ART. 1159 G.R. No.
163512 February 28, 2007 public policy: First, the restraint imposed was much
DAISY B. TIU, Petitioner
vs.
PLATINUM PLANS PHIL., INC., Respondent.
QUISUMBING, J.:
For review on certiorari are the Decision1 dated January
20, 2004 of the Court of Appeals in CA-G.R. CV No. 74972,
and its Resolution2 dated May 4, 2004 denying
reconsideration. The Court of Appeals had affirmed the
decision3 dated February 28, 2002 of the Regional Trial
Court (RTC) of Pasig City, Branch 261, in an action for
damages, ordering petitioner to pay respondent
₱100,000 as liquidated damages.
The relevant facts are as follows:
Respondent Platinum Plans Philippines, Inc. is a domestic
corporation engaged in the pre-need industry. From
1987 to 1989, petitioner Daisy B. Tiu was its Division
Marketing Director.
On January 1, 1993, respondent re-hired petitioner as
Senior Assistant Vice-President and Territorial
Operations Head in charge of its Hongkong and Asean
operations. The parties executed a contract of
employment valid for five years.4
On September 16, 1995, petitioner stopped reporting for
work. In November 1995, she became the Vice-President
for Sales of Professional Pension Plans, Inc., a
corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages
before the RTC of Pasig City, Branch 261. Respondent
alleged, among others, that petitioner’s employment
with Professional Pension Plans, Inc. violated the non-
involvement clause in her contract of employment, to
wit:
8. NON INVOLVEMENT PROVISION – The EMPLOYEE
further undertakes that during his/her engagement with
EMPLOYER and in case of separation from the Company,
whether voluntary or for cause, he/she shall not, for the
next TWO (2) years thereafter, engage in or be involved
with any corporation, association or entity, whether
directly or indirectly, engaged in the same business or
belonging to the same pre-need industry as the
EMPLOYER. Any breach of the foregoing provision shall
render the EMPLOYEE liable to the EMPLOYER in the
amount of One Hundred Thousand Pesos (P100,000.00)
for and as liquidated damages.5
Respondent thus prayed for ₱100,000 as compensatory
damages; ₱200,000 as moral damages; ₱100,000 as
exemplary damages; and 25% of the total amount due
plus ₱1,000 per counsel’s court appearance, as
attorney’s fees.
Petitioner countered that the non-involvement clause
was unenforceable for being against public order or
1
greater than what was necessary to afford respondent a
fair and reasonable protection. Petitioner contended
that the transfer to a rival company was an accepted
practice in the pre-need industry. Since the products sold
by the companies were more or less the same, there was
nothing peculiar or unique to protect. Second,
respondent did not invest in petitioner’s training or
improvement. At the time petitioner was recruited, she
already possessed the knowledge and expertise required
in the pre-need industry and respondent benefited
tremendously from it. Third, a strict application of the
non-involvement clause would amount to a deprivation
of petitioner’s right to engage in the only work she knew.
In upholding the validity of the non-involvement clause,
the trial court ruled that a contract in restraint of trade is
valid provided that there is a limitation upon either time
or place. In the case of the pre-need industry, the trial
court found the two-year restriction to be valid and
reasonable. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendant, ordering the
latter to pay the following:
1. the amount of One Hundred Thousand Pesos
(P100,000.00) for and as damages, for the breach of the
non-involvement provision (Item No. 8) of the contract
of employment;
2. costs of suit.
There being no sufficient evidence presented to sustain
the grant of attorney’s fees, the Court deems it proper
not to award any.
SO ORDERED.6
On appeal, the Court of Appeals affirmed the trial court’s
ruling. It reasoned that petitioner entered into the
contract on her own will and volition. Thus, she bound
herself to fulfill not only what was expressly stipulated in
the contract, but also all its consequences that were not
against good faith, usage, and law. The appellate court
also ruled that the stipulation prohibiting non-
employment for two years was valid and enforceable
considering the nature of respondent’s business.
Petitioner moved for reconsideration but was denied.
Hence, this appeal by certiorari where petitioner alleges
that the Court of Appeals erred when:
A.
… [IT SUSTAINED] THE VALIDITY OF THE NON-
INVOLVEMENT CLAUSE IN PETITIONER’S CONTRACT
CONSIDERING THAT THE PERIOD FIXED THEREIN IS VOID
FOR BEING OFFENSIVE TO PUBLIC POLICY
B.
… [IT SUSTAINED] THE AWARD OF LIQUIDATED
DAMAGES CONSIDERING THAT IT BEING IN THE NATURE
OF A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS OR
UNCONSCIONABLE7
Plainly stated, the core issue is whether the non-
involvement clause is valid.
Petitioner avers that the non-involvement clause is
offensive to public policy since the restraint imposed is
much greater than what is necessary to afford
respondent a fair and reasonable protection. She adds
that since the products sold in the pre-need industry are
more or less the same, the transfer to a rival company is
acceptable. Petitioner also points out that respondent
did not invest in her training or improvement. At the time
she joined respondent, she already had the knowledge
and expertise required in the pre-need industry. Finally,
petitioner argues that a strict application of the non-
involvement clause would deprive her of the right to
engage in the only work she knows.
Respondent counters that the validity of a non-
involvement clause has been sustained by the Supreme
Court in a long line of cases. It contends that the inclusion
of the two-year non-involvement clause in petitioner’s
contract of employment was reasonable and needed
since her job gave her access to the company’s
confidential marketing strategies. Respondent adds that
the non-involvement clause merely enjoined her from
engaging in pre-need business akin to respondent’s
within two years from petitioner’s separation from
respondent. She had not been prohibited from
marketing other service plans.
As early as 1916, we already had the occasion to discuss
the validity of a non-involvement clause. In Ferrazzini v.
Gsell,8 we said that such clause was unreasonable
restraint of trade and therefore against public policy.
In Ferrazzini, the employee was prohibited from
engaging in any business or occupation in the Philippines
for a period of five years after the termination of his
employment contract and must first get the written
permission of his employer if he were to do so. The Court
ruled that while the stipulation was indeed limited as to
time and space, it was not limited as to trade. Such
prohibition, in effect, forces an employee to leave the
Philippines to work should his employer refuse to give a
written permission.
In G. Martini, Ltd. v. Glaiserman,9 we also declared a
similar stipulation as void for being an unreasonable
restraint of trade. There, the employee was prohibited
from engaging in any business similar to that of his
employer for a period of one year. Since the employee
was employed only in connection with the purchase and
export of abaca, among the many businesses of the
employer, the Court considered the restraint too broad
since it effectively prevented the employee from working
in any other business similar to his employer even if his
employment was limited only to one of its multifarious
business activities.
2
However, in Del Castillo v. Richmond,10 we upheld a
similar stipulation as legal, reasonable, and not contrary
to public policy. In the said case, the employee was
restricted from opening, owning or having any
connection with any other drugstore within a radius of
four miles from the employer’s place of business during
the time the employer was operating his drugstore. We
said that a contract in restraint of trade is valid provided
there is a limitation upon either time or place and the
restraint upon one party is not greater than the
protection the other party requires.
Finally, in Consulta v. Court of Appeals,11 we considered
a non-involvement clause in accordance with Article
130612 of the Civil Code. While the complainant in that
case was an independent agent and not an employee,
she was prohibited for one year from engaging directly
or indirectly in activities of other companies that
compete with the business of her principal. We noted
therein that the restriction did not prohibit the agent
from engaging in any other business, or from being
connected with any other company, for as long as the
business or company did not compete with the
principal’s business. Further, the prohibition applied only
for one year after the termination of the agent’s contract
and was therefore a reasonable restriction designed to
prevent acts prejudicial to the employer.
Conformably then with the aforementioned
pronouncements, a non-involvement clause is not
necessarily void for being in restraint of trade as long as
there are reasonable limitations as to time, trade, and
place.
In this case, the non-involvement clause has a time limit:
two years from the time petitioner’s employment with
respondent ends. It is also limited as to trade, since it
only prohibits petitioner from engaging in any pre-need
business akin to respondent’s.1awphi1.net
More significantly, since petitioner was the Senior
Assistant Vice-President and Territorial Operations Head
in charge of respondent’s Hongkong and Asean
operations, she had been privy to confidential and highly
sensitive marketing strategies of respondent’s business.
To allow her to engage in a rival business soon after she
leaves would make respondent’s trade secrets
vulnerable especially in a highly competitive marketing
environment. In sum, we find the non-involvement
clause not contrary to public welfare and not greater
than is necessary to afford a fair and reasonable
protection to respondent.13
In any event, Article 1306 of the Civil Code provides that
parties to a contract 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.
Article 115914 of the same Code also provides that
obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith. Courts cannot stipulate for the parties
nor amend their agreement where the same does not
contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the function of
the courts to give force and effect thereto.15 Not being
contrary to public policy, the non-involvement clause,
which petitioner and respondent freely agreed upon, has
the force of law between them, and thus, should be
complied with in good faith.16

Thus, as held by the trial court and the Court of Appeals,

petitioner is bound to pay respondent ₱100,000 as
liquidated damages. While we have equitably reduced
liquidated damages in certain cases,17 we cannot do so in
this case, since it appears that even from the start,
petitioner had not shown the least intention to fulfill the
non-involvement clause in good faith.

WHEREFORE, the petition is DENIED for lack of merit.

The Decision dated January 20, 2004, and the Resolution
dated May 4, 2004, of the Court of Appeals in CA-G.R. CV
No. 74972, are AFFIRMED. Costs against petitioner.

3
ART. 1160 G.R. No. 173227 January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under
Rule 45 of the Rules of Court seeking to set aside the
Decision,2 dated 16 December 2005, and
3
Resolution, dated 19 June 2006 of the Court of Appeals
in CA-G.R. CV No. 71814, which affirmed in toto the
Decision,4 dated 26 January 2001, of the Las Pinas City
Regional Trial Court, Branch 255, in Civil Case No. LP-98-
0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a
complaint5 for sum of money against petitioner
Sebastian Siga-an before the Las Pinas City Regional Trial
Court (RTC), Branch 255, docketed as Civil Case No. LP-
98-0068. Respondent alleged that she was a
businesswoman engaged in supplying office materials
and equipments to the Philippine Navy Office (PNO)
located at Fort Bonifacio, Taguig City, while petitioner
was a military officer and comptroller of the PNO from
1991 to 1996.
Respondent claimed that sometime in 1992, petitioner
approached her inside the PNO and offered to loan her
the amount of ₱540,000.00. Since she needed capital for
her business transactions with the PNO, she accepted
petitioner’s proposal. The loan agreement was not
reduced in writing. Also, there was no stipulation as to
the payment of interest for the loan.6
On 31 August 1993, respondent issued a check worth
₱500,000.00 to petitioner as partial payment of the loan.
On 31 October 1993, she issued another check in the
amount of ₱200,000.00 to petitioner as payment of the
remaining balance of the loan. Petitioner told her that
since she paid a total amount of ₱700,000.00 for the
₱540,000.00 worth of loan, the excess amount of
₱160,000.00 would be applied as interest for the loan.
Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest.
Petitioner threatened to block or disapprove her
transactions with the PNO if she would not comply with
his demand. As all her transactions with the PNO were
subject to the approval of petitioner as comptroller of
the PNO, and fearing that petitioner might block or
unduly influence the payment of her vouchers in the
PNO, she conceded. Thus, she paid additional amounts in
cash and checks as interests for the loan. She asked
petitioner for receipt for the payments but petitioner
told her that it was not necessary as there was mutual
trust and confidence between them. According to her
computation, the total amount she paid to petitioner for
the loan and interest accumulated to ₱1,200,000.00.7
4
Thereafter, respondent consulted a lawyer regarding the
propriety of paying interest on the loan despite absence
of agreement to that effect. Her lawyer told her that
petitioner could not validly collect interest on the loan
because there was no agreement between her and
petitioner regarding payment of interest. Since she paid
petitioner a total amount of ₱1,200,000.00 for the
₱540,000.00 worth of loan, and upon being advised by
her lawyer that she made overpayment to petitioner, she
sent a demand letter to petitioner asking for the return
of the excess amount of ₱660,000.00. Petitioner, despite
receipt of the demand letter, ignored her claim for
reimbursement.8
Respondent prayed that the RTC render judgment
ordering petitioner to pay respondent (1) ₱660,000.00
plus legal interest from the time of demand; (2)
₱300,000.00 as moral damages; (3) ₱50,000.00 as
exemplary damages; and (4) an amount equivalent to
25% of ₱660,000.00 as attorney’s fees.9
In his answer10 to the complaint, petitioner denied that
he offered a loan to respondent. He averred that in 1992,
respondent approached and asked him if he could grant
her a loan, as she needed money to finance her business
venture with the PNO. At first, he was reluctant to deal
with respondent, because the latter had a spotty record
as a supplier of the PNO. However, since respondent was
an acquaintance of his officemate, he agreed to grant her
a loan. Respondent paid the loan in full.11
Subsequently, respondent again asked him to give her a
loan. As respondent had been able to pay the previous
loan in full, he agreed to grant her another loan. Later,
respondent requested him to restructure the payment of
the loan because she could not give full payment on the
due date. He acceded to her request. Thereafter,
respondent pleaded for another restructuring of the
payment of the loan. This time he rejected her plea. Thus,
respondent proposed to execute a promissory note
wherein she would acknowledge her obligation to him,
inclusive of interest, and that she would issue several
postdated checks to guarantee the payment of her
obligation. Upon his approval of respondent’s request for
restructuring of the loan, respondent executed a
promissory note dated 12 September 1994 wherein she
admitted having borrowed an amount of ₱1,240,000.00,
inclusive of interest, from petitioner and that she would
pay said amount in March 1995. Respondent also issued
to him six postdated checks amounting to ₱1,240,000.00
as guarantee of compliance with her obligation.
Subsequently, he presented the six checks for
encashment but only one check was honored. He
demanded that respondent settle her obligation, but the
latter failed to do so. Hence, he filed criminal cases for
Violation of the Bouncing Checks Law (Batas Pambansa
Blg. 22) against respondent. The cases were assigned to
the Metropolitan Trial Court of Makati City, Branch 65
(MeTC).12
Petitioner insisted that there was no overpayment
because respondent admitted in the latter’s promissory
note that her monetary obligation as of 12 September
1994 amounted to ₱1,240,000.00 inclusive of interests.
He argued that respondent was already estopped from
complaining that she should not have paid any interest,
because she was given several times to settle her
obligation but failed to do so. He maintained that to rule
in favor of respondent is tantamount to concluding that
the loan was given interest-free. Based on the foregoing
averments, he asked the RTC to dismiss respondent’s
complaint.
After trial, the RTC rendered a Decision on 26 January
2001 holding that respondent made an overpayment of
her loan obligation to petitioner and that the latter
should refund the excess amount to the former. It
ratiocinated that respondent’s obligation was only to pay
the loaned amount of ₱540,000.00, and that the alleged
interests due should not be included in the computation
of respondent’s total monetary debt because there was
no agreement between them regarding payment of
interest. It concluded that since respondent made an
excess payment to petitioner in the amount of
₱660,000.00 through mistake, petitioner should return
the said amount to respondent pursuant to the principle
of solutio indebiti.13
The RTC also ruled that petitioner should pay moral
damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should
pay exemplary damages by way of example or correction
for the public good, plus attorney’s fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in
the light of the provisions of law and jurisprudence on
the matter, judgment is hereby rendered in favor of the
plaintiff and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of
₱660,000.00 plus legal interest of 12% per annum
computed from 3 March 1998 until the amount is paid in
full;
(2) Ordering defendant to pay plaintiff the amount of
₱300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount of
₱50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount
equivalent to 25% of ₱660,000.00 as attorney’s fees; and
(5) Ordering defendant to pay the costs of suit.14
Petitioner appealed to the Court of Appeals. On 16
December 2005, the appellate court promulgated its
Decision affirming in toto the RTC Decision, thus:
5
WHEREFORE, the foregoing considered, the instant
appeal is hereby DENIED and the assailed decision [is]
AFFIRMED in toto.15
Petitioner filed a motion for reconsideration of the
appellate court’s decision but this was denied.16 Hence,
petitioner lodged the instant petition before us assigning
the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING
THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN
APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use
or forbearance of money. This is referred to as monetary
interest. Interest may also be imposed by law or by
courts as penalty or indemnity for damages. This is called
compensatory interest.18 The right to interest arises only
by virtue of a contract or by virtue of damages for delay
or failure to pay the principal loan on which interest is
demanded.19
Article 1956 of the Civil Code, which refers to monetary
interest,20 specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing. As
can be gleaned from the foregoing provision, payment of
monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2)
the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is
required for the payment of monetary interest. Thus, we
have held that collection of interest without any
stipulation therefor in writing is prohibited by law.21
It appears that petitioner and respondent did not agree
on the payment of interest for the loan. Neither was
there convincing proof of written agreement between
the two regarding the payment of interest. Respondent
testified that although she accepted petitioner’s offer of
loan amounting to ₱540,000.00, there was, nonetheless,
no verbal or written agreement for her to pay interest on
the loan.22
Petitioner presented a handwritten promissory note
dated 12 September 199423 wherein respondent
purportedly admitted owing petitioner "capital and
interest." Respondent, however, explained that it was
petitioner who made a promissory note and she was told
to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval
of petitioner as comptroller of the PNO; that petitioner
threatened to disapprove her transactions with the PNO
if she would not pay interest; that being unaware of the
law on interest and fearing that petitioner would make
good of his threats if she would not obey his instruction
to copy the promissory note, she copied the promissory
note in her own handwriting; and that such was the same
promissory note presented by petitioner as alleged proof
of their written agreement on interest.24 Petitioner did
not rebut the foregoing testimony. It is evident that
respondent did not really consent to the payment of
interest for the loan and that she was merely tricked and
coerced by petitioner to pay interest. Hence, it cannot be
gainfully said that such promissory note pertains to an
express stipulation of interest or written agreement of
interest on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and
the Court of Appeals found that he and respondent
agreed on the payment of 7% rate of interest on the loan;
that the agreed 7% rate of interest was duly admitted by
respondent in her testimony in the Batas Pambansa Blg.
22 cases he filed against respondent; that despite such
judicial admission by respondent, the RTC and the Court
of Appeals, citing Article 1956 of the Civil Code, still held
that no interest was due him since the agreement on
interest was not reduced in writing; that the application
of Article 1956 of the Civil Code should not be absolute,
and an exception to the application of such provision
should be made when the borrower admits that a
specific rate of interest was agreed upon as in the
present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well
knew and even admitted in the Batas Pambansa Blg. 22
cases that there was an agreed 7% rate of interest on the
loan.25
We have carefully examined the RTC Decision and found
that the RTC did not make a ruling therein that petitioner
and respondent agreed on the payment of interest at the
rate of 7% for the loan. The RTC clearly stated that
although petitioner and respondent entered into a valid
oral contract of loan amounting to ₱540,000.00, they,
nonetheless, never intended the payment of interest
thereon.26 While the Court of Appeals mentioned in its
Decision that it concurred in the RTC’s ruling that
petitioner and respondent agreed on a certain rate of
interest as regards the loan, we consider this as merely
an inadvertence because, as earlier elucidated, both the
RTC and the Court of Appeals ruled that petitioner is not
entitled to the payment of interest on the loan. The rule
is that factual findings of the trial court deserve great
weight and respect especially when affirmed by the
appellate court.27 We found no compelling reason to
disturb the ruling of both courts.
Petitioner’s reliance on respondent’s alleged admission
in the Batas Pambansa Blg. 22 cases that they had agreed
on the payment of interest at the rate of 7% deserves
scant consideration. In the said case, respondent merely
testified that after paying the total amount of loan,
petitioner ordered her to pay interest.28 Respondent did
not categorically declare in the same case that she and
respondent made an express stipulation in writing as
regards payment of interest at the rate of 7%. As earlier
discussed, monetary interest is due only if there was
6
an expressstipulation in writing for the payment of
interest.
There are instances in which an interest may be imposed
even in the absence of express stipulation, verbal or
written, regarding payment of interest. Article 2209 of
the Civil Code states that if the obligation consists in the
payment of a sum of money, and the debtor incurs delay,
a legal interest of 12% per annum may be imposed as
indemnity for damages if no stipulation on the payment
of interest was agreed upon. Likewise, Article 2212 of the
Civil Code provides that interest due shall earn legal
interest from the time it is judicially demanded, although
the obligation may be silent on this point.
All the same, the interest under these two instances may
be imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In
other words, the two instances apply only to
compensatory interest and not to monetary
interest.29 The case at bar involves petitioner’s claim for
monetary interest.
Further, said compensatory interest is not chargeable in
the instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as earlier
found, no interest was due on the loan because there
was no written agreement as regards payment of
interest.
Apropos the second assigned error, petitioner argues
that the principle of solutio indebiti does not apply to the
instant case. Thus, he cannot be compelled to return the
alleged excess amount paid by respondent as interest.30
Under Article 1960 of the Civil Code, if the borrower of
loan pays interest when there has been no stipulation
therefor, the provisions of the Civil Code
concerning solutio indebiti shall be applied. Article 2154
of the Civil Code explains the principle of solutio indebiti.
Said provision provides that if something is received
when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is
created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person
who has no right to receive such payment becomes
obligated to return the same. The quasi-contract
of solutio indebiti harks back to the ancient principle that
no one shall enrich himself unjustly at the expense of
another.31 The principle of solutio indebiti applies where
(1) a payment is made when there exists no binding
relation between the payor, who has no duty to pay, and
the person who received the payment; and (2) the
payment is made through mistake, and not through
liberality or some other cause.32 We have held that the
principle of solutio indebiti applies in case of erroneous
payment of undue interest.33
It was duly established that respondent paid interest to
petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in
writing to that effect. There was no binding relation
between petitioner and respondent as regards the
payment of interest. The payment was clearly a mistake.
Since petitioner received something when there was no
right to demand it, he has an obligation to return it.
We shall now determine the propriety of the monetary
award and damages imposed by the RTC and the Court
of Appeals.
Records show that respondent received a loan
amounting to ₱540,000.00 from
petitioner.34 Respondent issued two checks with a total
worth of ₱700,000.00 in favor of petitioner as payment
of the loan.35 These checks were subsequently encashed
by petitioner.36 Obviously, there was an excess of
₱160,000.00 in the payment for the loan. Petitioner
claims that the excess of ₱160,000.00 serves as interest
on the loan to which he was entitled. Aside from issuing
the said two checks, respondent also paid cash in the
total amount of ₱175,000.00 to petitioner as
interest.37 Although no receipts reflecting the same were
presented because petitioner refused to issue such to
respondent, petitioner, nonetheless, admitted in his
Reply-Affidavit38 in the Batas Pambansa Blg. 22 cases
that respondent paid him a total amount of ₱175,000.00
cash in addition to the two checks. Section 26 Rule 130
of the Rules of Evidence provides that the declaration of
a party as to a relevant fact may be given in evidence
against him. Aside from the amounts of ₱160,000.00 and
₱175,000.00 paid as interest, no other proof of
additional payment as interest was presented by
respondent. Since we have previously found that
petitioner is not entitled to payment of interest and that
the principle of solutio indebiti applies to the instant
case, petitioner should return to respondent the excess
amount of ₱160,000.00 and ₱175,000.00 or the total
amount of ₱335,000.00. Accordingly, the reimbursable
amount to respondent fixed by the RTC and the Court of
Appeals should be reduced from ₱660,000.00 to
₱335,000.00.
As earlier stated, petitioner filed five (5) criminal cases
for violation of Batas Pambansa Blg. 22 against
respondent. In the said cases, the MeTC found
respondent guilty of violating Batas Pambansa Blg. 22 for
issuing five dishonored checks to petitioner.
Nonetheless, respondent’s conviction therein does not
affect our ruling in the instant case. The two checks,
subject matter of this case, totaling ₱700,000.00 which
respondent claimed as payment of the ₱540,000.00
worth of loan, were not among the five checks found to
be dishonored or bounced in the five criminal cases.
Further, the MeTC found that respondent made an
overpayment of the loan by reason of the interest which
the latter paid to petitioner.39
7
Article 2217 of the Civil Code provides that moral
damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury.
Respondent testified that she experienced sleepless
nights and wounded feelings when petitioner refused to
return the amount paid as interest despite her repeated
demands. Hence, the award of moral damages is
justified. However, its corresponding amount of
₱300,000.00, as fixed by the RTC and the Court of
Appeals, is exorbitant and should be equitably reduced.
Article 2216 of the Civil Code instructs that assessment
of damages is left to the discretion of the court according
to the circumstances of each case. This discretion is
limited by the principle that the amount awarded should
not be palpably excessive as to indicate that it was the
result of prejudice or corruption on the part of the trial
court.40 To our mind, the amount of ₱150,000.00 as
moral damages is fair, reasonable, and proportionate to
the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-
contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive
manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her
transactions with the PNO if she would not pay interest.
This forced respondent to pay interest despite lack of
agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of ₱50,000.00
imposed as exemplary damages by the RTC and the Court
is fitting so as to deter petitioner and other lenders from
committing similar and other serious wrongdoings.41
Jurisprudence instructs that in awarding attorney’s fees,
the trial court must state the factual, legal or equitable
justification for awarding the same.42 In the case under
consideration, the RTC stated in its Decision that the
award of attorney’s fees equivalent to 25% of the
amount paid as interest by respondent to petitioner is
reasonable and moderate considering the extent of work
rendered by respondent’s lawyer in the instant case and
the fact that it dragged on for several years.43 Further,
respondent testified that she agreed to compensate her
lawyer handling the instant case such amount.44 The
award, therefore, of attorney’s fees and its amount
equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12%
rate of legal interest on the amount refundable to
respondent computed from 3 March 1998 until its full
payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of
Appeals,45 that when an obligation, not constituting a
loan or forbearance of money is breached, an interest on
the amount of damages awarded may be imposed at the
rate of 6% per annum. We further declared that when
the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest,
whether it is a loan/forbearance of money or not, shall
be 12% per annum from such finality until its satisfaction,
this interim period being deemed equivalent to a
forbearance of credit.

In the present case, petitioner’s obligation arose from a

quasi-contract of solutio indebiti and not from a loan or
forbearance of money. Thus, an interest of 6% per
annum should be imposed on the amount to be refunded
as well as on the damages awarded and on the attorney’s
fees, to be computed from the time of the extra-judicial
demand on 3 March 1998,46 up to the finality of this
Decision. In addition, the interest shall become 12% per
annum from the finality of this Decision up to its
satisfaction.

WHEREFORE, the Decision of the Court of Appeals in CA-

G.R. CV No. 71814, dated 16 December 2005, is
hereby AFFIRMED with the following MODIFICATIONS:
(1) the amount of ₱660,000.00 as refundable amount of
interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (₱335,000.00); (2) the amount of
₱300,000.00 imposed as moral damages is reduced to
ONE HUNDRED FIFTY THOUSAND PESOS (₱150,000.00);
(3) an interest of 6% per annum is imposed on the
₱335,000.00, on the damages awarded and on the
attorney’s fees to be computed from the time of the
extra-judicial demand on 3 March 1998 up to the finality
of this Decision; and (4) an interest of 12% per annum is
also imposed from the finality of this Decision up to its
satisfaction. Costs against petitioner.

8
G.R. No. 208293 ART. 1163
PHILIPPINE NATIONAL BANK, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.
SANTOS, NONENG S. DIANCO, ET AL., Respondent
x-----------------------x
G.R. No. 208295
LINA B. AGUILAR, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.
SANTOS, BUENVENIDO L. SANTOS, ET AL.,Respondents.
DECISION
LEONEN, J.:
The standard of diligence required of banks is higher than
the degree of diligence of a good father of a family.
Respondents are children of Angel C. Santos who died on
March 21, 1991.1
Sometime in May 1996, respondents discovered that
their father maintained a premium savings account with
Philippine National Bank (PNB), Sta. Elena-Marikina City
Branch.2 As of July 14, 1996, the deposit amounted to
1,759,082.63.3 Later, respondents would discover that
their father also had a time deposit of 1,000,000.00 with
PNB.4
Respondents went to PNB to withdraw their father’s
deposit.5
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-
Marikina City Branch, 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; (4) Publisher’s Affidavit of publication of the
Deed of Extrajudicial Settlement; and (5) Surety bond
effective for two (2) years and in an amount equal to the
balance of the deposit to be withdrawn."6
By April 26, 1998, respondents had already obtained the
necessary documents.7 They tried to withdraw the
deposit.8 However, Aguilar informed them that the
deposit had already "been released to a certain
Bernardito Manimbo (Manimbo) on April 1, 1997."9 An
amount of 1,882,002.05 was released upon presentation
of: (a) an affidavit of selfadjudication purportedly
executed by one of the respondents, Reyme L. Santos; (b)
a certificate of time deposit dated December 14, 1989
amounting to 1,000,000.00; and (c) the death certificate
of Angel C. Santos, among others.10 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.11
9
On May 20, 1998, respondents filed before the Regional
Trial Court of Marikina City a complaint for sum of money
and damages against PNB, Lina B. Aguilar, and a John
Doe.12 Respondents questioned the release of the
deposit amount to Manimbo 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.13 Respondents prayed that they be paid: (a)
the premium deposit amount; (b) the certificate of time
deposit amount; and (c) moral and exemplary damages,
attorney’s fees, and costs of suit.14
PNB and Aguilar denied that Angel C. Santos had two
separate accounts (premium deposit account and time
deposit account) with PNB.15 They alleged that Angel C.
Santos’ deposit account was originally a time deposit
account that was subsequently converted into a
premium savings account.16 They also alleged that
Aguilar did not know about Angel C. Santos’ death in
1991 because she only assumed office in
1996.17 Manimbo was able to submit an affidavit of self-
adjudication and the required surety bond.18 He also
submitted a certificate of payment of estate tax dated
March 31, 1997.19 All documents he submitted appeared
to be regular.20
PNB and Aguilar filed a third-party complaint against
Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc.21
Angel P. Santos denied having anything to do with the
special power of attorney and affidavit of self-
adjudication presented by Manimbo.22 He also alleged
that Manimbo presented the certificate of time deposit
without his knowledge and consent.23
Capital Insurance and Surety Co., Inc. alleged that its
undertaking was to pay claims only when persons who
were unduly deprived of their lawful participation in the
estate filed an action in court for their claims.24 It did not
undertake to pay claims resulting from PNB’s
negligence.25
In the decision26 dated February 22, 2011, the trial court
held that PNB and Aguilar were jointly and severally
liable to pay respondents the amount of 1,882,002.05
with an interest rate of 6% starting May 20, 1998.27 PNB
and Aguilar were also declared jointly and severally liable
for moral and exemplary damages, attorney’s fees, and
costs of suit.28Manimbo, Angel P. Santos, and Capital
Insurance and Surety Co., Inc. were held jointly and
severally liable to pay PNB 1,877,438.83 pursuant to the
heir’s bond and 50,000.00 as attorney’s fees and the
costs of suit.29 The dispositive portion of the trial court’s
decision reads:
WHEREFORE, foregoing premises considered, judgment
is hereby rendered as follows:
1. ordering the defendants PNB and LINA B. AGUILAR
jointly and severally liable to pay the plaintiffs the
amount of P1,882,002.05, representing the face value of
PNB Manager’s Check No. AF-974686B as balance of the In the decision48 promulgated on July 25, 2013, the Court
total deposits of decedent Angel C. Santos at the time of of Appeals sustained the trial court’s finding that there
its issue, with interest thereon at the rate of 6% starting was only one account.49 Angel C. Santos could not have
on May 20, 1998, the date when the complaint was filed, possibly opened the premium savings account in 1994
until fully paid; since he already died in 1991.50 The Court of Appeals also
held that PNB and Aguilar were negligent in handling the
2. ordering both defendants jointly and severally liable to
deposit.51 The deposit amount was released to Manimbo
pay plaintiffs the amount of Php 100,000.00 as moral
who did not present all the requirements, particularly
damages, another Php100,000.00 as exemplary damages
the Bureau of Internal Revenue (BIR) certification that
and Php 50,000.00 as attorney’s fees and the costs of
estate taxes had already been paid.52 They should also
suit;
not have honored the
On the Third party complaint:
affidavit of self-adjudication.53
3. Ordering the third party defendants Bernardito P.
The Court of Appeals ruled that Aguilar could not escape
Manimbo, Angel P. Santos and Capital Insurance &
liability by pointing her finger at PNB’s Legal
Surety Co., Inc., jointly and severally liable to pay third
Department.54As the Bank Manager, she should have
party plaintiff PNB, the amount of Php 1,877,438.83
given the Legal Department all the necessary information
pursuant to the Heir’s Bond and the amount of Php
that must be known in order to protect both the
50,000.00 as attorney’s fees and the costs of suit.
depositors’ and the bank’s interests.55
SO ORDERED.30
The Court of Appeals removed the award of exemplary
The trial court found that Angel C. Santos had only one damages, upon finding that there was no malice or bad
account with PNB.31 The account was originally a time faith.56
deposit, which was converted into a premium savings
The Court of Appeals considered the deposit as an
account when it was not renewed on maturity.32 The trial
ordinary loan by the bank from Angel C. Santos or his
court took judicial notice that in 1989, automatic rollover
heirs.57Therefore, the deposit was a forbearance which
of time deposit was not yet prevailing.33
should earn an interest of 12% per annum.58 The
On the liability of PNB and Aguilar, the trial court held dispositive portion of the Court of Appeals’ decision
that they were both negligent in releasing the deposit to reads:
Manimbo.34 The trial court noted PNB’s failure to notify
WHEREFORE, premises considered, the assailed decision
the depositor about the maturity of the time deposit and
of the court a quo dated February 22, 2011
the conversion of the time deposit into a premium
is AFFIRMED with the MODIFICATIONS in that the rate
savings account.35 The trial court also noted PNB’s failure
of interest shall be twelve percent (12%) per
to cancel the certificate of time deposit despite
annum computed from the filing of the case until fully
conversion.36 PNB and Aguilar also failed to require the
satisfied. The interest due shall further earn an interest
production of birth certificates to prove claimants’
of 12% per annum to be computed from the date of the
relationship to the depositor.37 Further, they relied on
filing of the complaint until fully paid. Meanwhile, the
the affidavit of self-adjudication when several persons
award of exemplary damages is DELETED.
claiming to be heirs had already approached them
previously.38 SO ORDERED.59

Aguilar filed a motion for reconsideration39 of the
February 22, 2011 Regional Trial Court decision. This was
denied in the June 21, 2011 Regional Trial Court order.40
41
PNB and Aguilar appealed before the Court of Appeals.
Aguilar contended that she was not negligent and should
not have been made jointly and severally liable with
PNB.42 She merely implemented PNB’s Legal
Department’s directive to release the deposit to
Manimbo.43
PNB argued that it was not negligent.44 The release of the
deposit to Manimbo was pursuant to an existing
policy.45Moreover, the documents submitted by
Manimbo were more substantial than those submitted
by respondents.46Respondents could have avoided the
incident "had they accomplished the required
documents immediately."47
10
PNB and Aguilar filed their separate petitions for review
of the Court of Appeals’ July 25, 2013 decision.60
We resolve the following issues:
I. Whether Philippine National Bank was negligent in
releasing the deposit to Bernardito Manimbo;
II. Whether Lina B. Aguilar is jointly and severally liable
with Philippine National Bank for the release of the
deposit to Bernardito Manimbo; and
III. Whether respondents were properly awarded
damages.
Petitioner Aguilar argued that the Court of Appeals had
already found no malice or bad faith on her
part.61 Moreover, as a mere officer of the bank, she
cannot be made personally liable for acts that she was
authorized to do.62 These acts were mere directives to
her by her superiors.63 Hence, she should not be held
solidarily liable with PNB.64
Petitioner PNB argued that it was the presumptuousness
and cavalier attitude of respondents that gave rise to the
controversy and not its judgment call.65 Respondents
were lacking in sufficient documentation.66 Petitioner
PNB also argued that respondents failed to show any
justification for the award of moral damages.67 No bad
faith can be attributed to Aguilar.68
In their separate comments to the petitions, respondents
argued that the trial court and the Court of Appeals did
not err in finding that petitioners PNB and Aguilar were
negligent in handling their father’s deposit.69 The
acceptance of invalid and incomplete documents to
support the deposit’s release to Manimbo was a violation
of the bank’s fiduciary duty to its clients.70 These acts
constituted gross negligence on the part of petitioners
PNB and Aguilar.71
However, according to respondents, the Court of Appeals
erred in deleting the award for exemplary damages
because the acts in violation of the bank’s fiduciary were
done in bad faith.72
We rule for the respondents.
The trial court and the Court of Appeals correctly found
that petitioners 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.73 Once a person makes a deposit of his or
her money to the bank, he or she is considered to have
lent the bank that money.74 The bank becomes his or her
debtor, and he or she becomes the creditor of the bank,
which is obligated to pay him or her on demand.75
The default standard of diligence in the performance of
obligations is "diligence of a good father of a family."
Thus, the Civil Code provides:
ART. 1163. Every person obliged to give something is also
obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation
of the parties requires another standard of care.
....
ART. 1173. 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 the time and of the
place. When negligence shows bad faith, the provisions
of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which
is to be observed in the performance, that which is
expected of a good father of a family shall be required.
(Emphasis supplied)
11
"Diligence of a good father of a family" is the standard of
diligence expected of, among others,
usufructuaries,76 passengers of common
77 78 79 80
carriers, agents, depositaries, pledgees, officious
managers,81 and persons deemed by law as responsible
for the acts of others.82 "The diligence of a good father of
a family requires only that diligence which an ordinary
prudent man would exercise with regard to his own
property.83
Other industries, because of their nature, are bound by
law to observe higher standards of diligence. Common
carriers, for example, must observe "extraordinary
diligence in the vigilance over the goods and for the
safety of [their] passengers"84 because it is considered a
business affected with public interest. "Extraordinary
diligence" with respect to passenger safety is further
qualified as "carry[ing] the passengers safely as far as
human care and foresight can provide, using the utmost
diligence of very cautious persons, with a due regard for
all the circumstances."85
Similar to common carriers, banking is a business that is
impressed with public interest. It affects economies and
plays a significant role in businesses and
commerce.86 The public reposes its faith and confidence
upon banks, such that "even the humble wage-earner
has not hesitated to entrust his life’s savings to the bank
of his choice, knowing that they will be safe in its custody
and will even earn some interest for him."87 This is why
we have recognized the fiduciary nature of the banks’
functions, and attached a special standard of diligence
for the exercise of their functions.
In Simex International (Manila), Inc. v. Court of
Appeals,88 this court described the nature of banks’
functions and the attitude expected of banks in handling
their depositors’ accounts, thus:
In every case, the depositor expects the bank to treat his
account with the utmost fidelity, whether such account
consists only of a few hundred pesos or of millions. . . .
The point is that as a business affected with public
interest and because of the nature of its functions, the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship.89 (Emphasis
supplied)
The fiduciary nature of banking is affirmed in Republic
Act No. 8791 or The General Banking Law, thus:
SEC. 2. Declaration of Policy.—The State 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 that requires high
standards of integrity and performance. In furtherance
thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of
a developing economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court
of Appeals,90 this court explained the meaning of
fiduciary relationship and the standard of diligence
assumed by banks:
This fiduciary relationship means that the bank’s
obligation to observe "high standards of integrity and
performance" is deemed written into every deposit
agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the
degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a
family.91 (Emphasis supplied, citation omitted)
Petitioners PNB and Aguilar’s treatment of Angel C.
Santos’ 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. As a result, Angel C. Santos’ deposit was
given to a person stranger to him.
Petitioner PNB pointed out that since petitioner Aguilar
assumed office as PNB-Sta. Elena-Marikina City Branch
Manager only five (5) years from Angel C. Santos’ death,
she was not in the position to know that respondents
were the heirs of Angel C. Santos.92 She could not have
accepted the unsigned and unnotarized extrajudicial
settlement deed that respondents had first showed
her.93 She was not competent to make a conclusion
whether that deed was genuine.94 Neither could
petitioners PNB and Aguilar pass judgment on a letter
from respondents’ lawyer stating that respondents were
the nine heirs of Angel C. Santos.95 Petitioners PNB and
Aguilar’s negligence is not based on their failure to
accept respondents’ documents as evidence of their
right to claim Angel C. Santos’ deposit. Rather, it is based
on their failure to exercise the diligence required of
banks when they accepted the fraudulent
representations of Manimbo. Petitioners PNB and
Aguilar disregarded their own requirements for the
release of the deposit to persons claiming to be heirs of
a deceased depositor. When respondents asked for the
release of Angel C. Santos’ deposit, they were required
to present 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; (4) Publisher’s Affidavit of
publication of the Deed of Extrajudicial Settlement; and
(5) Surety bond effective for two (2) years and in an
amount equal to the balance of the deposit to be
withdrawn."96
12
Petitioners PNB and Aguilar, however, accepted
Manimbo’s representations, and they released Angel C.
Santos’ deposit based on only the following documents:
1. Death certificate of Angel C. Santos;
2. Birth certificate of Reyme L. Santos;
3. Affidavit of self-adjudication of Reyme L. Santos;
4. Affidavit of publication;
5. Special power of attorney that Reyme L. Santos
executed in favor of Bernardito Manimbo and Angel P.
Santos;
6. Personal items of Angel C. Santos, such as photocopies
or originals of passport, residence certificate for year
1990, SSS I.D., etc.;
7. Surety good for two (2) years; and
8. Certificate of Time Deposit No. 341306.97
Based on these enumerations, petitioners PNB and
Aguilar either have no fixed standards for the release of
their deceased clients’ deposits or they have standards
that they disregard for convenience, favor, or upon
exercise of discretion. Both are inconsistent with the
required diligence of banks. These threaten the safety of
the depositors’ accounts as they provide avenues for
fraudulent practices by third persons or by bank officers
themselves.
In this case, petitioners PNB and Aguilar released Angel
C. Santos’ deposit to Manimbo without having been
presented the BIR-issued certificate of payment of, or
exception from, estate tax. This is a legal requirement
before the deposit of a decedent is released. Presidential
Decree No. 1158,98 the tax code applicable when Angel
C. Santos died in 1991, provides:
SEC. 118. Payment of tax antecedent to the transfer of
shares, bonds, or rights. — There shall not be transferred
to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry
organized or established in the Philippines, any shares,
obligations, bonds or rights by way of gift inter vivos or
mortis causa, legacy, or inheritance unless a certification
from the Commissioner that the taxes fixed in this Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person who
maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been
paid; Provided, however, That the administrator of the
estate or any one of the heirs of the decedent may upon
authorization by the Commissioner of Internal Revenue,
withdraw an amount not exceeding 10,000 without the
said certification. For this purpose, all withdrawal slips
shall contain a statement to the effect that all of the joint
depositors are still living at the time of withdrawal by any
one of the joint depositors and such statement shall be
under oath by the said depositors.99 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997
National Internal Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of
Shares, Bonds or Rights. - There shall not be transferred
to any new owner in the books of any corporation,
sociedad anonima, partnership, business, or industry
organized or established in the Philippines any share,
obligation, bond or right by way of gift inter vivos or
mortis causa, legacy or inheritance, unless a certification
from the Commissioner that the taxes fixed in this Title
and due thereon have been paid is shown.
If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with
another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified
that the taxes imposed thereon by this Title have been
paid: Provided, however, That the administrator of the
estate or any one (1) of the heirs of the decedent may,
upon authorization by the Commissioner, withdraw an
amount not exceeding Twenty thousand pesos (20,000)
without the said certification. For this purpose, all
withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time
of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors.
(Emphasis supplied)
Taxes are created primarily to generate revenues for the
maintenance of the government. However, this
particular tax may also serve as guard against the release
of deposits to persons who have no sufficient and valid
claim over the deposits. Based on the assumption that
only those with sufficient and valid claim to the deposit
will pay the taxes for it, requiring the certificate from the
BIR increases the chance that the deposit will be released
only to them.
In their compulsory counterclaim,100 petitioners PNB and
Aguilar claimed that Manimbo presented a certificate of
payment of estate tax.101 During trial, however, it turned
out that this certificate was instead an authority to
accept payment, which is not the certificate required for
the release of bank deposits.102 It appears that Manimbo
was not even required to submit the BIR
certificate.103 He, thus, failed to present such certificate.
Petitioners PNB and Aguilar provided no satisfactory
explanation why Angel C. Santos’ deposit was released
without it.
Petitioners PNB and Aguilar’s negligence is also clear
when they accepted as bases for the release of the
deposit to Manimbo: (a) a mere photocopy of Angel C.
Santos’ death certificate;104 (b) the falsified affidavit of
self-adjudication and special power of attorney
purportedly executed by Reyme L. Santos;105 and (c) the
certificate of time deposit.106
13
Petitioner Aguilar was aware that there were other
claimants to Angel C. Santos’ deposit. Respondents had
already communicated with petitioner Aguilar regarding
Angel C. Santos’ account before Manimbo appeared.
Petitioner Aguilar even gave respondents the updated
passbook of Angel C. Santos’ account.107 Yet, petitioners
PNB and Aguilar did not think twice before they released
the deposit to Manimbo. They did not doubt why no
original death certificate could be submitted. They did
not doubt why Reyme L. Santos would execute an
affidavit of self-adjudication when he, together with
others, had previously asked for the release of Angel C.
Santos’ deposit. They also relied on the certificate of time
deposit and on Manimbo’s representation that the
passbook was lost when the passbook had just been
previously presented to Aguilar for updating.108
During the trial, petitioner PNB’s counsel only reasoned
that the photocopy of the death certificate was also
submitted with other documents, which led him to no
other conclusion than that Angel C. Santos was already
dead.109 On petitioners PNB and Aguilar’s reliance special
power of attorney allegedly executed by Reyme L.
Santos, Aguilar admitted that she did not contact Reyme
L. Santos for verification. Her reason was that Reyme L.
Santos was their client. Therefore, they had no obligation
to do so.110
Given the circumstances, "diligence of a good father of a
family" would have required petitioners PNB and Aguilar
to verify. A prudent man would have inquired why
Reyme L. Santos would issue an affidavit of
selfadjudication when others had also claimed to be heirs
of Angel C. Santos. Contrary to petitioner Aguilar’s
reasoning, the fact that Reyme L. Santos was not
petitioner PNB’s client should have moved her to take
measures to ensure the veracity of Manimbo’s
documents and representations. This is because she had
no previous knowledge of Reyme L. Santos his
representatives, and his signature.
Petitioner PNB is a bank from which a degree of diligence
higher than that of a good father of a family is expected.
Petitioner PNB and its manager, petitioner Aguilar, failed
to meet even the standard of diligence of a good father
of a family. Their actions and inactions constitute gross
negligence. It is for this reason that we sustain the trial
court’s and the Court of Appeals’ rulings that petitioners
PNB and Aguilar are solidarily liable with each other.111
For the same reason, we sustain the award for moral
damages. Petitioners PNB and Aguilar’s gross negligence
deprived Angel C. Santos’ heirs what is rightfully theirs.
Respondents also testified that they experienced anger
and embarrassment when petitioners PNB and Aguilar
refused to release Angel C. Santos’ deposit.112 "The
bank’s negligence was the result of lack of due care and
caution required of managers and employees of a firm
engaged in so sensitive and demanding business as
banking."113
Exemplary damages should also be awarded. "The law
allows the grant of exemplary damages by way of
example for the public good. The public relies on the
banks’ sworn profession of diligence and meticulousness
in giving irreproachable service. The level of
meticulousness must be maintained at all times by the
banking sector."114

Since exemplary damages are awarded and since

respondents were compelled to litigate to protect their
interests,115 the award of attorney’s fees is also proper.

The Court of Appeals' award of interest should be

modified to 12% from demand on April 26, 1998 until
June 30, 2013, and 6% from July I, 2013 until fully paid.
In Nacar v. Gallery Frames:116

Thus, from the foregoing, in the absence of an express

stipulation as to the rate of interest that would govern
the parties, the rate of legal interest for loans or
forbearance of any money. . . s.hall no longer be twelve
percent (12%) per annum ... but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that. .. the twelve percent (12%) per
annum legal interest shall apply only until June 30, 2013.
Come July 1, 2013 the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when
applicable.

....

1. When the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand ...

....

3. When the judgment of the court awarding a sum of

money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annumfrom such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.117

WHEREFORE, the Court of Appeals' decision dated July

25, 2013 is AFFIRMED with the MODIFICATIONS in that
petitioners Philippine National Bank and Lina B. Aguilar
are ordered solidarily liable to pay respondents Pl
00,000.00 as exemplary damages. Further, the interest
rate for the amount of Pl,882,002.05, representing the
face value of PNB Manager's Check No. AF-974686B is
modified to 12% from April 26, 1998 until June 30, 2013,
and 6% from July 1, 2013 until satisfaction. All monetary
awards shall then earn interest at the rate of 6% per
annum from finality of the decision until full satisfaction.
14
ART. 1167
G.R. No. 177685 January 26, 2011
HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE
and RHOGEN BUILDERS, Petitioners,
vs.
THE PLAZA, INC. and FGU INSURANCE
CORPORATION, Respondents.
DECISION
VILLARAMA, JR., J.:
This is a petition for review under Rule 45 of the 1997
Rules of Civil Procedure, as amended, which seeks to
reverse and set aside the Decision1 dated June 27, 2006
and Resolution2 dated April 20, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed
with modification the Decision3 dated July 3, 1997 of the
Regional Trial Court (RTC) of Makati City, Branch 63, in
Civil Case Nos. 1328 (43083) and 40755.
The facts are as follows:
On July 16, 1980, The Plaza, Inc. (The Plaza), a
corporation engaged in the restaurant business, through
its President, Jose C. Reyes, entered into a contract4 with
Rhogen Builders (Rhogen), represented by Ramon C.
Gaite, for the construction of a restaurant building in
Greenbelt, Makati, Metro Manila for the price of
₱7,600,000.00. On July 18, 1980, to secure Rhogen’s
compliance with its obligation under the contract, Gaite
and FGU Insurance Corporation (FGU) executed a surety
bond in the amount of ₱1,155,000.00 in favor of The
Plaza. On July 28, 1980, The Plaza paid ₱1,155,000.00 less
withholding taxes as down payment to Gaite. Thereafter,
Rhogen commenced construction of the restaurant
building.
In a letter dated September 10, 1980, Engineer Angelito
Z. Gonzales, the Acting Building Official of the
Municipality of Makati, ordered Gaite to cease and desist
from continuing with the construction of the building for
violation of Sections 301 and 302 of the National Building
Code (P.D. 1096) and its implementing rules and
regulations.5 The letter was referred to The Plaza’s
Project Manager, Architect Roberto L. Tayzon.
On September 15, 1980, Engr. Gonzales informed Gaite
that the building permit for the construction of the
restaurant was revoked for non-compliance with the
provisions of the National Building Code and for the
additional temporary construction without permit.6 The
Memorandum Report of Building Inspector Victor
Gregory enumerated the following violations of Rhogen
in the construction of the building:
1) No permit for Temporary Structure.
2) No notice of concrete pouring.
3) Some workers have no safety devices.
15
4) The Secretary and Construction Foreman refused to
[receive] the Letter of Stoppage dated September 10,
1980.
5) Mr. Ramon Gaite [is] questioning the authority of the
Building Official’s Inspector.
6) Construction plans use[d] on the job site is not in
accordance to the approved plan.7
On September 19, 1980, the Project Manager (Tayzon) in
his Construction Memo #23 reported on his evaluation of
Progress Billing #1 submitted by Rhogen. Tayzon stated
that actual jobsite assessment showed that the finished
works fall short of Rhogen’s claimed percentage of
accomplishment and Rhogen was entitled to only
₱32,684.16 and not ₱260,649.91 being demanded by
Rhogen. Further, he recommended that said amount
payable to Rhogen be withheld pending compliance with
Construction Memo #18, resolution of cases regarding
unauthorized withdrawal of materials from jobsite and
stoppage of work by the Municipal Engineer’s Office of
Makati.8
On October 7, 1980, Gaite wrote Mr. Jose C. Reyes,
President of The Plaza regarding his actions/observations
on the stoppage order issued. On the permit for
temporary structure, Gaite said the plans were being
readied for submission to the Engineering Department of
the Municipality of Makati and the application was being
resent to Reyes for his appropriate action. As to the
notice for concrete pouring, Gaite said that their
construction set-up provides for a Project Manager to
whom the Pouring Request is first submitted and whose
job is to clear to whoever parties are involved (this could
still be worked out with the Building Inspector).
Regarding the safety devices for workers, Gaite averred
that he had given strict rules on this but in the course of
construction some workers have personal preferences.
On the refusal of the secretary and construction foreman
to receive the stoppage order dated September 10, 1980,
Gaite took responsibility but insisted it was not a
violation of the National Building Code. Likewise,
questioning the authority of the Building Inspector is not
a violation of the Code although Gaite denied he ever did
so. Lastly, on the construction plans used in the jobsite
not being in accordance with the approved plan, Gaite
said he had sent Engr. Cristino V. Laurel on October 3,
1980 to Reyes’ office and make a copy of the only
approved plan which was in the care of Reyes, but the
latter did not give it to Engr. Laurel. Gaite thus thought
that Reyes would handle the matter by himself.9
On the same day, Gaite notified Reyes that he is
suspending all construction works until Reyes and the
Project Manager cooperate to resolve the issue he had
raised to address the problem.10 This was followed by
another letter dated November 18, 1980 in which Gaite
expressed his sentiments on their aborted project and
reiterated that they can still resolve the matter with
cooperation from the side of The Plaza.11 In his reply-
letter dated November 24, 1980, Reyes asserted that The
Plaza is not the one to initiate a solution to the situation,
especially after The Plaza already paid the agreed down
payment of ₱1,155,000.00, which compensation so far
exceeds the work completed by Rhogen before the
municipal authorities stopped the construction for
several violations. Reyes made it clear they have no
obligation to help Rhogen get out of the situation arising
from non-performance of its own contractual
undertakings, and that The Plaza has its rights and
remedies to protect its interest.12
Subsequently, the correspondence between Gaite and
Reyes involved the custody of remaining bags of cement
in the jobsite, in the course of which Gaite was charged
with estafa for ordering the removal of said items. Gaite
complained that Reyes continued to be uncooperative in
refusing to meet with him to resolve the delay. Gaite
further answered the estafa charge by saying that he only
acted to protect the interest of the owner (prevent
spoilage/hardening of cement) and that Reyes did not
reply to his request for exchange.13
On January 9, 1981, Gaite informed The Plaza that he is
terminating their contract based on the Contractor’s
Right to Stop Work or Terminate Contracts as provided
for in the General Conditions of the Contract. In his letter,
Gaite accused Reyes of not cooperating with Rhogen in
solving the problem concerning the revocation of the
building permits, which he described as a "minor
problem." Additionally, Gaite demanded the payment of
₱63,058.50 from The Plaza representing the work that
has already been completed by Rhogen.14
On January 13, 1981, The Plaza, through Reyes,
countered that it will hold Gaite and Rhogen fully
responsible for failure to comply with the terms of the
contract and to deliver the finished structure on the
stipulated date. Reyes argued that the down payment
made by The Plaza was more than enough to cover
Rhogen’s expenses.15
In a subsequent letter dated January 20, 1981, Reyes
adverted to Rhogen’s undertaking to complete the
construction within 180 calendar days from July 16, 1980
or up to January 12, 1981, and to pay the agreed
payment of liquidated damages for every month of
delay, chargeable against the performance bond posted
by FGU. Reyes invoked Section 121 of the Articles of
General Conditions granting the owner the right to
terminate the contract if the contractor fails to execute
the work properly and to make good such deficiencies
and deducting the cost from the payment due to the
contractor. Reyes also informed Gaite that The Plaza will
continue the completion of the structure utilizing the
services of a competent contractor but will charge
Rhogen for liquidated damages as stipulated in Article
VIII of the Contract. After proper evaluation of the works
completed by Rhogen, The Plaza shall then resume the
construction and charge Rhogen for all the costs and
16
expenses incurred in excess of the contract price. In the
meantime that The Plaza is still evaluating the extent and
condition of the works performed by Rhogen to
determine whether these are done in accordance with
the approved plans, Reyes demanded from Gaite the
reimbursement of the balance of their initial payment of
₱1,155,000.00 from the value of the works correctly
completed by Rhogen, or if none, to reimburse the entire
down payment plus expenses of removal and
replacement. Rhogen was also asked to turn over the
jobsite premises as soon as possible.16 The Plaza sent
copy of said letter to FGU but the latter replied that it has
no liability under the circumstances and hence it could
not act favorably on its claim against the bond.17
On March 3, 1981, The Plaza notified Gaite that it could
no longer credit any payment to Rhogen for the work it
had completed because the evaluation of the extent,
condition, and cost of work done revealed that in
addition to the violations committed during the
construction of the building, the structure was not in
accordance with plans approved by the government and
accepted by Ayala. Hence, The Plaza demanded the
reimbursement of the down payment, the cost of
uprooting or removal of the defective structures, the
value of owner-furnished materials, and payment of
liquidated damages.18
On March 26, 1981, The Plaza filed Civil Case No.
40755 for breach of contract, sum of money and
damages against Gaite and FGU in the Court of First
Instance (CFI) of Rizal.19 The Plaza later amended its
complaint to include Cynthia G. Gaite and Rhogen.20 The
Plaza likewise filed Civil Case No. 1328 (43083) against
Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders
also in the CFI of Rizal for nullification of the project
development contract executed prior to the General
Construction Contract subject of Civil Case No. 40755,
which was allegedly in violation of the provisions of R.A.
No. 545 (Architectural Law of the Philippines).21 After the
reorganization of the Judiciary in 1983, the cases were
transferred to the RTC of Makati and eventually
consolidated.
On July 3, 1997, Branch 63 of the RTC Makati rendered
its decision granting the claims of The Plaza against
Rhogen, the Gaites and FGU, and the cross-claim of FGU
against Rhogen and the Gaites. The trial court ruled that
the Project Manager was justified in recommending that
The Plaza withhold payment on the progress billings
submitted by Rhogen based on his evaluation that The
Plaza is liable to pay only ₱32,684.16 and not
₱260,649.91. The other valid grounds for the withholding
of payment were the pending estafa case against Gaite,
non-compliance by Rhogen with Construction
Memorandum No. 18 and the non-lifting of the stoppage
order.22
Regarding the non-lifting of the stoppage order, which
the trial court said was based on simple infractions, the
same was held to be solely attributable to Rhogen’s In their appeal, the heirs of Ramon C. Gaite, Cynthia G.
willful inaction. Instead of readily rectifying the Gaite and Rhogen assigned the following errors, to wit:
violations, Rhogen continued with the construction
I. THE TRIAL COURT ERRED IN DECLARING THAT THE
works thereby causing more damage. The trial court
GROUNDS RELIED UPON BY DEFENDANT-APPELLANT
pointed out that Rhogen is not only expected to be aware
RHOGEN BUILDERS IN TERMINATING THE CONTRACT
of standard requirements and pertinent regulations on
ARE UNTENABLE;
construction work, but also expressly bound itself under
the General Construction Contract to comply with all the II. THE TRIAL COURT ERRED IN DECLARING THAT THE
laws, city and municipal ordinances and all government NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN
regulations. Having failed to complete the project within MUNICIPAL GOVERNMENT OF MAKATI WAS SOLELY
the stipulated period and comply with its obligations, ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGEN’S
Rhogen was thus declared guilty of breaching the WILLFUL INACTION;
Construction Contract and is liable for damages under
Articles 1170 and 1167 of the Civil Code.23 III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER
THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-
The dispositive portion of the trial court’s decision reads: APPELLEE WHICH MADE IT IMPOSSIBLE FOR
DEFENDANT–APPELLANT RHOGEN TO PERFORM ITS
WHEREFORE, in Civil Case No. 40755, defendants Ramon
OBLIGATIONS UNDER THE CONTRACT;
Gaite, Cynthia Gaite and Rhogen Builders are jointly and
severally ordered to pay plaintiff: IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL
DAMAGES AS WELL AS MORAL, EXEMPLARY, AND
1. the amount of ₱525,422.73 as actual damages
LIQUIDATED DAMAGES AND ATTORNEY’S FEES SINCE
representing owner-furnished materials with legal
THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR;
interest from the time of filing of the complaint until full
AND
payment;
V. THE TRIAL COURT ERRED IN FAILING TO AWARD
2. the amount of ₱14,504.66 as actual damages
ACTUAL, MORAL AND EXEMPLARY DAMAGES AND
representing expenses for uprooting with interest from
ATTORNEY’S FEES IN FAVOR OF DEFENDANTS-
the time of filing the complaint until full payment;
APPELLANTS.27
3. the amount of ₱1,155,000.00 as actual damages
For its part, FGU interposed the following assignment of
representing the downpayment with legal interest from
errors:
the time of filing the complaint until full payment;
I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING
4. the amount of ₱150,000.00 for moral damages;
THAT DEFENDANT-APPELLANT RAMON GAITE VALIDLY
5. the amount of ₱100,000.00 for exemplary damages; TERMINATED THE CONTRACT BETWEEN HIM AND
PLAINTIFF-APPELLEE.
6. the amount of ₱500,000.00 as liquidated damages;
II. THE REGIONAL TRIAL COURT ERRED IN HOLDING
7. the amount of ₱100,000.00 as reasonable attorney’s
DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE
fees; and,
FOR THE STOPPAGE OF THE CONSTRUCTION.
8. the cost of suit.
III. THE REGIONAL TRIAL COURT ERRED IN ORDERING
Under the surety bond, defendants Rhogen and FGU are DEFENDANT-APPELLANT RAMON GAITE TO PAY THE
jointly and severally ordered to pay plaintiff the amount AMOUNT OF P525,422.73 FOR THE OWNER FURNISHED
of ₱1,155,000.00 with legal interest from the time of MATERIALS.
filing the complaint until full payment. In the event [that]
IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING
FGU pays the said amount, third-party defendants are
DEFENDANT-APPELLANT RAMON GAITE TO PAY
jointly and severally ordered to pay the same amount to
PLAINTIFF-APPELLEE THE AMOUNT OF P14,504.66 AS
FGU plus ₱50,000.00 as reasonable attorney’s fees, the
ALLEGED EXPENSES FOR UPROOTING THE WORK HE
latter having been forced to litigate, and the cost of suit.
PERFORMED.
Civil Case No. 1328 is hereby ordered dismissed with no
V. THE REGIONAL TRIAL COURT ERRED IN ORDERING
pronouncement as to cost.
DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE
SO ORDERED.24 DOWN PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE
PAID HIM.
Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU
appealed to the CA.25 In view of the death of Ramon C. VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING
Gaite on April 21, 1999, the CA issued a Resolution dated MORAL DAMAGES TO PLAINTIFF-APPELLEE.
July 12, 2000 granting the substitution of the former by
VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING
his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite,
EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.
Genevieve G. Gaite and Roman Juan G. Gaite.26
17
VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING
LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.
IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING
ATTORNEY’S FEES TO PLAINTIFF-APPELLEE.
X. THE REGIONAL TRIAL COURT ERRED IN HOLDING
DEFENDANT-APPELLANT FGU INSURANCE
CORPORATION LIABLE TO PLAINTIFF-APPELLEE.28
On June 27, 2006, the CA affirmed the Decision of the
trial court but modified the award of damages as follows:
WHEREFORE, the Decision dated July 3, 1997 rendered
by the Regional Trial Court of Makati City, Branch 63 in
Civil Case Nos. 40755 and 1328 is AFFIRMED with
the modification that: (a) the award for actual damages
representing the owner-furnished materials and the
expenses for uprooting are deleted, and in lieu thereof,
the amount of P300,000.00 as temperate damages is
awarded; and (b) the awards for moral, exemplary,
liquidated and attorney’s fees are likewise deleted.
SO ORDERED.29
According to the CA, The Plaza cannot now be demanded
to comply with its obligation under the contract since
Rhogen has already failed to comply with its own
contractual obligation. Thus, The Plaza had every reason
not to pay the progress billing as a result of Rhogen’s
inability to perform its obligations under the contract.
Further, the stoppage and revocation orders were issued
on account of Rhogen’s own violations involving the
construction as found by the local building official.
Clearly, Rhogen cannot blame The Plaza for its own
failure to comply with its contractual obligations. The CA
stressed that Rhogen obliged itself to comply with "all
the laws, city and municipal ordinances and all
government regulations insofar as they are binding upon
or affect the parties [to the contract] , the work or those
engaged thereon."30 As such, it was responsible for the
lifting of the stoppage and revocation orders. As to
Rhogen’s act of challenging the validity of the stoppage
and revocation orders, the CA held that it cannot be done
in the present case because under Section 307 of
the National Building Code, appeal to the Secretary of
the Department of Public Works and Highways (DPWH) –
whose decision is subject to review by the Office of the
President -- is available as remedy for Rhogen.31
However, the CA modified the award of damages holding
that the claim for actual damages of ₱525,422.73
representing the damaged owner-furnished materials
was not supported by any evidence. Instead, the CA
granted temperate damages in the amount of
₱300,000.00. As to moral damages, no specific finding for
the factual basis of said award was made by the trial
court, and hence it should be deleted. Likewise,
liquidated damages is not proper considering that this is
not a case of delay but non-completion of the project.
The Plaza similarly failed to establish that Rhogen and
Gaite acted with malice or bad faith; consequently, the
18
award of exemplary damages must be deleted. Finally,
there being no bad faith on the part of the defendants,
the award of attorneys’ fees cannot be sustained.32
The motion for reconsideration of the aforesaid Decision
was denied in the Resolution dated April 20, 2007 for lack
of merit. Hence, this appeal.
Before us, petitioners submit the following issues:
I.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
found that Petitioner Rhogen had no factual or legal basis
to terminate the General Construction Contract.
II.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, as a
consequence of its finding that Petitioners did not have
valid grounds to terminate the Construction Contract, it
directed Petitioners to return the downpayment paid by
The Plaza, with legal interest.
III.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when, in
addition thereto, it awarded temperate damages to The
Plaza.
IV.
Whether or not the Court of Appeals acted without or in
excess of jurisdiction, or with grave abuse of discretion
amounting to lack of or excess of jurisdiction, when it
failed to award damages in favor of Petitioners.33
Petitioners contend that the CA gravely erred in not
holding that there were valid and legal grounds for
Rhogen to terminate the contract pursuant to Article
1191 of the Civil Code and Article 123 of the General
Conditions of the Construction Contract. Petitioners
claim that Rhogen sent Progress Billing No. 1 dated
September 10, 1980 and demanded payment from The
Plaza in the net amount of ₱473,554.06 for the work it
had accomplished from July 28, 1980 until September 7,
1980. The Plaza, however, failed to pay the said amount.
According to petitioners, Article 123 of the General
Conditions of the Construction Contract gives The Plaza
seven days from notice within which to pay the Progress
Billing; otherwise, Rhogen may terminate the contract.
Petitioners also invoke Article 1191 of the Civil Code,
which states that the power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
We deny the petition.
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to
be performed simultaneously such that the performance
of one is conditioned upon the simultaneous fulfillment
of the other. Respondent The Plaza predicated its action
on Article 119134 of the Civil Code, which provides for the
remedy of "rescission" or more properly resolution, a
principal action based on breach of faith by the other
party who violates the reciprocity between them. The
breach contemplated in the provision is the obligor’s
failure to comply with an existing obligation. Thus, the
power to rescind is given only to the injured party. The
injured party is the party who has faithfully fulfilled his
obligation or is ready and willing to perform his
obligation.35
The construction contract between Rhogen and The
Plaza provides for reciprocal obligations whereby the
latter’s obligation to pay the contract price or progress
billing is conditioned on the former’s performance of its
undertaking to complete the works within the stipulated
period and in accordance with approved plans and other
specifications by the owner. Pursuant to its contractual
obligation, The Plaza furnished materials and paid the
agreed down payment. It also exercised the option of
furnishing and delivering construction materials at the
jobsite pursuant to Article III of the Construction
Contract. However, just two months after
commencement of the project, construction works were
ordered stopped by the local building official and the
building permit subsequently revoked on account of
several violations of the National Building Code and
other regulations of the municipal authorities.
Petitioners reiterate their position that the stoppage
order was unlawful, citing the fact that when the new
contractor (ACK Construction, Inc.) took over the project,
the local government of Makati allowed the construction
of the building using the old building permit; moreover,
the basement depth of only two meters was retained,
with no further excavation made. They cite the testimony
of the late Ramon Gaite before the trial court that at the
time, he had incurred the ire of then Mayor of Makati
because his (Gaite) brother was the Mayor’s political
opponent; hence, they sought to file whatever charge
they could against him in order to call the attention of his
brother. This "political harassment" defense was raised
by petitioners in their Amended Answer. Gaite’s
testimony was intended to explain the circumstances
leading to his decision to terminate the construction
contract and not to question the revocation of the
building permit. As the available remedy was already
foreclosed, it was thus error for the CA to suggest that
Rhogen should have appealed the stoppage and
revocations orders issued by the municipal authorities to
the DPWH and then to the OP.36
19
Article 123 of the Articles of General Conditions states
the grounds for the termination of the work or contract
by the Contractor:
123. CONTRACTOR’S RIGHT TO STOP WORK OR
TERMINATE
CONTRACT
If work should be stopped under order of any court, or
other public authority, for period of three (3) months
through no act or fault of Contractor or of anyone
employed by him, or if Owner’s Representative should
fail to issue any certificate of payment within seven (7)
days after its maturity and presentation of any sum
certified by Owner’s Representative or awarded
arbitrator, then contractor, may, stop work or terminate
Contract, recover from Owner payment for work
executed, loss sustained upon any plant or materials,
reasonable profit, damages.37 (Emphasis supplied.)
Petitioners may not justify Rhogen’s termination of the
contract upon grounds of non-payment of progress
billing and uncooperative attitude of respondent The
Plaza and its employees in rectifying the violations which
were the basis for issuance of the stoppage order. Having
breached the contractual obligation it had expressly
assumed, i.e., to comply with all laws, rules and
regulations of the local authorities, Rhogen was already
at fault. Respondent The Plaza, on the other hand, was
justified in withholding payment on Rhogen’s first
progress billing, on account of the stoppage order and
additionally due to disappearance of owner-furnished
materials at the jobsite. In failing to have the stoppage
and revocation orders lifted or recalled, Rhogen should
take full responsibility in accordance with its contractual
undertaking, thus:
In the performance of the works, services, and
obligations subject of this Contract, the CONTRACTOR
binds itself to observe all pertinent and applicable laws,
rules and regulations promulgated by duly constituted
authorities and to be personally, fully and solely liable for
any and all violations of the same.38 (Emphasis supplied.)
Significantly, Rhogen did not mention in its
communications to Reyes that Gaite was merely a victim
of abuse by a local official and this was the primary
reason for the problems besetting the project. On the
contrary, the site appraisal inspection conducted on
February 12 and 13, 1981 in the presence of
representatives from The Plaza, Rhogen, FGU and
Municipal Engineer Victor Gregory, disclosed that in
addition to the violations committed by Rhogen which
resulted in the issuance of the stoppage order, Rhogen
built the structure not in accordance with government
approved plans and/or without securing the approval of
the Municipal Engineer before making the changes
thereon.39
Such non-observance of laws and regulations of the local
authorities affecting the construction project constitutes
a substantial violation of the Construction Contract completed and already occupied would be to permit
which entitles The Plaza to terminate the same, without unjust enrichment at the expense of the contractor.41
obligation to make further payment to Rhogen until the
Rhogen failed to finish even a substantial portion of the
work is finished or subject to refund of payment
works due to the stoppage order issued just two months
exceeding the expenses of completing the works. This is
from the start of construction. Despite the down
evident from a reading of Article 122 which states:
payment received from The Plaza, Rhogen, upon
122. OWNER’S RIGHT TO TERMINATE CONTRACT evaluation of the Project Manager, was able to complete
a meager percentage much lower than that claimed by it
A. If Contractor should be adjudged bankrupt, or if he
under the first progress billing between July and
should make general assignment for benefit of his
September 1980. Moreover, after it relinquished the
creditors, or if receiver should be appointed on account
project in January 1981, the site inspection appraisal
of his insolvency, or if he should persistently or
jointly conducted by the Project Manager, Building
repeatedly refuse or should fail, except in cases for which
Inspector Engr. Gregory and representatives from FGU
extension of time is provided, to supply enough properly
and Rhogen, Rhogen was found to have executed the
skilled workmen or proper materials, or if he should fail
works not in accordance with the approved plans or
to make prompt payment to Sub-Contractors or for
failed to seek prior approval of the Municipal Engineer.
materials of labor, or persistently disregard laws,
Article 1167 of the Civil Code is explicit on this point that
ordinances, or instructions of Owner’s Representative or
if a person obliged to do something fails to do it, the
otherwise be guilty of substantial violation of any
same shall be executed at his cost.
provision of [the] Contract, then Owner, upon
certification by Owner’s Representative that sufficient Art. 1167. If a person obliged to do something fails to do
cause exists to justify such action, may, without prejudice it, the same shall be executed at his cost.
to any right or remedy, after giving Contractor seven days
This same rule shall be observed if he does it in
written notice, terminate contract with Contractor, take
contravention of the tenor of the obligation.
possession of premises, materials, tools, appliances,
Furthermore, it may be decreed that what has been
thereon, finish work by whatever method he may deem
poorly done be undone.
expedient. In such cases, Contractor shall not be entitled
to receive any further payment until work is finished. In addition, Article 122 of the Articles of General
Conditions provides that the contractor shall not be
B. If unpaid balance of Contract sum shall exceed
entitled to receive further payment "until the work is
expense of finishing work including compensation for
finished." As the works completed by Rhogen were not
additional managerial and administrative services, such
in accordance with approved plans, it should have been
excess, paid to Contractor. Refund the difference to
executed at its cost had it not relinquished the project in
Owner if such expense shall exceed unpaid
January 1981. The CA thus did not err in sustaining the
balance.40 (Emphasis supplied.)
trial court’s order for the return of the down payment
Upon the facts duly established, the CA therefore did not given by The Plaza to Rhogen.
err in holding that Rhogen committed a serious breach of
As to temperate damages, Article 2224 of the Civil
its contract with The Plaza, which justified the latter in
Code provides that temperate or moderate damages,
terminating the contract. Petitioners are thus liable for
which are more than nominal but less than
damages for having breached their contract with
compensatory damages, may be recovered when the
respondent The Plaza. Article 1170 of the Civil
court finds that some pecuniary loss has been suffered
Code provides that those who in the performance of
but its amount cannot, from the nature of the case, be
their obligations are guilty of fraud, negligence or delay
proved with certainty. The rationale behind temperate
and those who in any manner contravene the tenor
damages is precisely that from the nature of the case,
thereof are liable for damages.
definite proof of pecuniary loss cannot be offered. When
Petitioners assail the order for the return of down the court is convinced that there has been such loss, the
payment, asserting that the principle of quantum meruit judge is empowered to calculate moderate damages,
demands that Rhogen as contractor be paid for the work rather than let the complainant suffer without redress
already accomplished. from the defendant’s wrongful act.42Petitioners’
contention that such award is improper because The
We disagree.
Plaza could have presented receipts to support the claim
Under the principle of quantum meruit, a contractor is for actual damages, must fail considering that Rhogen
allowed to recover the reasonable value of the thing or never denied the delivery of the owner-furnished
services rendered despite the lack of a written contract, materials which were under its custody at the jobsite
in order to avoid unjust enrichment. Quantum meruit during the work stoppage and before it terminated the
means that in an action for work and labor, payment shall contract. Since Rhogen failed to account either for those
be made in such amount as the plaintiff reasonably items which it had caused to be withdrawn from the
deserves. To deny payment for a building almost premises, or those considered damaged or lost due
20
spoilage, or disappeared for whatever reason – there
was no way of determining the exact quantity and cost
of those materials.1âwphi1 Hence, The Plaza was
correctly allowed to recover temperate damages.

Upon the foregoing, we find petitioners’ claim for actual,

moral and exemplary damages and attorney’s fees
lacking in legal basis and undeserving of further
discussion.

WHEREFORE, the petition is DENIED. The Decision dated

June 27, 2006 and the Resolution dated April 20, 2007 of
the Court of Appeals in CA-G.R. CV No. 58790
are AFFIRMED.

With costs against petitioners.

21
ART. 1172 Citytrust later filed a complaint for estafa, with
reservation on the filing of a separate civil action, against
G.R. No. 141835 February 4, 2009
Flores. Flores was convicted.
CENTRAL BANK OF THE PHILIPPINES, Petitioner,
Citytrust thereafter filed before the Regional Trial Court
vs.
(RTC) of Manila a complaint for recovery of sum of
CITYTRUST BANKING CORPORATION, Respondent.
money with damages against petitioner which it alleged
DECISION erred in encashing the checks and in charging the
proceeds thereof to its account, despite the lack of
CARPIO MORALES, J.:
authority of "Rosauro C. Cayabyab."
Pursuant to Republic Act No. 625, the old Central Bank
By Decision1 of November 13, 1991, Branch 32 of the RTC
Law, respondent Citytrust Banking Corporation
of Manila found both Citytrust and petitioner negligent
(Citytrust), formerly Feati Bank, maintained a demand
and accordingly held them equally liable for the loss.
deposit account with petitioner Central Bank of the
Both parties appealed to the Court of Appeals which, by
Philippines, now Bangko Sentral ng Pilipinas.
Decision2 dated July 16, 1999, affirmed the trial court’s
As required, Citytrust furnished petitioner with the decision, it holding that both parties contributed equally
names and corresponding signatures of five of its officers to the fraudulent encashment of the checks, hence, they
authorized to sign checks and serve as drawers and should equally share the loss in consonance with Article
indorsers for its account. And it provided petitioner with 21793 vis a vis Article 11724 of the Civil Code.
the list and corresponding signatures of its roving tellers
In arriving at its Decision, the appellate court noted that
authorized to withdraw, sign receipts and perform other
while "Citytrust failed to take adequate precautionary
transactions on its behalf. Petitioner later issued security
measures to prevent the fraudulent encashment of its
identification cards to the roving tellers one of whom was
checks," petitioner was not entirely blame-free in light of
"Rounceval Flores" (Flores).
its failure to verify the signature of Citytrust’s agent
On July 15, 1977, Flores presented for payment to authorized to receive payment.
petitioner’s Senior Teller Iluminada dela Cruz (Iluminada)
Brushing aside petitioner’s contention that it cannot be
two Citytrust checks of even date, payable to Citytrust,
sued, the appellate court held that petitioner’s Charter
one in the amount of ₱850,000 and the other in the
specifically clothes it with the power to sue and be sued.
amount of ₱900,000, both of which were signed and
indorsed by Citytrust’s authorized signatory-drawers. Also brushing aside petitioner’s assertion that Citytrust’s
reservation of the filing of a separate civil action against
After the checks were certified by petitioner’s
Flores precluded Citytrust from filing the civil action
Accounting Department, Iluminada verified them,
against it, the appellate court held that the "action for
prepared the cash transfer slip on which she affixed her
the recovery of sum of money is separate and distinct
signature, stamped the checks with the notation
and is grounded on a separate cause of action from that
"Received Payment" and asked Flores to, as he did, sign
of the criminal case for estafa."
on the space above such notation. Instead of signing his
name, however, Flores signed as "Rosauro C. Cayabyab" Hence, the present appeal, petitioner maintaining that
– a fact Iluminada failed to notice.1avvphi1 Flores having been an authorized roving teller, Citytrust
is bound by his acts. Also maintaining that it was not
Iluminada thereupon sent the cash transfer slip and
negligent in releasing the proceeds of the checks to
checks to petitioner’s Cash Department where an officer
Flores, the failure of its teller to properly verify his
verified and compared the drawers’ signatures on the
signature notwithstanding, petitioner contends that
checks against their specimen signatures provided by
verification could be dispensed with, Flores having been
Citytrust, and finding the same in order, approved the
known to be an authorized roving teller of Citytrust who
cash transfer slip and paid the corresponding amounts to
had had numerous transactions with it (petitioner) on its
Flores. Petitioner then debited the amount of the checks
(Citytrust’s) behalf for five years prior to the questioned
totaling ₱1,750,000 from Citytrust’s demand deposit
transaction.
account.
Attributing negligence solely to Citytrust, petitioner
More than a year and nine months later, Citytrust, by
harps on Citytrust’s allowing Flores to steal the checks
letter dated April 23, 1979, alleging that the checks were
and failing to timely cancel them; allowing Flores to wear
already cancelled because they were stolen, demanded
the issued identification card issued by it (petitioner);
petitioner to restore the amounts covered thereby to its
failing to report Flores’ absence from work on the day of
demand deposit account. Petitioner did not heed the
the incident; and failing to explain the circumstances
demand, however.
surrounding the supposed theft and cancellation of the
checks.

22
Drawing attention to Citytrust’s considerable delay in
demanding the restoration of the proceeds of the checks,
petitioners argue that, assuming arguendo that its teller
was negligent, Citytrust’s negligence, which preceded
that committed by the teller, was the proximate cause of
the loss or fraud.
The petition is bereft of merit.
Petitioner’s teller Iluminada did not verify Flores’
signature on the flimsy excuse that Flores had had
previous transactions with it for a number of years. That
circumstance did not excuse the teller from focusing
attention to or at least glancing at Flores as he was
signing, and to satisfy herself that the signature he had
just affixed matched that of his specimen signature. Had
she done that, she would have readily been put on notice
that Flores was affixing, not his but a fictitious signature.
Given that petitioner is the government body mandated
to supervise and regulate banking and other financial
institutions, this Court’s ruling in Consolidated Bank and
Trust Corporation v. Court of Appeals5 illumines:
Section 2 of RA 8791 prescribes the statutory diligence
required from banks – that banks must observe "high
standards of integrity and performance" in servicing their
depositors. Although RA 8791 took effect almost nine
years after the unauthorized withdrawal of the ₱300,000
from L.C. Diaz’s savings account, jurisprudence at the
time of the withdrawal already imposed on banks the
same high standard of diligence required under RA No.
8791. (Emphasis supplied)
Citytrust’s failure to timely examine its account, cancel
the checks and notify petitioner of their alleged
loss/theft should mitigate petitioner’s liability, in
accordance with Article 2179 of the Civil Code which
provides that if the plaintiff’s negligence was only
contributory, the immediate and proximate cause of the
injury being the defendant’s lack of due care, the plaintiff
may recover damages, but the courts shall mitigate the
damages to be awarded. For had Citytrust timely
discovered the loss/theft and/or subsequent
encashment, their proceeds or part thereof could have
been recovered.

The contract between the bank and its depositor is In line with the ruling in Consolidated Bank, the Court
governed by the provisions of the Civil Code on simple deems it proper to allocate the loss between petitioner
loan. Article 1980 of the Civil Code expressly provides and Citytrust on a 60-40 ratio.
that "x x x savings x x x deposits of money in banks and
WHEREFORE, the assailed Court of Appeals Decision of
similar institutions shall be governed by the provisions
July 16, 1999 is hereby AFFIRMED with MODIFICATION,
concerning simple loan." There is a debtor-creditor
in that petitioner and Citytrust should bear the loss on a
relationship between the bank and its depositor. The
60-40 ratio.
bank is the debtor and the depositor is the creditor. The
depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit
agreement between the bank and the depositor is the
contract that determines the rights and obligations of the
parties.

The law imposes on banks high standards in view of the

fiduciary nature of banking. Section 2 of Republic Act No.
8791 ("RA 8791"), which took effect on 13 June 2000,
declares that the State recognizes the "fiduciary nature
of banking that requires high standards of integrity and
performance." This new provision in the general banking
law, introduced in 2000, is a statutory affirmation of
Supreme Court decisions, starting with the 1990 case of
Simex International v. Court of Appeals, holding that "the
bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind
the fiduciary nature of their relationship."

This fiduciary relationship means that the bank’s

obligation to observe "high standards of integrity and
performance" is deemed written into every deposit
agreement between a bank and its depositor. The
fiduciary nature of banking requires banks to assume a
degree of diligence higher than that of a good father of a
family. Article 1172 of the Civil Code states that the
degree of diligence required of an obligor is that
prescribed by law or contract, and absent such
stipulation then the diligence of a good father of a family.

23
ART. 1173
G.R. No. 159617 August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM,
INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by
Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner corporation)
seeking to annul the Decision1 of the Court of Appeals
dated March 31, 2003, and its Resolution2 dated August
8, 2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to
October 1987, Lulu V. Jorge (respondent Lulu) pawned
several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque,
Metro Manila, to secure a loan in the total amount
of P59,500.00.
On October 19, 1987, two armed men entered the
pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault. The incident was
entered in the police blotter of the Southern Police
District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims
were inside the office, two (2) male unidentified persons
entered into the said office with guns drawn.
Suspects(sic) (1) went straight inside and poked his gun
toward Romeo Sicam and thereby tied him with an
electric wire while suspects (sic) (2) poked his gun toward
Divina Mata and Isabelita Rodriguez and ordered them to
lay (sic) face flat on the floor. Suspects asked forcibly the
case and assorted pawned jewelries items mentioned
above.
Suspects after taking the money and jewelries fled on
board a Marson Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated
October 19, 1987 informing her of the loss of her jewelry
due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a
letter4 to petitioner Sicam expressing disbelief stating
that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop
since it had been the practice that before they could
withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the
bank. Respondent Lulu then requested petitioner Sicam
to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return
the jewelry.
24
On September 28, 1988, respondent Lulu joined by her
husband, Cesar Jorge, filed a complaint against petitioner
Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and
payment of actual, moral and exemplary damages as well
as attorney's fees. The case was docketed as Civil Case
No. 88-2035.
Petitioner Sicam filed his Answer contending that he is
not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known
as Agencia de R.C. Sicam, Inc; that petitioner corporation
had exercised due care and diligence in the safekeeping
of the articles pledged with it and could not be made
liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint
to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as
far as he is concerned considering that he is not the real
party-in-interest. Respondents opposed the same. The
RTC denied the motion in an Order dated November 8,
1989.5
After trial on the merits, the RTC rendered its
Decision6 dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam could
not be made personally liable for a claim arising out of a
corporate transaction; that in the Amended Complaint of
respondents, they asserted that "plaintiff pawned
assorted jewelries in defendants' pawnshop"; and that as
a consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt
or credit of a stockholder.
The RTC further ruled that petitioner corporation could
not be held liable for the loss of the pawned jewelry since
it had not been rebutted by respondents that the loss of
the pledged pieces of jewelry in the possession of the
corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim
from liability for the loss, citing the case of Austria v.
Court of Appeals;7 and that the parties’ transaction was
that of a pledgor and pledgee and under Art. 1174 of the
Civil Code, the pawnshop as a pledgee is not responsible
for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a
Decision dated March 31, 2003, the CA reversed the RTC,
the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of
the Regional Trial Court of Makati, Branch 62, is hereby
REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner
corporation, the CA applied the doctrine of piercing the
veil of corporate entity reasoning that respondents were
misled into thinking that they were dealing with the
pawnshop owned by petitioner Sicam as all the
pawnshop tickets issued to them bear the words
"Agencia de R.C. Sicam"; and that there was no
indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which
explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence
required of a pawnshop is that it should take steps to
secure and protect the pledged items and should take
steps to insure itself against the loss of articles which are
entrusted to its custody as it derives earnings from the
pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the
robbery incident happened in 1961 when the criminality
had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory
negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.
The CA concluded that both petitioners should be jointly
and severally held liable to respondents for the loss of
the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the following
assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT)
WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF,
WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING
ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that
the CA’s finding that petitioner Sicam is personally liable
for the loss of the pawned jewelries is "a virtual and
uncritical reproduction of the arguments set out on pp.
5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of
respondents in their Appellants’ Brief suffer from
infirmities, as follows:
25
(1) Respondents conclusively asserted in paragraph 2 of
their Amended Complaint that Agencia de R.C. Sicam,
Inc. is the present owner of Agencia de R.C. Sicam
Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner Sicam was not
among those raised and litigated in the trial court; and
(3) By reason of the above infirmities, it was error for the
CA to have pierced the corporate veil since a corporation
has a personality distinct and separate from its individual
stockholders or members.
Anent the second error, petitioners point out that the CA
finding on their negligence is likewise an unedited
reproduction of respondents’ brief which had the
following defects:
(1) There were unrebutted evidence on record that
petitioners had observed the diligence required of them,
i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was
discouraged by the Central Bank (CB) since CB rules
provide that they can only store the pawned articles in a
vault inside the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they did not
take insurance against the loss of the pledged jelweries,
but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover
pawnshops and banks because of high probability of
losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179
SCRA 39, 45-46), the victim of robbery was exonerated
from liability for the sum of money belonging to others
and lost by him to robbers.
Respondents filed their Comment and petitioners filed
their Reply thereto. The parties subsequently submitted
their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA
findings were exact reproductions of the arguments
raised in respondents’ (appellants’) brief filed with the
CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed
clearly and distinctly the facts and the law on which it is
based as required by Section 8, Article VIII of the
Constitution. The discretion to decide a case one way or
another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as
these are legally tenable and supported by law and the
facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is
limited to the review of errors of law committed by the
appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are not
duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a The Committee on the Revision of the Rules of Court
quo.12 This rule, however, is not without exceptions, such explained the second exception in this wise:
as where the factual findings of the Court of Appeals and
x x x if a party invokes an "admission" by an adverse
the trial court are conflicting or contradictory13 as is
party, but cites the admission "out of context," then the
obtaining in the instant case.
one making the "admission" may show that he made no
However, after a careful examination of the records, we "such" admission, or that his admission was taken out of
find no justification to absolve petitioner Sicam from context.
liability.
x x x that the party can also show that he made no "such
The CA correctly pierced the veil of the corporate fiction admission", i.e., not in the sense in which the admission
and adjudged petitioner Sicam liable together with is made to appear.
petitioner corporation. The rule is that the veil of
That is the reason for the modifier "such" because if the
corporate fiction may be pierced when made as a shield
rule simply states that the admission may be
to perpetrate fraud and/or confuse legitimate
contradicted by showing that "no admission was made,"
issues. 14 The theory of corporate entity was not meant
the rule would not really be providing for a contradiction
to promote unfair objectives or otherwise to shield
of the admission but just a denial.18 (Emphasis supplied).
them.15
While it is true that respondents alleged in their
Notably, the evidence on record shows that at the time
Amended Complaint that petitioner corporation is the
respondent Lulu pawned her jewelry, the pawnshop was
present owner of the pawnshop, they did so only
owned by petitioner Sicam himself. As correctly
because petitioner Sicam alleged in his Answer to the
observed by the CA, in all the pawnshop receipts issued
original complaint filed against him that he was not the
to respondent Lulu in September 1987, all bear the
real party-in-interest as the pawnshop was incorporated
words "Agencia de R. C. Sicam," notwithstanding that the
in April 1987. Moreover, a reading of the Amended
pawnshop was allegedly incorporated in April 1987. The
Complaint in its entirety shows that respondents
receipts issued after such alleged incorporation were still
referred to both petitioner Sicam and petitioner
in the name of "Agencia de R. C. Sicam," thus inevitably
corporation where they (respondents) pawned their
misleading, or at the very least, creating the wrong
assorted pieces of jewelry and ascribed to both the
impression to respondents and the public as well, that
failure to observe due diligence commensurate with the
the pawnshop was owned solely by petitioner Sicam and
business which resulted in the loss of their pawned
not by a corporation.
jewelry.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his
Markedly, respondents, in their Opposition to
letter16 dated October 15, 1987 addressed to the Central
petitioners’ Motion to Dismiss Amended Complaint,
Bank, expressly referred to petitioner Sicam as the
insofar as petitioner Sicam is concerned, averred as
proprietor of the pawnshop notwithstanding the alleged
follows:
incorporation in April 1987.
Roberto C. Sicam was named the defendant in the
We also find no merit in petitioners' argument that since
original complaint because the pawnshop tickets
respondents had alleged in their Amended Complaint
involved in this case did not show that the R.C. Sicam
that petitioner corporation is the present owner of the
Pawnshop was a corporation. In paragraph 1 of his
pawnshop, the CA is bound to decide the case on that
Answer, he admitted the allegations in paragraph 1 and
basis.
2 of the Complaint. He merely added "that defendant is
Section 4 Rule 129 of the Rules of Court provides that an not now the real party in interest in this case."
admission, verbal or written, made by a party in the
It was defendant Sicam's omission to correct the
course of the proceedings in the same case, does not
pawnshop tickets used in the subject transactions in this
require proof. The admission may be contradicted only
case which was the cause of the instant action. He cannot
by showing that it was made through palpable mistake or
now ask for the dismissal of the complaint against him
that no such admission was made.
simply on the mere allegation that his pawnshop
Thus, the general rule that a judicial admission is business is now incorporated. It is a matter of defense,
conclusive upon the party making it and does not require the merit of which can only be reached after
proof, admits of two exceptions, to wit: (1) when it is consideration of the evidence to be presented in due
shown that such admission was made through palpable course.19
mistake, and (2) when it is shown that no such admission
Unmistakably, the alleged admission made in
was in fact made. The latter exception allows one to
respondents' Amended Complaint was taken "out of
contradict an admission by denying that he made such
context" by petitioner Sicam to suit his own purpose.
an admission.17
Ineluctably, the fact that petitioner Sicam continued to
issue pawnshop receipts under his name and not under
26
the corporation's name militates for the piercing of the
corporate veil.
We likewise find no merit in petitioners' contention that
the CA erred in piercing the veil of corporate fiction of
petitioner corporation, as it was not an issue raised and
litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the
trial court that he was not the real party-in-interest
because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as far as he was
concerned, the basic issue was whether he is the real
party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the
dismissal of the complaint as to him but was not
favorably acted upon by the trial court. Moreover, the
issue was squarely passed upon, although erroneously,
by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies
liability as far as he is concerned for the reason that he
cannot be made personally liable for a claim arising from
a corporate transaction.
This Court sustains the contention of the defendant
Roberto C. Sicam, Jr. The amended complaint itself
asserts that "plaintiff pawned assorted jewelries in
defendant's pawnshop." It has been held that " as a
consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt
or credit of the stockholder, nor is the stockholder's debt
or credit that of a corporation.21
Clearly, in view of the alleged incorporation of the
pawnshop, the issue of whether petitioner Sicam is
personally liable is inextricably connected with the
determination of the question whether the doctrine of
piercing the corporate veil should or should not apply to
the case.
The next question is whether petitioners are liable for
the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is
a fortuitous event and they are not negligent at all.
We are not persuaded.
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
27
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. 22
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. 23
The burden of proving that the loss was due to a
fortuitous event rests on him who invokes it.24 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. 25
It has been held that an act of God cannot be invoked to
protect a person who has failed to take steps to forestall
the possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be
partly the result of a person's participation -- whether by
active intervention, neglect or failure to act -- the whole
occurrence is humanized and removed from the rules
applicable to acts of God. 26
Petitioner 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. Petitioner 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.
Robbery per se, just like carnapping, is not a fortuitous
event. It does not foreclose the possibility of negligence
on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor vehicles to
escape liability simply because the damage or loss of a
thing lawfully placed in its possession was due to
carnapping. Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful possession,
as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such,
carnapping entails more than the mere forceful taking
of another's property. It must be proved and
established that the event was an act of God or was
done solely by third parties and that neither the
claimant nor the person alleged to be negligent has any
participation. In accordance with the Rules of Evidence,
the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it — which in
this case is the private respondent. However, other than
the police report of the alleged carnapping incident, no
other evidence was presented by private respondent to
the effect that the incident was not due to its fault. A
police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the
carnapping. Neither does it prove that there was no fault
on the part of private respondent notwithstanding the
parties' agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the possibility
of fault or negligence on the part of private respondent.28
Just like in Co, petitioners merely presented the police
report of the Parañaque Police Station on the robbery
committed based on the report of petitioners'
employees which is not sufficient to establish robbery.
Such report also does not prove that petitioners were not
at fault.
On the contrary, by the very evidence of petitioners, the
CA did not err in finding that petitioners are guilty of
concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages.29
Article 2123 of the Civil Code provides that with regard
to pawnshops and other establishments which are
engaged in making loans secured by pledges, the special
laws and regulations concerning them shall be observed,
and subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Article 2099 of the
Civil Code, provides that the creditor shall take care of
the thing pledged with the diligence of a good father of a
family. This means that petitioners must take care of the
pawns the way a prudent person would as to his own
property.
In this connection, Article 1173 of the Civil Code further
provides:
Art. 1173. 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.
28
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.
We expounded in Cruz v. Gangan30 that negligence is the
omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate
the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would
not do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners
failed to exercise reasonable care and caution that an
ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the
operation of their pawnshop business. Petitioner Sicam
testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter
the premises when according to you there was a security
guard?
A. Sir, if these robbers can rob a bank, how much more a
pawnshop.
Q. I am asking you how were the robbers able to enter
despite the fact that there was a security guard?
A. At the time of the incident which happened about 1:00
and 2:00 o'clock in the afternoon and it happened on a
Saturday and everything was quiet in the area BF Homes
Parañaque they pretended to pawn an article in the
pawnshop, so one of my employees allowed him to come
in and it was only when it was announced that it was a
hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor
the pawnshop is partly open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the
robbery.
Q. It is clear now that at the time of the robbery the vault
was open the reason why the robbers were able to get
all the items pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted
by petitioners in the operation of the pawnshop.
Evidently, no sufficient precaution and vigilance were
adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that
there was any security guard at all. Or if there was one,
that he had sufficient training in securing a pawnshop.
Further, there is no showing that the alleged security
guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious
individuals were allowed to enter the premises. In fact, it
is even doubtful that there was a security guard, since it
is quite impossible that he would not have noticed that
the robbers were armed with caliber .45 pistols each,
which were allegedly poked at the
employees.33 Significantly, the alleged security guard
was not presented at all to corroborate petitioner
Sicam's claim; not one of petitioners' employees who
were present during the robbery incident testified in
court.
Furthermore, petitioner Sicam's admission that the vault
was open at the time of robbery is clearly a proof of
petitioners' failure to observe the care, precaution and
vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was
open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took place
on a Saturday afternoon and the area in BF Homes
Parañaque at that time was quiet, there was more reason
for petitioners to have exercised reasonable foresight
and diligence in protecting the pawned jewelries. Instead
of taking the precaution to protect them, they let open
the vault, providing no difficulty for the robbers to cart
away the pawned articles.
We, however, do not agree with the CA when it found
petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules
and Regulations for Pawnshops, which took effect on July
13, 1973, and which was issued pursuant to Presidential
Decree No. 114, Pawnshop Regulation Act, it is provided
that pawns pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns- The
place of business of a pawnshop and the pawns pledged
to it must be insured against fire and against burglary as
well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB
Circular No. 764 which took effect on October 1, 1980, to
wit:
Sec. 17 Insurance of Office Building and Pawns – The
office building/premises and pawns of a pawnshop must
be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary
was deleted. Obviously, the Central Bank considered it
not feasible to require insurance of pawned articles
against burglary.
The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no
29
statutory duty imposed on petitioners to insure the
pawned jewelry in which case it was error for the CA to
consider it as a factor in concluding that petitioners were
negligent.
Nevertheless, the preponderance of evidence shows that
petitioners failed to exercise the diligence required of
them under the Civil Code.
The diligence with which the law requires the individual
at all times to govern his conduct varies with the nature
of the situation in which he is placed and the importance
of the act which he is to perform.34 Thus, the cases
of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by
petitioners in their pleadings, where the victims of
robbery were exonerated from liability, find no
application to the present case.
In Austria, Maria Abad received from Guillermo Austria a
pendant with diamonds to be sold on commission basis,
but which Abad failed to subsequently return because of
a robbery committed upon her in 1961. The incident
became the subject of a criminal case filed against
several persons. Austria filed an action against Abad and
her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence.
The CA, however, reversed the RTC decision holding that
the fact of robbery was duly established and declared the
Abads not responsible for the loss of the jewelry on
account of a fortuitous event. We held that for the Abads
to be relieved from the civil liability of returning the
pendant under Art. 1174 of the Civil Code, it would only
be sufficient that the unforeseen event, the robbery,
took place without any concurrent fault on the debtor’s
part, and this can be done by preponderance of
evidence; that to be free from liability for reason of
fortuitous event, the debtor must, in addition to the
casus itself, be free of any concurrent or contributory
fault or negligence.38
We found in Austria that under the circumstances
prevailing at the time the Decision was promulgated in
1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously
avoided without suitable precaution and protection; that
the conduct of Maria Abad in returning alone to her
house in the evening carrying jewelry of considerable
value would have been negligence per se and would not
exempt her from responsibility in the case of robbery.
However we did not hold Abad liable for negligence
since, the robbery happened ten years previously; i.e.,
1961, when criminality had not reached the level of
incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987
when robbery was already prevalent and petitioners in
fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping. Moreover,
unlike in Austria, where no negligence was committed,
we found petitioners negligent in securing their
pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and
special disbursing officer of the Ternate Beach Project of
the Philippine Tourism in Cavite. In the morning of July 1,
1983, a Friday, he went to Manila to encash two checks
covering the wages of the employees and the operating
expenses of the project. However for some reason, the
processing of the check was delayed and was completed
at about 3 p.m. Nevertheless, he decided to encash the
check because the project employees would be waiting
for their pay the following day; otherwise, the workers
would have to wait until July 5, the earliest time, when
the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the money
with him to his house in Marilao, Bulacan, spend the
night there, and leave for Ternate the following day. He
chose the second option, thinking it was the safer one.
Thus, a little past 3 p.m., he took a passenger jeep bound
for Bulacan. While the jeep was on Epifanio de los Santos
Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the
jeep and ran. Hernandez chased the robbers and caught
up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held
the stolen money escaped. The Commission on Audit
found Hernandez negligent because he had not brought
the cash proceeds of the checks to his office in Ternate,
Cavite for safekeeping, which is the normal procedure in
the handling of funds. We held that Hernandez was not
negligent in deciding to encash the check and bringing it
home to Marilao, Bulacan instead of Ternate, Cavite due
to the lateness of the hour for the following reasons: (1)
he was moved by unselfish motive for his co-employees
to collect their wages and salaries the following day, a
Saturday, a non-working, because to encash the check on
July 5, the next working day after July 1, would have
caused discomfort to laborers who were dependent on
their wages for sustenance; and (2) that choosing
Marilao as a safer destination, being nearer, and in view
of the comparative hazards in the trips to the two places,
said decision seemed logical at that time. We further
held that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and in
the presence of other passengers could not be said to be
a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a
public utility, the robbery in this case took place in the
pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who
were allowed entrance to the premises and to protect
itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the
30
robbers were prevented from entering the pawnshop
and for keeping the vault open for the day, which paved
the way for the robbers to easily cart away the pawned
articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of
Technological Education and Skills Development
Authority (TESDA), boarded the Light Rail Transit (LRT)
from Sen. Puyat Avenue to Monumento when her
handbag was slashed and the contents were stolen by an
unidentified person. Among those stolen were her wallet
and the government-issued cellular phone. She then
reported the incident to the police authorities; however,
the thief was not located, and the cellphone was not
recovered. She also reported the loss to the Regional
Director of TESDA, and she requested that she be freed
from accountability for the cellphone. The Resident
Auditor denied her request on the ground that she lacked
the diligence required in the custody of government
property and was ordered to pay the purchase value in
the total amount of P4,238.00. The COA found no
sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that
riding the LRT cannot per se be denounced as a negligent
act more so because Cruz’s mode of transit was
influenced by time and money considerations; that she
boarded the LRT to be able to arrive in Caloocan in time
for her 3 pm meeting; that any prudent and rational
person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone
should not hinder one from boarding the LRT coach as
Cruz did considering that whether she rode a jeep or bus,
the risk of theft would have also been present; that
because of her relatively low position and pay, she was
not expected to have her own vehicle or to ride a taxicab;
she did not have a government assigned vehicle; that
placing the cellphone in a bag away from covetous eyes
and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the
LRT; that the records did not show any specific act of
negligence on her part and negligence can never be
presumed.
Unlike in the Cruz case, the robbery in this case
happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly
demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the
Decision of the Court of Appeals dated March 31, 2003
and its Resolution dated August 8, 2003, are AFFIRMED.
Costs against petitioners.
ART. 1174
G.R. NO. 146224 January 26, 2007
VIRGINIA REAL, Petitioner,
vs.
SISENANDO H. BELO, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari
under Rule 45 of the Revised Rules of Court assailing the
Resolution1 dated June 16, 2000 of the Court of Appeals
(CA) which dismissed outright the petition for review of
Virginia Real (petitioner) in CA-G.R. SP No. 58799, and the
CA Resolution2 dated November 27, 2000 which denied
her Motion for Reconsideration.
The facts of the case:
Petitioner owned and operated the Wasabe Fastfood
stall located at the Food Center of the Philippine
Women's University (PWU) along Taft Avenue, Malate,
Manila. Sisenando H. Belo (respondent) owned and
operated the BS Masters fastfood stall, also located at
the Food Center of PWU.
Around 7:00 o'clock in the morning of January 25, 1996,
a fire broke out at petitioner's Wasabe Fastfood stall. The
fire spread and gutted other fastfood stalls in the area,
including respondent's stall. An investigation on the
cause of the fire by Fire Investigator SFO1 Arnel C. Pinca
(Pinca) revealed that the fire broke out due to the leaking
fumes coming from the Liquefied Petroleum Gas (LPG)
stove and tank installed at petitioner's stall. For the loss
of his fastfood stall due to the fire, respondent
demanded compensation from petitioner. However,
petitioner refused to accede to respondent's demand.
Hence, respondent filed a complaint for damages against
petitioner before the Metropolitan Trial Court, Branch
24, Manila (MeTC), docketed as Civil Case No.
152822.3 Respondent alleged that petitioner failed to
exercise due diligence in the upkeep and maintenance of
her cooking equipments, as well as the selection and
supervision of her employees; that petitioner's
negligence was the proximate cause of the fire that
gutted the fastfood stalls.4
In her Answer dated September 23, 1996, petitioner
denied liability on the grounds that the fire was a
fortuitous event and that she exercised due diligence in
the selection and supervision of her employees.5
After trial, the MeTC rendered its Decision6 dated April 5,
1999 in favor of the respondent, the dispositive portion
of which reads:
WHEREFORE, in light of the foregoing, judgment is
hereby rendered in favor of the plaintiff and against the
defendant ordering the latter:
31
1) To pay the plaintiff the sum of P50,000.00
representing temperate or moderate damages; and
2) To pay the plaintiff the sum of P25,000.00 as and for
attorney's fees and litigation expenses.
The counterclaim filed by the defendant is hereby
DENIED FOR LACK OF MERIT.
SO ORDERED.7
The MeTC held that the investigation conducted by the
appropriate authority revealed that the fire broke out
due to the leaking fumes coming from the LPG stove and
tank installed at petitioner's fastfood stall; that factual
circumstances did not show any sign of interference by
any force of nature to infer that the fire occurred due to
fortuitous event; that the petitioner failed to exercise
due diligence, precaution, and vigilance in the conduct of
her business, particularly, in maintaining the safety of her
cooking equipment as well as in the selection and
supervision of her employees; that even if petitioner
passes the fault to her employees, Article 2180 of the
Civil Code finds application; that in the absence of
supporting evidence, the amount of actual damages and
unrealized profits prayed for by respondent cannot be
granted; that, nonetheless, respondent is entitled to
temperate damages since respondent sustained
pecuniary loss, though its true value cannot, from the
very nature of the case, be proved with certainty.
Dissatisfied, petitioner filed an appeal with the Regional
Trial Court, Branch 43, Manila (RTC), docketed as Civil
Case No. 99-94606, insisting that the fire was a fortuitous
event. On November 26, 1999, the RTC affirmed the
Decision of the MeTC but increased the amount of
temperate damages awarded to the respondent
from P50,000.00 to P80,000.00.8
Petitioner filed a Motion for Reconsideration contending
that the increase in the award of temperate damages is
unreasonable since she also incurred losses from the fire.
In its Order dated April 12, 2000, the RTC denied
petitioner's Motion for Reconsideration holding that it
cannot disregard evidence showing that the fire
originated from petitioner's fastfood stall; that the
increased amount of temperate damages awarded to
respondent is not a full compensation but only a fair
approximate of what he lost due to the negligence of
petitioner's workers.9
Petitioner then filed a Petition for Review with the CA,
docketed as CA-G.R. SP No. 58799.10 On June 16, 2000,
the CA issued a Resolution dismissing the petition for
being "procedurally flawed/deficient."11 The CA held that
the attached RTC Decision was not certified as a true
copy by the Clerk of Court; that a certified true copy of
the MeTC Decision was not attached; that material
portions of the record, such as the position papers of the
parties and affidavits of witnesses, as would support the
material allegations of the petition were also not
attached.12
On July 14, 2000, petitioner filed her Motion for
Reconsideration,13 attaching photocopies of the
Decisions of the RTC and MeTC as certified correct by the
Clerk of Court.14
On November 27, 2000, the CA issued its Resolution
denying petitioner's Motion for Reconsideration.15
Hence, the present petition raising the following issues:
1. Whether the submitted certified true copy of the
appealed decision of the Regional Trial Court as
authenticated by a court employee other than the Clerk
of Court who was not around at that time said copy was
secured constitutes compliance with the Rules?
2. Whether the submission of a certified true copy of the
Metropolitan Trial Court's judgment is still an
indispensable requirement in filing a petition for review
before the Court of Appeals despite the fact that said
judgment was already modified by the above decision of
the Regional Trial Court and it is the latter decision that
is the proper subject of the petition for review?
3. Whether the submission of copies of the respective
position papers of the contending parties is still an
indispensable requirement in filing a petition for review
before the Court of Appeals despite the fact that the
contents thereof are already quoted in the body of the
verified petition and in the subject judgment of the
Metropolitan Trial Court?
4. Whether the herein petitioner could be held liable for
damages as a result of the fire that razed not only her
own food kiosk but also the adjacent foodstalls at the
Food Center premises of the Philippine Women's
University, including that of the respondent?
5. Whether the Regional Trial Court could increase the
amount of damages awarded by the Metropolitan Trial
Court in favor of the respondent who has not even filed
an appeal therefrom?16
Petitioner submits that rules of procedure should not be
applied in a very harsh, inflexible and technically
unreasonable sense.
While admitting that the RTC Decision and Order were
not certified by the Clerk of Court himself, petitioner
insists that they were certified as authentic copies by
Administrative Officer IV Gregorio B. Paraon of the RTC.
As to the MeTC Decision, petitioner contends that the
submission of a certified true copy thereof is not an
indispensable requirement because that judgment is not
the subject of the petition for review.
In any case, petitioner submits that she had substantially
complied with the requirements of the rule when she
attached with her Motion for Reconsideration the copies
32
of the Decisions of the RTC and MeTC as certified correct
by the Clerk of Court.
Anent the non-submission of the position papers of the
parties, petitioner maintains that the contents of said
position papers were lengthily quoted verbatim in the
petition and in the attached copy of the MeTC Decision.
On the submission of affidavits of witnesses, petitioner
contends that it was not necessary because the case
before the MeTC was not covered by summary
proceedings.
On the merits of her petition before the CA, petitioner
avers that she should not be held liable for a fire which
was a fortuitous event since the fire could not be
foreseen and the spread of the fire to the adjacent
fastfood stalls was inevitable.
Lastly, she argues that the RTC cannot increase the
amount of temperate damages since the respondent did
not appeal from the judgment of the MeTC.
Respondent opted not to file a Comment, manifesting
that the petition contains no new arguments which
would require a comment since the arguments are but a
rehash of those raised and decided by the lower courts.17
The Court gave due course to the petition and required
both parties to submit their respective memoranda.18 In
compliance therewith, petitioner submitted her
Memorandum.19 On the other hand, respondent filed a
Manifestation stating that since no new issues have been
raised by the petitioner in her petition and in order not
to be redundant, he adopts as his memorandum the
memoranda he filed in the MeTC and the RTC.20
In his Memoranda before the MeTC and RTC, respondent
emphasized the evidence he presented to establish his
cause of action against petitioner, principally the
testimony of Fire Investigator SFO1 Arnel G. Pinca stating
that the fire originated from the LPG stove and tank in
petitioner's fastfood stall.
The requirements as to form and content of a petition for
review of a decision of the RTC are laid down in Section
2 of Rule 42 of the Revised Rules of Court, thus:
Sec. 2. Form and contents. - The petition shall be filed in
seven (7) legible copies, with the original copy intended
for the court being indicated as such by the petitioner,
and shall (a) state the full names of the parties to the
case, without impleading the lower courts or judges
thereof either as petitioners or respondents; (b) indicate
the specific material dates showing that it was filed on
time; (c) set forth concisely a statement of the matters
involved, the issues raised, the specification of errors of
fact or law, or both, allegedly committed by the Regional
Trial Court, and the reasons or arguments relied upon for
the allowance of the appeal; (d) be accompanied by
clearly legible duplicate originals or true copies of the
judgments or final orders of both lower courts, certified
correct by the clerk of court of the Regional Trial Court,
the requisite number of plain copies thereof and of the
pleadings and other material portions of the record as
would support the allegations of the petition. (Emphasis
supplied)
xxxx
Under Section 3 of the same Rule, failure to comply with
the above requirements "shall be sufficient ground for
the dismissal thereof."
However, Section 6, Rule 1 of the Revised Rules of Court
also provides that rules shall be liberally construed in
order to promote their objective of securing a just,
speedy and inexpensive disposition of every action and
proceeding. Indeed, rules of procedure should be used to
promote, not frustrate justice.21
In the present case, petitioner's submission of copies of
the RTC Decision and Order certified as correct by the
Administrative Officer IV of the RTC is insufficient
compliance with the requirements of the rule. Petitioner
failed to show that the Clerk of Court was officially on
leave and the Administrative Officer was officially
designated as officer-in-charge. The rule is explicit in its
mandate that the legible duplicate originals or true
copies of the judgments or final orders of both lower
courts must be certified correct by the Clerk of Court.
Nonetheless, a strict application of the rule in this case is
not called for. This Court has ruled against the dismissal
of appeals based solely on technicalities in several cases,
especially when the appellant had substantially complied
with the formal requirements.22 There is ample
jurisprudence holding that the subsequent and
substantial compliance of a party may call for the
relaxation of the rules of procedure.23 When the CA
dismisses a petition outright and the petitioner files a
motion for the reconsideration of such dismissal,
appending thereto the requisite pleadings, documents or
order/resolution, this would constitute substantial
compliance with the Revised Rules of Court.24
Thus, in the present case, there was substantial
compliance when petitioner attached in her Motion for
Reconsideration a photocopy of the Decision of the RTC
as certified correct by the Clerk of Court of the RTC. In
like manner, there was substantial compliance when
petitioner attached, in her Motion for Reconsideration, a
photocopy of the Decision of the MeTC as certified
correct by the Clerk of Court of the RTC.
On the necessity of attaching position papers and
affidavits of witnesses, Section 2 of Rule 42 of the
Revised Rules of Court requires attachments if these
would support the allegations of the petition.25 In the
present case, there was no compelling need to attach the
position papers of the parties since the Decisions of the
MeTC and RTC already stated their respective
arguments. As to the affidavits, the Court notes that they
were presented by the respondent as part of the
33
testimony of his witness Fire Investigator Pinca and
therefore would not support the allegations of the
petitioner.
Truly, in dismissing the petition for review, the CA had
committed grave abuse of discretion amounting to lack
of jurisdiction in putting a premium on technicalities at
the expense of a just resolution of the case.
The Court's pronouncement in Republic of the
Philippines v. Court of Appeals26 is worth echoing: "cases
should be determined on the merits, after full
opportunity to all parties for ventilation of their causes
and defenses, rather than on technicality or some
procedural imperfections. In that way, the ends of justice
would be better served."27 Thus, what should guide
judicial action is that a party litigant is given the fullest
opportunity to establish the merits of his action or
defense rather than for him to lose life, honor or
property on mere technicalities.28
The next most logical step would then be for the Court to
simply set aside the challenged resolutions, remand the
case to the CA and direct the latter to resolve on the
merits of the petition in CA-G.R. SP No. 58799. But, that
would further delay the case. Considering the issues
raised which can be resolved on the basis of the
pleadings and documents filed, and the fact that
petitioner herself has asked the Court to decide her
petition on the merits, the Court deems it more practical
and in the greater interest of justice not to remand the
case to the CA but, instead, to resolve the controversy
once and for all.29
The Court shall now address the issue of whether the fire
was a fortuitous event.
Jurisprudence defines the elements of a "fortuitous
event" as follows: (a) the cause of the unforeseen and
unexpected occurrence must be independent of human
will; (b) it must be impossible to foresee the event which
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 his
obligation in a normal manner; and (d) the obligor must
be free from any participation in the aggravation of the
injury resulting to the creditor. 30
Article 1174 of the Civil Code provides that no person
shall be responsible for a fortuitous event which could
not be foreseen, or which, though foreseen, was
inevitable. In other words, there must be an entire
exclusion of human agency from the cause of injury or
loss.31
It is established by evidence that the fire originated from
leaking fumes from the LPG stove and tank installed at
petitioner's fastfood stall and her employees failed to
prevent the fire from spreading and destroying the other
fastfood stalls, including respondent's fastfood stall.
Such circumstances do not support petitioner's theory of
fortuitous event.
Petitioner's bare allegation is far from sufficient proof for
the Court to rule in her favor. It is basic in the rule of
evidence that bare allegations, unsubstantiated by
evidence, are not equivalent to proof.32 In short, mere
allegations are not evidence.33
The Civil Code provides:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done. x x x
Art. 2180. The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions,
but also for those of persons for whom one is
responsible.
xxxx
The owners and managers of an establishment or
enterprise are likewise responsible for damages caused
by their employees in the service of the branches in
which the latter are employed or on the occasion of their
functions.
could no longer examine the amounts awarded by the
MeTC since respondent did not appeal from the Decision
of the MeTC.37 It is well-settled that a party who does not
appeal from the decision may not obtain any affirmative
relief from the appellate court other than what he has
obtained from the lower court, if any, whose decision is
brought up on appeal.38 While there are exceptions to
this rule, such as if they involve (1) errors affecting the
lower court's jurisdiction over the subject matter, (2)
plain errors not specified, and (3) clerical errors,39 none
apply here.
WHEREFORE, the petition is GRANTED. The assailed
Resolutions dated June 16, 2000 and November 27, 2000
of the Court of Appeals are REVERSED and SET ASIDE.
The Decision dated November 26, 1999 of the Regional
Trial Court, Branch 43, Manila
is AFFIRMED with MODIFICATION that the temperate
damages awarded is reduced from P80,000.00
to P50,000.00 as awarded by the Metropolitan Trial
Court, Branch 24, Manila in its Decision dated April 5,
1999.

Employers shall be liable for the damages caused by their No costs.

employees and household helpers acting within the
scope of their assigned tasks, even though the former are
not engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease

when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to
prevent damage.

Whenever an employee's negligence causes damage or

injury to another, there instantly arises a
presumption juris tantum that the employer failed to
exercise diligentissimi patris families in the selection
(culpa in eligiendo) or supervision (culpa in vigilando) of
its employees.34 To avoid liability for a quasi-delict
committed by his employee, an employer must
overcome the presumption by presenting convincing
proof that he exercised the care and diligence of a good
father of a family in the selection and supervision of his
employee.35

In this case, petitioner not only failed to show that she

submitted proof that the LPG stove and tank in her
fastfood stall were maintained in good condition and
periodically checked for defects but she also failed to
submit proof that she exercised the diligence of a good
father of a family in the selection and supervision of her
employees. For failing to prove care and diligence in the
maintenance of her cooking equipment and in the
selection and supervision of her employees, the
necessary inference was that petitioner had been
negligent.36

As to the award of temperate damages, the increase in

the amount thereof by the RTC is improper. The RTC

34
G.R. No. 154188 June 15, 2005
MONDRAGON LEISURE AND RESORTS
CORPORATION, Petitioner,
vs.
COURT OF APPEALS, ASIAN BANK CORPORATION, FAR
EAST BANK AND TRUST COMPANY, and UNITED
COCONUT PLANTERS BANK, Respondents.
DECISION
QUISUMBING, J.:
In its DECISION1 dated March 12, 2002, the Court of
Appeals in CA-G.R. SP No. 61047 dismissed the petition
for certiorari filed by Mondragon Leisure and Resorts
Corporation against the Order2 dated March 9, 2000, of
the Regional Trial Court of Angeles City, Branch 61, in
Civil Case No. 9527. Likewise, in its Resolution dated July
3, 2002, the CA denied the motion for reconsideration.
The facts of the case are undisputed.
On February 28, 1994, Mondragon International
Philippines, Inc. (MIPI), Mondragon Securities
Corporation (MSC) and herein petitioner entered into a
lease agreement with the Clark Development
Corporation (CDC) for the development of what is now
known as the Mimosa Leisure Estate.
To help finance the project, petitioner, on June 30, 1997,
entered into an Omnibus Loan and Security
Agreement3(hereafter Omnibus Agreement) with
respondent banks for a syndicated term loan in the
aggregate principal amount of US$20M. Under the
agreement, as amended on January 19, 1999,4 the
proceeds of the loan were to be released through
advances evidenced by promissory notes to be executed
by petitioner in favor of each lender-bank, and to be paid
within a six-year period from the date of initial advance
inclusive of a one year and two quarters grace period.
To secure the repayment of the loan, petitioner pledged
in favor of respondents US$20M worth of MIPI shares of
stocks; assigned, transferred and delivered all rights, title
to and interest in the pledged shares; and assigned by
way of security its leasehold rights over the project and
all the rights, title, interests and benefits in, to and under
any and all agreements in connection with the project.
On July 3, 1997, petitioner fully availed of and received
the full amount of the syndicated loan agreement.
Petitioner, which had regularly paid the monthly
interests due on the promissory notes until October
1998, thereafter failed to make payments. Consequently,
on January 6 and February 5, 1999, written notices of
default, acceleration of payment and demand letters
were sent by the lenders to the petitioner. Then on
August 27, 1999, respondents filed a complaint,
docketed as Civil Case No. 9527, for the foreclosure of
leasehold rights against petitioner.
35
Petitioner moved for the dismissal of the complaint on
the following grounds: (1) a condition precedent for the
filing of the complaint has not been complied with
and/or the instant complaint failed to state a cause of
action, or otherwise the filing was premature; (2) the
certification of non-forum shopping appended to the
complaint was fatally defective since one of the plaintiffs,
UCPB, deliberately failed to mention that it had
previously filed another complaint; and (3) plaintiffs had
engaged in forum shopping in filing the instant
complaint.
The trial court denied the motion and ruled as follows:
...
After a careful study of the arguments of the parties, this
court finds that the motion to dismiss is without merit.
As correctly pointed out by the plaintiffs under par. 6.01,
the borrower defaults when interests due at stated
maturity are not paid and the lenders are authorized to
accelerate any amount payable under the loan
agreements. One of the consequences of such default is
the foreclosure of collaterals. This is the action taken by
the herein plaintiffs-lenders.
This court also finds the alleged force majeure baseless.
The same are not those provided for under Sec. 1, Article
41 of the loan agreement.
As to the allegation of forum shopping, the herein parties
Asian Bank Corporation and Far East Bank and Trust
Company are not parties to this case in 9510 (sic). The
subject matter of Civil Case No. 9527 is not the same with
the subject matter in Civil Case No. 9510.
Wherefore, premises considered, the motion to dismiss
is denied. The defendant is given 15 days from receipt
hereof within which to file its answer and/or responsive
pleading.
SO ORDERED.5
Petitioner moved for the reconsideration of the order
and argued that the complaint is premature, since it had
not been validly declared in default.6 The trial court
denied the motion for reconsideration. Seasonably,
petitioner filed a special civil action for certiorari with the
Court of Appeals.
Before the appellate court, petitioner reiterated its
arguments in its motion to dismiss before the trial court,
including the failure of the respondents to attach the
board resolutions authorizing them to file the
complaint.7
The Court of Appeals dismissed the petition and denied
the subsequent motion for reconsideration. Hence, this
appeal by certiorari8 imputing the following errors:
I
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN RULING THAT THE
COMPLAINT IN CIVIL CASE NO. 9527 COMPLIED WITH
THE MANDATORY REQUIREMENTS OF CERTIFICATION OF
NON-FORUM SHOPPING.
II
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN NOT RULING THAT
A CONDITION PRECEDENT FOR THE FILING OF THE
COMPLAINT IN CIVIL CASE NO. 9527 HAS NOT BEEN
COMPLIED WITH, OR THAT IT IS OTHERWISE
PREMATURE, AND/OR THAT IT FAILS TO STATE A CAUSE
OF ACTION AGAINST PETITIONER-APPELLANT.
III
THE RESPONDENT-APPELLEE COURT OF APPEALS
COMMITTED A SERIOUS ERROR OF LAW AND ACTED
WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION IN NOT RULING THAT
RESPONDENT-APPELLEE BANKS, IN FILING THE
COMPLAINT IN CIVIL CASE NO. 9527, DELIBERATELY
ENGAGED IN FORUM SHOPPING.9
In brief, three issues are presented for resolution,
namely, (1) Was the certificate of non-forum shopping
defective? (2) Did respondents engage in forum
shopping? and (3) Do respondents have a cause of action
against the petitioner?
On the first issue, petitioner asserts that the verification
and certificate of forum shopping were defective
because there was no proof as to the authority of the
signatories to file the complaint. Petitioner avers that
UCPB Resolution 48-87, which was only presented in the
Court of Appeals, merely authorized the signatory to
"appear, act for, or otherwise represent the bank in all
judicial, quasi-judicial or administrative hearings or
incidents, including pre-trial conference, and in
connection therewith, to do any and all of the following
acts and deeds…" and clearly pertains to a pending
proceeding.
Respondents, on the other hand, contend that the lack
of authority of the persons who verified and certified the
complaint was neither raised in the motion to dismiss nor
in the motion for reconsideration of the petitioner. They
aver that the verification and certification of non-forum
shopping contained a statement by the persons who
signed it that they had been so authorized by the board
of directors of their respective corporations.
Considering the submissions of the parties, we are
constrained to agree with the respondents’ contention.
The trial court did not err in denying the motion to
dismiss. The issue concerning the signatories’
authorization was never raised before it. Likewise, the
appellate court did not err in refusing to take cognizance
36
of the issue, since the parties did not raise it beforehand.
Issues not raised in the trial court cannot be raised for
the first time on appeal.10
On the second issue, petitioner claims that respondent
UCPB engaged in forum shopping since it earlier
instituted an action for foreclosure of mortgage and/or
collection, docketed as Civil Case No. 9510.11 This claim,
in our view, is untenable. A comparison of the two
complaints would show its utter lack of merit.
Civil Case No. 9510 pertains to an Omnibus Credit and
Security Agreement executed by and between the
petitioner and respondent UCPB on November 23, 1995.
This is separate and distinct from the Omnibus
Agreement involved in Civil Case No. 9527. Moreover,
respondents Asian Bank and Far East Bank are not among
the parties to Civil Case No. 9510.
As pointed out by the Court of Appeals, forum shopping
exists when both actions involve the same transactions,
with the same essential facts and circumstances; and
where identical causes of actions, subject matter and
issues are raised. The test to determine the existence of
forum shopping is whether the elements of litis
pendentia are present, or whether a final judgment in
one case will amount to res judicata in another.12 The
requisites in order that an action may be dismissed on
the ground of litis pendentia are (a) the identity of
parties, or at least such as representing the same interest
in both actions; (b) the identity of rights asserted and
relief prayed for, the relief being founded on the same
facts; and (c) the identity of the two cases such that
judgment in one, regardless of which party is successful,
would amount to res judicata in the other.13 Such
requisites are not present in this controversy.
Apropos the third issue, petitioner contends the subject
obligation of the instant case is not yet due and
demandable because the Omnibus Agreement allows a
full six-year term of payment. Even if it failed to pay some
installments, petitioner insists it is not in default because
respondents merely sent collection and demand letters,
but failed to give the written notice of default required
under their agreement. Moreover, petitioner avers that
the provisions on default in the Omnibus Agreement
have been rendered inapplicable and unenforceable by
fortuitous events, namely the Asian economic crisis and
the closure of the Mimosa Regency Casino, which was
petitioner’s primary source of revenues.1avvphi1.zw+
Respondents counter that the Omnibus Agreement
defines, as an event of default, the failure of petitioner
to pay when due at stated maturity, by acceleration or
otherwise, any amount payable under the loan
documents. Since petitioner is also required to pay
interest, respondents posit that non-payment thereof
constituted a clear and unmistakable case of default.
Respondents add that they had properly advised the
petitioner that it had been declared in default, referring
to the January 6 and February 5, 1999 letters as their
compliance with the notice requirement.
On this issue, we are unable to agree with the petitioner.
Section 2.06 (a) of Part B of the Omnibus Agreement
provides that the borrower shall pay interest on the
advances outstanding from time to time on each interest
payment date, while Section 6 of Part A reads
6.01 Events of Default
Each of the following events shall constitute an Event of
Default under this Omnibus Agreement:
(a) Payment Default – The BORROWER defaults in the
payment when due at stated maturity, by acceleration or
otherwise, of any amount payable under the Loan
Documents.14
...
Clearly, under the foregoing provisions of the
Agreement, petitioner may be validly declared in default
for failure to pay the interest. As a consequence of
default, the unpaid amount shall earn default
interest,15 and the respondent-banks have four
alternative remedies without prejudice to the
application of the provisions on collaterals and any other
steps or action which may be adopted by the majority
lender.16
The four remedies are alternative, with the right of
choice given to the lenders, in this case the respondents.
Under Article 1201 of the Civil Code, the choice shall
produce no effect except from the time it has been
communicated. This is the reason why a written notice is
required under Section 6.02 of the Omnibus Agreement.
In the present case, we find that written notices were
sent to the petitioner by the respondents. The notices
clearly indicate respondents’ choice of remedy: to
accelerate all payments payable under the loan
agreement. On January 6, 1999, respondents notified
petitioner that it was in default, and demanded payment
of the stated amount within five days from receipt of the
letter, otherwise all outstanding availments of the
US$20M term loan together with interests and other
sum payable shall be declared due and
demandable.17 The letter clearly indicated the choice of
remedy by the respondents, pursuant to the Omnibus
Agreement.
Even though subsequent demand is waived by the
petitioner in Section 6.02 of Part B of the Omnibus
Agreement, on February 5, 1999, the respondents
nevertheless actually made their demand in writing for
the payment of the principal plus interest and penalty
charges due on or before February 28, 1999, with express
notice that they would take all legal remedies available
to protect the interests of their clients.18 Clearly,
respondents have more than complied with the
requirement concerning notice to the petitioner.
37
It should be noted that the agreement also provides that
the choice of remedy is without prejudice to the action
on the collaterals. Thus, respondents could properly file
an action for foreclosure of the leasehold rights to obtain
payment for the amount demanded.
Petitioner’s claim, that the respondents could not be
held in default because of a fortuitous event, is
untenable. Said event, the Asian financial crisis of 1997,
is not among the fortuitous events contemplated under
Article 117419 of the Civil Code. To exempt the obligor
from liability for a breach of an obligation by reason of a
fortuitous event, the following requisites 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 unforeseeable 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.20
As pointed out by the respondents, the loan agreement
was entered into on June 30, 1997, or when the Asian
economic crisis had already started. Petitioner, as a long
established corporation, should have been well aware of
the economic environment at that time, yet it still took
the risk to expand operations. Likewise, the closure of
the Mimosa Regency Casino was not an unforeseeable or
unavoidable event, in the context of the contract of lease
between petitioner and CDC. Every business venture
involves risks. Risks are not unforeseeable; they are
inherent in business.
Worthy of note, risk is an exception to the general rule
on fortuitous events. Under the law, these exceptions
are: (1) when the law expressly so specifies; (2) when it is
otherwise declared by the parties; and (3) when the
nature of the obligation requires the assumption of
risks.21 We find that in the Omnibus Agreement, the
parties expressly agreed that any enactment, official
action, act of war, act of nature or other force majeure or
other similar circumstances shall in no way affect the
obligation of the borrowers to make payments.22
In sum, the appellate court did not err in dismissing
petitioner’s action for certiorari and in denying the
motion for reconsideration. It committed no reversible
error, much less any grave abuse of discretion amounting
to lack or excess of jurisdiction, contrary to petitioner’s
contentions.
WHEREFORE, the appeal is DENIED for lack of merit. The
Decision dated March 12, 2002 and the Resolution dated
July 3, 2002 of the Court of Appeals in CA-G.R. SP No.
61047 are hereby AFFIRMED.
Costs against petitioner.
. Civil Law; Contracts; Breach; Fortuitous
Event; Requisites; To exempt the obligor from liability for
a breach of an obligation by reason of a fortuitous event,
the following requisites must concur.
ART. 1175
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for
petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether
or not a claim for damage sustained on a shipment of
goods can be a solidary, or joint and several, liability of
the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal
interest on an award for loss or damage is to be
computed from the time the complaint is filed or from
the date the decision appealed from is rendered; and (c)
whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of
Appeals, on the antecedent and undisputed facts that
have led to the controversy are hereunder reproduced:
This is an action against defendants shipping company,
arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody,
filed by the insurer-subrogee who paid the consignee the
value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping
Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under
plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
Upon arrival of the shipment in Manila on December 12,
1981, it was discharged unto the custody of defendant
Metro Port Service, Inc. The latter excepted to one drum,
said to be in bad order, which damage was unknown to
plaintiff.
On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without
seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage
Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum
which contained spillages, while the rest of the contents
was adulterated/fake (per "Bad Order Waybill" No.
10649, Exh. E).
38
Plaintiff contended that due to the losses/damage
sustained by said drum, the consignee suffered losses
totaling P19,032.95, due to the fault and negligence of
defendants. Claims were presented against defendants
who failed and refused to pay the same (Exhs. H, I, J, K,
L).
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants (per "Form of Subrogation",
"Release" and Philbanking check, Exhs. M, N, and O). (pp.
85-86, Rollo.)
There were, to be sure, other factual issues that
confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the
material allegations of the complaint contending that: As
for defendant Eastern Shipping it alleged that the
shipment was discharged in good order from the vessel
unto the custody of Metro Port Service so that any
damage/losses incurred after the shipment was incurred
after the shipment was turned over to the latter, is no
longer its liability (p. 17, Record); Metroport averred that
although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p.
11, Record); Allied Brokerage alleged that plaintiff has no
cause of action against it, not having negligent or at fault
for the shipment was already in damage and bad order
condition when received by it, but nonetheless, it still
exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same
condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained
losses/damages;
2. Whether or not these losses/damages were sustained
while in the custody of defendants (in whose respective
custody, if determinable);
3. Whether or not defendant(s) should be held liable for
the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the
shipment sustained losses/damages. The two drums
were shipped in good order and condition, as clearly
shown by the Bill of Lading and Commercial Invoice
which do not indicate any damages drum that was
shipped (Exhs. B and C). But when on December 12, 1981
the shipment was delivered to defendant Metro Port
Service, Inc., it excepted to one drum in bad order.
Correspondingly, as to the second issue, it follows that
the losses/damages were sustained while in the
respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro
Port) and broker (Allied Brokerage). This becomes
evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the
latter notes, it is stated that when the shipment was
"landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one
(1) fiber drum (was) in damaged condition, covered by
the vessel's Agent's Bad Order Tally Sheet No. 86427."
The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant
arrastre operator's custody on January 7, 1982, one drum
was found opened without seal, cello bag partly torn but
contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums
reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that
these losses/damages occurred before the shipment
reached the consignee while under the successive
custodies of defendants. Under Art. 1737 of the New Civil
Code, the common carrier's duty to observe
extraordinary diligence in the vigilance of goods remains
in full force and effect even if the goods are temporarily
unloaded and stored in transit in the warehouse of the
carrier at the place of destination, until the consignee has
been advised and has had reasonable opportunity to
remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern)
states that on December 12, 1981 one drum was found
"open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and
severally:
1. The amount of P19,032.95, with the present legal
interest of 12% per annum from October 1, 1982, the
date of filing of this complaints, until fully paid (the
liability of defendant Eastern Shipping, Inc. shall not
exceed US$500 per case or the CIF value of the loss,
whichever is lesser, while the liability of defendant Metro
Port Service, Inc. shall be to the extent of the actual
invoice value of each package, crate box or container in
no case to exceed P5,000.00 each, pursuant to Section
6.01 of the Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
39
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We
find that the conclusion drawn therefrom is correct. As
there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants,
and therefore they are liable to the appellee, as subrogee
for the amount it paid to the consignee. (pp. 87-
89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment
of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common
carrier, attributes error and grave abuse of discretion on
the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS
BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM
OF PRIVATE RESPONDENT SHOULD COMMENCE FROM
THE DATE OF THE FILING OF THE COMPLAINT AT THE
RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the
questions raised by petitioner carrier are not all that
novel. Indeed, we do have a fairly good number of
previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite
diligence in the shipment of goods lasts from the time the
articles are surrendered to or unconditionally placed in
the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a
reasonable time for their acceptance by, the person
entitled to receive them (Arts. 1736-1738, Civil Code;
Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods
shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express
finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals,
139 SCRA 87; Metro Port Service vs. Court of Appeals,
131 SCRA 365). There are, of course, exceptional cases
when such presumption of fault is not observed but
these cases, enumerated in Article 17341 of the Civil
Code, are exclusive, not one of which can be applied to
this case.
The question of charging both the carrier and the
arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance
vs. Metro Port Services (182 SCRA 455), we have
explained, in holding the carrier and the arrastre
operator liable in solidum, thus:
The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA
5 [1967]. The relationship between the consignee and
the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v.
Prince Line, et al., 107 Phil. 253 [1960]). Since it is the
duty of the ARRASTRE to take good care of the goods that
are in its custody and to deliver them in good condition
to the consignee, such responsibility also devolves upon
the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the
goods in good condition to the consignee.
We do not, of course, imply by the above
pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that
attendant facts in a given case may not vary the rule. The
instant petition has been brought solely by Eastern
Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any
event, to be held liable in this particular case. A factual
finding of both the court a quo and the appellate court,
we take note, is that "there is sufficient evidence that the
shipment sustained damage while in the successive
possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern
Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the
appellate court that deserves more than just a passing
remark.
Let us first see a chronological recitation of the major
rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila
Port
Service,2 decided3 on 15 May 1969, involved a suit
for recovery of money arising out of short deliveries and
pilferage of goods. In this case, appellee Malayan
Insurance (the plaintiff in the lower court) averred in its
complaint that the total amount of its claim for the value
of the undelivered goods amounted to P3,947.20. This
demand, however, was neither established in its totality
nor definitely ascertained. In the stipulation of facts later
entered into by the parties, in lieu of proof, the amount
of P1,447.51 was agreed upon. The trial court rendered
judgment ordering the appellants (defendants) Manila
Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51
with legal interest thereon from the date the complaint
40
was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the
award of legal interest. In sustaining the appellants, this
Court ruled:
Interest upon an obligation which calls for the payment
of money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand,
judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez,4 L-6998, February 29,
1956, if the suit were for damages, "unliquidated and not
known until definitely ascertained, assessed and
determined by the courts after proof (Montilla
c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of
the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11
October 1985, was for "Recovery of Damages for Injury
to Person and Loss of Property." After trial, the lower
court decreed:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and
Michael, Incorporated to pay jointly and severally the
following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina
the sum of P131,084.00 which is the value of the boat F
B Pacita III together with its accessories, fishing gear and
equipment minus P80,000.00 which is the value of the
insurance recovered and the amount of P10,000.00 a
month as the estimated monthly loss suffered by them
as a result of the fire of May 6, 1969 up to the time they
are actually paid or already the total sum of P370,000.00
as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of
P5,000.00 with costs against defendants and third party
plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified
the amount of damages awarded but sustained the trial
court in adjudging legal interest from the filing of the
complaint until fully paid. When the appellate court's
decision became final, the case was remanded to the
lower court for execution, and this was when the trial
court issued its assailed resolution which applied the 6%
interest per annum prescribed in Article 2209 of the Civil
Code. In their petition for review on certiorari, the
petitioners contended that Central Bank Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, Monetary Board in its Resolution
No. 1622 dated July 29, 1974, has prescribed that the
rate of interest for the loan, or forbearance of any
money, goods, or credits and the rate allowed in
judgments, in the absence of express contract as to such
rate of interest, shall be twelve (12%) percent per
annum. This Circular shall take effect immediately.
(Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments
in litigations involving loans or forbearance of any
money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits does
not fall within the coverage of the said law for it is not
within the ambit of the authority granted to the Central
Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to
be executed is one rendered in an Action for Damages for
injury to persons and loss of property and does not
involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article
2209 of the New Civil Code which reads —
Art. 2209. — If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon,
and in the absence of stipulation, the legal interest which
is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus
Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The
case was for damages occasioned by an injury to person
and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest
thereon from the filing of the complaint until fully paid.
Relying on the Reformina v. Tomol case, this
Court8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation
thereof, i.e., from the filing of the complaint until fully
paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court,
in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc.
(one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68
with interest at the legal rate from November 29, 1968,
the date of the filing of the complaint until full payment .
41
. . ." Save from the modification of the amount granted
by the lower court, the Court of Appeals sustained the
trial court's decision. When taken to this Court for
review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and
environmental circumstances of this case, we deem it
reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association
of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall be
imposed upon aforementioned amounts from finality
until paid. Solidary costs against the defendant and third-
party defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United
Construction, contending that "the interest of twelve
(12%) per cent per annum imposed on the total amount
of the monetary award was in contravention of law." The
Court10 ruled out the applicability of the Reformina and
Philippine Rabbit Bus Lines cases and, in its resolution of
15 April 1988, it explained:
There should be no dispute that the imposition of 12%
interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer
to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc.
v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol,
Jr., 139 SCRA 260 [1985]). It is true that in the instant
case, there is neither a loan or a forbearance, but then no
interest is actually imposed provided the sums referred to
in the judgment are paid upon the finality of the
judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the
rate of interest is imposed on the total sum, from the
filing of the complaint until paid; in other words, as part
of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International,
Inc., vs. Intermediate Appellate Court11 was a petition for
review on certiorari from the decision, dated 27
February 1985, of the then Intermediate Appellate Court
reducing the amount of moral and exemplary damages
awarded by the trial court, to P240,000.00 and
P100,000.00, respectively, and its resolution, dated 29
April 1985, restoring the amount of damages awarded by
the trial court, i.e., P2,000,000.00 as moral damages and
P400,000.00 as exemplary damages with interest
thereon at 12% per annum from notice of judgment, plus
costs of suit. In a decision of 09 November 1988, this
Court, while recognizing the right of the private
respondent to recover damages, held the award,
however, for moral damages by the trial court, later
sustained by the IAC, to be inconceivably large. The
Court12 thus set aside the decision of the appellate court
and rendered a new one, "ordering the petitioner to pay
private respondent the sum of One Hundred Thousand
(P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the
finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989
case of Florendo v. Ruiz13 which arose from a breach of
employment contract. For having been illegally
dismissed, the petitioner was awarded by the trial court
moral and exemplary damages without, however,
providing any legal interest thereon. When the decision
was appealed to the Court of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the
decision of the CFI of Negros Oriental dated October 31,
1972 is affirmed in all respects, with the modification
that defendants-appellants, except defendant-appellant
Merton Munn, are ordered to pay, jointly and severally,
the amounts stated in the dispositive portion of the
decision, including the sum of P1,400.00 in concept of
compensatory damages, with interest at the legal rate
from the date of the filing of the complaint until fully
paid(Emphasis supplied.)
The petition for review to this Court was denied. The
records were thereupon transmitted to the trial court,
and an entry of judgment was made. The writ of
execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per
annum from the date of the filing of the complaint.
Ascribing grave abuse of discretion on the part of the trial
judge, a petition for certiorari assailed the said order.
This Court said:
. . . , it is to be noted that the Court of Appeals ordered
the payment of interest "at the legal rate" from the time
of the filing of the complaint. . . Said circular [Central
Bank Circular No. 416] does not apply to actions based
on a breach of employment contract like the case at bar.
(Emphasis supplied)
The Court reiterated that the 6% interest per annum on
the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on
the matter. National Power Corporation
14
vs. Angas, decided on 08 May 1992, involved the
expropriation of certain parcels of land. After conducting
42
a hearing on the complaints for eminent domain, the trial
court ordered the petitioner to pay the private
respondents certain sums of money as just
compensation for their lands so expropriated "with legal
interest thereon . . . until fully paid." Again, in applying
the 6% legal interest per annum under the Civil Code, the
Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or
forbearance of money, goods or credits but
expropriation of certain parcels of land for a public
purpose, the payment of which is without stipulation
regarding interest, and the interest adjudged by the trial
court is in the nature of indemnity for damages. The legal
interest required to be paid on the amount of just
compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the
delay in the payment thereof. Therefore, since the kind
of interest involved in the joint judgment of the lower
court sought to be enforced in this case is interest by way
of damages, and not by way of earnings from loans, etc.
Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the
above holdings. The cases can perhaps be classified into
two groups according to the similarity of the issues
involved and the corresponding rulings rendered by the
court. The "first group" would consist of the cases
of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines
v. Cruz(1986), Florendo v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the
"second group" would be Malayan Insurance Company
v.Manila Port Service (1969), Nakpil and Sons v. Court of
Appeals (1988), and American Express International
v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the
application of either the 6% (under the Civil Code) or 12%
(under the Central Bank Circular) interest per annum. It
is easily discernible in these cases that there has been a
consistent holding that the Central Bank Circular
imposing the 12% interest per annum applies only to
loans or forbearance16 of money, goods or credits, as
well as to judgments involving such loan or forbearance
of money, goods or credits, and that the 6% interest
under the Civil Code governs when the transaction
involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the
performance of obligations in general. Observe, too, that
in these cases, a common time frame in the computation
of the 6% interest per annum has been applied, i.e., from
the time the complaint is filed until the adjudged amount
is fully paid.
The "second group", did not alter the pronounced rule
on the application of the 6% or 12% interest per
annum,17depending on whether or not the amount
involved is a loan or forbearance, on the one hand, or one
of indemnity for damage, on the other hand. Unlike,
however, the "first group" which remained consistent in
holding that the running of the legal interest should be
from the time of the filing of the complaint until fully
paid, the "second group" varied on the commencement
of the running of the legal interest.
Malayan held that the amount awarded should bear
legal interest from the date of the decision of the court a
quo,explaining that "if the suit were for damages,
'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then,
interest 'should be from the date of the
decision.'" American Express International
v. IAC, introduced a different time frame for reckoning
the 6% interest by ordering it to be "computed from the
finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be
imposed from the finality of the decision until the
judgment amount is paid.
The ostensible discord is not difficult to explain. The
factual circumstances may have called for different
applications, guided by the rule that the courts are
vested with discretion, depending on the equities of each
case, on the award of interest. Nonetheless, it may not
be unwise, by way of clarification and reconciliation, to
suggest the following rules of thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts18 is
breached, the contravenor can be held liable for
damages.19 The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.20
certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at
which time the quantification of damages may be
deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit.
WHEREFORE, the petition is partly GRANTED. The
appealed decision is AFFIRMED with the MODIFICATION
that the legal interest to be paid is SIX PERCENT (6%) on
the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE
PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall
be imposed on such amount upon finality of this decision
until the payment thereof.
Syllabi Class : Common
Carriers|Damages|Obligations|Presumption of
Fault|Arrastre Operator|Interest Rates|Interests in the
Concept of Actual and Compensatory Damages

II. With regard particularly to an award of interest in the

concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as
follows:

1. When the obligation is breached, and it consists in the

payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may
have been stipulated in writing.21 Furthermore, the
interest due shall itself earn legal interest from the time
it is judicially demanded.22 In the absence of stipulation,
the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article
116923 of the Civil Code.

2. When an obligation, not constituting a loan or

forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at
the discretion of the court24 at the rate of 6% per
annum.25 No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the
demand can be established with reasonable
certainty.26 Accordingly, where the demand is
established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such

43
G.R. No. 197861 ART. 1175 June 5, 2013
SPOUSES FLORENTINO T. MALLARI and AUREA V.
MALLARI, Petitioners,
vs.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE
ISLANDS), Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule
45, assailing the Decision1 dated June 17, 2010 and the
Resolution2 dated July 20, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 65993.
The antecedent facts are as follows:
On December 11, 1984, petitioner Florentino T. Mallari
(Florentino) obtained from respondent Prudential Bank-
Tarlac Branch (respondent bank), a loan in the amount of
₱300,000.00 as evidenced by Promissory Note (PN) No.
BD 84-055.3 Under the promissory note, the loan was
subject to an interest rate of 21% per annum (p.a.),
attorney's fees equivalent to 15% of the total amount
due but not less than ₱200.00 and, in case of default, a
penalty and collection charges of 12% p.a. of the total
amount due. The loan had a maturity date of January 10,
1985, but was renewed up to February 17, 1985.
Petitioner Florentino executed a Deed of
Assignment4 wherein he authorized the respondent bank
to pay his loan with his time deposit with the latter in the
amount of ₱300,000.00.
On December 22, 1989, petitioners spouses Florentino
and Aurea Mallari (petitioners) obtained again from
respondent bank another loan of ₱1.7 million as
evidenced by PN No. BDS 606-895 with a maturity date of
March 22, 1990. They stipulated that the loan will bear
23% interest p.a., attorney's fees equivalent to 15% p.a.
of the total amount due, but not less than ₱200.00, and
penalty and collection charges of 12% p.a. Petitioners
executed a Deed of Real Estate Mortgage6 in favor of
respondent bank covering petitioners' property under
Transfer Certificate of Title (TCT) No. T-215175 of the
Register of Deeds of Tarlac to answer for the said loan.
Petitioners failed to settle their loan obligations with
respondent bank, thus, the latter, through its lawyer,
sent a demand letter to the former for them to pay their
obligations, which when computed up to January 31,
1992, amounted to ₱571,218.54 for PN No. BD 84-055
and ₱2,991,294.82 for PN No. BDS 606-89.
On February 25, 1992, respondent bank filed with the
Regional Trial Court (RTC) of Tarlac, a petition for the
extrajudicial foreclosure of petitioners' mortgaged
property for the satisfaction of the latter's obligation of
₱1,700,000.00 secured by such mortgage, thus, the
auction sale was set by the Provincial Sheriff on April 23,
1992.7
44
On April 10, 1992, respondent bank's Assistant Manager
sent petitioners two (2) separate Statements of Account
as of April 23, 1992, i.e., the loan of ₱300,000.00 was
increased to ₱594,043.54, while the ₱1,700,000.00 loan
was already ₱3,171,836.18.
On April 20, 1992, petitioners filed a complaint for
annulment of mortgage, deeds, injunction, preliminary
injunction, temporary restraining order and damages
claiming, among others, that: (1) the ₱300,000.00 loan
obligation should have been considered paid, because
the time deposit with the same amount under Certificate
of Time Deposit No. 284051 had already been assigned
to respondent bank; (2) respondent bank still added the
₱300,000.00 loan to the ₱1.7 million loan obligation for
purposes of applying the proceeds of the auction sale;
and (3) they realized that there were onerous terms and
conditions imposed by respondent bank when it tried to
unilaterally increase the charges and interest over and
above those stipulated. Petitioners asked the court to
restrain respondent bank from proceeding with the
scheduled foreclosure sale.
Respondent bank filed its Answer with counterclaim
arguing that: (1) the interest rates were clearly provided
in the promissory notes, which were used in computing
for interest charges; (2) as early as January 1986,
petitioners' time deposit was made to apply for the
payment of interest of their ₱300,000.00 loan; and (3)
the statement of account as of April 10, 1992 provided
for a computation of interest and penalty charges only
from May 26, 1989, since the proceeds of petitioners'
time deposit was applied to the payment of interest and
penalty charges for the preceding period. Respondent
bank also claimed that petitioners were fully apprised of
the bank's terms and conditions; and that the
extrajudicial foreclosure was sought for the satisfaction
of the second loan in the amount of ₱1.7 million covered
by PN No. BDS 606-89 and the real estate mortgage, and
not the ₱300,000.00 loan covered by another PN No. 84-
055.
In an Order8 dated November 10, 1992, the RTC denied
the Application for a Writ of Preliminary Injunction.
However, in petitioners' Supplemental Motion for
Issuance of a Restraining Order and/or Preliminary
Injunction to enjoin respondent bank and the Provincial
Sheriff from effecting or conducting the auction sale, the
RTC reversed itself and issued the restraining order in its
Order9 dated January 14, 1993.
Respondent bank filed its Motion to Lift Restraining
Order, which the RTC granted in its Order10 dated March
9, 1993. Respondent bank then proceeded with the
extrajudicial foreclosure of the mortgaged property. On
July 7, 1993, a Certificate of Sale was issued to
respondent bank being the highest bidder in the amount
of ₱3,500,000.00.
Subsequently, respondent bank filed a Motion to Dismiss
Complaint11 for failure to prosecute action for
unreasonable length of time to which petitioners filed
their Opposition.12 On November 19, 1998, the RTC
issued its Order13 denying respondent bank's Motion to
Dismiss Complaint.
Trial thereafter ensued. Petitioner Florentino was
presented as the lone witness for the plaintiffs.
Subsequently, respondent bank filed a Demurrer to
Evidence.
On November 15, 1999, the RTC issued its
Order14 granting respondent's demurrer to evidence, the
dispositive portion of which reads:
WHEREFORE, this case is hereby ordered DISMISSED.
Considering there is no evidence of bad faith, the Court
need not order the plaintiffs to pay damages under the
general concept that there should be no premium on the
right to litigate.
NO COSTS.
SO ORDERED.15
The RTC found that as to the ₱300,000.00 loan,
petitioners had assigned petitioner Florentino's time
deposit in the amount of ₱300,000.00 in favor of
respondent bank, which maturity coincided with
petitioners' loan maturity. Thus, if the loan was unpaid,
which was later extended to February 17, 1985,
respondent bank should had just applied the time
deposit to the loan. However, respondent bank did not,
and allowed the loan interest to accumulate reaching the
amount of ₱594,043.54 as of April 10, 1992, hence, the
amount of ₱292,600.00 as penalty charges was unjust
and without basis.
As to the ₱1.7 million loan which petitioners obtained
from respondent bank after the ₱300,000.00 loan, it had
reached the amount of ₱3,171,836.18 per Statement of
Account dated April 27, 1993, which was computed
based on the 23% interest rate and 12% penalty charge
agreed upon by the parties; and that contrary to
petitioners' claim, respondent bank did not add the
₱300,000.00 loan to the ₱1.7 million loan obligation for
purposes of applying the proceeds of the auction sale.
The RTC found no legal basis for petitioners' claim that
since the total obligation was ₱1.7 million and
respondent bank's bid price was ₱3.5 million, the latter
should return to petitioners the difference of ₱1.8
million. It found that since petitioners' obligation had
reached ₱2,991,294.82 as of January 31, 1992, but the
certificate of sale was executed by the sheriff only on July
7, 1993, after the restraining order was lifted, the
stipulated interest and penalty charges from January 31,
1992 to July 7, 1993 added to the loan already amounted
to ₱3.5 million as of the auction sale.
The RTC found that the 23% interest rate p.a., which was
then the prevailing loan rate of interest could not be
considered unconscionable, since banks are not
45
hospitable or equitable institutions but are entities
formed primarily for profit. It also found that Article 1229
of the Civil Code invoked by petitioners for the reduction
of the interest was not applicable, since petitioners had
not paid any single centavo of the ₱1.7 million loan which
showed they had not complied with any part of the
obligation.
Petitioners appealed the RTC decision to the CA. A
Comment was filed by respondent bank and petitioners
filed their Reply thereto.
On June 17, 2010, the CA issued its assailed Decision, the
dispositive portion of which reads:
WHEREFORE, the instant appeal is hereby DENIED. The
Order dated November 15, 1999 issued by the Regional
Trial Court (RTC), Branch 64, Tarlac City, in Civil Case No.
7550 is hereby AFFIRMED.16
The CA found that the time deposit of ₱300,000.00 was
equivalent only to the principal amount of the loan of
₱300,000.00 and would not be sufficient to cover the
interest, penalty, collection charges and attorney's fees
agreed upon, thus, in the Statement of Account dated
April 10, 1992, the outstanding balance of petitioners'
loan was ₱594,043.54. It also found not persuasive
petitioners' claim that the ₱300,000.00 loan was added
to the ₱1.7 million loan. The CA, likewise, found that the
interest rates and penalty charges imposed were not
unconscionable and adopted in toto the findings of the
RTC on the matter.
Petitioners filed their Motion for Reconsideration, which
the CA denied in a Resolution dated July 20, 2011.
Hence, petitioners filed this petition for review arguing
that:
THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE
ORDER OF THE RTC-BRANCH 64, TARLAC CITY, DATED
NOVEMBER 15, 1999, DESPITE THE FACT THAT THE SAME
IS CONTRARY TO SETTLED JURISPRUDENCE ON THE
MATTER.17
The issue for resolution is whether the 23% p.a. interest
rate and the 12% p.a. penalty charge on petitioners'
₱1,700,000.00 loan to which they agreed upon is
excessive or unconscionable under the circumstances.
Parties are free to enter into agreements and stipulate as
to the terms and conditions of their contract, but such
freedom is not absolute. As Article 1306 of the Civil Code
provides, "The 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."
Hence, if the stipulations in the contract are valid, the
parties thereto are bound to comply with them, since
such contract is the law between the parties. In this case,
petitioners and respondent bank agreed upon on a 23%
p.a. interest rate on the ₱1.7 million loan. However,
petitioners now contend that the interest rate of 23%
p.a. imposed by respondent bank is excessive or
unconscionable, invoking our ruling in Medel v. Court of
Appeals,18 Toring v. Spouses Ganzon-Olan,19 and Chua v.
Timan.20
We are not persuaded.
In Medel v. Court of Appeals,21 we found the stipulated
interest rate of 66% p.a. or a 5.5% per month on a
₱500,000.00 loan excessive, unconscionable and
exorbitant, hence, contrary to morals if not against the
law and declared such stipulation void. In Toring v.
Spouses Ganzon-Olan,22 the stipulated interest rates
involved were 3% and 3.81% per month on a ₱10 million
loan, which we find under the circumstances excessive
and reduced the same to 1% per month. While in Chua v.
Timan,23 where the stipulated interest rates were 7% and
5% a month, which are equivalent to 84% and 60% p.a.,
respectively, we had reduced the same to 1% per month
or 12% p.a. We said that we need not unsettle the
principle we had affirmed in a plethora of cases that
stipulated interest rates of 3% per month and higher are
excessive, unconscionable and exorbitant, hence, the
stipulation was void for being contrary to morals.24
In this case, the interest rate agreed upon by the parties
was only 23% p.a., or less than 2% per month, which are
much lower than those interest rates agreed upon by the
parties in the above-mentioned cases. Thus, there is no
similarity of factual milieu for the application of those
cases.
We do not consider the interest rate of 23% p.a. agreed
upon by petitioners and respondent bank to be
unconscionable.
25
In Villanueva v. Court of Appeals, where the issue
raised was whether the 24% p.a. stipulated interest rate
is unreasonable under the circumstances, we answered
in the negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v.
Banco Filipino Savings and Mortgage Bank, Dagupan City
Branch, this Court held that the interest rate of 24% per
annum on a loan of ₱244,000.00, agreed upon by the
parties, may not be considered as unconscionable and
excessive. As such, the Court ruled that the borrowers
cannot renege on their obligation to comply with what is
incumbent upon them under the contract of loan as the
said contract is the law between the parties and they are
bound by its stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained
the agreement of the parties to a 24% per annum
interest on an ₱8,649,250.00 loan finding the same to be
reasonable and clearly evidenced by the amended credit
line agreement entered into by the parties as well as two
promissory notes executed by the borrower in favor of
the lender.
46
Based on the above jurisprudence, the Court finds that
the 24% per annum interest rate, provided for in the
subject mortgage contracts for a loan of ₱225,000.00,
may not be considered unconscionable. Moreover,
considering that the mortgage agreement was freely
entered into by both parties, the same is the law
between them and they are bound to comply with the
provisions contained therein.26
Clearly, jurisprudence establish that the 24% p.a.
stipulated interest rate was not considered
unconscionable, thus, the 23% p.a. interest rate imposed
on petitioners' loan in this case can by no means be
considered excessive or unconscionable.
We also do not find the stipulated 12% p.a. penalty
charge excessive or unconscionable.
In Ruiz v. CA,27 we held:
The 1% surcharge on the principal loan for every month
of default is valid.1âwphi1 This surcharge or penalty
stipulated in a loan agreement in case of default partakes
of the nature of liquidated damages under Art. 2227 of
the New Civil Code, and is separate and distinct from
interest payment. Also referred to as a penalty clause, it
is expressly recognized by law. It is an accessory
undertaking to assume greater liability on the part of an
obligor in case of breach of an obligation. The obligor
would then be bound to pay the stipulated amount of
indemnity without the necessity of proof on the
existence and on the measure of damages caused by the
breach. x x x28 And in Development Bank of the
Philippines v. Family Foods Manufacturing Co., Ltd.,29 we
held that:
x x x The enforcement of the penalty can be demanded
by the creditor only when the non-performance is due to
the fault or fraud of the debtor. The non-performance
gives rise to the presumption of fault; in order to avoid
the payment of the penalty, the debtor has the burden
of proving an excuse - the failure of the performance was
due to either force majeure or the acts of the creditor
himself.30
Here, petitioners defaulted in the payment of their loan
obligation with respondent bank and their contract
provided for the payment of 12% p.a. penalty charge,
and since there was no showing that petitioners' failure
to perform their obligation was due to force majeure or
to respondent bank's acts, petitioners cannot now back
out on their obligation to pay the penalty charge. A
contract is the law between the parties and they are
bound by the stipulations therein.
WHEREFORE, the petition for review is DENIED. The
Decision dated June 17, 2010 and the Resolution dated
July 20, 2011 of the Court of Appeals are hereby
AFFIRMED.
G.R. No. 172139 ART. 1175 December 8, 2010 ₱290,000.00 was signed by Jocelyn with two of her
subordinates as witnesses. The said amount represents
JOCELYN M. TOLEDO, Petitioner,
the principal consolidated amount of the
vs.
aforementioned previous debts due on December 25,
MARILOU M. HYDEN, Respondent.
1998. Also on said occasion, Jocelyn issued five checks to
DECISION Marilou representing renewal payment of her five
previous loans, viz:
DEL CASTILLO, J.:
Check No. 0010761 dated . . . . . . . ₱ 30,000.00
It is true that the imposition of an unconscionable rate of
September 2, 1998 ..
interest on a money debt is immoral and unjust and the
court may come to the aid of the aggrieved party to that Check No. 0010762 dated . . . . . . . 30,000.00
contract. However, before doing so, courts have to September 9, 1998 ..
consider the settled principle that the law will not relieve
a party from the effects of an unwise, foolish or Check No. 0010763 dated . . . . . . . 30,000.00
disastrous contract if such party had full awareness of September 15, 1998 ..
what she was doing. Check No. 0010764 dated . . . . . . . 100,000.00
This Petition for Review on Certiorari1 assails the September 22, 1998 ..
Decision2 dated August 24, 2005 of the Court of Appeals
Check No. 0010765 dated . . . . . . . 100,000.00
(CA) in CA-G.R. CV No. 79805, which affirmed the
September 25, 1998 ..
Decision dated March 10, 20033 of the Regional Trial
Court (RTC), Branch 22, Cebu City in Civil Case No. CEB- ₱
TOTAL
22867. Also assailed is the 290,000.00
Resolution dated March 8, 2006 denying the motion for In June 1998, Jocelyn asked Marilou for the recall of
reconsideration. Check No. 0010761 in the amount of ₱30,000.00 and
Factual Antecedents replaced the same with six checks, in staggered amounts,
namely:
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the
Vice-President of the College Assurance Plan (CAP) Phils., Check No. 0010494 dated . . . . . . . ₱ 6,625.00
Inc., obtained several loans from respondent Marilou M. July 2, 1998 ..
Hyden (Marilou). The transactions are briefly Check No. 0010495 dated . . . . . . . 6,300.00
summarized below: August 2, 1998 ..
1) August 15, ……… ₱
Check No. 0010496 dated . . . . . . . 5,975.00
1993 30,000.00 September 2, 1998 ..
2) April 21, 1994 ……… 100,000.00 with 6% Check No. 0010497 dated . . . . . . . 6,500.00
3) October 2, monthly October 2, 1998 ..
……… 30,000.00 interest
1995
Check No. 0010498 dated . . . . . . . 5,325.00
4) October 9, November 2, 1998 ..
……… 30,000.00
1995 Check No. 0010499 dated . . . . . . . 5,000.00
with 7% December 2, 1998 ..
5) May 22, 1997 ……… 100,000.00 monthly ₱
interest TOTAL
35,725.00
TOTAL AMOUNT ₱ 4 After honoring Check Nos. 0010494, 0010495 and
………
OF LOAN 290,000.00 0010496, Jocelyn ordered the stop payment on the
From August 15, 1993 up to December 31, 1997, Jocelyn remaining checks and on October 27, 1998, filed with the
had been religiously paying Marilou the stipulated RTC of Cebu City a complaint6 against Marilou for
monthly interest by issuing checks and depositing sums Declaration of Nullity and Payment, Annulment, Sum of
of money in the bank account of the latter. However, the Money, Injunction and Damages.
total principal amount of ₱290,000.00 remained unpaid. Jocelyn averred that Marilou forced, threatened and
Thus, in April 1998, Marilou visited Jocelyn in her office intimidated her into signing the "Acknowledgment of
at CAP in Cebu City and asked Jocelyn and the other Debt" and at the same time forced her to issue the seven
employees who were likewise indebted to her to postdated checks. She claimed that Marilou even
acknowledge their debts. A document entitled threatened to sue her for violation of Batas Pambansa
"Acknowledgment of Debt"5 for the amount of
47
(BP) Blg. 22 or the Bouncing Checks Law if she will not
sign the said document and draw the above-mentioned
checks. Jocelyn further claimed that the application of
her total payment of ₱528,550.00 to interest alone is
illegal, unfounded, unjust, oppressive and contrary to
law because there was no written agreement to pay
interest.
On November 23, 1998, Marilou filed an Answer7 with
Special Affirmative Defenses and Counterclaim alleging
that Jocelyn voluntarily obtained the said loans knowing
fully well that the interest rate was at 6% to 7% per
month. In fact, a 6% to 7% advance interest was already
deducted from the loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn was
forced, threatened, or intimidated in signing the
document referred to as "Acknowledgment of Debt" and
in issuing the postdated checks. Thus, in its March 10,
2003 Decision the trial court ruled in favor of
Marilou, viz:
WHEREFORE, premised on the foregoing, the Court
hereby declares the document "Acknowledgment of
Debt" valid and binding. PLAINTIFF is indebted to
DEFENDANT [for] the amount of TWO HUNDRED NINETY
THOUSAND (₱290,000.00) PESOS since December 25,
1998 less the amount of EIGHTEEN THOUSAND NINE
HUNDRED (₱18,900.00) PESOS, equivalent to the three
checks made good (₱6,625.00 dated 07-02-1998;
₱6,300.00 dated 08-02-1998; and ₱5,975.00 dated 09-
02-1998).
Consequently, PLAINTIFF is hereby ordered to pay
DEFENDANT the amount of TWO HUNDRED SEVENTY
ONE THOUSAND ONE HUNDRED (₱271,100.00) PESOS
due on December 25, 1998 with a 12% interest per
annum or 1% interest per month until such time that the
said amount shall have been fully paid.
No pronouncement as to costs.
SO ORDERED.8
On March 26, 2003, Jocelyn filed an Earnest Motion for
Reconsideration,9 which was denied by the trial court in
its Order10 dated April 29, 2003 stating that it finds no
sufficient reason to disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments
in the total amount of ₱778,000.00 for a principal
amount of loan of only ₱290,000.00. What is appalling,
according to Jocelyn, was that such payments covered
only the interest because of the excessive, iniquitous,
unconscionable and exorbitant imposition of the 6% to
7% monthly interest.
On August 24, 2005, the CA issued its Decision which
provides:
48
WHEREFORE, premises considered, the Decision dated
March 10, 2003 and the Order dated April 29, 2003, of
the Regional Trial Court, 7th Judicial Region, Branch 22,
Cebu City, in Civil Case No. CEB-22867 are
hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.11
The Motion for Reconsideration12 filed by Jocelyn was
denied by the CA through its Resolution13 dated March 8,
2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the
imposition of interest at the rate of six percent (6%) to
seven percent (7%) is not contrary to law, morals, good
customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare
that the "Acknowledgment of Debt" is an inexistent
contract that is void from the very beginning pursuant to
Article 1409 of the New Civil Code.
Petitioner’s Arguments
Jocelyn posits that the CA erred when it held that the
imposition of interest at the rates of 6% to 7% per month
is not contrary to law, not unconscionable and not
contrary to morals. She likewise contends that the CA
erred in ruling that the "Acknowledgment of Debt" is
valid and binding. According to Jocelyn, even assuming
that the execution of said document was not attended
with force, threat and intimidation, the same must
nevertheless be declared null and void for being contrary
to law and public policy. This is borne out by the fact that
the payments in the total amount of ₱778,000.00 was
applied to interest payment alone. This only proves that
the transaction was iniquitous, excessive, oppressive and
unconscionable.
Respondent’s Arguments
On the other hand, Marilou would like this Court to
consider the fact that the document referred to as
"Acknowledgment of Debt" was executed in the safe
surroundings of the office of Jocelyn and it was witnessed
by two of her staff. If at all there had been coercion, then
Jocelyn could have easily prevented her staff from
affixing their signatures to said document. In fact,
petitioner had admitted that she was the one who went
to the tables of her staff to let them sign the said
document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by Jocelyn is not
excessive under the circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which
suspended the Usury Law ceiling on interest effective
January 1, 1983, parties to a loan agreement have wide
latitude to stipulate interest rates. Nevertheless, such
stipulated interest rates may be declared as illegal if the
same is unconscionable.14 There is certainly nothing in
said circular which grants lenders carte blanche authority
to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their
assets.15 In fact, in Medel v. Court of Appeals,16 we
annulled a stipulated 5.5% per month or 66% per annum
interest with additional service charge of 2% per annum
and penalty charge of 1% per month on a ₱500,000.00
loan for being excessive, iniquitous, unconscionable and
exorbitant.
In this case, however, we cannot consider the disputed
6% to 7% monthly interest rate to be iniquitous or
unconscionable vis-à-vis the principle laid down
in Medel. Noteworthy is the fact that in Medel, the
defendant-spouses were never able to pay their
indebtedness from the very beginning and when their
obligations ballooned into a staggering sum, the
creditors filed a collection case against them. In this case,
there was no urgency of the need for money on the part
of Jocelyn, the debtor, which compelled her to enter into
said loan transactions. She used the money from the
loans to make advance payments for prospective clients
of educational plans offered by her employer. In this way,
her sales production would increase, thereby entitling
her to 50% rebate on her sales. This is the reason why she
did not mind the 6% to 7% monthly interest. Notably too,
a business transaction of this nature between Jocelyn
and Marilou continued for more than five years. Jocelyn
religiously paid the agreed amount of interest until she
ordered for stop payment on some of the checks issued
to Marilou. The checks were in fact sufficiently funded
when she ordered the stop payment and then filed a case
questioning the imposition of a 6% to 7% interest rate for
being allegedly iniquitous or unconscionable and, hence,
contrary to morals.
It was clearly shown that before Jocelyn availed of said
loans, she knew fully well that the same carried with it an
interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an
advance interest of 6% to 7% was already deducted from
the loan amount, yet she never uttered a word of
protest.
After years of benefiting from the proceeds of the loans
bearing an interest rate of 6% to 7% per month and
paying for the same, Jocelyn cannot now go to court to
have the said interest rate annulled on the ground that it
is excessive, iniquitous, unconscionable, exorbitant, and
absolutely revolting to the conscience of man. "This is so
because among the maxims of equity are (1) he who
49
seeks equity must do equity, and (2) he who comes into
equity must come with clean hands. The latter is a
frequently stated maxim which is also expressed in the
principle that he who has done inequity shall not have
equity. It signifies that a litigant may be denied relief by
a court of equity on the ground that his conduct has been
inequitable, unfair and dishonest, or fraudulent, or
deceitful as to the controversy in issue." 17
We are convinced that Jocelyn did not come to court for
equitable relief with equity or with clean hands. It is
patently clear from the above summary of the facts that
the conduct of Jocelyn can by no means be characterized
as nobly fair, just, and reasonable. This Court likewise
notes certain acts of Jocelyn before filing the case with
the RTC. In September 1998, she requested Marilou not
to deposit her checks as she can cover the checks only
the following month. On the next month, Jocelyn again
requested for another extension of one month. It turned
out that she was only sweet-talking Marilou into
believing that she had no money at that time. But as
testified by Serapio Romarate,18an employee of the Bank
of Commerce where Jocelyn is one of their clients, there
was an available balance of ₱276,203.03 in the latter’s
account and yet she ordered for the stop payments of
the seven checks which can actually be covered by the
available funds in said account. She then caught Marilou
by surprise when she surreptitiously filed a case for
declaration of nullity of the document and for damages.
The document "Acknowledgment of Debt" is valid and
binding.
Jocelyn seeks for the nullification of the document
entitled "Acknowledgment of Debt" and wants this Court
to declare that she is no longer indebted to Marilou in
the amount of ₱290,000.00 as she had already paid a
total amount of ₱778,000.00. She claims that said
document is an inexistent contract that is void from the
very beginning as clearly provided for by Article 140919 of
the New Civil Code.
Jocelyn further claims that she signed the said document
and issued the seven postdated checks because Marilou
threatened to sue her for violation of BP Blg. 22.
Jocelyn is misguided. Even if there was indeed such
threat made by Marilou, the same is not considered as
threat that would vitiate consent. Article 1335 of the
New Civil Code is very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest
consent, serious or irresistible force is employed.
xxxx
A threat to enforce one’s claim through competent
authority, if the claim is just or legal, does not vitiate
consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has "[A] party to a contract cannot deny the validity thereof
failed to prove her claim that she was made to sign the after enjoying its benefits without outrage to one’s sense
document "Acknowledgment of Debt" and draw the of justice and fairness."21 "It is a long established doctrine
seven Bank of Commerce checks through force, threat that the law does not relieve a party from the effects of
and intimidation. As earlier stressed, said document was an unwise, foolish or disastrous contract, entered into
signed in the office of Jocelyn, a high ranking executive with all the required formalities and with full awareness
of CAP, and it was Jocelyn herself who went to the table of what she was doing. Courts have no power to relieve
of her two subordinates to procure their signatures as parties from obligations voluntarily assumed, simply
witnesses to the execution of said document. If indeed, because their contracts turned out to be disastrous or
she was forced to sign said document, then Jocelyn unwise investments."22
should have immediately taken the proper legal remedy.
WHEREFORE, the instant petition for review
But she did not. Furthermore, it must be noted that after
on certiorari is DENIED. The Decision of the Court of
the execution of said document, Jocelyn honored the
Appeals in CA-G.R. CV No. 79805 dated August 24, 2005
first three checks before filing the complaint with the
affirming the Decision dated March 10, 2003 of the
RTC. If indeed she was forced she would never have
Regional Trial Court, Branch 22, Cebu City, in Civil Case
made good on the first three checks.
No. CEB-22867 is AFFIRMED.
It is provided, as one of the conclusive presumptions
under Rule 131, Section 2(a), of the Rules of Court that,
"Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to
believe a particular thing to be true, and to act upon such
belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it."
This is known as the principle of estoppel.

"The essential elements of estoppel are: (1) conduct

amounting to false representation or concealment of
material facts or at least calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least
influence, the other party; and, (3) knowledge, actual or
constructive, of the real facts."20

Here, it is uncontested that Jocelyn had in fact signed the

"Acknowledgment of Debt" in April 1998 and two of her
subordinates served as witnesses to its execution,
knowing fully well the nature of the contract she was
entering into. Next, Jocelyn issued five checks in favor of
Marilou representing renewal payment of her loans
amounting to ₱290,000.00. In June 1998, she asked to
recall Check No. 0010761 in the amount of ₱30,000.00
and replaced the same with six checks, in staggered
amounts. All these are indicia that Jocelyn treated the
"Acknowledgment of Debt" as a valid and binding
contract.1avvphi1

More significantly, Jocelyn already availed herself of the

benefits of the "Acknowledgment of Debt," the validity
of which she now impugns. As aptly found by the RTC and
the CA, Jocelyn was making a business out of the loaned
amounts. She was actually using the money to make
advance payments for her prospective clients so that her
sales production would increase. Accordingly, she did not
mind the 6% to 7% interest per month as she was getting
a 50% rebate on her sales.

Clearly, by her own acts, Jocelyn is estopped from

impugning the validity of the "Acknowledgment of Debt."
50
OBLIGATIONS AND CONTRACTS • Sec of Education vs. Heirs of Dulay [G.R. No.
– ATTY R. FLORES 164748. January 27, 2006.]
ART. 1158 1199
• Office of the Solicitor General vs. Ayala Land, • Arco vs. Lim, 727 SCRA 275, June 25, 2014
Incorporated, (600 SCRA 617) September 18, 2009 1201
G.R. No. 177056 • Mondragon Leisure and Resorts Corporation vs.
ART. 1159 Court of Appeals, 460 SCRA 279, June 15, 2005
• Tiu vs Platinum [G.R. No. 163512. February 28, 1207
2007.] • Sinamban vs. China Banking Corporation, 752
ART. 1160 SCRA 621, March 11, 2015
• Siga-An vs. Villanueva, 576 SCRA 696, January 20, 1208
2009 • Petron Corporation vs. Jovero, 663 SCRA 172,
ART. 1163 January 18, 2012
• Philippine National Bank vs. Santos, 744 SCRA 664, 1217
December 10, 2014 • Asset Builders Corporation vs. Stronghold Insurance
ART. 1167 Company, Incorporated, 633 SCRA 370, October 18,
• Heirs of Ramon C. Gaite vs. The Plaza, Inc., 640 2010
SCRA 576, January 26, 2011 1222
ART. 1172 • Philippine Blooming Mills, Inc. vs. Court of Appeals,
• Central Bank vs. Citytrust [G.R. No. 141835. 413 SCRA 445, October 15, 2003
February 4, 2009.] 1225
ART. 1173 • Lam vs. Kodak 778 SCRA 96, January 11, 2016
• Sicam vs George [G.R. No. 159617. August 8, 1226
2007.] • Buenaventura vs Metrobank August 03, 2016
ART. 1174 1229
• Real vs Bello [G.R. No. 146224. January 26, 2007.] • Macalinao vs. Bank of the Philippine Islands, 600
• Mondragon Leisure and Resorts Corporation vs. SCRA 67, September 17, 2009
Court of Appeals, 460 SCRA 279, June 15, 2005 • Banco Filipino Savings and Mortgage Bank vs. Diaz,
493 SCRA 248, June 27, 2006
ART. 1175 1232
• Eastern Shipping vs Court of Appeals [G.R. No. • Cinco vs. Court of Appeals, 603 SCRA 108, October
97412. July 12, 1994.] [243 SCRA 78] 09, 2009
• Central Bank Circular No. 905 1234
• BSP Circular No. 799 • Transcept Construction and Management
• Nacar v. Gallery Frames, Professionals, Inc. vs. Aguilar, 637 SCRA 574,
• Mallari vs. Prudential Bank 697 SCRA 555, June 05, December 08, 2010
2013 G.R. 1235
No. 197861 • Manila International Airport Authority vs. Avia
• Toledo vs. Hyden, 637 SCRA 540, December 08, Filipinas International, Inc., 667 SCRA 34, February
2010 ) 27, 2012
1181
• Yamamoto vs. Nishino Leather [G.R. No. 150283. 1236
April 16, 2008.] • Rosete vs. Briones, 735 SCRA 647, September 22,
1182 2014
• Catungal vs. Rodriguez, 646 SCRA 130, March 23, 1240
2011 • Dela Cruz vs. Concepcion, 684 SCRA 74, October
1184 11, 2012
• Megaworld vs. Majestic 777 SCRA 37, December 1242
09, 2015 • National Power Corporation vs. Ibrahim, 750 SCRA
1185 711, February 18, 2015
• Osmena vs. Power Sector Assets October 05, 2016 1245
1186 • Fort Bonifacio Development Corporation vs. Yllas
• De Leon vs. Ong, 611 SCRA 381, February 02, Lending Corporation, G.R. No. 158997 567 SCRA
2010 454, October 06, 2008
• Federal Express vs. Luwalhati G.R. No. 199455. 1248
June 27, 2018 • Consolidated Industrial Gases, Inc. vs. Alabang
Medical Center, 709 SCRA 409, November 13, 2013
1191 1249
• Fong vs. Dueñas, 757 SCRA 412, June 15, 2015 • Biana vs. Gimenez, 469 SCRA 486, September 09,
• EDS Manufacturing vs. Healthcheck 707 SCRA 133, 2005
October 09, 2013 • Towne & City Development Corporation vs. Court of
• [G.R. No. 185765. September 28, 2016.] Appeals, 434 SCRA 356, July 14, 2004
PHILIPPINE ECONOMIC ZONE AUTHORITY, • Union Bank of the Philippines vs. Tiu, 657 SCRA 86,
petitioner, vs. PILHINO SALES CORPORATION, September 07, 2011
respondent. • BSP Circular 537. Series of 2006
1192 1250
• Lam vs. Kodak 778 SCRA 96, January 11, 2016 • Equitable PCI Bank vs. Ng Sheung Ngor, 541 SCRA
1196 223, December 19, 2007
• Josefa vs. L San Buenaventura [G.R. No. 163429. 1252
March 3, 2006.] • Premiere Development Bank vs. Central Surety &
1197 Insurance Company, Inc., 579 SCRA 359, February
51
13, 2009
• Orix Metro Leasing and Finance Corporation vs. M/V
"Pilar-I", 599 SCRA 345, September 11, 2009
• Sinamban vs. China Banking (G.R. No. 193890,
March 11, 2015)
1253
• Marquez vs. Elisan Credit Corporation, 755 SCRA
31, April 06, 2015
1256
• Cinco vs. Court of Appeals, 603 SCRA 108, October
09, 2009
• Cacayorin vs. Armed Forces and Police Mutual
Benefit Association, Inc., 696 SCRA 311, April 15,
2013
1260
• Banco Filipino Savings and Mortgage Bank vs. Diaz,
493 SCRA 248, June 27, 2006
1263
• Gaisano Cagayan, Inc. vs. Insurance Company of
North America, 490 SCRA 286, June 08, 2006
1266
• De Leon vs Ong, [G.R. No. 170405. February
2,2010.]
1267
• Poon vs Prime Savings Bank June 13, 2016
• Tagaytay Realty Co., Inc. vs. Gacutan, 761 SCRA
87, July 01, 2015
• Comglasco Corporation vs. Santos Car Check
Center Corporation, 754 SCRA 481, March 25, 2015
1278
• BPI VS CA [GR 136202 Jan. 25, 2007]
1279
• Mondragon Personal Sales, Inc. vs. Sola, Jr., 689
SCRA 18, January 21, 2013
1291
• Arco Pulp and Paper Co., Inc. vs. Lim, 727 SCRA
275, June 25, 2014
1293
• Bognot vs. RRI Lending Corporation, 736 SCRA
357, September 24, 2014
• Bank of the Philippine Islands vs. Domingo, 754
SCRA 245, March 25, 2015
1300
• Ledonio vs. Capitol Development Corporation, 526
SCRA 379, July 04, 2007
1301
• Licaros vs. Gatmaitan, 362 SCRA 548, August 09,
2001
1302
• Metropollitan Bank and Trust Company vs. Rural
Bank of Gerona, Inc., 623 SCRA 69, July 05, 2010

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