,J.

TOPIC: Medical Malpractice/ Medical Negligence

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. 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 vs. FAMILY CARE HOSPITAL INC.
G.R. No. 191018, January 25, 2016

Ponente: Brion, J.
TOPIC: Medical Malpractice/ Medical Negligence

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. 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. 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. 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.
 MENDOZA vs. CASUMPANG
G.R. No. 197987, March 19, 2012

PONENTE: Abad, J.
TOPIC: Medical Malpractice/ Medical Negligence

Facts:
Josephine Casumpang, who died before the trial could end, was substituted by her
respondent, husband, Adriano and their children Jennifer and John, filed an action for
damages against petitioner Dr. Mendoza in 1993 before the Regional Trial Court of Iloilo City.
Josephine underwent hysterectomy and myomectomy that Dr. Mendoza performed and after
operation, Josephine experienced recurring fever, nausea and vomiting. Three months after
the operation when she noticed something protruding from her genital while taking a bath
and she went to see Dr. Jamandre-Guban since Dr. Mendoza was unavailable. Dr. Jamandre-
Guban extracted a foul smelling, partially expelled rolled gauze from her cervix. The RTC
rendered judgment, finding Dr. Mendoza guilty of neglect and reinstated by the Court of
Appeals, thus, prompted her to file the present petition.

Issue:
Whether or not there was a gross negligence on the part of the petitioner, Dr. Mariter.

Ruling:
Yes, the petitioner is guilty of gross negligence. Gross negligence is a flagrant failure
to exercise the care that a reasonably prudent person would exercise. A surgical operation is
the responsibility of surgeon performing it. He must personally ascertain that the counts of
instruments and materials used before the surgery and prior to the sewing the patient up
has been correctly done. In this kind of jurisprudence, it will provide an example to the
medical profession and to stress the need for constant vigilance in attending to patient’s
health.
 ARRIETA vs. NATIONAL RICE AND CORN CORPORATION
G.R. No. 165279, June 7, 2011

PONENTE: Regala, J.
TOPIC: Circumvention of the Tenor of the Obligation

FACTS :
Mrs. Paz Arrieta participated in public bidding called by NARIC on May 19, 1952 for the
supply of 20,000 metric tons of Burmese rice. Her bid was $ 203.00 per metric ton, it was the
lowest that’s why the contract was awarded to her. On July 1,1952, Arrieta and NARIC entered
into contract. Arrieta was obligated to deliver 20,000 metric ton of Burmese rice at $203.00
per metric ton to NARIC. In return, NARIC committed itself to pay for the imported rice “ by
means of an irrevocable, confirmed and assignable letter of credit in US currency in favour of
Arrieta and/or supplier in Burma (THIRI SETKYA), immediately.” NARIC took the first step to
open the letter of credit on July 30, 1952 by forwarding to the PNB its application for
commercial letter of credit. Arrieta with the help of a counsel, advised NARIC of the necessity
for the opening of the letter because she tender her supplier in Ragoon, Burma of 5 % of the
price of 20,000 tons at $180.70 and if she didn’t comply the 5% will be confiscated if the
required letter of credit is not received by them before August 4, 1952. PNB informed NARIC
that their application of credit letter amounting to $3,614,000.00 was approved with the
condition of 50% marginal cash be paid. NARIC does not meet the condition. The allocation of
Arrieta’s supplier in Ragoon was cancelled and the 5% deposit was forfeited.

ISSUE :
Does NARIC liable for damages?

HELD :
Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon,
Burma was the failure of NARIC to open the letter of credit within a specific period of time.
One who assumes contractual obligation and fails to perform in which he knew and was aware
when he entered in the contract, should be liable for his failure to do what is required by a
law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of fraud, negligence or
default but also a debtor of every, in general, who fails in the performance of his obligation is
bound to indemnify for the losses and damages caused thereby.
 CATHAY PACIFIC vs. VAZQUEZ
G.R. No. 150843; 14 March 2003

PONENTE: Davide, Jr., J.

TOPIC: Circumvention of the Tenor of the Obligation

FACTS:
Sps. Dr. Daniel and Maria Luisa Vazquez, resposdents, together with their maid and
two friends went to Hongkong for pleasure and business. On their return flight, they booked
Cathay Pacific Airways. While boarding, they were advised that there was a seat change from
Business Class to First Class. Dr. Vazquez refused the upgrade for the reason that it would not
look nice for them as hosts to travel First Class and their guests, in the Business Class; and that
they were going to discuss business matter during the flight. Cathay informed the Vazquezes
that the Business Class was fully booked, and that since they are Marco Polo Club members,
they had the priority to be upgraded to first class. Dr. Vazquez eventually gave in, after being
prohibited to take the flight if they would not avail themselves of the privilege. Upon their
return to Manila, the Vazquezes filed a complaint and demanded to be indemnified for the
humiliation and embarrassment caused by Cathay’s employees.

ISSUES:
Are the Vazquezes obliged to avail the privilege and take the First Class flight?

HELD:
No. A contract of carriage existed between Cathay and the Vazquezes. They voluntarily
and freely gave their consent to an agreement whose object was the transportation of the
Vazquezes from Manila to Hong Kong and back to Manila, with seats in the Business Class
Section of the aircraft, and whose cause or consideration was the fare paid by the Vazquezes
to Cathay. The Vazquezes should have been consulted first whether they wanted to avail
themselves of the privilege or would consent to a change of seat accommodation before their
seat assignments were given to other passengers. It should not have been imposed on them
over their vehement objection. By insisting on the upgrade, Cathay breached its contract of
carriage with the Vazquezes. Art. 1244. The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same value as, or more valuable
than that which is due. In obligations to do or not to do, an act or forbearance cannot be
substituted by another act or forbearance against the obligee’s will.
 VICTORIAS PLANTERS ASSOCIATION INC., ET AL vs. VICTORIAS MILLING CORP.
G.R. No. L-6648, July 25, 1955

PONENTE: Padilla, J.
TOPIC: Fortuitous Event

FACTS:
Several sugarcane farmers in Negros Occidental entered into a contract with the North
Negros Sugar Co. In. and Victorias Milling Co. Inc. wherein said corporation will construct a
sugar central or mill with the capacity of milling 300 tons of sugar every 24 hours. In the said
contract it is stipulated that the sugar cane planter’s produce will be milled by the said
corporation for the period of 30 years. During the World War II comprising of 4 years and the
post war period comprising of 2 years the petitioners was not able to produce sugarcane and
the sugar central is destroyed. The North Central Sugar Co. Inc. did not reconstruct its
destroyed mill but rather made an arrangement with the planters that their produce will be
milled by Victorias Milling Co. Inc. herein respondent. In view of the 30-year period of the
milling contract the petitioner contended that the contract is deemed terminated. On the
other hand the respondent stated that the contract speaks of “30 years milling period” not
“30 years in time” and in view of the failure of the petitioners to produce sugarcane during
the war and post war they still have 6 years milling period. The trial court ruled in favor of the
petitioners

ISSUE:
Is the occurrence of war (fortuitous event ) relieved the petitioners from their
obligation?

HELD:
Yes, considering that war is a force majeure or a fortuitous event, the obligee has no
legal right compel the obligor to perform his obligation. Furthermore it is impossible in this
case for the petitioner to produce crops (Nemo tenetor ad impossibilia) and the fulfillment of
that impossible, if granted will amount to the extension of the contract. Therefore the
judgment appealed is affirmed.
 PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION vs. GLOBE TELECOM, INC.
(formerly Globe Mckay Cable and Radio Corporation)
G.R. No. 147324 May 25, 2004

PONENTE: Tinga, J.
TOPIC: Fortuitous Event

FACTS:
Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation
installed and configured communication facilities for the exclusive use of the US Defense
Communications Agency (USDCA) in Clark Air Base and Subic Naval Base. Globe Telecom later
contracted the Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities. As both companies entered into an Agreement,
Globe obligated itself to operate and provide an IBS Standard B earth station with Cubi Point
for the use of the USDCA. The term of the contract was for 60 months, or five (5) years. In
turn, Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. As
the saga continues, the Philippine Senate passed and adopted Senate Resolution No. 141 and
decided not to ratify the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements to extend the term of the use by the US of Subic Naval Base,
among others. In other words, the RP-US Military Bases Agreement was suddenly terminated.
Because of this event, Globe notified Philcomsat of its intention to discontinue the use of the
earth station effective 08 November 1992 in view of the withdrawal of US military personnel
from Subic Naval Base after the termination of the RP-US Military Bases Agreement. After the
US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993 demanding
payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00
plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s demand. On
the other hand, the latter with the Regional Trial Court of Makati a Complaint against Globe,
however, Globe filed an Answer to the Complaint, insisting that it was constrained to end the
Agreement due to the termination of the RP-US Military Bases Agreement and the non-
ratification by the Senate of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained that the occurrence of said
events exempted it from paying rentals for the remaining period of the Agreement. Four years
after, the trial court its decision but both parties appealed to the Court of Appeals.

ISSUE:
Whether or not the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements constitutes force majeure which
exempts Globe from complying with its obligations under the Agreement;

HELD:
The appellate court ruled that the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-US Military Bases Agreement effective 31
December 1991 as stated in the Philippine Government’s Note Verbale to the US Government,
are acts, directions, or requests of the Government of the Philippines which constitute force
majeure.
However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for the December
1992, amounting to US$92,238.00 plus interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on 31 December 1992.
No reversible error was committed by the Court of Appeals in issuing the assailed
Decision; hence the petitions are denied. Article 1174, which exempts an obligor from liability
on account of fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable: The Supreme Court
agrees with the Court of Appeals and the trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had no control over the non-renewal of the
term of the RP-US Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the Senate. Neither did
the parties have control over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992.
 DIOQUINO vs. LAUREANO
G.R. No. L-25906, May 28, 1970

PONENTE: Fernando, J.
TOPIC: Fortuitous Event

FACTS:
Atty. Dioquino, a practicing lawyer of Masbate, owns the car. Dioquino went to the office of
the MVO, Masbate to have his car registered. Plaintiff met defendant Federico Laureano, a
patrol officer of said MVO office, who was waiting for a jeepney to take him to the office of
the Provincial Commander (P.C.), Masbate. Dioqunio requested defendant to introduce him
to one of the clerks in the MVO offive who could facilitate the registration of his car. Laureano
rode on the car of Dioquino on his way to P.C. Barracks. The car, driven by Dioquino’s river and
with Laureano as the sole passenger, was stoned by some ‘mischievous boys’ —> windshield
was broken. Laureano was only able to catch one of the boys. Boy admitted to having thrown
the stone. The father of the boy was called but no satisfactory arrangements were made
about the damage to the windshield. Laureano refused to file charges against the boy and his
parents believing that the stone-throwing was merely accidental and that it was due to force
majeure. Defendant Laureano also refused to pay the windshield himself. Plaintiff now holds
defendant Federico Laureano accountable for the loss sustained. Also included in the action
filed were the defendant’s wife, Aida Laureano, and his father, Juanito Laureano. Lower court
granted plaintiff’s action for damages but absolved defendant’s wife and father of any
responsibility.

ISSUE :
Whether or not damages could be awarded for the unwarranted inclusion of
defendant’s wife and father in the litigation.

RULING:
NO. Plaintiif included the wife and the father because, according to him, the father was
the administrator of the inheritance of an undivided property to which defendant could lay
claim and the wife for the conjugal partnership would be made to respond for whatever
liability would be adjudicated against the husband. Plaintiff was merely propmted by the
desire to inflict needless and unjustified vexation on them (wife and father). Since plaintiff
already suffered a pecuniary loss which was the result of a fortuitous event (would have not
occured if defendent Laureano had not borrowed his car), court feels that he is not to be
penalized further by his mistaken view of the law in including them in his complaint.
 AUSTRIA vs. COURT OF APPEALS
G.R. No. L-29640, June 10, 1971

PONENTE: Puno, J.
TOPIC: Fortuitous Event

FACTS:
Maria G. Abad received from Guillermo Austria one (1) pendant with diamonds to be
sold on commission basis or to be returned on demand.
Maria Abad while walking home, two men snatched her purse containing jewelry and cash,
and ran away.
Thus, Abad failed to return the jewelry or pay its value notwithstanding demands.
Austria filed an action against Abad and Abad’s husband for recovery of the pendant or of its
value, and damages. Abad raised the defense that the alleged robbery had extinguished their
obligation.

ISSUE:
Whether or not in a contract of agency (consignment of good for sole) it is necessary
that there be prior conviction for robbery before the loss of the article shall exempt the
consignee from liability for such loss.

RULING:
No. To avail of the exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be found or punished, it would only be sufficient to
establish that the enforceable event, the robbery in this case did take place without any
concurrence fault on the debtor’s part, and this can be done by preponderance of evidence.
A court finding that a robbery has happened would not necessary mean that those accused in
the criminal action should be found guilty of the crime; nor would a ruling that those actually
accused did not commit the robbery be inconsistent with a finding that a robbery did take
place.
No. In 1961, when the robbery in question did take place, for at that time criminality
had not by far reached the levels attained in the present day. The diligence that Abad
portrayed when she went home before she was robbed was not a sign of negligence on her
part.
 CO vs COURT OF APPEALS
G.R. No. 100776, October 28, 1993

PONENTE: Narvasa, C.J.

TOPIC: Fortuitous Event

FACTS:
Petitioner Albino Co delivered to the salvaging firm on September 1, 1983 a check
drawn against the Associated Citizens' Bank, postdated November 30, 1983 in the sum of
P361,528.00. 1 The check was deposited on January 3, 1984. It was dishonored two days later,
the tersely-stated reason given by the bank being: "CLOSED ACCOUNT." A criminal complaint
for violation of Batas Pambansa Bilang 22 2 was filed by the salvage company against Albino
Co with the Regional Trial Court of Pasay City. The case eventuated in Co's conviction of the
crime charged. He argued on appeal that at the time of the issuance of the check on
September 1, 1983, some four (4) years prior to the promulgation of the judgment in Que v.
People on September 21, 1987, the delivery of a "rubber" or "bouncing" check as guarantee
for an obligation was not considered a punishable offense, an official pronouncement made
in a Circular of the Ministry of Justice.

ISSUE:
Whether the decision issued by the court be applied retroactively to the prejudice of
the accused.

HELD:
No. Pursuant to Article 8 of the Civil Code "judicial decisions applying or interpreting
the laws or the Constitution shall form a part of the legal system of the Philippines." But while
our decisions form part of the law of the land, they are also subject to Article 4 of the Civil
Code which provides that "laws shall have no retroactive effect unless the contrary is
provided." This is expressed in the familiar legal maxim lex prospicit, non respicit, the law
looks forward not backward. The rationale against retroactivity is easy to perceive. The
retroactive application of a law usually divests rights that have already become vested or
impairs the obligations of contract and hence, is unconstitutional. The weight of authority is
decidedly in favor of the proposition that the Court's decision of September 21, 1987 in Que v.
People, 154 SCRA 160 (1987) 14 that a check issued merely to guarantee the performance of
an obligation is nevertheless covered by B.P. Blg. 22 — should not be given retrospective
effect to the prejudice of the petitioner and other persons situated, who relied on the official
opinion of the Minister of Justice that such a check did not fall within the scope of B.P. Blg.
22.
 LEA MER INDUSTRIES INC. vs. MALAYAN INSURANCE CO., INC
G.R. No. 161745, September 30, 2005

PONENTE: Panganiban, J.
TOPIC: Fortuitous Event

FACTS:
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for
the shipment of 900 metric tons of silica sand. Consigned to Vulcan Industrial and Mining
Corporation, the cargo was to be transported from Palawan to Manila. During the voyage,
the vessel (Judy VII) sank, resulting in the loss of the cargo. Malayan Insurance Co., Inc., as
insurer, paid Vulcan the value of the lost cargo. To recover the amount paid and in the
exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer, which
refused to comply. Consequently, Malayan instituted a Complaint.
Lea Mer claimed that the loss of the cargo was due to the bad weather condition
brought about by Typhoon Trining. Evidence was presented to show that Lea Mer had not
been informed of the incoming typhoon, and that the Philippine Coast Guard had given it
clearance to begin the voyage.

ISSUE:
Whether or not the carrier is liable.

RULING:
Lea Mer presented no evidence that it had attempted to minimize or prevent the loss
before, during or after the alleged fortuitous event. The alleged fortuitous event was not
the sole and proximate cause of the loss. There is a preponderance of evidence that the
barge was not seaworthy when it sailed for Manila. Respondent was able to prove that, in
the hull of the barge, there were holes that might have caused or aggravated the sinking.
Because the presumption of negligence or fault applied to Lea Mer, it was incumbent upon
it to show that there were no holes; or, if there were, that they did not aggravate the
sinking.
The submission of the Philippine Coast Guard’s Certificate of Inspection of Judy VII
did not conclusively prove that the barge was seaworthy. The regularity of the issuance of
the Certificate is disputably presumed. It could be contradicted by competent evidence,
which respondent offered. Moreover, this evidence did not necessarily take into account the
actual condition of the vessel at the time of the commencement of the voyage.
 ROBERTO C. SICAM and AGENCIA de R.C.
SICAM, INC. vs. SPOUSES JORGE
G.R. No. 159617, August 8, 2007

PONENTE: Austria-Martinez, J.
TOPIC: Fortuitous Event

FACTS:
On different dates, Lulu Jorge pawned several pieces of jewelry with Agencia de R. C.
Sicam located in Parañaque to secure a loan. On October 19, 1987, two armed men entered
the pawnshop and took away whatever cash and jewelry were found inside the pawnshop
vault. On the same date, Sicam sent Lulu a letter informing her of the loss of her jewelry due
to the robbery incident in the pawnshop. Respondent Lulu then wroteback expressing
disbelief, then requested Sicam to prepare the pawned jewelry for withdrawal on November
6, but Sicam failed to return the jewelry. Lulu, joined by her husband Cesar, filed a complaint
against Sicam with the RTC of Makati seeking indemnification for the loss of pawned jewelry
and payment of AD, MD and ED as well as AF. The RTC rendered its Decision dismissing
respondents’ complaint as well as petitioners’ counterclaim. Respondents appealed the RTC
Decision to the CA which reversed the RTC, ordering the appellees to pay appellants the actual
value of the lost jewelry and AF. Petitioners MR denied, hence the instant petition for review
on Certiorari.

ISSUE:
Are the petitioners liable for the loss of the pawned articles in their possession?

RULING:
The Decision of the CA is AFFIRMED. Article 1174 of the Civil Code provides: Art. 1174.
Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is
therefore, not enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty
to foresee the happening is not impossibility to foresee the same. To constitute a fortuitous
event, the following elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be independent of
human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito
or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the
obligor must be free from any participation in the aggravation of the injury or loss. The burden
of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in
order for a fortuitous event to exempt one from liability, it is necessary that one has
committed no negligence or misconduct that may have occasioned the loss. Sicam had
testified that there was a security guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop business in 1983, he thought of opening
a vault with the nearby bank for the purpose of safekeeping the valuables but was
discouraged by the Central Bank since pawned articles should only be stored in a vault inside
the pawnshop. The very measures which petitioners had allegedly adopted show that to them
the possibility of robbery was not only foreseeable, but actually foreseen and anticipated.
Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event. Moreover,
petitioners failed to show that they were free from any negligence by which the loss of the
pawned jewelry may have been occasioned.
 PHILIPPINE REALTY AND HOLDINGS CORP. vs. LEY CONSTRUCTION
AND DEVELOPMENT CORPORATION
G.R. no. 165548, June 13, 2011

PONENTE: Sereno, J.
TOPIC: Fortuitous Event

FACTS:
Sometime between April 1988 and October 1989, the two corporations entered into
four major construction projects, as evidenced by four duly notarized "construction
agreements." These were the four construction projects the parties entered into involving a
Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite
Building. LCDC committed itself to the construction of the buildings needed by PRHC, which
in turn committed itself to pay the contract price agreed upon. Both parties agreed to enter
into another agreement. Abcede asked LCDC to advance the amount necessary to complete
construction. Its president acceded, on the absolute condition that it be allowed to escalate
the contract price. Abcede replied that he would take this matter up with the board of
directors of PRHC.The board of directors turned down the request for an escalation
agreement. However, On 9 August 1991 Abcede sent a formal letter to LCDC, asking for its
conformity, to the effect that should it infuse P36 million into the project, a contract price
escalation for the same amount would be granted in its favor by PRHC.

ISSUE:
Whether or not there is a fortuitous event in the case at bar.

RULING:
There is a fortuitous event in the case at bar.
Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an
obligation due to an "act of God" or force majeure, the following must concur:
(a) the cause of the breach of the obligation must be independent of the will of the debtor;
(b) the event must be either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the
debtor must be free from any participation in, or aggravation of the injury to the creditor. The
shortage in supplies and cement may be characterized as force majeure.64 In the present
case, hardware stores did not have enough cement available in their supplies or stocks at the
time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of
water supply all clearly fall under force majeure. Since LCDC could not possibly continue
constructing the building under the circumstances prevailing, it cannot be held liable for any
delay that resulted from the causes aforementioned.
 JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL vs. THE COURT OF APPEALS, UNITED
CONSTRUCTION COMPANY, INC., JUAN J. CARLOS, andthe PHILIPPINE BAR ASSOCIATION
G.R. No. L-47851, October 3, 1986

PONENTE: Paras, J.
TOPIC: Fortuitous Event

FACTS:
Private respondents – Philippine Bar Association (PBA) – a non-profit organization
formed under the corporation law decided to put up a building in Intramuros, Manila. Hired
to plan the specifications of the building were Juan Nakpil & Sons, while United Construction
was hired to construct it. The proposal was approved by the Board of Directors and signed by
the President, Ramon Ozaeta. The building was completed in 1966. In 1968, there was an
unusually strong earthquake which caused the building heavy damage, which led the building
to tilt forward, leading the tenants to vacate the premises. United Construction took remedial
measures to sustain the building. PBA filed a suit for damages against United Construction,
but United Construction subsequently filed a suit against Nakpil and Sons, alleging defects in
the plans and specifications. Technical Issues in the case were referred to Mr. Hizon, as a court
appointed Commissioner. PBA moved for the demolition of the building, but was opposed.
PBA eventually paid for the demolition after the building suffered more damages in 1970 due
to previous earthquakes. The Commissioner found that there were deviations in the
specifications and plans, as well as defects in the construction of the building.

ISSUE:
Whether or not an act of God (fortuitous event) exempts from liability parties who
would otherwise be due to negligence.

RULING:
Art. 1174 of the NCC, states that no person shall be responsible for events, which could
not be foreseen. But to be exempt from liability due to an act of God, the following must
occur: 1) cause of breach must be independent of the will of the debtor 2) event must be
unforeseeable or unavoidable 3) event must be such that it would render it impossible for the
debtor to fulfill the obligation 4) debtor must be free from any participation or aggravation of
the industry to the creditor. Although the general rule for fortuitous events stated in Article
1174 of the Civil Code exempts liability when there is an Act of God, thus if in the concurrence
of such event there be fraud, negligence, delay in the performance of the obligation, the
obligor cannot escape liability therefore there can be an action for recovery of damages. The
negligence of the defendant was shown when and proved that there was an alteration of the
plans and specification that had been so stipulated among them. Therefore, therefore there
should be no question that Nakpil and united are liable for damages because of the collapse
of the building. One who negligently creates a dangerous condition cannot escape liability for
the natural and probable consequences thereof, although the act of a third person, or an act
of God for which he is not responsible, intervenes to precipitate the loss.
 VASQUEZ vs. COURT OF APPEALS
G.R. No. L-42926, September 13, 1985

PONENTE: Azcuna, J.
TOPIC: Fortuitous Event

FACTS:
MV 'Pioneer Cebu' was owned and operated by the defendant and used in the
transportation of goods and passengers in the interisland shipping. It had a passenger
capacity of three hundred twenty-two including the crew. It undertook the said voyage on a
special permit issued by the Collector of Customs inasmuch as, upon inspection, it was found
to be without an emergency electrical power system. The special permit authorized the vessel
to carry only two hundred sixty passengers due to the said deficiency and for lack of safety
devices for 322 passengers. A headcount was made of the passengers on board, resulting on
the tallying of 168 adults and 20 minors, although the passengers manifest only listed 106
passengers. It has been admitted, however, that the headcount is not reliable. When the
vessel left Manila, its officers were already aware of the typhoon Klaring building up
somewhere in Mindanao. Plaintiffs seek the recovery of damages due to the loss of Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

ISSUE:
Whether or not the respondent would be exempt from responsibility due to its
defense of fortuitous event.

RULING:
To constitute a caso fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the
obligor must be free of participation in, or aggravation of, the injury to the creditor. The event
must have been impossible to foresee, or if it could be foreseen, must have been impossible
to avoid. There must be an entire exclusion of human agency from the cause of injury or loss.
Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet,
having been kept posted on the course of the typhoon by weather bulletins at intervals of six
hours, the captain and crew were well aware of the risk they were taking as they hopped from
island to island from Romblon up to Tanguingui. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the safety of the passengers
transported by them with due regard for all circumstances and unnecessarily exposed the
vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault
or negligence that arises in cases of death or injuries to passengers. With regard to the
contention that the total loss of the vessel extinguished its liability pursuant to Article 587 of
the Code of Commerce, it was held that the liability of a shipowner is limited to the value of
the vessel or to the insurance thereon. Despite the total loss of the vessel therefore, its
insurance answers for the damages that a shipowner or agent may be held liable for by reason
of the death of its passengers.
 MEGAWORLD GLOBUS ASIA, INC. vs. TANSECO
G.R. No. 181206, October 9, 2009

PONENTE: Carpio-Morales, J.
TOPIC: Fortuitous Events

FACTS
On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent
Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more
or less) condominium unit at a pre-selling project. The purchase price was P16,802,037.32, to
be paid as follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated
check payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of
P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on
October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is
completed earlier, Tanseco would pay the balance within seven days from receipt of a notice
of turnover. Tanseco paid all installments due up to January, 1998, leaving unpaid the balance
of P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit
within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month
grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice
of turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.
Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworld’s failure
to deliver the unit on time, she was demanding the return of P14,281,731.70 representing the
total installment payment she had made, with interest at 12% per annum from April 30, 1999,
the expiration of the six-month grace period. Tanseco pointed out that none of the excepted
causes of delay existed.

ISSUE:
Whether or not there was a fortuitous event in the case at bar

RULING:
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months thereafter on
the part of Megaworld, and to pay the balance of the purchase price at or about the time of
delivery on the part of Tanseco. Compliance by Megaworld with its obligation is
determinative of compliance by Tanseco with her obligation to pay the balance of the
purchase price. Megaworld having failed to comply with its obligation under the contract, it
is liable therefor.
That Megaworld’s sending of a notice of turnover preceded Tanseco’s demand for
refund does not abate her cause. For demand would have been useless, Megaworld
admittedly having failed in its obligation to deliver the unit on the agreed date. Art. 1174.
Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and
beyond the control of a business corporation. A real estate enterprise engaged in the pre-
selling of condominium units is concededly a master in projections on commodities and
currency movements, as well as business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday occurrence, hence, not an instance of
caso fortuito. Megaworld’s excuse for its delay does not thus lie.
 METRO CONCAST STEEL CORP., SPOUSES JOSE S. DYCHIAO AND TIU
OH YAN, ET. AL. vs. ALLIED BANK CORPORATION
G.R. No. 177921, December 4, 2013

PONENTE: Perlas-Bernabe, J.
TOPIC: Fortuitous Event

FACTS:
On various dates and for different amounts, Metro Concast, a corporation duly
organized and existing under and by virtue of Philippine laws and engaged in the business of
manufacturing steel,5 through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a promissory note and
separate letters of credit/trust receipts.
They alleged that the economic reverses suffered by the Philippine economy in 1998
as well as the devaluation of the peso against the US dollar contributed greatly to the downfall
of the steel industry, directly affecting the business of Metro Concast and eventually leading
to its cessation. Petitioners offered the sale of Metro Concast’s remaining assets, consisting
of machineries and equipment, to Allied Bank, which the latter, however, refused. Eventually,
with the alleged conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement
dated November 8, 2002 (MoA) was drawn between Metro Concast, represented by
petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar obligated
itself to purchase the scrap metal for a total consideration of ₱34,000,000.00
Allied Bank appealed to the CA which, in a Decision32 dated February 12, 2007, reversed
and set aside the ruling of the RTC, ratiocinating that there was "no legal basis in fact and in
law to declare that when Bankwise reneged its guarantee under the [MoA].
Consequently, the CA granted the appeal and directed petitioners to solidarily pay
Allied Bank their corresponding obligations under the aforementioned promissory note and
trust receipts, plus interests, penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a Resolution38 dated May 10, 2007.

ISSUE:
Whether or not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been extinguished.

RULING:
While it may be argued that Peakstar’s breach of the MoA was unforseen by
petitioners, the same us 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. In any case, as earlier stated, the performance or
breach of the MoA bears no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of obligations. The fact of the matter is
that petitioners’ loan obligations to Allied Bank remain subsisting for the basic reason that the
former has not been able to prove that the same had already been paid or, in any way,
extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must perforce stand.
Considering, however, that Allied Bank’s extra-judicial demand on petitioners appears to have
been made only on December 10, 1998, the computation of the applicable interests and
penalty charges should be reckoned only from such date.
 BERNALES vs. NORTHWEST AIRLINES
G.R. No. 182395, October 5, 2013

PONENTE: Brion, J.
TOPIC: Fortuitous Event

FACTS:
Jesus Fernando arrived at the LA Airport via Northwest Airlines Flight No. NW02 to join his family
for Christmas, however upon arrival at the airport it was found out that his documents reflect his return
ticket as August 2001. So he approached a Northwest personnel who was later identified as Linda
Puntawongdaycha, but the latter merely glanced at his ticket without checking its status with
the computer and peremptorily said that the ticket has been used and could not be
considered as valid. He then explained to the personnel that he was about to use the said ticket on
August 20 or 21, 2001 on his way back to Manila from LA but he could not book any seat because
of some ticket restrictions so he, instead, purchased new business class ticket on the said
date. Hence, the ticket remains unused and perfectly valid.
The Immigration Officer brought Jesus Fernando to the interrogation room of the
Immigration and Naturalization Services (INS) where he was asked humiliating questions for
more than two (2) hours. When he was finally cleared by the Immigration Officer, he was granted only
a twelve (12)-day stay in the United States (US), instead of the usual six (6) months.
Northwest airlines employees on the other hand claim that they were “courteous” and
“was very kind enough” to assist them. Meyer verified their bookings and “printed paper
tickets” for them. Unfortunately, when they went back to the boarding gate, the plane had
departed. Northwest offered alternative arrangements for them to be transported to Manila
on the same day on another airline, either through Philippine Airlines or Cathay Pacific
Airways, but they refused. Northwest also offered them free hotel accommodations but they,
again, rejected the offer Northwest then made arrangements for the transportation of the
Fernandos from the airport to their house in LA, and booked the Fernandos on a Northwest
flight that would leave the next day, January 30, 2002.

ISSUE:
Whether or not there was breach of contract of carriage and whether it was done In a
wanton, malevolent or reckless manner amounting to bad faith.

RULING:
Yes.The Fernandos’ cause of action against Northwest stemmed from a breach of
contract of carriage. A contract is a meeting of minds between two persons whereby one
agrees to give something or render some service to another for a consideration. There is no
contract unless the following requisites concur: (1) consent of the contracting parties; (2) an
object certain which is the subject of the contract; and (3) the cause of the obligation which
is established.
 SALVADOR ADORABLE and LIGAYA ADORABLE vs. COURT OF APPEALS, HON. JOSE O.
RAMOS, FRANCISCO BARENG and SATURNINO BARENG
G.R. No. 119466, November 25,1999

PONENTE: Mendoza, J.
TOPIC: Accion Pauliana

FACTS:
Private respondent Saturnino Bareng was the registered owner of two parcels of land,
one identified as Lot No. 661-D-5-A, with an area of 20,000 sq. m., covered by TCT No. T-162837,
and the other known as Lot No. 661-E, with an area of 4.0628 hectares, covered by TCT No. T-
60814, both of which are in San Fabian, Echague, Isabela. Petitioners were lessees of a 200
sq.m. portion of Lot No. 661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent Francisco Bareng,
obtained a loan from petitioners amounting to twenty-six thousand pesos (P26,000), in
consideration of which they promised to transfer the possession and enjoyment of the fruits
of Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.m. of Lot No. 661-D-5-
A. The conveyance was annotated on the back of TCT No. T-162873. In turn, Francisco sold on
August 27, 1986 to private respondent Jose Ramos 3,000 sq.m. of the lot. The portion of land
being rented to petitioners was included in the portion sold to Jose Ramos. The deeds of sale
evidencing the conveyances were not registered in the office of the register of deeds.
As the Barengs failed to pay their loan, petitioners complained to Police Captain
Rodolfo Saet of the Integrated National Police (INP) of Echague through whose mediation a
Compromise Agreement was executed between Francisco Bareng and the Adorables
whereby the former acknowledged his indebtedness of P56,385.00 which he promised to pay
on or before July 15, 1987. When the maturity date arrived, however, Francisco Bareng failed
to pay. A demand letter was sent to Francisco Bareng, but he refused to pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose Ramos, then filed a
complaint with the Regional Trial Court, Branch 24, Echague, Isabela for the annulment or
rescission of the sale on the ground that the sale was fraudulently prepared and executed.
During trial, petitioners presented as witness Jose Ramos. On appeal, the Court of Appeals
affirmed the decision of the Regional Trial Court, with modification as to the amount of
Francisco Barengs debt to petitioners.

ISSUE:
Whether or not the Court of Appeals erred in sustaining the lower courts order
terminating petitioner’s presentation of evidence and allowing private respondents to
present their evidence ex parte.
RULING:
No error was committed by the Court of Appeals in affirming the order of the trial court
terminating the presentation of petitioner’s evidence and allowing private respondents to
proceed with theirs because of petitioner’s failure to present further evidence at the
scheduled dates of trial. Petitioners contend that since their counsel holds office in Makati,
the latters failure to appear at the trial in Isabela at the scheduled date of hearing should have
been treated by the court with a sense of fairness.
This is more a plea for compassion rather than explanation based on reason. We
cannot find grave abuse of discretion simply because a court decides to proceed with the trial
of a case rather than postpone the hearing to another day, because of the absence of a party.
That the absence of a party during trial constitutes waiver of his right to present evidence and
cross-examine the opponent’s witnesses is firmly supported by jurisprudence. To constitute
grave abuse of discretion amounting to lack or excess of jurisdiction, the refusal of the court
to postpone the hearing must be characterized by arbitrariness or capriciousness. Here, as
correctly noted by the Court of Appeals, petitioners counsel was duly notified through
registered mail of the scheduled trials. His only excuse for his failure to appear at the
scheduled hearings is that he comes from Makati. This excuse might hold water if counsel was
simply late in arriving in the courtroom. But this was not the case. He did not appear at all.
 MARIMPERIO COMPANIA NAVIERA, S.A. vs. COURT OF APPEALS
G.R. No. 176008, December 14, 1987

PONENTE: Paras, J.
TOPIC: Accion Pauliana

FACTS:
In 1964 Philippine Traders Corporation and Union Import and Export Corporation
entered into a joint business venture for the purchase of copra from Indonesia for sale in
Europe. James Liu, President and General Manager of the Union took charge of the European
market and the chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on
the other hand, found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra
for sale. Exequiel Toeg of Interocean was commissioned to look for a vessel and he found the
vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate
for its charter but with instructions to keep confidential the fact that they are the real
charterers.
In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled a firm
offer to P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per ton, the same to be
loaded either in April or May, 1965. The offer was accepted and plaintiffs opened two
irrevocable letters of Credit in favor of P.T. Karkam. On March 29, 1965, the Charterer was
notified by letter by Vlassopulos through Matthews that the vessel "PAXOI" had sailed from
Hsinkang at noontime on March 27, 1965 and that it had left on hire at that time and date
under the Uniform Time-Charter. The Charterer was however twice in default in its payments
which were supposed to have been done in advance. The first 15-day hire comprising the
period from March 27 to April 1-1, 1965 was paid despite follow-ups only on April 6, 1965 and
the second 15-day hire for the period from April 12 to April 27, 1965 was paid also despite
follow-ups only on April 26, 1965. On April 14, 1965 upon representation of Toeg, the Esso
Standard Oil (Hongkong) Company supplied the vessel with 400 tons of bunker oil.
Although the late payments for the charter of the vessel were received and
acknowledged by Vlassopulos without comment or protest, said agent notified Matthews, by
telex on April 23, 1965 that the shipowners in accordance with Clause 6 of the Charter Party
were withdrawing the vessel from Charterer's service and holding said Charterer responsible
for unpaid hirings and all legal claims.
On April 29, 1965, the shipowners entered into another charter agreement with
another Charterer, the Nederlansche Stoomvart of Amsterdam, the delivery date of which
was around May 3, 1965 for a trip via Indonesia to Antwep/Hamburg at an increase charter
cost. Meanwhile, the original Charterer again remitted on April 30, 1965, the amount
corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this time the remittance was
refused.
On March 16, 1966, respondent Interocean Shipping Corporation filed a complaint-in-
intervention to collect what it claims to be its loss of income by way of commission and
expenses. In its amended answer to the complaint-in-intervention petitioner, by way of
special defenses alleged that the plaintiff-in-intervention, being the charterer, did not notify
the defendant shipowner, petitioner, herein, about any alleged sub-charter of the vessel "SS
PAXOI" to the plaintiffs; consequently, there is no privity of contract between defendant and
plaintiffs and it follows that plaintiff-in-intervention, as charterer, is responsible for defendant
shipowner for the proper performance of the charter party; that the charter party provides
that any dispute arising from the charter party should be referred to arbitration in London;
that Charterer plaintiff-in-intervention has not complied with this provision of the charter
party; consequently its complaint-in intervention is premature; and that the charterer violated
the contract and the full hiring fee due the shipowner was not paid in accordance with the
terms and conditions of the charter party.

ISSUE:
Whether or not the respondents have the legal capacity to bring the suit for specific
performance against petitioner based on the charter party.

RULING:
According to Article 1311 of the Civil Code, a contract takes effect between the parties
who made it, and also their assigns and heirs, except in cases where the rights and obligations
arising from the contract are not transmissible by their nature, or by stipulation or by provision
of law. Since a contract may be violated only by the parties, thereto as against each other, in
an action upon that contract, the real parties in interest, either as plaintiff or as defendant,
must be parties to said contract. Therefore, a party who has not taken part in it cannot sue or
be sued for performance or for cancellation thereof, unless he shows that he has a real
interest affected thereby.
It is undisputed that the charter party, was entered into between petitioner
Marimperio., through its duly authorized agent in London, the N & J Vlassopulos Ltd., and the
Interocean Shipping Company of Manila through the latter's duly authorized broker, the
Overseas Steamship Co., Inc., represented by Matthews, Wrightson Burbridge Ltd., for the
Charter of the 'SS PAXOI'. It is also alleged in both the Complaint and the Amended Complaint
that the Interocean Shipping Company sublet the said vessel to respondent Union Import and
Export Corporation which in turn sublet the same to respondent Philippine Traders
Corporation.
It is admitted by respondents that the charterer is the Interocean Shipping Company.
Even paragraph 3 of the complaint-in-intervention alleges that respondents were given the
use of the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..." which precisely
provides for the subletting of the vessel by the charterer. Furthermore, Article 652 of the Code
of Commerce provides that the charter party shall contain, among others, the name, surname,
and domicile of the charterer, and if he states that he is acting by commission, that of the
person for whose account he makes the contract. It is obvious from the disclosure made in
the charter party by the authorized broker, the Overseas Steamship Co., Inc., that the real
charterer is the Interocean Shipping Company (which sublet the vessel to Union Import and
Export Corporation which in turn sublet it to Philippine Traders Corporation).
 METROBANK, substituted by MERIDIAN (SPV-AMCI) CORPORATION
vs. INTERNATIONAL EXCHANGE BANK
G.R. No. 176008, August 10, 2011

PONENTE: Peralta, J.
TOPIC: Accion Pauliana

FACTS:
Sacramento Steel Corporation (SSC) is a Steel manufacturing and producing
corporation. SSC entered into a Credit Agreement with International Exchange Bank (IEB) and
as security for its loan obligations, the former executed five separate deeds of chattel
mortgage.
SSC defaulted in the payment of its obligations, where subsequently, IEB filed a
petition for extrajudicial foreclosure of chattel mortgage.
Meanwhile, while the case were still pending between SSC and IEB, petitioner METROBANK
filed a motion contending that it has legal interest in the properties subject of the litigation
between IEB and SSC because it is a creditor of SSC and that the mortgage contracts between
IEB and SSC were entered into to defraud the latter’s creditors. Metrobank prayed for the
rescission of the chattel mortgages executed by SSC in favor of IEB.

ISSUE:
Whether the chattel mortgages executed by SSC in favor of IEB may be rescinded.

HELD:
In the current jurisprudence, the following successive measures must be taken by a
creditor before he may bring an action for rescission of an allegedly fraudulent contract:
exhaust the properties of the debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt by law from execution;
exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and seek rescission of the contracts executed by the debtor in fraud of their
rights (accion pauliana). It is thus apparent that an action to rescind, or an accion
pauliana, must be of last resort, availed of only after the creditor has exhausted all the
properties of the debtor not exempt from execution or after all other legal remedies have
been exhausted and have been proven futile.
Without availing of the first and second remedies, Metrobank simply undertook the
third measure and filed an action for annulment of the chattel mortgages. Rescission can only
be availed of in the absence of any other legal remedy to obtain reparation for the injury. This
fact is not present in this case. No evidence was presented nor even an allegation was offered
to show that Metrobank had availed of the abovementioned remedies before it tried to
question the validity of the contracts of chattel mortgage between IEB and SSC.
 KE HONG CHENG vs. COURT OF APPEALS
G.R. No 144169, March 28, 2001

PONENTE: Kapunan, J.
TOPIC: Accion Pauliana

FACTS:
Petitioner is the owner of Butuan Shipping Line. In one the vessels owned by the
petitioner, Philippine Agricultural Trading Corporation boarded 3,400 bags of copra to be
shipped from Masbate to Dipolog City and which said shipment of copra was insured by
PhilAm. While on board, the ship sank amounting to total loss of the shipments. Because of
the loss, the insurer paid the damages to the consignee. Having subrogated the rights of the
consignee, PhilAm instituted a civil case to recover the money paid to the consignee based on
breach of contract of carriage. While the case was pending, petitioner executed deeds of
donations of parcels of land to his children. The trial court rendered judgment against the
petitioner Ke Hong Cheng in the civil case. After the decision became final, a writ of execution
was issued but it was not served, Therefore an alias writ was applied for which was granted.
The sheriff did not found any property under Butuan Shipping Lines and/or Ke Hong Cheng.
In 1997, PhilAm filed complaint for annulling the deeds of donation made by petitioner to his
children and alleged the donation was to defraud his creditors including PhilAm.

ISSUE:
Whether or not the action to rescind the donation had already prescribed.

RULING:
No. The Court maintained that the four year period began only on January 1997, the
time when it first learned that the judgment award could not be satisfied because the Ke Hong
Cheng had no more properties in his name. Article 1389 of the Civil Code simply provide that
the action to claim rescission must be commenced within four years. When the law is silent as
to when the prescriptive shall commence, general rule must apply that it will commence when
the moment the action accrues. An action for rescission must be the last resort of the
creditors and can only be availed after the creditor had exhausted all the properties. The
herein respondent came to know only in January 1997 about the unlawful conveyances of the
petitioner when together with the sheriff and counsel were to attach the property of the
petitioner and it was then only when they found out it is no longer in the name of the
petitioner. Since the respondent filed accion pauliana on February 1997, a month after the
discovery that petitioner had no property in his name to satisfy the judgment, action for
rescission of subject deeds had not yet prescribed.
 ESTATE OF HEMADY vs. LUZON SURETY CO., INC.
100 PHIL 388

PONENTE: Chico-Nazario, J.
TOPIC: Transmissibility of Rights

FACTS:
Luzon Surety Co. filed a claim against the Estate based on 20 different indemnity
agreements, or counter bonds, each subscribed by a distinct principal and by the deceased
K. H. Hemady, a surety solidary guarantor. Luzon Surety Co., prayed for allowance, as a
contingent claim, of the value of the 20 bonds it executed in consideration of the
counterbonds, and asked for judgment for the unpaid premiums and documentary stamps
affixed to the bonds, with 12 % interest thereon. CFI dismissed the claims of Luzon Surety
Co., on failure to state the cause of action.

ISSUE:
What obligations are transmissible upon the death of the decedent? Are contingent
claims chargeable against the estate?

HELD:
The binding effect of contracts upon the heirs of the deceased party is not altered by
the provision in our Rules of Court that money debts of a deceased must be liquidated and
paid from his estate before the residue is distributed among said heirs (Rule 89). The reason
is that whatever payment is made from the estate is ultimately a payment by the heirs and
distributees, since the amount of the paid claim in fact diminishes or reduces the shares that
the heirs would have been entitled to receive.
The contracts of suretyship entered into by Hemady in favor of Luzon Surety Co. not
being rendered intransmissible due to the nature of the undertaking, nor by the stipulations
of the contracts themselves, nor by provision of law, his eventual liability thereunder
necessarily passed upon his death to his heirs. The contracts give rise to contingent claims
provable against his estate under sec. 5, Rule 87.
The solidary guarantor’s liability is not extinguished by his death, and that in such
event, the Luzon Surety Co., had the right to file against the estate a contingent claim for
reimbursement. The contracts of suretyship entered into by K. H. Hemady in favor of Luzon
Surety Co. not being rendered intransmissible due to the nature of the undertaking, nor by
the stipulations of the contracts themselves, nor by provision of law, his eventual liability
thereunder necessarily passed upon his death to his heirs.
 JESUS SAN AGUSTIN V. HON. COURT OF APPEALS AND MAXIMO MENEZ
G.R. No. 121940, December 4, 2001

PONENTE: Carpio-Morales, J.
TOPIC: Transmissibility of Rights

FACTS:
Government Service Insurance System (GSIS) sold to a certain Macaria Vda. de
Caiquep a parcel of residential land evidenced by a Deed of Absolute Sale. The following
encumbrance was annotated at the back of the title, not to sell, convey, lease or sublease,
or otherwise encumber the property. A day after the issuance of TCT Macaria Vda. de
Caiquep sold the subject lot to private respondent, Maximo Menez, Jr., as evidenced by a
Deed of Absolute Sale. Said TCT was lost, but private respondent subsequently obtained a
duplicate after judicial proceedings. Petitioner was not notified. Both RTC and CA ruled in
favor of private respondent.

ISSUE:
Whether or not the petitioner is correct that Deed of Sale between Macaria Vda. de
Caiquep and private respondent is null and void in accordance with Par.7 Art.1409 of the
New Civil Code.

RULING:
No. Petitioner’s contention is less than meritorious. In this case, the GSIS, the proper
party, has not filed any action for the annulment of Deed of Sale between them and Macaria
Vda. de Caiquep, nor for the forfeiture of the lot in question. The contract of sale remains
valid between the parties, unless and until annulled in the proper suit filed by the rightful
party, the GSIS. The said contract of sale is binding upon the heirs of Macaria Vda. de
Caiquep, including petitioner who alleges to be one of her heirs, in line with the rule that
heirs are bound by contracts entered into by their predecessors-in-interest. Since, both were
aware of the existence of the stipulated condition in favor of the original seller, GSIS, yet
both entered into an agreement violating said condition and nullifying its effects, said
parties should be held in estoppel to assail and annul their own deliberate acts.
 PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., AND LEANDRO ENRIQUEZ V. THE
COURT OF APPEALS AND INDUSTRIAL FINANCE CORPORATION
June 19, 2001, G. R. No. 99433

PONENTE: Vitug, J.
TOPIC: Transmissibility of Rights

FACTS:
On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it
was agreed that plaintiff would provide a maximum amount of P2,000,000.00 against which
said defendant would discount and assign to plaintiff on a ‘with recourse non-collection basis’
its (PBI’s) accounts receivable under the contracts to sell specified in said agreement.
Eventually, the same parties entered into an agreement whereby it was agreed that PBI’s
credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line
of P5,000,000.00 granted includes the amount already assigned/discounted.Against the
above-mentioned ‘credit line,’ defendant PBI discounted with plaintiff on different dates
accounts receivables with different maturity dates from different condominium-unit buyers.
The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of
twenty accounts. Of such receivables amounting to P7,986,815.38 plaintiff released to
defendant PBI the amount of P4,549,132.72 and the difference of P3,437,682.66 represents
the discounting fee or finance fee.
To secure compliance with the terms and conditions of the agreement defendants
executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly
defaulted in the payment of the subject account, plaintiff foreclosed the mortgage and
plaintiff was the highest bidder in the amount of P3,500,000.00. The foreclosed property was
redeemed a year later but after application of the redemption payment, plaintiff claims that
there is still a deficiency in the amount of P1,323,053.08.
A collection suit was then filed by IFC against PBI. However, PBI denied liability alleging that
IFC has no case or right of action because the obligation is fully paid out of the proceeds of
foreclosure sale of its property. Further, it alleged that a proper accounting of the transaction
between the parties will show that it is the IFC who is liable to PBI.
The trial court dismissed the complaint but the Court of Appeals reversed it. It ordered PBI to
pay IFC the deficiency in the amount of P1,237,802.48 and the monetary interests.

ISSUE:
Whether or not said Republic Act No. 5980 should govern the transaction between
petitioners and private respondent which in reality was bilateral, not trilateral, and 244
respondent financing company was not really subrogated in the place of the supposed seller
or assignor.
RULING:
The assignment of the contracts to sell falls within the purview of the Act. The term
credit has been defined to - "(c) x x x mean any loan, mortgage, deed of trust, advance, or
discount; any conditional sales contract, any contract to sell, or sale or contract of sale of
property or service, either for present or future delivery, under which, part or all of the price
is payable subsequent to the making of such sale or contract; any rental-purchase contract;
any option, demand, lien, pledge, or other claim against, or for the delivery of, property or
money, any purchase, or other acquisition of or any credit upon the security of, any obligation
or claim arising out of the foregoing; and any transaction or series of transactions having a
similar purpose or effect.”
An assignment of credit is an act of transferring, either onerously or gratuitously, the
right of an assignor to an assignee who would then be capable of proceeding against the
debtor for enforcement or satisfaction of the credit. The transfer of rights takes place upon
perfection of the contract, and ownership of the right, including all appurtenant accessory
rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon
acquiring knowledge of the assignment but he is entitled, even then, to raise against the
assignee the same defenses he could set up against the assignor. Where the assignment is on
account of pure liberality on the part of the assignor, the rules on donation would likewise be
pertinent; where valuable consideration is involved, the assignment partakes of the nature of
a contract of sale or purchase.
Upon an assignment of a contract to sell, the assignee is effectively subrogated in
place of the assignor and in a position to enforce the contract to sell to the same extent as
the assignor could.
An insistence of petitioners that the subject transaction should be considered a simple
loan since private respondent did not communicate with the debtors, condominium unit
buyers, to collect payment from them, is untenable. In an assignment of credit, the consent
of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting
only the efficaciousness or inefficaciousness of any payment he might make.
The assignment, it might be pointed out, was "with recourse," and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the
mortgaged parcels of land. The resort to foreclosure of the mortgaged properties did not
preclude private respondent from collecting interest from the assigned Contracts To Sell from
the time of foreclosure to the redemption of the foreclosed property. The imposition of
interest was a mere enforcement or exercise of the right to the ownership of the credit or
receivables which the parties stipulated in the 1976 financing agreement. Thus -"f. That the
Assignor shall comply with all the terms and conditions specified on the said Contracts to Sell,
executed by the assignor and its individual purchaser or customers, and assigned/discounted
to Assignee.”
One of the provisions in the contracts to sell, subject matter of the assignment
agreement, related to the imposition of interest in the event of default by the debtor in the
payment of installments, to wit: "All payments shall be made on or before their respective
due dates without necessity of demand therefor, and failure to make such payments on time
shall entitle the Developer to charge interest at the rate of one percent (1%) per month
without prejudice to the other remedies available to the Developer.” As owner of the account
receivables, private respondent was impressed with the entitlement over such interest
payment.
 UNION BANK OF THE PHILIPPINES vs. EDMUND SANTIBAEZ AND
FLORENCE SANTIBAEZ ARIOLA
G.R. No. 149926, February 23, 2005

PONENTE: Callejo, Sr., J.

TOPIC: Transmissibility of Rights

FACTS:
On May 31, 1980, the First Countryside Credit Corporation (FCCC) and Efraim
Santibañez entered into a loan agreement in the amount of P128,000.00. The amount was
intended for the payment of one (1) unit Ford 6600 Agricultural Tractor. In view thereof,
Efraim and his son, Edmund, executed a promissory note in favor of the FCCC, the principal
sum payable in five equal annual amortizations. On Dec. 1980, FCCC and Efraim entered into
another loan agreement for the payment of another unit of Ford 6600 and one unit of a
Rotamotor. Again, Efraim and Edmund executed a promissory note and a Continuing
Guaranty Agreement for the later loan. In 1981, Efraim died, leaving a holographic will. Testate
proceedings commenced before the RTC of Iloilo City. Edmund was appointed as the special
administrator of the estate. During the pendency of the testate proceedings, the surviving
heirs, Edmund and his sister Florence, executed a Joint Agreement, wherein they agreed to
divide between themselves and take possession of the three (3) tractors: (2) tractors for
Edmund and (1) for Florence. Each of them was to assume the indebtedness of their late
father to FCCC, corresponding to the tractor respectively taken by them. In the meantime, a
Deed of Assignment with Assumption of Liabilities was executed by and between FCCC and
Union Bank, wherein the FCCC assigned all its assets and liabilities to Union Bank.
Demand letters were sent by Union Bank to Edmund, but the latter refused to pay.
Thus, on February 5, 1988, Union Bank filed a Complaint for sum of money against the heirs of
Efraim Santibañez, Edmund and Florence, before the RTC of Makati City. Summonses were
issued against both, but the one intended for Edmund was not served since he was in the
United States and there was no information on his address or the date of his return to the
Philippines. Florence filed her Answer and alleged that the loan documents did not bind her
since she was not a party thereto. Considering that the joint agreement signed by her and her
brother Edmund was not approved by the probate court, it was null and void; hence, she was
not liable to Union Bank under the joint agreement.
Union Bank asserts that the obligation of the deceased had passed to his legitimate
heirs (Edmund and Florence) as provided in Article 774 of the Civil Code; and that the
unconditional signing of the joint agreement estopped Florence, and that she cannot deny
her liability under the said document.
In her comment to the petition, Florence maintains that Union Bank is trying to recover
a sum of money from the deceased Efraim Santibañez; thus the claim should have been filed
with the probate court. She points out that at the time of the execution of the joint agreement
there was already an existing probate proceedings. She asserts that even if the agreement
was voluntarily executed by her and her brother Edmund, it should still have been subjected
to the approval of the court as it may prejudice the estate, the heirs or third parties.

ISSUES:
1. Whether or not the claim of Union Bank should have been filed with the probate court
before which the testate estate of the late Efraim Santibañez was pending.

2. Whether or not the agreement between Edmund and Florence (which was in effect, a
partition of the estate) was void considering that it had not been approved by the probate
court.

3. Whether or not there can be a valid partition among the heirs before the will is probated.

RULING:
Well-settled is the rule that a probate court has the jurisdiction to determine all the
properties of the deceased, to determine whether they should or should not be included in
the inventory or list of properties to be administered. The said court is primarily concerned
with the administration, liquidation and distribution of the estate.
The filing of a money claim against the decedent’s estate in the probate court is
mandatory. This requirement is for the purpose of protecting the estate of the deceased by
informing the executor or administrator of the claims against it, thus enabling him to examine
each claim and to determine whether it is a proper one which should be allowed. The plain
and obvious design of the rule is the speedy settlement of the affairs of the deceased and the
early delivery of the property to the distributees, legatees, or heirs.
Perusing the records of the case, nothing therein could hold Florence accountable for
any liability incurred by her late father. The documentary evidence presented, particularly the
promissory notes and the continuing guaranty agreement, were executed and signed only by
the late Efraim Santibañez and his son Edmund. As the petitioner failed to file its money claim
with the probate court, at most, it may only go after Edmund as co-maker of the decedent
under the said promissory notes and continuing guaranty.
 WILLIAM ONG GENATO V. BENJAMIN BAYHON, ET. AL.
G.R. No. 171035, August 24, 2009

PONENTE: Puno, C.J.

TOPIC: Transmissibility of Rights

FACTS:
On October 18, 1990, respondents filed an action seeking the declaration of nullity of a
dacion en pago allegedly executed by respondent Benjamin Bayhon in favor of petitioner
William Ong Genato. Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained
from the petitioner a loan amounting to PhP 1,000,000.00; that to cover the loan, he executed
a Deed of Real Estate Mortgage over the property; that, however, the execution of the Deed
of Real Estate Mortgage was conditioned upon the personal assurance of the petitioner that
the said instrument is only a private memorandum of indebtedness and that it would neither
be notarized nor enforced according to its tenor.
Respondent further alleged that he filed a separate proceeding for the reconstitution
of TCT No. 38052. Petitioner William Ong Genato filed an Answer in Intervention in the said
proceeding and attached a copy of an alleged dacion en pago covering said lot. Respondent
assailed the dacion en pago as a forgery alleging that neither he nor his wife, who had died 3
years earlier, had executed it.
In his Answer, petitioner Genato denied the claim of the respondent regarding the
death of the latter’s wife. He alleged that on the date that the real estate mortgage was to be
signed, respondent introduced to him a woman as his wife. He alleged that the respondent
signed the dacion en pago and that the execution of the instrument was above-board. On
December 20, 1990, petitioner William Ong Genato filed Civil Case No. Q-90-7551, an action for
specific performance Petitioner alleged further that respondent failed to pay the loan and
executed on October 21, 1989 a dacion en pago in favor of the petitioner.

ISSUE:
Whether or not the real estate mortgage and the dacion en pago are valid.

RULING:
The real estate mortgage and the dacion en pago are both void. The court ruled that
at the time the real estate mortgage and the dacion en pago were executed, or on July 3, 1989
and October 21, 1989, respectively, the wife of respondent Benjamin Bayhon was already
dead. Thus, she could not have participated in the execution of the two documents. The
appellate court struck down both the dacion en pago and the real estate mortgage as being
simulated or fictitious contracts pursuant to Article 1409 of the Civil Code.
The Court held further that while the principal obligation is valid, the death of
respondent Benjamin Bayhon extinguished it. The heirs could not be ordered to pay the debts
left by the deceased. Based on the foregoing, the Court of Appeals dismissed petitioners
appeal. Petitioners motion for reconsideration was denied in a resolution dated January 6,
2006. The loan in this case was contracted by respondent. He died while the case was pending
before the Court of Appeals. While he may no longer be compelled to pay the loan, the debt
subsists against his estate. No property or portion of the inheritance may be transmitted to
his heirs unless the debt has first been satisfied.
The court noted that the interest has been pegged at 5% per month, or 60% per annum.
This is unconscionable, hence cannot be enforced. In light of this, the rate of interest for this
kind of loan transaction has been fixed in the case of Eastern Shipping Lines v. Court of
Appeals, at 12% per annum, calculated from October 3, 1989, the date of extrajudicial demand.
 ANGEL JOSE WAREHOUSING CO., INC. vs. CHELDA
ENTERPRISES and DAVID SYJUECO,
G.R. No. L-25704, April 24, 1968

PONENTE: Bengzon, J.
TOPIC: Usurious Transactions

FACTS:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964
against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for
recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest from
the filing of the complaint, plus attorney’s fees of P5,000.00. Alleging that post dated checks
issued by defendants to pay said account were dishonored, that defendants’ industrial
partner, Chellaram I. Mohinani, had left the country, and that defendants have removed or
disposed of their property, or are about to do so, with intent to defraud their creditors,
preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total
amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00;
that plaintiff charged and deducted from the loan usurious interests thereon, at rates of 2%
and 2.5% per month, and, consequently, plaintiff has no cause of action against defendants
and should not be permitted to recover under the law. A counterclaim for P2,000.00
attorney’s fees was interposed.
Since, according to the appellants, a usurious loan is void due to illegality of cause or
object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party
can bring action against each other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code), allowing
the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As
to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So
the New Civil Code provisions must be upheld as against the Usury Law, under which a loan
with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that:
“Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code.”
ISSUE:
Whether or not the illegal terms as to payment of interest likewise renders a nullity the
legal terms as to payments of the principal debt.

HELD:
Article 1420 of the New Civil Code provides in this regard: “In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the latter may be
enforced.”
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable,
the latter only should be deemed void, since it is the only one that is illegal.
 SECURITY BANK AND TRUST COMPANY vs. R.T.C MAKATI BR. 61
MAGTANGGOL EUSEBIO AND LEILA VENTURA
G.R.No. 113926, October 3, 1996

PONENTE: Hermosisima, J.
TOPIC: Usurious Transactions

FACTS:
On April 27, 1983, private respondent Magtanggol Eusebio executed 3 Promissory
Notes from different dates in favor of petitioner Security Bank and Trust Co. (SBTC) in the
amounts of 100,000, 100,000, and 65,000. Respondent bound himself to pay the said amounts
in six (6) monthly installments plus 23% interest per annum.On all the abovementioned
promissory notes, private respondent Leila Ventura had signed as co-maker. Upon maturity
there were still principal balance remaining on the notes. Eusebio refused to pay the balance
payable, so SBTC filed a collection case against him. The RTC rendered a judgment in favor of
SBTC, although the rate of interest imposed by the RTC was 12% p.a. instead of the agreed
upon 23% p.a. The court denied the motion filed by SBTC to apply the 23% p.a. instead of the
12% p.a.

ISSUE:
Did the RTC err in using 12% instead of the 23% as agreed upon by the parties?

RULING:
Yes, the rate of interest was agreed upon by the parties freely. Significantly,
respondent did not question that rate. P.D. No. 1684 and C.B. Circular No. 905 no more than
allow contracting parties to stipulate freely regarding any subsequent adjustment in the
interest rate that shall accrue on a loan or forbearance of money, goods or credits. It is not
for respondent court a quo to change the stipulations in the contract where it is not illegal.
Furthermore, Article 1306 of the New Civil Code provides that contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy.
The 12% shall be applied for obligations arising from loans, or forbearance of money in the
absence of express stipulations
 ASIAN CATHAY FINANCE AND LEASING CORPORATION, vs.
SPOUSES CESARIO GRAVADOR AND NORMA DE VERA AND SPOUSES EMMA
CONCEPCION G. DUMIGPI AND FEDERICO L. DUMIGPI
G.R. No. 186550; 5 July 2010

PONENTE: Nachura, J.
TOPIC: Usurious Transactions

FACTS:
Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma de Vera and
Emma Concepcion Dumigpi as his co-makers. The loan was payable in 60 monthly installments
of P24,000.00 each and secured by a real estate mortgage executed by Cesario over his
property. Respondents paid the first installment for November 1999 but failed to pay the
subsequent installments. In February 2000, ACFLC demanded payment of P1,871,480.00 from
respondents. Respondents asked for more time to pay but ACFLC denied their request.
Respondents filed a case for annulment of the real estate mortgage and promissory
note before the Regional Trial Court (RTC). Respondents averred that the mortgage did not
make reference to the promissory note and contained a provision on the waiver of the
mortgagor’s right of redemption, which is contrary to law and public policy. Respondents
added that the promissory note did not specify the maturity date of the loan, the interest rate,
and the mode of payment, and illegally imposed liquidated damages.
ACFLC filed a petition for extrajudicial foreclosure of mortgage with the office of the
Deputy Sheriff. The RTC dismissed respondents’ complaint for annulment of mortgage for
lack of cause of action, holding that respondents were well-educated individuals who could
not feign naiveté in the execution of the loan documents. The RTC further held that the
alleged defects in the promissory note and in the deed of real estate mortgage were too
insubstantial to warrant the nullification of the mortgage. It added that a promissory note
was not one of the essential elements of a mortgage, thus, reference to a promissory note
was neither indispensable nor imperative for the validity of the mortgage. Respondents
appealed to the Court of Appeals (CA) which reversed the RTC. The CA held that the amount
of P1,871,480.00 demanded by ACFLC from respondents was unconscionable and excessive.
The CA fixed the interest rate at 12% per annum and reduced the penalty charge to 1% per
month. The
CA also invalidated the waiver of respondents’ right of redemption for reasons of
public policy. When the CA denied ACFLC’s motion for reconsideration, ACFLC brought the
case to the Supreme Court, insisting on the validity of the real estate mortgage and
promissory note. ACFLC argued that right of redemption was a privilege which respondents
could waive as they did in this case. It further argued that respondents’ action for annulment
of mortgage was a collateral attack on its certificate of title.

ISSUE:
Whether or not the interest imposed by ACFLC was unconscionable and excessive.
RULING:
It is true that parties to a loan agreement have a wide latitude to stipulate on any
interest rate in view of Central Bank Circular No. 905, series of 1982, which suspended the
Usury Law ceiling on interest rate effective 1 January 1983. However, interest rates, whenever
unconscionable, may be equitably reduced or even invalidated. In a span of 3 months (from
the payment of the initial installment for November 1999 up to ACFLC’s demand on 1 February
2000), respondents’ principal obligation of P800,000.00 ballooned by more than
P1,000,000.00. ACFLC failed to show any computation on how much interest was imposed
and on the penalties charged. Thus, the amount claimed by ACFLC was unconscionable.
Stipulations authorizing the imposition of iniquitous or unconscionable interest are
contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these contracts
are inexistent and void from the beginning. They cannot be ratified nor the right to set up
their illegality as a defense be waived. The nullity of the stipulation on the usurious interest
does not, however, affect the lender’s right to recover the principal of the loan. Nor would it
affect the terms of the real estate mortgage. The right to foreclose the mortgage remains
with the creditors, and said right can be exercised upon the failure of the debtors to pay the
debt due. The debt due is to be considered without the stipulation of the excessive interest.
A legal interest of 12% per annum will be added in place of the excessive interest formerly
imposed. The nullification by the CA of the interest rate and the penalty charge and the
consequent imposition of an interest rate of 12% and penalty charge of 1% per month cannot,
therefore, be considered a reversible error. The Court cited Spouses Castro vs. Tan, et al. (G.R.
No. 168940; 24 November 2009), where it held that: “The imposition of an unconscionable
rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and
unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support in law, in principles of justice, or in
the human conscience nor is there any reason whatsoever which may justify such imposition
as righteous and as one that may be sustained within the sphere of public or private morals.”