Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6913

November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEA, administrator of the estate of Father Agustin de la
Pea, defendant-appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.
MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding
to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Pea was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the estate
of Father De la Pea.
In the year 1898 the books Father De la Pea, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same year
he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly
thereafter and during the war of the revolution, Father De la Pea was arrested by the military
authorities as a political prisoner, and while thus detained made an order on said bank in favor of
the United States Army officer under whose charge he then was for the sum thus deposited in said
bank. The arrest of Father De la Pea and the confiscation of the funds in the bank were the result
of the claim of the military authorities that he was an insurgent and that the funds thus deposited
had been collected by him for revolutionary purposes. The money was taken from the bank by the
military authorities by virtue of such order, was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds
was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case
leads us to the conclusion that said trust funds were a part of the funds deposited and which were
removed and confiscated by the military authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart
in the Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la
Pea's liability is determined by those portions of the Civil Code which relate to obligations. (Book 4,
Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it
with the diligence pertaining to a good father of a family" (art. 1094), it also provides, following the
principle of the Roman law, major casus est, cui humana infirmitas resistere non potest, that "no
one shall be liable for events which could not be foreseen, or which having been foreseen were
inevitable, with the exception of the cases expressly mentioned in the law or those in which the
obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Pea did not thereby
assume an obligation different from that under which he would have lain if such deposit had not
been made, nor did he thereby make himself liable to repay the money at all hazards. If the had
been forcibly taken from his pocket or from his house by the military forces of one of the
combatants during a state of war, it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor who
must respond at all hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such discussion
as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no
law prohibiting him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who is under obligation to do
or give a thing is in duty bound, when he sees events approaching the results of which will be
dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to
temper the effects of those events, we do not feel constrained to hold that, in choosing between
two means equally legal, he is culpably negligent in selecting one whereas he would not have been
if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action
was deposited by Father De la Pea in the Hongkong and Shanghai Banking Corporation of Iloilo;
that said money was forcibly taken from the bank by the armed forces of the United States during
the war of the insurrection; and that said Father De la Pea was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.
Arellano, C.J., Torres and Carson, JJ., concur.

Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Pea was a trustee or an agent of the plaintiff
his books showed that in 1898 he had in his possession as trustee or agent the sum of P6,641
belonging to the plaintiff as the head of the church. This money was then clothed with all the
immunities and protection with which the law seeks to invest trust funds. But when De la Pea
mixed this trust fund with his own and deposited the whole in the bank to his personal account or
credit, he by this act stamped on the said fund his own private marks and unclothed it of all the
protection it had. If this money had been deposited in the name of De la Pea as trustee or agent of
the plaintiff, I think that it may be presumed that the military authorities would not have
confiscated it for the reason that they were looking for insurgent funds only. Again, the plaintiff had
no reason to suppose that De la Pea would attempt to strip the fund of its identity, nor had he said
or done anything which tended to relieve De la Pea from the legal reponsibility which pertains to
the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page 343,
said: "Trustees are only bound to exercise the same care and solicitude with regard to the trust
property which they would exercise with regard to their own. Equity will not exact more of them.
They are not liable for a loss by theft without their fault. But this exemption ceases when they mix
the trust-money with their own, whereby it loses its identity, and they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no
doubt on this point, the liability of the estate of De la Pea cannot be doubted. But this court in the
majority opinion says: "The fact that he (Agustin de la Pea) placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor who
must respond at all hazards. . . . There was no law prohibiting him from depositing it as he did, and
there was no law which changed his responsibility, by reason of the deposit."
I assume that the court in using the language which appears in the latter part of the above
quotation meant to say that there was no statutory law regulating the question. Questions of this
character are not usually governed by statutory law. The law is to be found in the very nature of the
trust itself, and, as a general rule, the courts say what facts are necessary to hold the trustee as a
debtor.

If De la Pea, after depositing the trust fund in his personal account, had used this money for
speculative purposes, such as the buying and selling of sugar or other products of the country,
thereby becoming a debtor, there would have been no doubt as to the liability of his estate.
Whether he used this money for that purpose the record is silent, but it will be noted that a
considerable length of time intervened from the time of the deposit until the funds were confiscated
by the military authorities. In fact the record shows that De la Pea deposited on June 27, 1898,
P5,259, on June 28 of that year P3,280, and on August 5 of the same year P6,000. The record also
shows that these funds were withdrawn and again deposited all together on the 29th of May, 1900,
this last deposit amounting to P18,970. These facts strongly indicate that De la Pea had as a
matter of fact been using the money in violation of the trust imposed in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter arising in this
jurisdiction trust funds will be placed in precarious condition. The position of the trustee will cease
to be one of trust.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
C.A. No. 34

April 29, 1946

ENGRACIO OBEJERA and MERCEDES INTAK, plaintiffs-appellees,

vs.
IGA SY, defendant-appellant.
Pedro Panganiban for appellant.
Jose Mayo Librea for appellees.
JARANILLA, J.:
By virtue of the appeal filed against the decision of the Court of First Instance of Batangas
annulling, on the ground of force and intimidation, the deed of transfer executed on April 9, 1942
(Exhibit Y), whereby the plaintiffs and appellees agreed to transfer to the defendant and appellant
their property assessed at P2,230 in case they failed to return to the defendant on December 31,
1942 the balance of P3,697 and pieces of jewelry worth P400 allegedly deposited with the plaintiffs
on January 2, 1942, the above-entitled case was submitted to this court for review.
On December 13, 1941, plaintiffs and defendant sought refuge in the house of Leon Villena, barrio
lieutenant of Dalig, Batangas, Batangas, on account of the Japanese invasion of the Philippines.
On January 2, 1942, news having spread that the Japanese forces were closing in and were
committing barbarous acts, which gripped the people in terror, plaintiffs and defendant, after
consultation with their host Leon Villena, decided to hide their things and valuables in a dug-out
belonging to Leon Villena about thirty meters away from his house. The defendant placed in said
dug-out her money allegedly amounting to P5,021 and jewelry worth P400 in her own container;
Leon Villena and his wife also placed therein their own things; the plaintiffs also placed their things
and money allegedly amounting to P3,000. They did this at night and covered the dug-out with
palay belonging to Leon Villena and the defendant Iga Sy.
On February 18, 1942, at the instance of the defendant who desired to move to another house, the
plaintiffs and the defendant, together with Leon Villena, among others, went to the dug-out to take
out the defendant's container and discovered, to their consternation, that their money and things,
except for a few papers, had been lost.
One day during the first week of April, 1942, the defendant reported the loss of her money and
jewels, causing the arrest and investigation of Leon Villena, two others and the plaintiff Engracio
Obejera, who where released shortly after, except Engracio Obejera who was released only on April
19, 1942 after he, with his wife, had consented to execute Exhibit Y which document was sought to
be annulled by the plaintiffs and appellees herein.
The defendant and appellant contends that she deposited her money and jewelry with the plaintiffs
and that the plaintiffs, acknowledging liability for the loss of her money and jewelry, offered to
transfer their property under Transfer Certificate of Title No. 666 and accordingly executed the
document in question. On the other hand, the plaintiffs deny the alleged deposit, deny knowledge
of the loss of the defendant's money and jewelry, and claim that their consent to the deed of
transfer was obtained through violence and intimidation.
After a careful consideration of the nine assignments of error and examination of the evidence of
this case, the contention of the defendant and appellant cannot be sustained. The alleged deposit
cannot be believed and is contrary to the ordinary course of nature and the ordinary habits of life
(section 69 [z], Rule 123, Rules of Court). Leon Villena, the barrio lieutenant, policemen Ruperto
Buenafe and Apolonio Corpuz, and Mayor Berberabe were uniform in their testimony that in their
investigation of the case, the plaintiff Engracio Obejera admitted that he agreed to keep and be
responsible for the defendant's things. It appears, however, that Leon Villena himself and his son
Balbino participated in the hiding, and acknowledged liability for the loss, of the defendant's things.
Exhibit 1, apparently prepared for the benefit of the defendant, reads as follows, "I, Mercedes Intak,

wife of Engracio Obejera who was the companion of chief Leon Villena and the latter's son Balbino
Villena in hiding (under ground) the money and jewels of Iga Sy ...," and mentions nothing
regarding the alleged deposit. And the deed of the transfer (Exhibit Y) states, "... and we, on the
other hand, the said Leon Villena and Balbino Villena, because we are responsible for one-half of the
money and jewels still unrecovered, I, Leon Villena, promise to transfer to Engracio Obejera my four
parcels of land ...." Now, if Leon Villena and his son had taken part in the hiding of the defendant's
money and jewelry and acknowledged responsibility therefor, as evidenced by the said documents,
then his claim and the defendant's claim that Engracio Obejera alone agreed to keep and be
responsible for those things is false; and it follows that the same claim of policemen Ruperto
Buenafe and Apolonio Corpus and Mayor Berberabe are likewise false.
It should also be considered, in this connection, that the dug-out into which the plaintiffs and the
defendant hid their money and valuables belongs to Leon Villena; that the plaintiffs and the
defendant only sought refuge in his house; that neither the plaintiffs nor the defendant had,
therefore, control over, or absolute and exclusive access, to the dug-out, as proved by the fact that
when the defendant decided to take her things with her because she was going to move to another
house, two days before the discovery of the loss, she asked their host Leon Villena to allow and help
her removed her things. Under these circumstances, it is hard to believe that plaintiff Engracio
Obejera would assume responsibility over the defendant's things hidden in a place not belonging to
him but to Leon Villena, in whose house they only sought refuge and were like guests, and
especially at a time when the confusion and fear resulting from the Japanese invasion and fast
advance so gripped everyone that nobody could be sure of his own things and even of his life. The
more natural conclusion is that plaintiffs and defendant decided to hide their things in the dug-out
of their host Leon Villena, thinking it to be the safest place, and hoping, like many and all others, in
those horrible days, that they might recover them, if at all, after the confusion and uncertainty. This,
in case Leon Villena himself, as was the most natural thing to happen, did not offer to his guests to
take care of their things by hiding them in his dug-out, for he and his son, as a matter of fact, took
part in the safekeeping and they even covered the dug-out afterwards with their own palay
together with the palay of the defendant; later he had to give his consent and actually
accompanied the plaintiffs and the defendant when the latter wanted to take out her things from
the dug-out; and then, after the discovery of the loss, he and his son admitted liability for the loss
of the defendant's things as evidenced by both Exhibits 1 and Y.
Even if the defendant's theory of deposit were sustained, any obligation arising therefrom was
extinguished upon the loss, without the fault of the depositee and under circumstances which at the
time were inevitable (article 1182 in connection with article 1766, and article 1105, Civil Code), of
the things allegedly deposited. The evidence of record, in this regard, uniformly shows that the
plaintiffs were not in any way responsible for the loss of the defendant's money and jewelry. Both
Mayor Roman L. Perez and Chief of Police Apolonio Corpus testified that they did not find any
evidence that the plaintiffs, who also lost their own valuables, could be in any manner connected
with the loss. Even the documents, Exhibits 1 and Y, so much relied upon by the defendant and
evidently prepared for her benefit, having been written on the same typewriter, do not state any
such connection.
In the case of Lizares vs. Hernaez and Alunan (40 Phil., 981, 991), the Supreme Court held:
In this bailment ordinary care and diligence are required of the bailee and he is not liable for
the inevitable loss or destruction of the chattel, not attributable to his fault. If while the
bailment continues, the chattel is destroyed, or stolen, or perishes, without negligence on
the bailee's part, the loss as in other hirings, falls upon the owner, in accordance with the
maxim res perit domino . . . .
To the same effect are the cases of Crame Sy Panco vs. Gonzaga (10 Phil., 646, 648), in which it
was held that the death of the carabaos in that case being fortuitous, the obligation of the
defendants therein to return them was extinguished as a matter of fact and of law; of Insular
Government vs. Bingham (13 Phil., 558, 571), in which the defendant therein was absolved from the
obligation to deliver to the Government of the Philippine Islands a revolver with ammunition which
went down and were lost when his boat was sunk in a storm through no fault of his or his crew; and
of Yap Kim Chuan vs. Tiaoqui (31 Phil., 433, 440), in which the defendant therein was held not
responsible for the wetting sustained by the goods and merchandise of the plaintiffs therein as a
result of the torrential rainfall.
It necessarily follows that the deed of transfer dated April 19, 1942 (Exhibit Y), whereby the
plaintiffs paid P500 to the defendant and further promised to transfer their property under Transfer

Certificate of Title No. 666 in case they failed to return on December 31, 1942 the balance of the
loss for which, as already stated, they cannot be held liable, is null and void for lack of cause or
consideration (article 1275, Civil Code). This also applies to the document dated April 11, 1942,
Exhibit 1.
But these two documents are also null and void upon the other ground that the consent of the
plaintiffs therein was obtained through duress and intimidation. The continued detention of the
plaintiff Engracio Obejera from April 11 to 19, 1942 by the mayor and policemen of Batangas, in
spite of the fact that they had not found any evidence against the plaintiffs; the fact that the
municipal policemen applied continuous pressure on the plaintiffs to make good the loss, so that
the plaintiff's wife, accompanied by policeman Ruperto Buenafe, had to raise, with much difficulty,
the amount of P500 to secure the settlement of the case; the fact that Mayor Roman L. Perez,
although he never intended to keep the plaintiff Engracio Obejera in detention as he did not believe
him guilty at all and did not consider himself empowered to order his detention, did not,
nevertheless, release the plaintiff until he and his wife consented to execute the deed of transfer,
Exhibit Y, in spite of their continuous protestations of innocence and supplications of mercy; and the
fear created in the minds of the plaintiffs that they would be delivered to the Japanese soldiers and
suffer cruel punishment, if not death, in their hands, unless they executed the said deed of transfer,
all show very clearly the irresistible force and intimidation employed, in this case, to coerce the
plaintiffs into executing the said document, rendering it, therefore, null and void for lack of free
consent (articles 1265, 1267, 1268, Civil Code).
In Jalbuena vs. Ledesma (8 Phil., 601, 605), we held:
In this instance the signing of an undertaking appears to have been insisted upon by the
judge in the presence and at the instance of the opposing party, and to have been expressly
made the condition of non-imprisonment, amid circumstances of procedure quite unusual in
courts of justice, in a tribunal convened under military auspices and exercising extraordinary
powers. So that there would be reason to say that the consent of the surety was obtained by
coercion, even if the judge had jurisdiction over the case.
In this connection, we reaffirm what we declared in Vales vs. Villa (35 Phil., 769, 789, 790), thus:
But when his sense, judgment, and his will rebel and he refuses absolutely to act as
requested, but is nevertheless overcome by force or intimidation to such an extent that he
becomes a mere automaton and acts mechanically only, a new element enters, namely, a
disappearance of the personality of the actor. He ceases to exist as an independent entity
with faculties and judgment, and in his place is substituted another--the one exercising the
force or making use of the intimidation. While his hand signs, the will which moves it is
another's. While a contract is made, it has, in reality and in law, only one party to it; and,
there being only one party, the one using the force or the intimidation, it is unreasonable for
lack of a second party.
The contention that plaintiffs offered to transfer their property in acknowledgment of their
responsibility for the loss of her things appears groundless. Aside from the fact that it cannot be
believed, as already stated, that there was constituted in this case a deposit, we are of the opinion
that such an offer, made by way of compromise in order that plaintiff Engracio Obejera might only
escape continued detention and grueling punishment or even death in the hands of the Japanese
soldiers, for the alleged loss for which he was not in any way criminally liable, is not an admission of
debt and is not admissible in evidence against the plaintiffs (section 9, Rule 123, Rules of Court).
An offer to compromise is not a confession of debt and is not admissible in evidence (Code
of Civ. Proc., section 346). In a criminal causes for theft (U. S. vs. Maqui, 27 Phil., Rep., 97)
this court said that the weight both of authority and reason sustains the rule which admits
evidence of offers to compromise, in criminal cases, but permits the accused to show that
such offers were not made under the consciousness of guilt, but merely to avoid the
inconvenience of imprisonment or for some other reason which would justify a claim by the
accused that the offer to compromise was not in truth an admission of his guilt and an
attempt to avoid the legal consequences which would ordinarily ensue therefrom. (United
States vs. Torres and Padilla, 34 Phil., 994, 999.) .
On account of its consensual character a compromise, to be valid and effective requires in
its performance meeting of the minds in a certain, spontaneous, and free way with regard to
a definite object or objects; and in case it be shown and proved that there was error, deceit,

violence, or intimidation the compromise would be null, because the consent given therein is
null and void through lack of the indispensable requisites for its validity and effectiveness."
(Hernandez vs. Barcelon, 23 Phil., 599, 608.) .
Wherefore, the decision of the court a quo is hereby affirmed in toto with costs against the
defendant and appellant. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 71049 May 29, 1987
BERNARDINO JIMENEZ, petitioner,
vs.
CITY OF MANILA and INTERMEDIATE APPELLATE COURT, respondents.

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

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

governs liability due to "defective streets, public buildings and other public works" in particular and
is therefore decisive on this specific case.
In the same suit, the Supreme Court clarified further that under Article 2189 of the Civil Code, it is
not necessary for the liability therein established to attach, that the defective public works belong
to the province, city or municipality from which responsibility is exacted. What said article requires
is that the province, city or municipality has either "control or supervision" over the public building
in question.
In the case at bar, there is no question that the Sta. Ana Public Market, despite the Management
and Operating Contract between respondent City and Asiatic Integrated Corporation remained
under the control of the former.
For one thing, said contract is explicit in this regard, when it provides:
II
That immediately after the execution of this contract, the SECOND PARTY shall start
the painting, cleaning, sanitizing and repair of the public markets and talipapas and
within ninety (90) days thereof, the SECOND PARTY shall submit a program of
improvement, development, rehabilitation and reconstruction of the city public
markets and talipapas subject to prior approval of the FIRST PARTY. (Rollo, p. 44)
xxx xxx xxx
VI
That all present personnel of the City public markets and talipapas shall be retained
by the SECOND PARTY as long as their services remain satisfactory and they shall be
extended the same rights and privileges as heretofore enjoyed by them. Provided,
however, that the SECOND PARTY shall have the right, subject to prior approval of the
FIRST PARTY to discharge any of the present employees for cause. (Rollo, p. 45).
VII
That the SECOND PARTY may from time to time be required by the FIRST PARTY, or
his duly authorized representative or representatives, to report, on the activities and
operation of the City public markets and talipapas and the facilities and conveniences
installed therein, particularly as to their cost of construction, operation and
maintenance in connection with the stipulations contained in this Contract. (lbid)
The fact of supervision and control of the City over subject public market was admitted by Mayor
Ramon Bagatsing in his letter to Secretary of Finance Cesar Virata which reads:
These cases arose from the controversy over the Management and Operating
Contract entered into on December 28, 1972 by and between the City of Manila and
the Asiatic Integrated Corporation, whereby in consideration of a fixed service fee,
the City hired the services of the said corporation to undertake the physical
management, maintenance, rehabilitation and development of the City's public
markets and' Talipapas' subject to the control and supervision of the City.
xxx xxx xxx
It is believed that there is nothing incongruous in the exercise of these powers vis-avis the existence of the contract, inasmuch as the City retains the power of
supervision and control over its public markets and talipapas under the terms of the
contract. (Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75).
In fact, the City of Manila employed a market master for the Sta. Ana Public Market whose primary
duty is to take direct supervision and control of that particular market, more specifically, to check
the safety of the place for the public.
Thus the Asst. Chief of the Market Division and Deputy Market Administrator of the City of Manila
testified as follows:

Court This market master is an employee of the City of Manila?

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

Petitioner had the right to assume that there were no openings in the middle of the passageways
and if any, that they were adequately covered. Had the opening been covered, petitioner could not
have fallen into it. Thus the negligence of the City of Manila is the proximate cause of the injury
suffered, the City is therefore liable for the injury suffered by the peti- 4 petitioner.
Respondent City of Manila and Asiatic Integrated Corporation being joint tort-feasors are solidarily
liable under Article 2194 of the Civil Code.
PREMISES CONSIDERED, the decision of the Court of Appeals is hereby MODIFIED, making the City
of Manila and the Asiatic Integrated Corporation solidarily liable to pay the plaintiff P221.90 actual
medical expenses, P900.00 for the amount paid for the operation and management of the school
bus, P20,000.00 as moral damages due to pain, sufferings and sleepless nights and P10,000.00 as
attorney's fees.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 165622

October 17, 2008

MERCURY DRUG CORPORATION and AURMELA GANZON, petitioners,

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

Also, Mercury Drug explained that there is no available medicine known as "Cortisporin Opthalmic"
in the Philippine market.30 Furthermore, what was written on the piece of paper De Leon presented
to Ganzon was "Cortisporin Solution."31 Accordingly, she gave him the only available "Cortisporin
Solution" in the market.
Moreover, even the piece of paper De Leon presented upon buying the medicine can not be
considered as proper prescription.32 It lacked the required information concerning the attending
doctors name and license number.33 According to Ganzon, she entertained De Leons purchase
request only because he was a regular customer of their branch.34
RTC Disposition
On April 30, 2003, the RTC rendered judgment in favor of respondent, the dispositive portion of
which reads:
WHEREFORE, the court finds for the plaintiff.
For pecuniary loss suffered, Mercury Drug Store is to pay ONE HUNDRED FIFTY-THREE PESOS AND
TWENTY-FIVE CENTAVOS (Php 153.25), the value of the medicine.
As moral damages defendants is (sic) ordered to pay ONE HUNDRED THOUSAND PESOS (Php
100,000.00).
To serve as a warning to those in the field of dispensing medicinal drugs discretion of the highest
degree is expected of them, Mercury Drug Store and defendant Aurmila (sic) Ganzon are ordered to
pay plaintiff the amount of THREE HUNDRED THOUSAND PESOS (Php 300,000.00) as exemplary
damages.
Due to defendants callous reaction to the mistake done by their employee which forced plaintiff to
litigate, Defendant (sic) Mercury Drug Store is to pay plaintiff attorneys fees of P50,000.00 plus
litigation expenses.
SO ORDERED.35
In ruling in favor of De Leon, the RTC ratiocinated:
The proximate cause of the ill fate of plaintiff was defendant Aurmila (sic) Ganzons negligent
exercise of said discretion. She gave a prescription drug to a customer who did not have the proper
form of prescription, she did not take a good look at said prescription, she merely presumed plaintiff
was looking for Cortisporin Otic Solution because it was the only one available in the market and
she further presumed that by merely putting the drug by the counter wherein plaintiff looked at it,
paid and took the drug without any objection meant he understood what he was buying. 36
The RTC ruled that although De Leon may have been negligent by failing to read the medicines
label or to instruct his sheriff to do so, Mercury Drug was first to be negligent. 37 Ganzon dispensed a
drug without the requisite prescription.38 Moreover, she did so without fully reading what medicine
was exactly being bought.39 In fact, she presumed that since what was available was the drug
Cortisporin Otic Solution, it was what De Leon was attempting to buy. 40 Said the court:
When the injury is caused by the negligence of a servant or employee, there instantly arises a
presumption of law that there was negligence on the part of the employer or employer either in the
selection of the servant or employee, or in the supervision over him after the selection or both.
xxxx
The theory bases the responsibility of the master ultimately on his own negligence and not on that
of his servant.41
Dissatisfied with the RTC ruling, Mercury Drug and Ganzon elevated the matter to the CA.
Accordingly, they filed their respective briefs. Raising technical grounds, De Leon moved for the
appeals dismissal.
CA Disposition

On July 4, 2008, the CA issued a resolution which granted De Leons motion and dismissed the
appeal. Said the appellate court:
As pointed out by the plaintiff-appellee, the Statement of Facts, Statement of the Case, Assignment
of Errors/issues, Arguments/ Discussions in the Brief make no references to the pages of the
records. We find this procedural lapse justify the dismissal of the appeal, pursuant to Section 1(f),
Rule 50 of the 1997 Rules of Civil Procedure x x x.42
xxxx
"The premise that underlies all appeals is that they are merely rights which arise form a statute;
therefore, they must be exercised in the manner prescribed by law. It is to this end that rules
governing pleadings and practice before the appellate court were imposed. These rules were
designed to assist the appellate court in the accomplishment of its tasks, and overall, to enhance
the orderly administration of justice."
xxxx
x x x If the statement of fact is unaccompanied by a page reference to the record, it may be
stricken or disregarded all together.43
On October 5, 2004, the CA denied Mercury Drugs and Ganzons joint motion for reconsideration.
Although mindful that litigation is not a game of technicalities, 44 the CA found no persuasive
reasons to relax procedural rules in favor of Mercury Drug and Ganzon. 45 The CA opined:
In the case under consideration, We find no faithful compliance on the part of the movants that will
call for the liberal application of the Rules. Section 1(f) of Rule 50 of the 1997 Rules of Civil
Procedure explicitly provides that an appeal may be dismissed by the Court of Appeals, on its own
motion or on that of the appellee, for want of page references to the records as required in Section
13 of Rule 44 of the same rules46
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS APPEAL BASED ON THE
CASES OF DE LIANA VS. CA (370 SCRA 349) AND HEIRS OF PALOMINIQUE VS. CA (134 SCRA 331).
II
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN DISMISSING
PETITIONERS APPEAL DESPITE SUBSTANTIAL COMPLIANCE WITH SECTION 1(F), RULE 60 AND
SECTION 13, RULE 44 OF THE RULES OF COURT.
III
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAVORED MERE TECHNICALITY OVER
SUBSTANTIAL JUSTICE WHICH WILL CERTAINLY CAUSE GRAVE INJUSTICE AND GREAT PREJUDICE TO
PETITIONER CONSIDERING THAT THE ASSAILED DECISION ON APPEAL IS CLUSTERED WITH ERRORS
AND IN CONTRAST with the DECISIONS OF THIS HONORABLE SUPREME COURT.47 (Underscoring
supplied)
Our Ruling
The appeal succeeds in part.
Dismissal of an appeal under Rule 50 is discretionary.
In several cases,48 this Court stressed that the grounds for dismissal of an appeal under Section 1 of
Rule 5049are discretionary upon the appellate court. The very wording of the rule uses the word
"may" instead of "shall." This indicates that it is only directory and not mandatory. 50 Sound

discretion must be exercised in consonance with the tenets of justice and fair play, keeping in mind
the circumstances obtaining in each case.51
The importance of an appellants brief cannot be gainsaid. Its purpose is two-fold: (1) to present to
the court in coherent and concise form the point and questions in controversy; and (2) to assist the
court in arriving at a just and proper conclusion.52 It is considered a vehicle of counsel to convey to
the court the essential facts of a clients case, a statement of the questions of law involved, the law
to be applied, and the application one desires of it by the court. 53
The absence of page reference to the record is a ground for dismissal. It is a requirement intended
to ultimately aid the appellate court in arriving at a just and proper conclusion of the
case.54 However, as earlier discussed, such dismissal is not mandatory, but discretionary on the
part of the appellate court.
This Court has held that the failure to properly cite reference to the original records is
not a fatal procedural lapse.55 When citations found in the appellants brief enable the
court to expeditiously locate the portions of the record referred to, there is substantial
compliance with the requirements of Section 13(c), (d), and (f) of Rule 44.56
In De Leon v. CA,57 this Court ruled that the citations contained in the appellants brief sufficiently
enabled the appellate court to expeditiously locate the portions of the record referred to. They were
in substantial compliance with the rules. The Court said:
Nothing in the records indicate that it was exercised capriciously, whimsically, or with a view of
permitting injury upon a party litigant. For the same reasons, we hold that the respondent Court of
Appeals did not err when it did not dismiss the appeal based on the allegation that appellants brief
failed to comply with the internal rules of said court. 58
Similar to the instant case, the appellants brief in Yuchengco v. Court of Appeals59 contained
references to Exhibits and Transcript of Stenographic Notes and attachments. These were found to
have substantially complied with the requirements of Section 13(c) and (d) of Rule 44.
x x x The Appellants brief may not have referred to the exact pages of the records, however, the
same is not fatal to their cause since the references they made enabled the appellate court to
expeditiously locate the portions referred to. x x x60
It is true that in De Liano v. Court of Appeals,61 this Court held that a statement of facts
unaccompanied by a page reference to the record may be presumed to be without support in the
record and may be stricken or disregarded altogether. However, the instant case is not on all fours
with De Liano.
In De Liano, the appellants brief lacked a Subject Index and a Table of Cases and
Authorities.62 Moreover, the Statement of the Case, Statements of Facts, and Statements of
Arguments had no page references to the record.63 When notified of such defects, defendantsappellants failed to amend their brief to conform to the rules.64 Instead, they continued to argue
that their errors were harmless.65 All these omissions and non-compliance justified the dismissal of
the appeal by the CA.66
In the case under review, although there were no page references to the records, Mercury Drug and
Ganzon referred to the exhibits, TSN, and attachments of the case. Despite its deficiencies, the brief
is sufficient in form and substance as to apprise the appellate court of the essential facts, nature of
the case, the issues raised, and the laws necessary for the disposition of the same.
Reliance on Heirs of Palomique v. Court of Appeals67 is likewise misplaced. In Heirs of Palomique,
the appellants brief did not at all contain a separate statement of facts. 68 This critical omission,
together with the failure to make page references to the record to support the factual allegations,
justified the dismissal of the appeal.69
Rules of procedure are intended to promote, not to defeat, substantial justice. They should not be
applied in a very rigid and technical sense.70 For reasons of justice and equity, this Court has
allowed exceptions to the stringent rules governing appeals.71 It has, in the past, refused to sacrifice
justice for technicality.72

However, brushing aside technicalities, petitioners are still liable. Mercury Drug and
Ganzon failed to exercise the highest degree of diligence expected of them.
Denying that they were negligent, Mercury Drug and Ganzon pointed out that De Leons own
negligence was the proximate cause of his injury. They argued that any injury would have been
averted had De Leon exercised due diligence before applying the medicine on his eye. Had he
cautiously read the medicine bottle label, he would have known that he had the wrong medicine.
Mercury Drug and Ganzon can not exculpate themselves from any liability. As active players in the
field of dispensing medicines to the public, the highest degree of care and diligence is expected of
them.73 Likewise, numerous decisions, both here and abroad, have laid salutary rules for the
protection of human life and human health.74 In the United States case of Tombari v. Conners,75 it
was ruled that the profession of pharmacy demands care and skill, and druggists must exercise care
of a specially high degree, the highest degree of care known to practical men. In other words,
druggists must exercise the highest practicable degree of prudence and vigilance, and the most
exact and reliable safeguards consistent with the reasonable conduct of the business, so that
human life may not constantly be exposed to the danger flowing from the substitution of deadly
poisons for harmless medicines.76
In Fleet v. Hollenkemp,77 the US Supreme Court ruled that a druggist that sells to a purchaser or
sends to a patient one drug for another or even one innocent drug, calculated to produce a certain
effect, in place of another sent for and designed to produce a different effect, cannot escape
responsibility, upon the alleged pretext that it was an accidental or innocent mistake. His mistake,
under the most favorable aspect for himself, is negligence. And such mistake cannot be
countenanced or tolerated, as it is a mistake of the gravest kind and of the most disastrous effect. 78
Smiths Admrx v. Middelton79 teaches Us that one holding himself out as competent to handle
drugs, having rightful access to them, and relied upon by those dealing with him to exercise that
high degree of caution and care called for by the peculiarly dangerous nature of the business,
cannot be heard to say that his mistake by which he furnishes a customer the most deadly of drugs
for those comparatively harmless, is not in itself gross negligence. 80
In our own jurisdiction, United States v. Pineda81 and Mercury Drug Corporation v. Baking are
illustrative.82 In Pineda, the potassium chlorate demanded by complainant had been intended for
his race horses. When complainant mixed with water what he thought and believed was potassium
chlorate, but which turned out to be the potently deadly barium chlorate, his race horses died of
poisoning only a few hours after.
The wisdom of such a decision is unquestionable. If the victims had been human beings instead of
horses, the damage and loss would have been irreparable.83
In the more recent Mercury Drug, involving no less than the same petitioner corporation, Sebastian
Baking went to the Alabang branch of Mercury Drug84 and presented his prescription for Diamicron,
which the pharmacist misread as Dormicum.85 Baking was given a potent sleeping tablet, instead of
medicines to stabilize his blood sugar. 86 On the third day of taking the wrong medicine, Baking
figured in a vehicular accident.87 He fell asleep while driving.88
This Court held that the proximate cause of the accident was the gross negligence of the
pharmacist who gave the wrong medicine to Baking. The Court said:
x x x Considering that a fatal mistake could be a matter of life and death for a buying patient, the
said employee should have been very cautious in dispensing medicines. She should have verified
whether the medicine she gave respondent was indeed the one prescribed by his physician. The
care required must be commensurate with the danger involved, and the skill employed must
correspond with the superior knowledge of the business which the law demands. 89
This Court once more reiterated that the profession of pharmacy demands great care and skill. It
reminded druggists to exercise the highest degree of care known to practical men.
In cases where an injury is caused by the negligence of an employee, there instantly
arises a presumption of law that there has been negligence on the part of the employer,
either in the selection or supervision of ones employees. This presumption may be
rebutted by a clear showing that the employer has exercised the care and diligence of a
good father of the family.90 Mercury Drug failed to overcome such presumption.91

Petitioners Mercury Drug and Ganzon have similarly failed to live up to high standard of diligence
expected of them as pharmacy professionals. They were grossly negligent in dispensing ear drops
instead of the prescribed eye drops to De Leon. Worse, they have once again attempted to shift the
blame to their victim by underscoring his own failure to read the label.
As a buyer, De Leon relied on the expertise and experience of Mercury Drug and its employees in
dispensing to him the right medicine.92 This Court has ruled that in the purchase and sale of drugs,
the buyer and seller do not stand at arms length.93 There exists an imperative duty on the seller or
the druggist to take precaution to prevent death or injury to any person who relies on ones
absolute honesty and peculiar learning.94 The Court emphasized:
x x x The nature of drugs is such that examination would not avail the purchaser anything. It would
be idle mockery for the customer to make an examination of a compound of which he can know
nothing. Consequently, it must be that the druggist warrants that he will deliver the drug called
for.95
Mercury Drug and Ganzons defense that the latter gave the only available Cortisporin solution in
the market deserves scant consideration. Ganzon could have easily verified whether the medicine
she gave De Leon was, indeed, the prescribed one or, at the very least, consulted her supervisor.
Absent the required certainty in the dispensation of the medicine, she could have refused De Leons
purchase of the drug.
The award of damages is proper and shall only be reduced considering the peculiar facts
of the case. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of defendants wrongful act or omission.96
Moral damages are not intended to impose a penalty to the wrongdoer or to enrich the claimant at
the expense of defendant.97 There is no hard and fast rule in determining what would be a fair and
reasonable amount of moral damages since each case must be governed by its peculiar
circumstances.98 However, the award of damages must be commensurate to the loss or injury
suffered.99
Taking into consideration the attending facts of the case under review, We find the amount awarded
by the trial court to be excessive. Following the precedent case of Mercury Drug, We reduce the
amount from P100,000.00 to P50,000.00 only.100 In addition, We also deem it necessary to reduce
the award of exemplary damages from the exorbitant amount of P300,000.00 to P25,000.00 only.
This Court explained the propriety of awarding exemplary damages in the earlier Mercury
Drug case:
x x x Article 2229 allows the grant of exemplary damages by way of example or correction for the
public good. As mentioned earlier, the drugstore business is affected by public interest. Petitioner
should have exerted utmost diligence in the selection and supervision of its employees. On the part
of the employee concerned, she should have been extremely cautious in dispensing
pharmaceutical products. Due to the sensitive nature of its business, petitioner must at all times
maintain a high level of meticulousness. Therefore, an award of exemplary damages in the amount
of P25,000.00 is in order.101 (Emphasis supplied)
It is generally recognized that the drugstore business is imbued with public interest. This can not be
more real for Mercury Drug, the countrys biggest drugstore chain. This Court can not tolerate any
form of negligence which can jeopardize the health and safety of its loyal patrons. Moreover, this
Court will not countenance the cavalier manner it treated De Leon. Not only does a pharmacy owe a
customer the duty of reasonable care, but it is also duty-bound to accord one with respect.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decisions of the CA and the RTC in
Paraaque City are AFFIRMED WITH MODIFICATION, in that the award of moral and exemplary
damages is reduced to P50,000.00 and P25,000.00, respectively.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 143403

January 22, 2003

FILONILA O. CRUZ, petitioner,

vs.
HON. CELSO D. GANGAN, DIR. MARCELINO HANOPOL, AUDITOR GLENDA MANLAPAZ, AND
THE COMMISSION ON AUDIT, respondents.
PANGANIBAN, J.:
While we commend the Commission on Audit for its diligence in safeguarding State properties, we
nonetheless rule that a government employee who has not been proven to be culpable or negligent
should not be held accountable for the loss of a cellular phone stolen from her while she was riding
the Light Railway Transit (LRT). On the other hand, the dogged persistence of petitioner in fighting
for her rights, honor, respect and dignity has not been lost on this Court. She has been true to her
calling as an educator and a role model for our young people.
The Case
For review on certiorari under Rule 64 is Decision No. 2000-1041 dated March 28, 2000, issued by
the Commission on Audit (COA), requiring Dr. Filonila O. Cruz to pay the book value of a lost
government-issued Nokia 909 analog cellular phone. The decretal portion of the Decision reads as
follows:
"Premises considered, and conformably to the adverse recommendations of the Director,
NGAO II and the Auditor, TESDA-NCR in the letter and 2nd Indorsement dated July 13, 1999
and February 26, 1999, respectively, it is regretted that the instant request for relief is
DENIED for want of merit. This being so, the herein petitioner should be required to pay the
book value of the lost government-issued cellular phone."2
The Facts
On Friday afternoon of January 15, 1999, petitioner went to the Regional Office of the Technological
Education and Skills Development Authority (TESDA) in Taguig, Metro Manila for consultation with
the regional director.3After the meeting, petitioner went back to her official station in Caloocan City,
where she was the then Camanava district director of the TESDA, by boarding the Light Railway
Transit (LRT) from Sen. Gil Puyat Avenue to Monumento. On board the LRT, her handbag was
slashed and its contents stolen by an unidentified person. Among the items taken from her were
her wallet and the government-issued cellular phone, which is the subject of the instant case. That
same day, she reported the incident to police authorities who immediately conducted an
investigation. However, all efforts to locate the thief and to recover the phone proved futile.
Three days after, on January 18, 1999, petitioner reported the theft to the regional director of
TESDA-NCR. She did so through a Memorandum, in which she requested relief from accountability
of the subject property. In a 1st Indorsement dated January 19, 1999, the regional director, in turn,
indorsed the request to the resident auditor.
Under a 2nd Indorsement dated February 26, 1999, the resident auditor4 denied the request of
petitioner on the ground that the latter lacked the diligence required in the custody of government
properties. Thus, petitioner was ordered to pay the purchase value of the cell phone (P3,988) and
that of its case (P250), a total of P4,238. The auditors action was sustained by the director of the
National Government Audit Office II (NGAO II). The matter was then elevated to the Commission on
Audit.
Ruling of the Commission on Audit
On appeal, the COA found no sufficient justification to grant the request for relief from
accountability. It explained as follows:

"x x x While it may be true that the loss of the cellular phone in question was due to robbery
(bag slashing), this however, cannot be made as the basis in granting the herein request for
relief from accountability since the accountable officer, Dr. Cruz, failed to exercise that
degree of diligence required under the circumstances to prevent/avoid the loss. When Dr.
Cruz opted to take the LRT which undeniably, was almost always packed and overcrowded
and considering further the day and time she boarded said train which was at about 2:00 to
2:30 P.M. of Friday, she exposed herself to the danger and the possibility of losing things
such as the subject cellular phone to pickpockets. As an accountable officer, she was under
obligation to exercise proper degree of care and diligence in safeguarding the property,
taking into account what a reasonable and prudent man would have done under the
circumstances. Dr. Cruz could have reasonably foreseen the danger that would befall her
and took precautions against its mischievous result. Therefore, having been remiss in her
obligation in the keeping or use of the subject government issued cellular phone, she has to
answer for its loss as required under Section 105 of PD 1445. Additionally, to be exempt
from liability because of fortuitous event as invoked by petitioner Dr. Cruz has no bearing to
the case at bar considering that Article 1174 of the New Civil Code which supports said
contention applies only if the actor is free from any negligence or misconduct by which the
loss/damage may have been occasioned. Further, in Nakpil vs. CA, 144 SCRA 596, one who
creates a dangerous condition cannot escape liability although an act of God may have
intervened. Thus, there being a positive showing of negligence on the part of the petitioner
in the keeping of the subject cellular phone, then, such negligence militates against the
grant of herein request for relief."5
Hence, this Petition.6
Issues
In her Memorandum, petitioner faults the COA with the following alleged errors:
I.
"The Commission Proper committed grave abuse of discretion amounting to excess of
jurisdiction in finding that petitioner failed to exercise that degree of diligence required to
prevent the loss of the government-issued cellular phone when she opted to take the light
railway transit (LRT) in going to her official station in CAMANAVA District, Caloocan City Hall,
Caloocan City[; and]
II.
"The Commission Proper committed grave abuse of discretion when it applied the case of
Nakpil vs. CA, 144 SCRA 596 and disregarded Article 1174 of the New Civil Code in denying
petitioners request for relief from accountability[.]"7
In the main, the issues in this case are: (1) whether petitioner was negligent in the care of the
government-issued cellular phone, and (2) whether she should be held accountable for its loss.
We note that in its Manifestation and Motion dated October 24, 2000, reiterated in a similar
pleading dated March 28, 2001, the Office of the Solicitor General (OSG) sided with petitioner and
prayed for the granting of the Petition. Hence, the COA was herein represented by its general
counsel, Atty. Santos M. Alquisalas.
The Courts Ruling
The Petition is meritorious.
First Issue:
Required Degree of Diligence
The crucial question to ask is whether petitioner should be deemed negligent when, on that fateful
afternoon, she opted to board the LRT where the cellular phone was stolen.
We answer in the negative. Riding the LRT cannot per se be denounced as a negligent act; more so
under the circumstances in this case, in which petitioners mode of transit was influenced by time
and money considerations.

Petitioner boarded the LRT to be able to arrive in Caloocan in time for her 3:00 p.m. meeting. Any
prudent or rational person under similar circumstances can reasonably be expected to do the same.
Possession of a cellular phone would not and should not hinder one from boarding an LRT coach as
petitioner did. After all, whether she took a bus or a jeepney, the risk of theft would have also been
present. Because of her relatively low position and pay, she was not expected to have her own
vehicle or to ride a taxicab. Neither had the government granted her the use of any vehicle.
"Negligence is the omission to do something which a reasonable man, guided upon those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent man and reasonable man would not do. 8
"Negligence is want of care required by the circumstances.9
"The diligence with which the law requires the individual at all times to govern his conduct
varies with the nature of the situation in which he is placed, and the importance of the
act which he is to perform."10(Emphasis supplied)
The Rules11 provide that property for official use and purpose shall be utilized with the diligence of a
good father of a family. Extra-ordinary measures are not called for in taking care of a cellular phone
while in transit. Placing it in a bag away from covetous eyes and holding on to that bag, as done by
petitioner, is ordinarily sufficient care of a cellular phone while travelling on board the LRT. The
records do not show any specific act of negligence on her part. It is a settled rule that negligence
cannot be presumed;12 it has to be proven. In the absence of any shred of evidence thereof,
respondents gravely abused their discretion in finding petitioner negligent.
Granting that the presence or the absence of negligence is a factual matter, the consistent ruling of
this Court is that findings of fact of an administrative agency must be respected, so long as they
are supported by substantial evidence.13 But lacking support, the factual finding of the COA on the
existence of negligence cannot stand on its own and is therefore not binding on the Court.
While we commend the Commission on Audit for its diligence in safeguarding State properties, we
nonetheless hold that a government employee who has not been proven to be culpable or negligent
should not be held accountable for the loss of a cellular phone, which was stolen from her while she
was riding on the LRT.
Second Issue:
Accountability
The assailed COA Decision directly attributed the loss of the cellular phone to a "robbery (bag
slashing)." However, it denies the request of petitioner for relief from accountability, because it
found her to be negligent. Earlier, we have already ruled that the finding of negligence had no
factual or legal basis and was therefore invalid. What now remains to be resolved is whether
petitioner observed the proper procedure for notifying the government of the loss.
Within thirty days of the loss,14 petitioner applied for relief from accountability. We hold that such
application be deemed as the notification of the loss of the subject cellular phone. She has also
done her part in proving that the loss was due to theft or robbery. The resident auditor 15 concerned
and the COA itself have accepted that the robbery or theft had actually taken place. Necessarily, in
the absence of evidence showing negligence on her part, credit for the loss of the cellular phone is
proper under the law.16 It also stands to reason that P4,238 should now be refunded to her. That was
the amount she had to pay on June 3, 1999, upon her retirement from government service at age
65.
Her dogged persistence in pursuing this appeal has not been lost on this Court. We agree that, in
fighting for her rights, she must have spent more than the value of the lost cellular phone. Hence,
we can only applaud her for being true to her calling as an educator and a role model for our young
people. Honor, respect and dignity are the values she has pursued. May her tribe increase!
WHEREFORE, the Petition is GRANTED. The assailed Decision of the Commission on Audit
is REVERSED and SET ASIDE. The request of Petitioner Filonila O. Cruz for relief from accountability
for the lost Nokia 909 analog cellular phone is GRANTED, and the amount of P4,238 paid under
Official Receipt No. 6606743 is ordered to be REFUNDED to her upon finality of this Decision. No
costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185891

June 26, 2013

CATHAY PACIFIC AIRWAYS, Petitioner,

vs.
JUANITA REYES, WILFREDO REYES, MICHAEL ROY REYES, SIXTA LAPUZ, and SAMPAGUITA
TRAVEL CORP., Respondents.
DECISION
PEREZ, J.:
Assailed in this petition for review are the Decision1 dated 22 October 2008 in CA-G.R. CV. No.
86156 and the 6 January 2009 Resolution2 in the same case of the Court of Appeals.
This case started as a complaint for damages tiled by respondents against Cathay Pacific Airways
(Cathay Pacific) and Sampaguita Travel Corp. (Sampaguita Travel), now joined as a respondent. The
factual backdrop leading to the filing of the complaint is as follows:
Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his familys trip to Adelaide, Australia scheduled from 12 April 1997 to 4 May
1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare and was
issued four (4) Cathay Pacific round-trip airplane tickets for Manila-HongKong-Adelaide-HongKongManila with the following record locators:
1wphi1
Name of Passenger

PNR OR RECORD LOCATOR NOS.3

Reyes, Wilfredo

J76TH

Reyes, Juanita

HDWC3

Reyes, Michael Roy

H9VZF

Lapuz, Sixta

HTFMG4

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

No. HTFMG, PNR No. J9R6E, PNR No. J76TH, and PNR No. H9VSE. Cathay Pacific went on to detail
each and every booking, to wit:
1. PNR No. H9V15
Agent: Sampaguita Travel Corp.
Party: Ms. J Reyes, Mr. M R Reyes, Mr. W Reyes
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR.
The itinerary listed above was confirmed booking. However, the itinerary did not include booking for
the return flights. From information retrieved from ABACUS (the booking system used by agents),
the agent has, on 10 April, added segments CX104/CX905 ADL/HKG/MNL 04 MAY on MK status,
which was not a confirmed booking. MK function is used for synchronizing records or for ticketing
purposes only. It does not purport to be a real booking. As a result, no booking was transmitted into
CPAs system.
2. PNR No. HTFMG
Agent: Sampaguita Travel Corp.
Party: Mrs. Sixta Lapuz
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR, CX104/CX907 ADL/HKG/MNL 04/05 MAY.
The above itinerary is the actual itinerary that the passenger has flown. However, for the return
sector, HKG/MNL, the original booking was on CX905 of 04 May. This original booking was confirmed
on 21 Mar. and ticketed on 11 Apr.
This booking was cancelled on 04 May at 9:03 p.m. when CX905 was almost scheduled to leave at
the behest of the passenger and she was re-booked on CX907 of 05 May at the same time.
3. PNR No. J9R6E
Agent: Rajah Travel Corp.
Party: Mrs. Julieta Gaspar, Mrs. Sixta Lapuz, Mrs. Juanita Reyes,
Mr. Michael Roy Reyes, Mr. Wilfredo Reyes.
Itinerary: CX900 & CX902 MNL/HKG 12 APR, CX105 HKG/ADL 12 APR, CX104/CX905 ADL/HKG/MNL
04 MAY & 07 MAY
The party was confirmed initially on CX900/12 Apr, CX105/12 Apr, CX104/CX9095 07 May and on
waiting list for CX902/12 Apr, CX104/CX905 04 May.
However, on 31 Mar., the booking was cancelled by the agent.
4. PNR No. J76TH
Agent: Sampaguita Travel Corp.
Party: Mr. W Reyes
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
The booking on the above itinerary was confirmed initially. When the agent was asked for the ticket
number as the flight CX905 04 May was very critical, the agent has inputted the ticket number on
10 Apr. but has removed the record on 11 April. Since the booking was reflected as not ticketed, the
booking was cancelled on 18 Apr. accordingly.
This PNR was split from another PNR record, H9VSE.
5. PNR No. H9VSE
Agent: Sampaguita Travel Corp.

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

PNR No.

Lapuz, Sixta

H9V15/ J76TH

Reyes, Wilfredo

H9V15/HDWC3

Reyes, Michael Roy

H9V15/H9VZF

Reyes, Juanita

HTFMG7

Sampaguita Travel explained that the Reyeses had two (2) PNRs each because confirmation from
Cathay Pacific was made one flight segment at a time. Sampaguita Travel asserted that it only
issued the tickets after Cathay Pacific confirmed the bookings. Furthermore, Sampaguita Travel
exonerated itself from liability for damages because respondents were claiming for damages arising
from a breach of contract of carriage. Sampaguita Travel likewise filed a cross-claim against Cathay
Pacific and a counterclaim for damages.
During the pre-trial, the parties agreed on the following stipulation of facts:
1. That the plaintiffs did not deal directly with Cathay Pacific Airways;
2. That the plaintiffs did not make their bookings directly with Cathay Pacific Airways;
3. That the plaintiffs did not purchase and did not get their tickets from Cathay Pacific
Airways;
4. That Cathay Pacific Airways has promptly replied to all communications sent by the
plaintiffs through their counsel;
5. That the plane tickets issued to plaintiffs were valid, which is why they were able to
depart from Manila to Adelaide, Australia and that the reason why they were not able to
board their return flight from Adelaide was because of the alleged cancellation of their
booking by Cathay Pacific Airways at Adelaide, save for that of Sixta Lapuz whose booking
was confirmed by Cathay Pacific Airways;
6. That several reservations and bookings for the plaintiffs were done by defendant
Sampaguita Travel Corporation through the computer reservation system and each of such
request was issued a PNR;
7. That, as a travel agent, defendant Sampaguita Travel Corporation merely acts as a
booking/sales/ticketing arm for airline companies and it has nothing to do with the airline
operations;
8. That in the travel industry, the practice of reconfirmation of return flights by passengers is
coursed or done directly with the airline company and not with the travel agent, which has
no participation, control or authority in making such reconfirmations.

9. That in the travel industry, the practice of cancellation of flights is within the control of the
airline and not of the travel agent, unless the travel agent is requested by the passengers to
make such cancellations; and,
10. That defendant Cathay Pacific Airways has advertised that "there is no need to confirm
your flight when travelling with us", although Cathay Pacific Airways qualifies the same to
the effect that in some cases there is a need for reconfirmations. 8
After trial on the merits, the Regional Trial Court (RTC) rendered a Decision, 9 the dispositive part of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendants and
against the herein plaintiff. Accordingly, plaintiffs complaint is hereby ordered DISMISSED for lack
of merit. Defendants counterclaims and cross-claims are similarly ordered dismissed for lack of
merit. No pronouncement as to cost.10
The trial court found that respondents were in possession of valid tickets but did not have
confirmed reservations for their return trip to Manila. Additionally, the trial court observed that the
several PNRs opened by Sampaguita Travel created confusion in the bookings. The trial court
however did not find any basis to establish liability on the part of either Cathay Pacific or
Sampaguita Travel considering that the cancellation was not without any justified reason. Finally,
the trial court denied the claims for damages for being unsubstantiated.
Respondents appealed to the Court of Appeals. On 22 October 2008, the Court of Appeals ordered
Cathay Pacific to pay P25,000.00 each to respondents as nominal damages.
Upon denial of their motion for reconsideration, Cathay Pacific filed the instant petition for review
assigning the following as errors committed by the Court of Appeals:
A.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN HOLDING THAT CATHAY PACIFIC AIRWAYS IS LIABLE FOR NOMINAL DAMAGES FOR ITS
ALLEGED INITIAL BREACH OF CONTRACT WITH THE PASSENGERS EVEN THOUGH CATHAY
PACIFIC AIRWAYS WAS ABLE TO PROVE BEYOND REASONABLE DOUBT THAT IT WAS NOT AT
FAULT FOR THE PREDICAMENT OF THE RESPONDENT PASSENGERS.
B.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN RELYING ON MATTERS NOT PROVED DURING THE TRIAL AND NOT SUPPORTED BY THE
EVIDENCE AS BASIS FOR HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL
DAMAGES.
C.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL DAMAGES TO RESPONDENT
SIXTA LAPUZ.
D.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE ERROR
IN NOT HOLDING SAMPAGUITA TRAVEL CORP. LIABLE TO CATHAY PACIFIC AIRWAYS FOR
WHATEVER DAMAGES THAT THE AIRLINE COMPANY WOULD BE ADJUDGED THE RESPONDENT
PASSENGERS.
E.
ALTERNATIVELY, WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND
REVERSIBLE ERROR WHEN IT FAILED TO APPLY THE DOCTRINE OF STARE DECISIS IN FIXING
THE AMOUNT OF NOMINAL DAMAGES TO BE AWARDED.11
Cathay Pacific assails the award of nominal damages in favor of respondents on the ground that its
action of cancelling the flight bookings was justifiable. Cathay Pacific reveals that upon
investigation, the respondents had no confirmed bookings for their return flights. Hence, it was not
obligated to transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith in
accommodating the respondents despite holding unconfirmed bookings.

Cathay Pacific also scores the Court of Appeals in basing the award of nominal damages on the
alleged asthmatic condition of passenger Michael and old age of Sixta. Cathay Pacific points out
that the records, including the testimonies of the witnesses, did not make any mention of Michaels
asthma. And Sixta was in fact holding a confirmed booking but she refused to take her confirmed
seat and instead stayed in HongKong with the other respondents.
Cathay Pacific blames Sampaguita Travel for negligence in not ensuring that respondents had
confirmed bookings for their return trips.
Lastly, assuming arguendo that the award of nominal damages is proper, Cathay Pacific contends
that the amount should be reduced to P5,000.00 for each passenger.
At the outset, it bears pointing out that respondent Sixta had no cause of action against Cathay
Pacific or Sampaguita Travel. The elements of a cause of action consist of: (1) a right existing in
favor of the plaintiff, (2) a duty on the part of the defendant to respect the plaintiffs right, and (3)
an act or omission of the defendant in violation of such right. 12 As culled from the records, there has
been no violation of any right or breach of any duty on the part of Cathay Pacific and Sampaguita
Travel. As a holder of a valid booking, Sixta had the right to expect that she would fly on the flight
and on the date specified on her airplane ticket. Cathay Pacific met her expectations and Sixta was
indeed able to complete her flight without any trouble. The absence of any violation to Sixtas right
as passenger effectively deprived her of any relief against either Cathay Pacific or Sampaguita
Travel.
With respect to the three remaining respondents, we rule as follows:
The determination of whether or not the award of damages is correct depends on the nature of the
respondents contractual relations with Cathay Pacific and Sampaguita Travel. It is beyond dispute
that respondents were holders of Cathay Pacific airplane tickets and they made the booking through
Sampaguita Travel.
Respondents cause of action against Cathay Pacific stemmed from a breach of contract of carriage.
A contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to another for a fixed
price.13 Under Article 1732 of the Civil Code, this "persons, corporations, firms, or associations
engaged in the business of carrying or transporting passengers or goods or both, by land, water, or
air, for compensation, offering their services to the public" is called a common carrier.
Respondents entered into a contract of carriage with Cathay Pacific. As far as respondents are
concerned, they were holding valid and confirmed airplane tickets. The ticket in itself is a valid
written contract of carriage whereby for a consideration, Cathay Pacific undertook to carry
respondents in its airplane for a round-trip flight from Manila to Adelaide, Australia and then back to
Manila. In fact, Wilfredo called the Cathay Pacific office in Adelaide one week before his return flight
to re-confirm his booking. He was even assured by a staff of Cathay Pacific that he does not need to
reconfirm his booking.
In its defense, Cathay Pacific posits that Wilfredos booking was cancelled because a ticket number
was not inputted by Sampaguita Travel, while bookings of Juanita and Michael were not honored for
being fictitious. Cathay Pacific clearly blames Sampaguita Travel for not finalizing the bookings for
the respondents return flights. Respondents are not privy to whatever misunderstanding and
confusion that may have transpired in their bookings. On its face, the airplane ticket is a valid
written contract of carriage. This Court has held that when an airline issues a ticket to a passenger
confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger
has every right to expect that he would fly on that flight and on that date. If he does not, then the
carrier opens itself to a suit for breach of contract of carriage. 14
As further elucidated by the Court of Appeals:
Now, Article 1370 of the Civil Code mandates that "if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall
control." Under Section 9, Rule 130 of the Rules of Court, once the terms of an agreement have
been reduced to writing, it is deemed to contain all the terms agreed upon by the parties and no
evidence of such terms other than the contents of the written agreement shall be admissible. The
terms of the agreement of appellants and appellee Cathay Pacific embodied in the tickets issued by
the latter to the former are plain appellee Cathay Pacific will transport appellants to Adelaide,
Australia from Manila via Hongkong on 12 April 1991 and back to Manila from Adelaide, Australia
also via Hongkong on 4 May 1997. In addition, the tickets reveal that all appellants have confirmed
bookings for their flight to Adelaide, Australia and back to Manila as manifested by the words "Ok"
indicated therein. Arlene Ansay, appellee Cathay Pacifics Reservation Supervisor, validated this
fact in her testimony saying that the return flights of all appellants to the Philippines on 4 May 1997
were confirmed as appearing on the tickets. Indubitably, when appellee Cathay Pacific initially
refused to transport appellants to the Philippines on 4 May 1997 due to the latters lack of

reservation, it has, in effect, breached their contract of carriage. Appellants, however, were
eventually accommodated and transported by appellee Cathay Pacific to Manila. 15
Cathay Pacific breached its contract of carriage with respondents when it disallowed them to board
the plane in Hong Kong going to Manila on the date reflected on their tickets. Thus, Cathay Pacific
opened itself to claims for compensatory, actual, moral and exemplary damages, attorneys fees
and costs of suit.
In contrast, the contractual relation between Sampaguita Travel and respondents is a contract for
services. The object of the contract is arranging and facilitating the latters booking and ticketing. It
was even Sampaguita Travel which issued the tickets.
Since the contract between the parties is an ordinary one for services, the standard of care required
of respondent is that of a good father of a family under Article 1173 of the Civil Code. This connotes
reasonable care consistent with that which an ordinarily prudent person would have observed when
confronted with a similar situation. The test to determine whether negligence attended the
performance of an obligation is: did the defendant in doing the alleged negligent act use that
reasonable care and caution which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.16
There was indeed failure on the part of Sampaguita Travel to exercise due diligence in performing
its obligations under the contract of services. It was established by Cathay Pacific, through the
generation of the PNRs, that Sampaguita Travel failed to input the correct ticket number for
Wilfredos ticket. Cathay Pacific even asserted that Sampaguita Travel made two fictitious bookings
for Juanita and Michael.
The negligence of Sampaguita Travel renders it also liable for damages.
For one to be entitled to actual damages, it is necessary to prove the actual amount of loss with a
reasonable degree of certainty, premised upon competent proof and the best evidence obtainable
by the injured party. To justify an award of actual damages, there must be competent proof of the
actual amount of loss. Credence can be given only to claims which are duly supported by receipts. 17
We echo the findings of the trial court that respondents failed to show proof of actual damages.
Wilfredo initially testified that he personally incurred losses amounting to P300,000.00 which
represents the amount of the contract that he was supposedly scheduled to sign had his return trip
not been cancelled. During the cross-examination however, it appears that the supposed contractsigning was a mere formality and that an agreement had already been hatched beforehand. Hence,
we cannot fathom how said contract did not materialize because of Wilfredos absence, and how
Wilfredo incurred such losses when he himself admitted that he entered into said contract on behalf
of Parsons Engineering Consulting Firm, where he worked as construction manager. Thus, if indeed
there were losses, these were losses suffered by the company and not by Wilfredo. Moreover, he did
not present any documentary evidence, such as the actual contract or affidavits from any of the
parties to said contract, to substantiate his claim of losses. With respect to the remaining
passengers, they likewise failed to present proof of the actual losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in breaches of
contract, is in order upon a showing that the defendant acted fraudulently or in bad faith. 18 What
the law considers as bad faith which may furnish the ground for an award of moral damages would
be bad faith in securing the contract and in the execution thereof, as well as in the enforcement of
its terms, or any other kind of deceit. In the same vein, to warrant the award of exemplary
damages, defendant must have acted in wanton, fraudulent, reckless, oppressive, or malevolent
manner.19
In the instant case, it was proven by Cathay Pacific that first, it extended all possible
accommodations to respondents.1wphi1 They were promptly informed of the problem in their
bookings while they were still at the Adelaide airport. Despite the non-confirmation of their
bookings, respondents were still allowed to board the Adelaide to Hong Kong flight. Upon arriving in
Hong Kong, they were again informed that they could not be accommodated on the next flight
because it was already fully booked. They were however allowed to board the next available flight
on the following day. Second, upon receiving the complaint letter of respondents, Cathay Pacific
immediately addressed the complaint and gave an explanation on the cancellation of their flight
bookings.
The Court of Appeals is correct in stating that "what may be attributed to x x x Cathay Pacific is
negligence concerning the lapses in their process of confirming passenger bookings and
reservations, done through travel agencies. But this negligence is not so gross so as to amount to
bad faith."20 Cathay Pacific was not motivated by malice or bad faith in not allowing respondents to
board on their return flight to Manila. It is evident and was in fact proven by Cathay Pacific that its
refusal to honor the return flight bookings of respondents was due to the cancellation of one
booking and the two other bookings were not reflected on its computerized booking system.

Likewise, Sampaguita Travel cannot be held liable for moral damages. True, Sampaguita Travel was
negligent in the conduct of its booking and ticketing which resulted in the cancellation of flights. But
its actions were not proven to have been tainted with malice or bad faith. Under these
circumstances, respondents are not entitled to moral and exemplary damages.1wphi1 With
respect to attorneys fees, we uphold the appellate courts finding on lack of factual and legal
justification to award attorneys fees.
We however sustain the award of nominal damages in the amount of P25,000.00 to only three of
the four respondents who were aggrieved by the last-minute cancellation of their flights. Nominal
damages are recoverable where a legal right is technically violated and must be vindicated against
an invasion that has produced no actual present loss of any kind or where there has been a breach
of contract and no substantial injury or actual damages whatsoever have been or can be
shown.21 Under Article 2221 of the Civil Code, nominal damages may be awarded to a plaintiff
whose right has been violated or invaded by the defendant, for the purpose of vindicating or
recognizing that right, not for indemnifying the plaintiff for any loss suffered.
Considering that the three respondents were denied boarding their return flight from HongKong to
Manila and that they had to wait in the airport overnight for their return flight, they are deemed to
have technically suffered injury. Nonetheless, they failed to present proof of actual damages.
Consequently, they should be compensated in the form of nominal damages.
The amount to be awarded as nominal damages shall be equal or at least commensurate to the
injury sustained by respondents considering the concept and purpose of such damages. The
amount of nominal damages to be awarded may also depend on certain special reasons extant in
the case.22
The amount of such damages is addressed to the sound discretion of the court and taking into
account the relevant circumstances,23 such as the failure of some respondents to board the flight on
schedule and the slight breach in the legal obligations of the airline company to comply with the
terms of the contract, i.e., the airplane ticket and of the travel agency to make the correct
bookings. We find the award of P25,000.00 to the Reyeses correct and proper.
Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the bookings
which led to the erroneous cancellation of respondents bookings. Their negligence is the proximate
cause of the technical injury sustained by respondents. Therefore, they have become joint
tortfeasors, whose responsibility for quasi-delict, under Article 2194 of the Civil Code, is solidary.
Based on the foregoing, Cathay Pacific and Sampaguita Travel are jointly and solidarily liable for
nominal damages awarded to respondents Wilfredo, Juanita and Michael Roy.
WHEREFORE, the Petition is DENIED. The 22 October 2008 Decision of the Court of Appeals is
AFFIRMED with MODIFICATION that Sampaguita Travel is held to be solidarily liable with Cathay
Pacific in the payment of nominal damages of ~25,000.00 each for Wilfredo Reyes, Juanita Reyes,
and Michael Rox Reyes. The complaint of respondent Sixta
Lapuz is DISMISSED for lack of cause of action.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 193986

January 15, 2014

EASTERN SHIPPING LINES INC., Petitioner,

vs.
BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD., Respondents.
DECISION
VILLARAMA, JR., J.:
Before this Court is a petition1 for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, seeking the reversal of the Decision 2 of the Court of Appeals (CA) in CAG.R. CV No. 88361, which affirmed with modification the Decision 3 of the Regional Trial Court (RTC),
of Makati City, Branch 138 in Civil Case No. 04-1005.
The facts follow:
On August 29, 2003, Sumitomo Corporation (Sumitomo) shipped through MV Eastern Challenger V9-S, a vessel owned by petitioner Eastern Shipping Lines, Inc. (petitioner), 31 various steel sheets in
coil weighing 271,828 kilograms from Yokohama, Japan for delivery in favor of the consignee
Calamba Steel Center Inc. (Calamba Steel).4 The cargo had a declared value of US$125,417.26 and
was insured against all risk by Sumitomo with respondent Mitsui Sumitomo Insurance Co., Ltd.
(Mitsui). On or about September 6 2003, the shipment arrived at the port of Manila. Upon unloading
from the vessel, nine coils were observed to be in bad condition as evidenced by the Turn Over
Survey of Bad Order Cargo No. 67327. The cargo was then turned over to Asian Terminals, Inc. (ATI)
for stevedoring, storage and safekeeping pending Calamba Steels withdrawal of the goods. When
ATI delivered the cargo to Calamba Steel, the latter rejected its damaged portion, valued at
US$7,751.15, for being unfit for its intended purpose.5
Subsequently, on September 13, 2003, a second shipment of 28 steel sheets in coil, weighing
215,817 kilograms, was made by Sumitomo through petitioners MV Eastern Challenger V-10-S for
transport and delivery again to Calamba Steel.6 Insured by Sumitomo against all risk with
Mitsui,7 the shipment had a declared value of US$121,362.59. This second shipment arrived at the
port of Manila on or about September 23, 2003. However, upon unloading of the cargo from the
said vessel, 11 coils were found damaged as evidenced by the Turn Over Survey of Bad Order Cargo
No. 67393. The possession of the said cargo was then transferred to ATI for stevedoring, storage
and safekeeping pending withdrawal thereof by Calamba Steel. When ATI delivered the goods,
Calamba Steel rejected the damaged portion thereof, valued at US$7,677.12, the same being unfit
for its intended purpose.8
Lastly, on September 29, 2003, Sumitomo again shipped 117 various steel sheets in coil weighing
930,718 kilograms through petitioners vessel, MV Eastern Venus V-17-S, again in favor of Calamba
Steel.9 This third shipment had a declared value of US$476,416.90 and was also insured by
Sumitomo with Mitsui. The same arrived at the port of Manila on or about October 11, 2003. Upon
its discharge, six coils were observed to be in bad condition. Thereafter, the possession of the cargo
was turned over to ATI for stevedoring, storage and safekeeping pending withdrawal thereof by
Calamba Steel. The damaged portion of the goods being unfit for its intended purpose, Calamba
Steel rejected the damaged portion, valued at US$14,782.05, upon ATIs delivery of the third
shipment.10
Calamba Steel filed an insurance claim with Mitsui through the latters settling agent, respondent
BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sums of US$7,677.12,
US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments or for the total
amount of US$30,210.32. Correlatively, on August 31, 2004, as insurer and subrogee of Calamba
Steel, Mitsui and BPI/MS filed a Complaint for Damages against petitioner and ATI. 11

As synthesized by the RTC in its decision, during the pre-trial conference of the case, the following
facts were established, viz:
1. The fact that there were shipments made on or about August 29, 2003, September 13,
2003 and September 29, 2003 by Sumitomo to Calamba Steel through petitioners vessels;
2. The declared value of the said shipments and the fact that the shipments were insured by
respondents;
3. The shipments arrived at the port of Manila on or about September 6, 2003, September
23, 2003 and October 11, 2003 respectively;
4. Respondents paid Calamba Steels total claim in the amount of US$30,210.32. 12
Trial on the merits ensued.
On September 17, 2006, the RTC rendered its Decision, 13 the dispositive portion of which provides:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendants Eastern
Shipping Lines, Inc. and Asian Terminals, Inc., jointly and severally, ordering the latter to pay
plaintiffs the following:
1. Actual damages amounting to US$30,210.32 plus 6% legal interest thereon commencing
from the filing of this complaint, until the same is fully paid;
2. Attorneys fees in a sum equivalent to 25% of the amount claimed;
3. Costs of suit. The defendants counterclaims and ATIs crossclaim are DISMISSED for lack
of merit.
SO ORDERED.14
Aggrieved, petitioner and ATI appealed to the CA. On July 9, 2010, the CA in its assailed Decision
affirmed with modification the RTCs findings and ruling, holding, among others, that both petitioner
and ATI were very negligent in the handling of the subject cargoes. Pointing to the affidavit of Mario
Manuel, Cargo Surveyor, the CA found that "during the unloading operations, the steel coils were
lifted from the vessel but were not carefully laid on the ground. Some were even dropped while
still several inches from the ground while other coils bumped or hit one another at the pier while
being arranged by the stevedores and forklift operators of ATI and [petitioner]." The CA added that
such finding coincides with the factual findings of the RTC that both petitioner and ATI were both
negligent in handling the goods. However, for failure of the RTC to state the justification for the
award of attorneys fees in the body of its decision, the CA accordingly deleted the
same.15 Petitioner filed its Motion for Reconsideration16 which the CA, however, denied in its
Resolution17 dated October 6, 2010.
Both petitioner and ATI filed their respective separate petitions for review on certiorari before this
Court.1wphi1However, ATIs petition, docketed as G.R. No. 192905, was denied by this Court in our
Resolution18 dated October 6, 2010 for failure of ATI to show any reversible error in the assailed CA
decision and for failure of ATI to submit proper verification. Said resolution had become final and
executory on March 22, 2011.19 Nevertheless, this Court in its Resolution20 dated September 3,
2012, gave due course to this petition and directed the parties to file their respective memoranda.
In its Memorandum,21 petitioner essentially avers that the CA erred in affirming the decision of the
RTC because the survey reports submitted by respondents themselves as their own evidence and
the pieces of evidence submitted by petitioner clearly show that the cause of the damage was the
rough handling of the goods by ATI during the discharging operations. Petitioner attests that it had
no participation whatsoever in the discharging operations and that petitioner did not have a choice
in selecting the stevedore since ATI is the only arrastre operator mandated to conduct discharging
operations in the South Harbor. Thus, petitioner prays that it be absolved from any liability relative
to the damage incurred by the goods.
On the other hand, respondents counter, among others, that as found by both the RTC and the CA,
the goods suffered damage while still in the possession of petitioner as evidenced by various Turn
Over Surveys of Bad Order Cargoes which were unqualifiedly executed by petitioners own

surveyor, Rodrigo Victoria, together with the representative of ATI. Respondents assert that
petitioner would not have executed such documents if the goods, as it claims, did not suffer any
damage prior to their turn-over to ATI. Lastly, respondents aver that petitioner, being a common
carrier is required by law to observe extraordinary diligence in the vigilance over the goods it
carries.22
Simply put, the core issue in this case is whether the CA committed any reversible error in finding
that petitioner is solidarily liable with ATI on account of the damage incurred by the goods.
The Court resolves the issue in the negative.
Well entrenched in this jurisdiction is the rule that factual questions may not be raised before this
Court in a petition for review on certiorari as this Court is not a trier of facts. This is clearly stated in
Section 1, Rule 45 of the 1997 Rules of Civil Procedure, as amended, which provides:
SECTION 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law which must be
distinctly set forth.
Thus, it is settled that in petitions for review on certiorari, only questions of law may be put in issue.
Questions of fact cannot be entertained.23
A question of law exists when the doubt or controversy concerns the correct application of law or
jurisprudence to a certain set of facts, or when the issue does not call for an examination of the
probative value of the evidence presented, the truth or falsehood of facts being admitted. A
question of fact exists when the doubt or difference arises as to the truth or falsehood of facts or
when the query invites calibration of the whole evidence considering mainly the credibility of the
witnesses, the existence and relevancy of specific surrounding circumstances as well as their
relation to each other and to the whole, and the probability of the situation. 24
In this petition, the resolution of the question as to who between petitioner and ATI should be liable
for the damage to the goods is indubitably factual, and would clearly impose upon this Court the
task of reviewing, examining and evaluating or weighing all over again the probative value of the
evidence presented25 something which is not, as a rule, within the functions of this Court and
within the office of a petition for review on certiorari.
While it is true that the aforementioned rule admits of certain exceptions, 26 this Court finds that
none are applicable in this case. This Court finds no cogent reason to disturb the factual findings of
the RTC which were duly affirmed by the CA. Unanimous with the CA, this Court gives credence and
accords respect to the factual findings of the RTC a special commercial court 27 which has expertise
and specialized knowledge on the subject matter28 of maritime and admiralty highlighting the
solidary liability of both petitioner and ATI. The RTC judiciously found:
x x x The Turn Over Survey of Bad Order Cargoes (TOSBOC, for brevity) No. 67393 and Request for
Bad Order Survey No. 57692 show that prior to the turn over of the first shipment to the custody of
ATI, eleven (11) of the twenty-eight (28) coils were already found in bad order condition. Eight (8) of
the said eleven coils were already "partly dented/crumpled " and the remaining three (3) were
found "partly dented, scratches on inner hole, crumple (sic)". On the other hand, the TOSBOC No.
67457 and Request for Bad Order Survey No. 57777 also show that prior to the turn over of the
second shipment to the custody of ATI, a total of six (6) coils thereof were already "partly dented on
one side, crumpled/cover detach (sic)". These documents were issued by ATI. The said TOSBOCs
were jointly executed by ATI, vessels representative and surveyor while the Requests for Bad Order
Survey were jointly executed by ATI, consignees representative and the Shed Supervisor. The
aforementioned documents were corroborated by the Damage Report dated 23 September 2003
and Turn Over Survey No. 15765 for the first shipment, Damage Report dated 13 October 2003 and
Turn Over Survey No. 15772 for the second shipment and, two Damage Reports dated 6 September
2003 and Turn Over Survey No. 15753 for the third shipment.
It was shown to this Court that a Request for Bad Order Survey is a document which is requested by
an interested party that incorporates therein the details of the damage, if any, suffered by a
shipped commodity. Also, a TOSBOC, usually issued by the arrastre contractor (ATI in this case), is a

form of certification that states therein the bad order condition of a particular cargo, as found prior
to its turn over to the custody or possession of the said arrastre contractor.
The said Damage Reports, Turn Over Survey Reports and Requests for Bad Order Survey led the
Court to conclude that before the subject shipments were turned over to ATI, the said cargo were
already in bad order condition due to damage sustained during the sea voyage. Nevertheless, this
Court cannot turn a blind eye to the fact that there was also negligence on the part of the
employees of ATI and [Eastern Shipping Lines, Inc.] in the discharging of the cargo as observed by
plaintiffs witness, Mario Manuel, and [Eastern Shipping Lines, Inc.s] witness, Rodrigo Victoria.
In ascertaining the cause of the damage to the subject shipments, Mario Manuel stated that the
"coils were roughly handled during their discharging from the vessel to the pier of (sic) ASIAN
TERMINALS, INC. and even during the loading operations of these coils from the pier to the trucks
that will transport the coils to the consignees warehouse. During the aforesaid operations, the
employees and forklift operators of EASTERN SHIPPING LINES and ASIAN TERMINALS, INC. were very
negligent in the handling of the subject cargoes. Specifically, "during unloading, the steel coils were
lifted from the vessel and not carefully laid on the ground, sometimes were even dropped while
still several inches from the ground. The tine (forklift blade) or the portion that carries the coils used
for the forklift is improper because it is pointed and sharp and the centering of the tine to the coils
were negligently done such that the pointed and sharp tine touched and caused scratches, tears
and dents to the coils. Some of the coils were also dragged by the forklift instead of being carefully
lifted from one place to another. Some coils bump/hit one another at the pier while being arranged
by the stevedores/forklift operators of ASIAN TERMINALS, INC. and EASTERN SHIPPING
LINES.29 (Emphasis supplied.)
Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier.30 As hereinbefore found by the RTC and affirmed by the CA
based on the evidence presented, the goods were damaged even before they were turned over to
ATI. Such damage was even compounded by the negligent acts of petitioner and ATI which both
mishandled the goods during the discharging operations. Thus, it bears stressing unto petitioner
that common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to
certain exceptions enumerated under Article 173431 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility
of the common carrier lasts from the time the goods are unconditionally placed in the possession
of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive
them.32 Owing to this high degree of diligence required of them, common carriers, as a general rule,
are presumed to have been at fault or negligent if the goods they transported deteriorated or got
lost or destroyed. That is, unless they prove that they exercised extraordinary diligence in
transporting the goods. In order to avoid responsibility for any loss or damage, therefore, they have
the burden of proving that they observed such high level of diligence. 33 In this case, petitioner failed
to hurdle such burden.
In sum, petitioner failed to show any reversible error on the part of the CA in affirming the ruling of
the RTC as to warrant the modification, much less the reversal of its assailed decision.
WHEREFORE, the petition is DENIED. The Decision dated July 9, 2010 of the Court of Appeals in CAG.R. CV No. 88361 is hereby AFFIRMED.
With costs against the petitioner.SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 170942

August 28, 2013

COMSAVINGS BANK (NOW GSIS FAMILY BANK), PETITIONER,

vs.
SPOUSES DANILO AND ESTRELLA CAPISTRANO, RESPONDENTS.
DECISION
BERSAMIN, J.:
A banking institution serving as an originating bank for the Unified Home Lending Program (UHLP)
of the Government owes a duty to observe the highest degree of diligence and a high standard of
integrity and performance in all its transactions with its clients because its business is imbued with
public interest.
The Case
Comsavings Bank (now GSIS Family Bank) seeks the review and reversal of the decision
promulgated on November 30, 2005,1 whereby the Court of Appeals (CA) affirmed with
modifications the decision rendered on April 25, 2003 by the Regional Trial Court (RTC), Branch 135,
in Makati City finding it liable for damages to respondents.2
Antecedents
Respondents were the owners of a residential lot with an area of 200 square meters known as Lot 8
of Block 4 of the Infant Jesus Subdivision situated in Bacoor, Cavite, and covered by Transfer
Certificate of Title (TCT) No. 316885 of the Register of Deeds of Cavite. Desirous of building their
own house on the lot, they availed themselves of the UHLP implemented by the National Home
Mortgage Finance Corporation (NHMFC). On May 28, 1992, they executed a construction contract
with Carmencita Cruz-Bay, the proprietor of GCB Builders, for the total contract price
of P265,000.00 with the latter undertaking to complete the construction within 75 days. To finance
the construction, GCB Builders facilitated their loan application with Comsavings Bank, an NHFMCaccredited originator. As proof of their qualifications to avail themselves of a loan under the UHLP
and to comply with the conditions prescribed for the approval of their application, they submitted
their record of employment, the amount of their income, and a clearance from the Social Security
System (SSS) to the effect that they had no existing loans, among others. On May 28, 1992, they
executed in favor of GCB Builders a deed of assignment of the amount of the P300,000.00 proceeds
of the loan from Comsavings Bank.
On July 2, 1992, Comsavings Bank informed respondent Estrella Capistrano that she would have to
sign various documents as part of the requirements for the release of the loan. Among the
documents was a certificate of house completion and acceptance. On the same date, Comsavings
Bank handed Estrella a letter addressed to GCB Builders informing the latter that respondents had
complied with the preliminary requirements of the UHLP, and were qualified to avail themselves of
the loan amounting to P303,450.00 payable within 25 years at 16% per annum, subject to the
following terms and conditions, namely: the signing of mortgage documents, 100% completion of
the construction of the housing unit, original certificate of occupancy permit and certification of
completion, and submission of house pictures signed by the borrower at the back.
On August 10, 1992, Comsavings Bank informed respondents of the approval of an interim
financing loan of P260,000.00 payable within 180 days, which amount was to be paid out of the
proceeds of the loan from NHMFC. By October 9, 1992, GCB Builders received from Comsavings
Bank the total sum of P265,000.00 as construction cost in four releases, to wit:
August 7, 1992
- P39,210.00
August 19, 1992
- P112,181.00
September 3, 1992
- P53,565.00

October 9, 1992
- P24,779.253
In late September 1992, after Comsavings Bank had released the total of P265,000.00 to GCB
Builders as construction cost, respondents inquired from GCB Builder when their house would be
completed considering that their contract stipulated a completion period of 75 days. Cruz-Bay gave
various excuses for the delay, such as the rainy season, but promised to finish the construction as
soon as possible. The year 1992 ended with the construction of the house unfinished. 4
In February 1993, respondents demanded the completion of the house. In reply, Cruz-Bay told them
to give the further amount of P25,000.00 to finish the construction. They requested a breakdown of
the amounts already spent in the construction considering that the P303,450.00 that Comsavings
Bank had been paid by NHMFC on their loan had been more than the contract price of the contract.
Instead of furnishing them the requested breakdown, GCB Builders counsel sent a demand letter
for an additional construction cost of P52,511.59.
On May 30, 1993, respondents received a letter from NHMFC advising that they should already start
paying their monthly amortizations of P4,278.00 because their loan had been released on April 20,
1993 directly to Comsavings Bank. On June 1, 1993, Estrella Capistrano went to the construction
site and found to her dismay that the house was still unfinished. She noted that there were no
doorknobs; that the toilet bath floor was not even constructed yet because the portion of the house
was still soil; that there were no toilet and bathroom fixtures; that the toilet and bath wall tiles had
no end-capping; that there were cracks on the wall plastering; that the kitchen sink had no
plumbing fixtures; and that the main door installed was a flush-type instead of the sliding door
specified in the approved plans.
On July 5, 1993, respondents wrote to NHMFC protesting the demand for amortization payments
considering that they had not signed any certification of completion and acceptance, and that even
if there was such a certification of completion and acceptance, it would have been forged.
On July 14, 1993, respondents again wrote to NHMFC requesting an ocular inspection of the
construction site.
On November 11, 1993, Atty. Ruben C. Corona, the Manager of the Collateral Verification & External
Examination Department of NHMFC, informed the counsel of respondents that the inspection of the
construction site conducted on August 4, 1993 showed the following:
1) That the subject unit is being occupied by tenant, a certain Mr. Mark Inanil;
2) That the toilet/bath and kitchen counter are not installed with Plumbing fixtures;
3) That there are no door knobs on bedroom and no handles on Kitchen cabinet;
4) That the toilet bath has no concrete flooring and the tiles has no end/corner cappings; and
5) That there are hairline cracks on flooring.5
On July 12, 1993, respondents sued GCB Builders and Comsavings Bank for breach of contract and
damages,6praying that defendants be ordered jointly and severally liable: (1) to finish the
construction of the house according to the plans and specifications agreed upon at the price
stipulated in the construction contract; and (2) to pay them P38,450.00 as the equivalent of the
mortgage value in excess of the contract price; P25,000.00 as actual damages for the expenses
incurred by reason of the breach of contract; P200,000.00 as moral damages; P30,000.00 as
attorneys fees; and P50,000.00 as exemplary damages.
Respondents amended their complaint to implead NHMFC as ab additional defendant. Aside from
adopting the reliefs under the original complaint, they prayed that NHMFC be directed to hold in
abeyance its demand for amortization payment until the case had been finally adjudged; that
NHMFC, GCB Builders and Comsavings Bank be ordered to pay moral and exemplary damages, and
attorneys fees; and that GCB Builders and Comsavings be directed to pay P4,500.00 as monthly
rental from the filing of the complaint until the house was turned-over and accepted by them. 7

In their respective answers,8 GCB Builders, Comsavings Bank and NHMFC asserted that the
complaint as amended stated no cause of action against them. On its part, GCB Builders claimed
that the construction of the house had been completed a long time ago; that respondent had failed,
despite demand, to occupy the house and to pay a balance of P46,849.94 as of August 23, 1993;
and that it had received only P239,355.30 out of the P303,000.00 loan, inasmuch as the balance
went to interim interest, originator fee, service charge and other bank charges. Comsavings Bank
averred that respondents were estopped from assailing their signing of the certificate of house
acceptance/completion on July 2, 1992 considering that they had the option not to pre-sign the
certificate; and that it did not make any representation as to the conditions and facilitation of the
loan with NHMFC when it submitted the certificate of house acceptance/completion to NHMFC after
the completion of the house on April 20, 1993 because such representations were normal and
regular requirements in loan processing of the conduit banks of NHMFC. Lastly, NHMFC alleged that
it administered the UHLP of the Government by granting financing to qualified home borrowers
through loan originators, like Comsavings Bank in this case; and that respondents had applied and
had been granted a housing loan, and, as security, they had executed a loan and mortgage
agreement and promissory note for P303,450.00 dated July 2, 1992.
Decision of the RTC
On April 25, 2003, after trial, the RTC rendered a decision in favor of respondents. 9 Specifically, it
found that although the proceeds of the loan had been completely released, the construction of the
house of respondents remained not completed; that the house had remained in the possession of
GCB Builders, which had meanwhile leased it to another person; that GCB Builders did not comply
with the terms and conditions of the construction contract; and that NHMFC approved the loan in
the gross amount of P303,450.00, and released P289,000.00 of that amount to Comsavings Bank
on April 20, 1993. It concluded that respondents were entitled to recover from all defendants actual
damages of P25,000.00; moral damages for their mental anguish and sleepless night in the amount
of P200,000.00; exemplary damages of P100,000.00; and P30,000.00 as attorneys fees. It ruled,
however, that only GCB Builders was liable for the monthly rental of P4,500.00 because GCB
Builders was alone in renting out the house; and that NHMFC was equally liable with the other
defendants by reason of its having released the loan proceeds to Comsavings Bank without
verifying whether the construction had already been completed, thereby indicating that NHMFC had
connived and confederated with its co-defendants in the irregular release of the loan proceeds to
Comsavings Bank.
The RTC disposed thusly:
WHEREFORE, judgment is hereby rendered ordering:
Defendants GCB Builder, COMSAVINGS BANK, and NATIONAL HOUSING FINANCE MORTGAGE
CORPORATION (sic) jointly and severally:
1.1 To complete the construction of the house of plaintiff Spouses DANILO and ESTRELLA
CAPISTRANO within thirty 30 days;
1.2 To pay said plaintiffs:
1.2.1 P25,000.00 in actual damages;
1.2.2 P200,000.00 in moral damages;
1.2.3 P100,000.00 in exemplary damages;
1.2.4 P30,000.00 as attorneys fees.
Defendant GCB Builder to pay the plaintiffs the amount of P4,500.00, as rentals from the date of the
filing of the Complaint until the construction of the house is completed, turned over to and accepted
by the plaintiffs;
Defendants NHMFC to hold in abeyance the collection of the amortizations until 30 days from the
completion and acceptance by the plaintiffs of the house in question.
SO ORDERED.10

GCB Builders, Comsavings Bank and NHMFC appealed to the CA.

Decision of the CA
GCB Builders assigned the following errors to the RTC, namely:
IN FINDING THAT THE HOUSE IN QUESTION WAS NOT COMPLETED.
IN FINDING THAT GCB BUILDERS DID NOT COMPLY WITH THE TERM AND CONDITIONS OF THE
CONSTRUCTION.
IN NOT FINDING THAT THE PLAINTIFFS ARE LIABLE TO PAY DEFENDANT GCB THE AMOUNT
OF P45,000.00.
IN RENDERING WITHOUT LEGAL AND FACTUAL BASIS THE DECISION, THE DISPOSTIVE PORTION OF
WHICH READS, AS FOLLOWS:
xxxx
IN NOT GRANTING THE RELIEFS PRAYED FOR IN THE COUNTERCLAIM;
IN NOT DISMISSING THE COMPLAINT.11
Comsavings Bank phrased its assignment of error thuswise:
I
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT COMSAVINGS BANK IS JOINTLY
AND SEVERALLY LIABLE WITH THE OTHER DEFENDANTS-APPELLANTS GCB BUILDERS AND NATIONAL
HOME MORTGAGE FINANCE CORPORATION TO PAY PLAINTIFFS-APPELLEES ACTUAL, MORAL AND
EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES.12
NHMFC ascribes to the RTC the following errors, to wit:
I
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT NATIONAL HOME
MORTGAGE FINANCE CORPORATION IS JOINTLY AND SEVERALLY LIABLE WITH THE OTHER
DEFENDANT-APPELLANTS GCB BUILDERS AND COMSAVINGS BANK TO PAY PLAINTIFFSAPPELLEES ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS ATTORNEYS FEES.
II
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT-APPELLANT NATIONAL HOME
MORTGAGE FINANCE CORPORATION SHOULD HOLD IN ABEYANCE THE COLLECTION OF
AMORTIZATION UNTIL 30 DAYS FROM THE COMPLETION AND ACCEPTANCE BY THE
PLAINTIFFS OF THE HOUSE IN QUESTION.13
On November 30, 2005, the CA promulgated the appealed decision, 14 affirming the RTC subject to
the modification that NHMFC was absolved of liability, and that the moral and exemplary damages
were reduced, viz:
xxxx
The Court a quo held appellant Comsavings Bank jointly and severally liable with appellant GCB
Builders since it likewise committed misrepresentations in obtaining the mortgage loan from the
NHMFC in the name of the appellees. We concur. The records show that it was appellant
Comsavings Bank which called up the appellee Estrella Capistrano and had her sign various
documents as part of the documentary requirements for the release of the construction loan. One
of these documents, was the Certificate of House Completion and Acceptance, which, upon
appellant Banks representation was signed by the appellees even if the construction of the house
had not yet started. On July 2, 1992, Comsavings Bank informed appellant GCB Builders that
appellees had provisionally complied with the preliminary requirements under the Unified Home

Lending Program of appellant NHMFC and qualified for a loan in the amount of P303,450.00 payable
in twenty-five (25) years at an interest of 16% per annum. One condition for the approval of the
loan was "100% completion of the construction of the housing unit located on the property
described plus: Original Certificate of Occupancy Permit and Certification of Completion and
Submission of House pictures signed at the back by the borrower. However, the loan documents
which appellant Bank submitted to appellant NHMFC were false. Appellant Comsavings Bank in
order to show that the construction of the subject house had been completed, submitted a
photograph of a toilet/bath with plumbing and fixtures installed when in the truth, as admitted by
appellant GCB Builders, the plumbing fixtures had not (been) installed as the appellees were still
indebted to GCB. Comsavings Bank also submitted photographs of wall tiles of the toilet/bath
showing them to be brown or mustard, but the color of the wall tiles actually installed was white per
testimony of appellee Estrella Capistrano and corroborated by appellant GCB Builders witness
Leopoldo Arnaiz. The appellees complained to appellant NHMFC that the house which they bought
was unfinished on the basis of which NHMFC conducted an inspection of the housing unit and found
the complaint to be true.
By submitting false or forged documents to the NHMFC, appellant Comsavings Bank violated the
warranties contained in the purchase of the loan agreement with appellant NHMFC. On the strength
of such warranties, NHMFC issued Check No. 425824 in the amount of P1,382,806.63 that include
the mortgage loan of the appellees. It must be recalled that the agreement provided among others
that "the housing loan extended to the appellees would be released to and received by Comsavings
Bank, and the latter warrants the genuineness of all loan documents it submitted to NHMFC.
Incidentally, Carmencita B. Cruz, owner and proprietor of appellant GCB Builders admitted that she
is even not an accredited builder of housing units under the Unified Home Lending Program (UHLP)
of the NHMFC in the area. Appellant Comsavings Bank in allowing appellant GCB Builders to
participate in the UHLP program undermined and defeated its real purpose, to help low income
families build their own homes, to the damage and prejudice of the appellees. 15
xxxx
WHEREFORE, in view of all the foregoing, the decision appealed from is AFFIRMED with
MODIFICATIONS. The dispositive portion finding the NHMFC jointly and severally liable with the
other appellants for the payment of actual, moral and exemplary damages, is hereby deleted; the
awards of moral and exemplary damages are reduced to P100,000.00 and P50,000.00, respectively,
and the amount of rentals to be paid by GCB Builders is to be reckoned from August 4, 1993.
SO ORDERED.16
Hence, this further appeal by Comsavings Bank.
Issue
Comsavings Bank submits the lone issue of:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING PETITIONER BANK JOINTLY AND
SEVERALLY LIABLE WITH GCB BUILDERS TO PAY RESPONDENT ACTUAL, MORAL AND EXEMPLARY
DAMAGES, AS WELL AS ATTORNEYS FEES.17
Comsavings Bank insists on its non-liability, contending that it committed no misrepresentation
when it made respondents sign the certificate of house acceptance/completion notwithstanding
that the construction of the house had not yet started; that they agreed to pre-sign the certificate,
although they had the option not to; that it made them sign the certificate to enable them to avoid
the inconvenience of returning back and forth just to sign the certificate; that it made clear to them
during the pre-signing that the certificate would be submitted to NHMFC only after the completion
of the house; that it submitted the certificate to NHMFC after the completion of the construction of
the house on April 23, 2003; that they had thus been informed beforehand of the conditions in presigning the certificate; that choosing to pre-sign the certificate estopped them from questioning the
procedural aspect of the documentation; and that the practice of pre-signing documents was not
expressly prohibited considering that they were not induced to pre-sign the certificate. 18
Ruling
The appeal has no merit.

1.
Comsaving Banks liability was not based on its purchase of loan agreement with NHMFC but on
Article 20 and Article 1170 of the Civil Code
The CA rightfully declared Comsavings Bank solidarily liable with GCB Builders for the damages
sustained by respondents. However, we point out that such liability did not arise from Comsavings
Banks breach of warranties under its purchase of loan agreement with NHMFC. Under the purchase
of loan agreement, it undertook, for value received, to sell, transfer and deliver to NHMFC the loan
agreements, promissory notes and other supporting documents that it had entered into and
executed with respondents, and warranted the genuineness of the loan documents and the
"construction of the residential units."19 Having made the warranties in favor of NHMFC, it would be
liable in case of breach of the warranties to NHMFC, not respondents, eliminating breach of such
warranties as a source of its liability towards respondents.
Instead, the liability of Comsavings Bank towards respondents was based on Article 20 and Article
1170 of the Civil Code, viz:
Article 20. Every person who, contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same.
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.
Based on the provisions, a banking institution like Comsavings Bank is obliged to exercise the
highest degree of diligence as well as high standards of integrity and performance in all its
transactions because its business is imbued with public interest. 20 As aptly declared in Philippine
National Bank v. Pike:21 "The stability of banks largely depends on the confidence of the people in
the honesty and efficiency of banks."
Gross negligence connotes want of care in the performance of ones duties; 22 it is a negligence
characterized by the want of even slight care, acting or omitting to act in a situation where there is
duty to act, not inadvertently but willfully and intentionally, with a conscious indifference to
consequences insofar as other persons may be affected.23 It evinces a thoughtless disregard of
consequences without exerting any effort to avoid them. 24
There is no question that Comsavings Bank was grossly negligent in its dealings with respondents
because it did not comply with its legal obligation to exercise the required diligence and integrity.
As a banking institution serving as an originator under the UHLP and being the maker of the
certificate of acceptance/completion, 25 it was fully aware that the purpose of the signed certificate
was to affirm that the house had been completely constructed according to the approved plans and
specifications, and that respondents had thereby accepted the delivery of the complete house.
Given the purpose of the certificate, it should have desisted from presenting the certificate to
respondents for their signature without such conditions having been fulfilled. Yet, it made
respondents sign the certificate (through Estrella Capistrano, both in her personal capacity and as
the attorney-in-fact of her husband Danilo Capistrano) despite the construction of the house not yet
even starting. Its act was irregular per se because it contravened the purpose of the certificate.
Worse, the pre-signing of the certificate was fraudulent because it was thereby enabled to gain in
the process the amount of P17,306.83 in the form of several deductions from the proceeds of the
loan on top of other benefits as an originator bank.26 On the other hand, respondents were
prejudiced, considering that the construction of the house was then still incomplete and was
ultimately defective. Compounding their plight was that NHMFC demanded payment of their
monthly amortizations despite the non-completion of the house. Had Comsavings Bank been fair
towards them as its clients, it should not have made them pre-sign the certificate until it had
confirmed that the construction of the house had been completed.
Comsavings Bank asserts that it submitted the certificate to NHMFC after the construction of the
house had been completed on April 23, 2003. The assertion could not be true, however, because
Atty. Corona of NHMFC testified that he had inspected the house on August 4, 1993 and had found
the construction to be incomplete and defective.27
Contrary to the claim of Comsavings Bank, the records contain no showing that respondents had
been given the option not to pre-sign the certificate of acceptance/completion; that Comsavings
Bank had made respondents sign the certificate so that they would not be inconvenienced in going

back and forth just to sign the certificate; and that it made clear to them during the pre-signing that
the certificate would be submitted to NHMFC only after the completion of the house. Felicisima M.
Miranda, the loan officer of Comsavings Bank and its sole witness during trial, did not attest to such
option not to pre-sign. Also, Estrella Capistrano (Estrella) mentioned nothing about it during the
trial, testifying only that after signing several documents, including the certificate, she was told by
Comsavings Banks personnel that the documents would be needed for the processing of the
loan.28 Clearly, the supposed option was Comsavings Banks lame justification for the pre-signing of
the certificate.
The submission of pictures of the fully-constructed house bearing the signatures of respondents on
the dorsal sides was a requirement for the release of the loan by Comsavings Bank to GCB Builders,
and for the Comsavings Banks reimbursement of the loan from NHMFC. 29 The signatures were
ostensibly for authentication of the pictures. In its compliance, GCB Builders submitted pictures of a
different house sans the signatures of respondents on the dorsal sides. 30 Ignoring the glaring
irregularity, Comsavings Bank accepted the unsigned (hence, unauthenticated) pictures, released
the loan to GCB Builders, and turned over the pictures to NHMFC for the reimbursement of the loan.
Had Comsavings Bank complied with its duty of observing the highest degree of diligence, it would
have checked first whether the pictures carried the signatures of respondents on their dorsal sides,
and whether the house depicted on the pictures was really the house of respondents, before
releasing the proceeds of the loan to GCB Builders and before submitting the pictures to NHMFC for
the reimbursement. Again, this is an indication of Comsavings Banks gross negligence.
2.
Comsavings Bank is liable for damages
As to the damages that should be awarded to respondents, moral and exemplary damages were
warranted.
Under Article 2219 of the Civil Code, moral damages may be recovered for the acts or actions
referred to in Article 20 of the Civil Code. Moral damages are meant to compensate the claimant for
any physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injuries unjustly caused. 31
In their amended complaint, respondents claimed that the acts of GCB Builders and Comsavings
Bank had caused them to suffer sleepless nights, worries and anxieties. The claim was well
founded. Danilo worked in Saudi Arabia in order to pay the loan used for the construction of their
family home. His anxiety and anguish over the incomplete and defective construction of their
house, as well as the inconvenience he and his wife experienced because of this suit were not
easily probable. On her part, Estrella was a mere housewife, but was the attorney-in-fact of Danilo
in matters concerning the loan transaction. With Danilo working abroad, she was alone in
overseeing the house construction and the progress of the present case. Given her situation, she
definitely experienced worries and sleepless nights. The award of moral damages of P100,000.00
awarded by the CA as exemplary damages is proper.1wphi1
With respect to exemplary damages, the amount of P50,000.00 awarded by the CA as exemplary
damages is sustained. Relevantly, we have held that:
The law allows the grant of exemplary damages to set an example for the public good. The business
of a bank is affected with public interest; thus, it makes a sworn profession of diligence and
meticulousness in giving irreproachable service. For this reason, the bank should guard against
injury attributable to negligence or bad faith on its part. The banking sector must at all times
maintain a high level of meticulousness. The grant of exemplary damages is justified by the initial
carelessness of petitioner, aggravated by its lack of promptness in repairing its error. 32
However, the award of actual damages amounting to P25,000.00 is not warranted. To justify an
award for actual damages, there must be competent proof of the actual amount of loss. Credence
can be given only to claims duly supported by receipts.33 Respondents did not submit any
documentary proof, like receipts, to support their claim for actual damages.
Nonetheless, it cannot be denied that they had suffered substantial losses. Article 2224 of the Civil
Code allows the recovery of temperate damages when the court finds that some pecuniary loss was
suffered but its amount cannot be proved with certainty. In lieu of actual damages, therefore,

temperate damages of P25,000.00 are awarded. Such amount, in our view, is reasonable under the
circumstances.
Article 2208 of the Civil Code allows recovery of attorneys fees when exemplary damages are
awarded or where the plaintiff has incurred expenses to protect his interest by reason of
defendants act or omission. Considering that exemplary damages were properly awarded here, and
that respondents hired a private lawyer to litigate its cause, we agree with the RTC and CA that
the P30,000.00 allowed as attorneys fees were appropriate and reasonable.
A defendant who did not appeal may be benefitted by the judgment in favor of the other defendant
who appealed.34 Thus, the foregoing modifications as to the nature and amount of damages inures
to the benefit of GCB Builders although it did not appeal the ruling of the CA.
WHEREFORE, we AFFIRM the decision promulgated by the Court of Appeals on November 30, 2005,
subject to the MODIFICATIONS that Comsavings Bank and GCB Builders are further ordered to pay,
jointly and severally, to the Spouses Danilo and Estrella Capistrano the following amounts:
(1) P25,000.00 as temperate damages; (2) P30,000.00 as attorneys fees; (3) interest of 6% per
annum on all the amounts of damages reckoned from the finality of this decision; and (4) the costs
of suit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 200468

March 19, 2014

MACARIA ARGUELLES and the HEIRS OF THE DECEASED PETRONIO

ARGUELLES, Petitioners,
vs.
MALARAYAT RURAL BANK, INC., Respondent.
DECISION
VILLARAMA, JR., J.:
Before us is a petition for review on certiorari assailing the Decision 1 dated December 19, 2011 and
Resolution2dated February 6, 2012 of the Court of Appeals (CA) in CA-G.R . CV No. 92555. The CA
had reversed and set aside the July 29, 2008 Decision3 of the Regional Trial Court (RTC) Branch 86,
of Taal, Batangas, in Civil Case No. 66.
The facts, as culled from the records, follow:
The late Fermina M. Guia was the registered owner of Lot 3, a parcel of agricultural land in Barrio
Pinagkurusan, Alitagtag, Batangas, with an area of 4,560 square meters, as evidenced by Original
Certificate of Title (OCT) No. P-129304 of the Register of Deeds of Batangas. On December 1, 1990,
Fermina M. Guia sold the south portion of the land with an approximate area of 1,350 square meters
to the spouses Petronio and Macaria Arguelles.5Although the spouses Arguelles immediately
acquired possession of the land, the Deed of Sale was neither registered with the Register of Deeds
nor annotated on OCT No. P-12930. At the same time, Fermina M. Guia ordered her son Eddie Guia
and the latter's wife Teresita Guia to subdivide the land covered by OCT No. P-12930 into three lots
and to apply for the issuance of separate titles therefor, to wit: Lot 3-A, Lot 3-B, and Lot 3-C.
Thereafter, she directed the delivery of the Transfer Certificate of Title (TCT) corresponding to Lot 3C to the vendees of the unregistered sale or the spouses Arguelles. However, despite their repeated
demands, the spouses Arguelles claimed that they never received the TCT corresponding to Lot 3-C
from the spouses Guia.
Nevertheless, in accordance with the instructions of Fermina M. Guia, the spouses Guia succeeded
in cancelling OCT No. P-12930 on August 15, 1994 and in subdividing the lot in the following
manner:
Lot No.

TCT No.

Registered Owner

3-A

T-83943

Fermina M. Guia

3-B

T-83945

Spouses Datingaling

3-C

T-83944

Fermina M. Guia6

On August 18, 1997, the spouses Guia obtained a loan in the amount of P240,000 from the
respondent Malarayat Rural Banlc and secured the loan with a Deed of Real Estate Mortgage 7 over
Lot 3-C. The loan and Real Estate Mortgage were made pursuant to the Special Power of
Attorney8 purportedly executed by the registered owner of Lot 3-C, Fermina M. Guia, in favor of the
mortgagors, spouses Guia. Moreover, the Real Estate
Mortgage and Special Power of Attorney were duly annotated in the memorandum of encumbrances
of TCT No. T-83944 covering Lot 3-C.
The spouses Arguelles alleged that it was only in 1997 or after seven years from the date of the
unregistered sale that they discovered from the Register of Deeds of Batangas City the following
facts: (1) subdivision of Lot 3 into Lots 3-A, 3-B, and 3-C; (2) issuance of separate TCTs for each lot;
and (3) the annotation of the Real Estate Mortgage and Special Power of Attorney over Lot 3-C
covered by TCT No. T-83944. Two years thereafter, or on June 17, 1999, the spouses Arguelles
registered their adverse claim9 based on the unregistered sale dated December 1, 1990 over Lot 3C.
On July 22, 1999, the spouses Arguelles filed a complaint 10 for Annulment of Mortgage and
Cancellation of Mortgage Lien with Damages against the respondent Malarayat Rural Banlc with the
RTC, Branch 86, of Taal, Batangas. In asserting the nullity of the mortgage lien, the spouses
Arguelles alleged ownership over the land that had been mortgaged in favor of the respondent
Malarayat Rural Bank. On August 16, 1999, the respondent Malarayat Rural Bank filed an Answer

with Counterclaim and Cross-claim11 against cross-claim-defendant spouses Gui a wherein it argued
that the failure of the spouses Arguelles to register the Deed of Sale dated December 1, 1990 was
fatal to their claim of ownership.
On July 29, 2008, the RTC rendered a Decision, the dispositive portion of which reads as follows:
WHEREFORE, premises considered judgment is hereby rendered:
1) declaring the mortgage made by the defendants spouses Eddie Guia and Teresita Guia in
favor of defendant Malarayat Rural Bank null and void;
2) setting aside the foreclosure sale had on December 6, 1999 and the corresponding
certificate of sale issued by this Court dated May 12, 2000;
3) ordering the Register of Deeds of the Province of Batangas to cancel the annotation
pertaining to the memorandum of encumbrances (entries no. 155686 and 155688)
appearing in TCT No. T-839[4]4;
4) ordering cross defendants spouses Eddie and Teresita Guia to pay the amount of
Php240,000.00 to cross claimant Malarayat Rural [B]ank corresponding to the total amount
of the loan obligation, with interest herein modified at 12% per annum computed from
default;
5) ordering defendants spouses Eddie and Teresita Guia to pay plaintiffs Arguelles the
amount of Php100,000.00 as moral damages. However, the prayer of the plaintiffs to order
the registration of the deed of sale in their favor as well as the subsequent issuance of a new
title in their names as the registered owners is denied considering that there are other acts
that the plaintiffs ought to do which are administrative in nature, and are dependent upon
compliance with certain requirements pertaining to land acquisition and transfer.
SO ORDERED.12
The RTC found that the spouses Guia were no longer the absolute owners of the land described as
Lot 3-C and covered by TCT No. T-83944 at the time they mortgaged the same to the respondent
Malarayat Rural Bank in view of the unregistered sale in favor of the vendee spouses Arguelles.
Thus, the RTC annulled the real estate mortgage, the subsequent foreclosure sale, and the
corresponding issuance of the certificate of title. Moreover, the RTC declared that the respondent
Malarayat Rural Bank was not a mortgagee in good faith as it failed to exercise the exacting degree
of diligence required from banking institutions.
On September 16, 2008, the respondent filed a notice of appeal with the CA.
On December 19, 2011, the CA reversed and set aside the decision of the court a quo:
IN LIGHT OF THE FOREGOING, premises considered, the instant appeal is GRANTED. Accordingly,
the Decision of the RTC of Taal, Batangas, Branch 86 promulgated on July 29, 2008 in Civil Case No.
66 is hereby REVERSED AND SET ASIDE and the complaint below dismissed.
SO ORDERED.13
In granting the appeal, the CA held that because of the failure of the spouses Arguelles to register
their deed of sale, the unregistered sale could not affect the respondent Malarayat Rural Bank.
Thus, the respondent Malarayat Rural Bank has a better right to the land mortgaged as compared
to spouses Arguelles who were the vendees in the unregistered sale. In addition, the CA found that
the respondent Malarayat Rural Bank was a mortgagee in good faith as it sufficiently demonstrated
due diligence in approving the loan application of the spouses Guia. Aggrieved, the petitioners filed
the instant petition raismg the following issues for resolution:
A
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF SALE EXECUTED BY
FERMINA GUIA IN FAVOR OF THE SPOUSES PETRONIO AND MACARIA ARGUELLES CANNOT BE
ENFORCED AGAINST APPELLANT BANK FOR NOT BEING REGISTERED AND ANNOTATED IN
THE CERTIFICATE OF TITLE, DESPITE THE FACT THAT THE BANK HAD ACTUAL KNOWLEDGE
THEREOF.
B
THE COURT OF APPEALS COMMITTED A MISTAKE IN FINDING THAT APPELLANT BANK IS A
MORTGAGEE IN GOOD FAITH NOTWITHSTANDING CONCLUSIVE EVIDENCE ON RECORD THAT

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

of prudence in dealing with such mortgagor. 22 Recently, in Land Bank of the Philippines v.
Poblete,23 we affirmed Bank of Commerce v. Spouses San Pablo, Jr.:
Based on the evidence, Land Bank processed Maniego's loan application upon his presentation of
OCT No. P-12026, which was still under the name of Poblete. Land Bank even ignored the fact that
Kapantay previously used Poblete's title as collateral in its loan account with Land Bank. In Bank of
Commerce v. San Pablo, Jr., we held that when "the person applying for the loan is other than the
registered owner of the real property being mortgaged, [such fact] should have already raised a red
flag and which should have induced the Bank xx x to make inquiries into and confirm x x x [the]
authority to mortgage x x x. A person who deliberately ignores a significant fact that could create
suspicion in an otherwise reasonable person is not an innocent purchaser for value."
Moreover, in a long line of cases, we have consistently enjoined banks to exert a higher degree of
diligence, care, and prudence than individuals in handling real estate transactions.
In Cruz v. Bancom Finance Corporation,24 we declared:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As such, unlike private
individuals, it is expected to exercise greater care and prudence in its dealings, including those
involving registered lands. A banking institution is expected to exercise due diligence before
entering into a mortgage contract. The ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of its operations.
In Ursal v. Court of Appeals,25 we held that where the mortgagee is a bank, it cannot rely merely on
the certificate of title offered by the mortgagor in ascertaining the status of mortgaged properties.
Since its business is impressed with public interest, the mortgagee-bank is duty-bound to be more
cautious even in dealing with registered lands. 26 Indeed, the rule that person dealing with registered
lands can rely solely on the certificate of title does not apply to banks. Thus, before approving a
loan application, it is a standard operating practice for these institutions to conduct an ocular
inspection of the property offered for mortgage and to verify the genuineness of the title to
determine the real owners thereof. The apparent purpose of an ocular inspection is to protect the
"true owner" of the property as well as innocent third parties with a right, interest or claim thereon
from a usurper who may have acquired a fraudulent certificate of title thereto. 27
In Metropolitan Bank and Trust Co. v. Cabilzo, 28 we explained the socio-economic role of banks and
the reason for bestowing public interest on the banking system:
We never fail to stress the remarkable significance of a banking institution to commercial
transactions, in particular, and to the country's economy in general. The banking system is an
indispensable institution in the modem world and plays a vital role in the economic life of every
civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as
active instruments of business and commerce, banks have become an ubiquitous presence among
the people, who have come to regard them with respect and even gratitude and, most of all,
confidence.
In this case, we find that the respondent Malarayat Rural Bank fell short of the required degree of
diligence, prudence, and care in approving the loan application of the spouses Guia.
Respondent should have diligently conducted an investigation of the land offered as
collateral.1wphi1 Although the Report of Inspection and Credit Investigation found at the dorsal
portion of the Application for Agricultural Loan29proved that the respondent Malarayat Rural Bank
inspected the land, the respondent turned a blind eye to the finding therein that the "lot is planted
[with] sugarcane with annual yield (crops) in the amount of P15,000."30
We disagree with respondent's stance that the mere planting and harvesting of sugarcane cannot
reasonably trigger suspicion that there is adverse possession over the land offered as mortgage.
Indeed, such fact should have immediately prompted the respondent to conduct further inquiries,
especially since the spouses Guia were not the registered owners of the land being mortgaged.
They merely derived the authority to mortgage the lot from the Special Power of Attorney allegedly
executed by the late Fermina M. Guia. Hence, it was incumbent upon the respondent Malarayat
Rural Bank to be more cautious in dealing with the spouses Guia, and inquire further regarding the
identity and possible adverse claim of those in actual possession of the property.
Pertinently, in Land Bank of the Philippines v. Poblete,31 we ruled that "[w]here the mortgagee acted
with haste in granting the mortgage loan and did not ascertain the ownership of the land being
mortgaged, as well as the authority of the supposed agent executing the mortgage, it cannot be
considered an innocent mortgagee."
Since the subject land was not mortgaged by the owner thereof and since the respondent Malarayat
Rural Bank is not a mortgagee in good faith, said bank is not entitled to protection under the law.
The unregistered sale in favor of the spouses Arguelles must prevail over the mortgage lien of
respondent Malarayat Rural Bank.

WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated December 19,
2011 and Resolution dated February 6, 2012 of the Court of Appeals in CA-G.R. CV No. 92555 are
REVERSED and SET ASIDE. The Decision dated July 29, 2008 of the Regional Trial Court, Branch 86,
of Taal, Batangas, in Civil Case No. 66 is REINSTATED and UPHELD.
No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 192123

March 10, 2014

DR. FERNANDO P. SOLIDUM, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
BERSAMIN, J.:
This appeal is taken by a physician-anesthesiologist who has been pronounced guilty of reckless
imprudence resulting in serious physical injuries by the Regional Trial Court (RTC) and the Court of
Appeals (CA). He had been part of the team of anesthesiologists during the surgical pull-through
operation conducted on a three-year old patient born with an imperforate anus. 1
The antecedents are as follows:
Gerald Albert Gercayo (Gerald) was born on June 2, 1992 2 with an imperforate anus. Two days after
his birth, Gerald underwent colostomy, a surgical procedure to bring one end of the large intestine
out through the abdominal wall,3 enabling him to excrete through a colostomy bag attached to the
side of his body.4
On May 17, 1995, Gerald, then three years old, was admitted at the Ospital ng Maynila for a pullthrough operation.5 Dr. Leandro Resurreccion headed the surgical team, and was assisted by Dr.
Joselito Luceo, Dr. Donatella Valea and Dr. Joseph Tibio. The anesthesiologists included Dr.
Marichu Abella, Dr. Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum). 6 During the
operation, Gerald experienced bradycardia,7 and went into a coma.8 His coma lasted for two
weeks,9 but he regained consciousness only after a month.10 He could no longer see, hear or
move.11
Agitated by her sons helpless and unexpected condition, Ma. Luz Gercayo (Luz) lodged a complaint
for reckless imprudence resulting in serious physical injuries with the City Prosecutors Office of
Manila against the attending physicians.12
Upon a finding of probable cause, the City Prosecutors Office filed an information solely against Dr.
Solidum,13alleging:
That on or about May 17, 1995, in the City of Manila, Philippines, the said accused, being then an
anesthesiologist at the Ospital ng Maynila, Malate, this City, and as such was tasked to administer
the anesthesia on three-year old baby boy GERALD ALBERT GERCAYO, represented by his mother,
MA. LUZ GERCAYO, the former having been born with an imperforate anus [no anal opening] and
was to undergo an operation for anal opening [pull through operation], did then and there willfully,
unlawfully and feloniously fail and neglect to use the care and diligence as the best of his judgment
would dictate under said circumstance, by failing to monitor and regulate properly the levels of
anesthesia administered to said GERALD ALBERT GERCAYO and using 100% halothane and other
anesthetic medications, causing as a consequence of his said carelessness and negligence, said
GERALD ALBERT GERCAYO suffered a cardiac arrest and consequently a defect called hypoxic
encephalopathy meaning insufficient oxygen supply in the brain, thereby rendering said GERALD
ALBERT GERCAYO incapable of moving his body, seeing, speaking or hearing, to his damage and
prejudice.
Contrary to law.14
The case was initially filed in the Metropolitan Trial Court of Manila, but was transferred to the RTC
pursuant to Section 5 of Republic Act No. 8369 (The Family Courts Act of 1997), 15 where it was
docketed as Criminal Case No. 01-190889.

Judgment of the RTC

On July 19, 2004, the RTC rendered its judgment finding Dr. Solidum guilty beyond reasonable doubt
of reckless imprudence resulting to serious physical injuries, 16 decreeing:
WHEREFORE, premises considered, the Court finds accused DR. FERNANDO P. SOLIDUM GUILTY
beyond reasonable doubt as principal of the crime charged and is hereby sentenced to suffer the
indeterminate penalty of TWO (2) MONTHS and ONE (1) DAY of arresto mayor as minimum to ONE
(1) YEAR, ONE (1) MONTH and TEN (10) DAYS of prision correccional as maximum and to indemnify,
jointly and severally with the Ospital ng Maynila, Dr. Anita So and Dr. Marichu Abella, private
complainant Luz Gercayo, the amount of P500,000.00 as moral damages and P100,000.00 as
exemplary damages and to pay the costs.
Accordingly, the bond posted by the accused for his provisional liberty is hereby CANCELLED.
SO ORDERED.17
Upon motion of Dr. Anita So and Dr. Marichu Abella to reconsider their solidary liability, 18 the RTC
excluded them from solidary liability as to the damages, modifying its decision as follows:
WHEREFORE, premises considered, the Court finds accused Dr. Fernando Solidum, guilty beyond
reasonable doubt as principal of the crime charged and is hereby sentenced to suffer the
indeterminate penalty of two (2) months and one (1) day of arresto mayor as minimum to one (1)
year, one (1) month and ten (10) days of prision correccional as maximum and to indemnify jointly
and severally with Ospital ng Maynila, private complainant Luz Gercayo the amount of P500,000.00
as moral damages and P100,000 as exemplary damages and to pay the costs.
Accordingly, the bond posted by the accused for his provisional liberty is hereby cancelled. 19
Decision of the CA
On January 20, 2010, the CA affirmed the conviction of Dr. Solidum, 20 pertinently stating and ruling:
The case appears to be a textbook example of res ipsa loquitur.
xxxx
x x x [P]rior to the operation, the child was evaluated and found fit to undergo a major operation. As
noted by the OSG, the accused himself testified that pre-operation tests were conducted to ensure
that the child could withstand the surgery. Except for his imperforate anus, the child was healthy.
The tests and other procedures failed to reveal that he was suffering from any known ailment or
disability that could turn into a significant risk. There was not a hint that the nature of the operation
itself was a causative factor in the events that finally led to hypoxia.
In short, the lower court has been left with no reasonable hypothesis except to attribute the
accident to a failure in the proper administration of anesthesia, the gravamen of the charge in this
case. The High Court elucidates in Ramos vs. Court of Appeals 321 SCRA 584
In cases where the res ipsa loquitur is applicable, the court is permitted to find a physician
negligent upon proper proof of injury to the patient, without the aid of expert testimony, where the
court from its fund of common knowledge can determine the proper standard of care.
Where common knowledge and experience teach that a resulting injury would not have occurred to
the patient if due care had been exercised, an inference of negligence may be drawn giving rise to
an application of the doctrine of res ipsa loquitur without medical evidence, which is ordinarily
required to show not only what occurred but how and why it occurred. When the doctrine is
appropriate, all that the patient must do is prove a nexus between the particular act or omission
complained of and the injury sustained while under the custody and management of the defendant
without need to produce expert medical testimony to establish the standard of care. Resort to res
ipsa loquitur is allowed because there is no other way, under usual and ordinary conditions, by
which the patient can obtain redress for injury suffered by him.
The lower court has found that such a nexus exists between the act complained of and the injury
sustained, and in line with the hornbook rules on evidence, we will afford the factual findings of a

trial court the respect they deserve in the absence of a showing of arbitrariness or disregard of
material facts that might affect the disposition of the case. People v. Paraiso 349 SCRA 335.
The res ipsa loquitur test has been known to be applied in criminal cases. Although it creates a
presumption of negligence, it need not offend due process, as long as the accused is afforded the
opportunity to go forward with his own evidence and prove that he has no criminal intent. It is in
this light not inconsistent with the constitutional presumption of innocence of an accused.
IN VIEW OF THE FOREGOING, the modified decision of the lower court is affirmed.
SO ORDERED.21
Dr. Solidum filed a motion for reconsideration, but the CA denied his motion on May 7, 2010. 22
Hence, this appeal.
Issues
Dr. Solidum avers that:
I.
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE LOWER
COURT IN UPHOLDING THE PETITIONERS CONVICTION FOR THE CRIME CHARGED BASED ON
THE TRIAL COURTS OPINION, AND NOT ON THE BASIS OF THE FACTS ESTABLISHED DURING
THE TRIAL. ALSO, THERE IS A CLEAR MISAPPREHENSION OF FACTS WHICH IF CORRECTED,
WILL RESULT TO THE ACQUITTAL OF THE PETITIONER. FURTHER, THE HONORABLE COURT
ERRED IN AFFIRMING THE SAID DECISION OF THE LOWER COURT, AS THIS BREACHES THE
CRIMINAL LAW PRINCIPLE THAT THE PROSECUTION MUST PROVE THE ALLEGATIONS OF THE
INFORMATION BEYOND REASONABLE DOUBT, AND NOT ON THE BASIS OF ITS PRESUMPTIVE
CONCLUSION.
II.
THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF RES IPSA
LOQUITOR (sic) WHEN THE DEFENSE WAS ABLE TO PROVE THAT THERE IS NO NEGLIGENCE
ON THE PART OF THE PETITIONER, AND NO OVERDOSING IN THE APPLICATION OF THE
ANESTHETIC AGENT BECAUSE THERE WAS NO 100% HALOTHANE ADMINISTERED TO THE
CHILD, BUT ONLY ONE (1%) PERCENT AND THE APPLICATION THEREOF, WAS REGULATED BY
AN ANESTHESIA MACHINE. THUS, THE APPLICATION OF THE PRINCIPLE OF RES IPSA
LOQUITOR (sic) CONTRADICTED THE ESTABLISHED FACTS AND THE LAW APPLICABLE IN THE
CASE.
III.
THE AWARD OF MORAL DAMAGES AND EXEMPLARY DAMAGES IS NOT JUSTIFIED THERE
BEING NO NEGLIGENCE ON THE PART OF THE PETITIONER. ASSUMING THAT THE CHILD IS
ENTITLED TO FINANCIAL CONSIDERATION, IT SHOULD BE ONLY AS A FINANCIAL ASSISTANCE,
BECAUSE THERE WAS NO NEGLIGENCE, AND NO OVERDOSING OF ANESTHETIC AGENT AND
AS SUCH, THE AWARD IS SO EXCESSIVE, AND NO FACTUAL AND LEGAL BASIS. 23
To simplify, the following are the issues for resolution, namely: (a) whether or not the doctrine of res
ipsa loquitur was applicable herein; and (b) whether or not Dr. Solidum was liable for criminal
negligence.
Ruling
The appeal is meritorious.
Applicability of the Doctrine of Res Ipsa Loquitur
Res ipsa loquitur is literally translated as "the thing or the transaction speaks for itself." The
doctrine res ipsa loquitur means that "where the thing which causes injury is shown to be under the

management of the defendant, and the accident is such as in the ordinary course of things does not
happen if those who have the management use proper care, it affords reasonable evidence, in the
absence of an explanation by the defendant, that the accident arose from want of care." 24 It is
simply "a recognition of the postulate that, as a matter of common knowledge and experience, the
very nature of certain types of occurrences may justify an inference of negligence on the part of the
person who controls the instrumentality causing the injury in the absence of some explanation by
the defendant who is charged with negligence. It is grounded in the superior logic of ordinary
human experience and on the basis of such experience or common knowledge, negligence may be
deduced from the mere occurrence of the accident itself.
Hence, res ipsa loquitur is applied in conjunction with the doctrine of common knowledge." 25
Jarcia, Jr. v. People26 has underscored that the doctrine is not a rule of substantive law, but merely a
mode of proof or a mere procedural convenience. The doctrine, when applicable to the facts and
circumstances of a given case, is not meant to and does not dispense with the requirement of proof
of culpable negligence against the party charged. It merely determines and regulates what shall be
prima facie evidence thereof, and helps the plaintiff in proving a breach of the duty. The doctrine
can be invoked when and only when, under the circumstances involved, direct evidence is absent
and not readily available.27
The applicability of the doctrine of res ipsa loquitur in medical negligence cases was significantly
and exhaustively explained in Ramos v. Court of Appeals,28 where the Court said
Medical malpractice cases do not escape the application of this doctrine. Thus, res ipsa loquitur has
been applied when the circumstances attendant upon the harm are themselves of such a character
as to justify an inference of negligence as the cause of that harm. The application of res ipsa
loquitur in medical negligence cases presents a question of law since it is a judicial function to
determine whether a certain set of circumstances does, as a matter of law, permit a given
inference.
Although generally, expert medical testimony is relied upon in malpractice suits to prove that a
physician has done a negligent act or that he has deviated from the standard medical procedure,
when the doctrine of res ipsa loquitur is availed by the plaintiff, the need for expert medical
testimony is dispensed with because the injury itself provides the proof of negligence. The reason is
that the general rule on the necessity of expert testimony applies only to such matters clearly
within the domain of medical science, and not to matters that are within the common knowledge of
mankind which may be testified to by anyone familiar with the facts. Ordinarily, only physicians and
surgeons of skill and experience are competent to testify as to whether a patient has been treated
or operated upon with a reasonable degree of skill and care. However, testimony as to the
statements and acts of physicians and surgeons, external appearances, and manifest conditions
which are observable by any one may be given by non-expert witnesses. Hence, in cases where the
res ipsa loquitur is applicable, the court is permitted to find a physician negligent upon proper proof
of injury to the patient, without the aid of expert testimony, where the court from its fund of
common knowledge can determine the proper standard of care. Where common knowledge and
experience teach that a resulting injury would not have occurred to the patient if due care had been
exercised, an inference of negligence may be drawn giving rise to an application of the doctrine of
res ipsa loquitur without medical evidence, which is ordinarily required to show not only what
occurred but how and why it occurred. When the doctrine is appropriate, all that the patient must
do is prove a nexus between the particular act or omission complained of and the injury sustained
while under the custody and management of the defendant without need to produce expert medical
testimony to establish the standard of care. Resort to res ipsa loquitur is allowed because there is
no other way, under usual and ordinary conditions, by which the patient can obtain redress for
injury suffered by him.
Thus, courts of other jurisdictions have applied the doctrine in the following situations: leaving of a
foreign object in the body of the patient after an operation, injuries sustained on a healthy part of
the body which was not under, or in the area, of treatment, removal of the wrong part of the body
when another part was intended, knocking out a tooth while a patients jaw was under anesthetic
for the removal of his tonsils, and loss of an eye while the patient plaintiff was under the influence
of anesthetic, during or following an operation for appendicitis, among others.
Nevertheless, despite the fact that the scope of res ipsa loquitur has been measurably enlarged, it
does not automatically apply to all cases of medical negligence as to mechanically shift the burden
of proof to the defendant to show that he is not guilty of the ascribed negligence. Res ipsa loquitur

is not a rigid or ordinary doctrine to be perfunctorily used but a rule to be cautiously applied,
depending upon the circumstances of each case. It is generally restricted to situations in
malpractice cases where a layman is able to say, as a matter of common knowledge and
observation, that the consequences of professional care were not as such as would ordinarily have
followed if due care had been exercised. A distinction must be made between the failure to secure
results, and the occurrence of something more unusual and not ordinarily found if the service or
treatment rendered followed the usual procedure of those skilled in that particular practice. It must
be conceded that the doctrine of res ipsa loquitur can have no application in a suit against a
physician or surgeon which involves the merits of a diagnosis or of a scientific treatment. The
physician or surgeon is not required at his peril to explain why any particular diagnosis was not
correct, or why any particular scientific treatment did not produce the desired result. Thus, res ipsa
loquitur is not available in a malpractice suit if the only showing is that the desired result of an
operation or treatment was not accomplished. The real question, therefore, is whether or not in the
process of the operation any extraordinary incident or unusual event outside of the routine
performance occurred which is beyond the regular scope of customary professional activity in such
operations, which, if unexplained would themselves reasonably speak to the average man as the
negligent cause or causes of the untoward consequence. If there was such extraneous intervention,
the doctrine of res ipsa loquitur may be utilized and the defendant is called upon to explain the
matter, by evidence of exculpation, if he could.
In order to allow resort to the doctrine, therefore, the following essential requisites must first be
satisfied, to wit: (1) the accident was of a kind that does not ordinarily occur unless someone is
negligent; (2) the instrumentality or agency that caused the injury was under the exclusive control
of the person charged; and (3) the injury suffered must not have been due to any voluntary action
or contribution of the person injured.29
The Court considers the application here of the doctrine of res ipsa loquitur inappropriate. Although
it should be conceded without difficulty that the second and third elements were present,
considering that the anesthetic agent and the instruments were exclusively within the control of Dr.
Solidum, and that the patient, being then unconscious during the operation, could not have been
guilty of contributory negligence, the first element was undeniably wanting. Luz delivered Gerald to
the care, custody and control of his physicians for a pull-through operation. Except for the
imperforate anus, Gerald was then of sound body and mind at the time of his submission to the
physicians. Yet, he experienced bradycardia during the operation, causing loss of his senses and
rendering him immobile. Hypoxia, or the insufficiency of oxygen supply to the brain that caused the
slowing of the heart rate, scientifically termed as bradycardia, would not ordinarily occur in the
process of a pull-through operation, or during the administration of anesthesia to the patient, but
such fact alone did not prove that the negligence of any of his attending physicians, including the
anesthesiologists, had caused the injury. In fact, the anesthesiologists attending to him had sensed
in the course of the operation that the lack of oxygen could have been triggered by the vago-vagal
reflex, prompting them to administer atropine to the patient.30
This conclusion is not unprecedented. It was similarly reached in Swanson v. Brigham, 31 relevant
portions of the decision therein being as follows:
On January 7, 1973, Dr. Brigham admitted 15-year-old Randall Swanson to a hospital for the
treatment of infectious mononucleosis. The patient's symptoms had included a swollen throat and
some breathing difficulty. Early in the morning of January 9 the patient was restless, and at 1:30
a.m. Dr. Brigham examined the patient. His inspection of the patient's air passage revealed that it
was in satisfactory condition. At 4:15 a.m. Dr. Brigham received a telephone call from the hospital,
advising him that the patient was having respiratory difficulty. The doctor ordered that oxygen be
administered and he prepared to leave for the hospital. Ten minutes later, 4:25 a.m., the hospital
called a second time to advise the doctor that the patient was not responding. The doctor ordered
that a medicine be administered, and he departed for the hospital. When he arrived, the physician
who had been on call at the hospital had begun attempts to revive the patient. Dr. Brigham joined
him in the effort, but the patient died.
The doctor who performed the autopsy concluded that the patient died between 4:25 a.m. and 4:30
a.m. of asphyxia, as a result of a sudden, acute closing of the air passage. He also found that the air
passage had been adequate to maintain life up to 2 or 3 minutes prior to death. He did not know
what caused the air passage to suddenly close.
xxxx

It is a rare occurrence when someone admitted to a hospital for the treatment of infectious
mononucleosis dies of asphyxiation. But that is not sufficient to invoke res ipsa loquitur. The fact
that the injury rarely occurs does not in itself prove that the injury was probably caused by
someone's negligence. Mason v. Ellsworth, 3 Wn. App. 298, 474 P.2d 909 (1970). Nor is a bad result
by itself enough to warrant the application of the doctrine. Nelson v. Murphy, 42 Wn.2d 737, 258
P.2d 472 (1953). See 2 S. Speiser, The Negligence Case Res Ipsa Loquitur 24:10 (1972). The
evidence presented is insufficient to establish the first element necessary for application of res ipsa
loquitur doctrine. The acute closing of the patients air passage and his resultant asphyxiation took
place over a very short period of time. Under these circumstances it would not be reasonable to
infer that the physician was negligent. There was no palpably negligent act. The common
experience of mankind does not suggest that death would not be expected without negligence. And
there is no expert medical testimony to create an inference that negligence caused the injury.
Negligence of Dr. Solidum
In view of the inapplicability of the doctrine of res ipsa loquitur, the Court next determines whether
the CA correctly affirmed the conviction of Dr. Solidum for criminal negligence.
Negligence is defined as the failure to observe for the protection of the interests of another person
that degree of care, precaution, and vigilance that the circumstances justly demand, whereby such
other person suffers injury.32Reckless imprudence, on the other hand, consists of voluntarily doing
or failing to do, without malice, an act from which material damage results by reason of an
inexcusable lack of precaution on the part of the person performing or failing to perform such act. 33
Dr. Solidums conviction by the RTC was primarily based on his failure to monitor and properly
regulate the level of anesthetic agent administered on Gerald by overdosing at 100% halothane. In
affirming the conviction, the CA observed:
On the witness stand, Dr. Vertido made a significant turnaround. He affirmed the findings and
conclusions in his report except for an observation which, to all intents and purposes, has become
the storm center of this dispute. He wanted to correct one piece of information regarding the
dosage of the anesthetic agent administered to the child. He declared that he made a mistake in
reporting a 100% halothane and said that based on the records it should have been 100% oxygen.
The records he was relying on, as he explains, are the following:
(a) the anesthesia record A portion of the chart in the record was marked as Exhibit 1-A
and 1-B to indicate the administration at intervals of the anesthetic agent.
(b) the clinical abstract A portion of this record that reads as follows was marked Exhibit
3A. 3B Approximately 1 hour and 45 minutes through the operation, patient was noted to
have bradycardia (CR = 70) and ATSO4 0.2 mg was immediately administered. However, the
bradycardia persisted, the inhalational agent was shut off, and the patient was ventilated
with 100% oxygen and another dose of ATSO4 0.2 mg was given. However, the patient did
not respond until no cardiac rate can be auscultated and the surgeons were immediately
told to stop the operation. The patient was put on a supine position and CPR was initiated.
Patient was given 1 amp of epinephrine initially while continuously doing cardiac massage
still with no cardiac rate appreciated; another ampule of epinephrine was given and after 45
secs, patients vital signs returned to normal. The entire resuscitation lasted approximately
3-5 mins. The surgeons were then told to proceed to the closure and the childs vital signs
throughout and until the end of surgery were: BP = 110/70; CR = 116/min and RR = 20-22
cycles/min (on assisted ventilation).
Dr. Vertido points to the crucial passage in the clinical abstract that the patient was ventilated with
100% oxygen and another dose of ATSO4 when the bradycardia persisted, but for one reason or
another, he read it as 100% halothane. He was asked to read the anesthesia record on the
percentage of the dosage indicated, but he could only sheepishly note I cant understand the
number. There are no clues in the clinical abstract on the quantity of the anesthetic agent used. It
only contains the information that the anesthetic plan was to put the patient under general
anesthesia using a nonrebreathing system with halothane as the sole anesthetic agent and that 1
hour and 45 minutes after the operation began, bradycardia occurred after which the inhalational
agent was shut off and the patient administered with 100% oxygen. It would be apparent that the
100% oxygen that Dr. Vertido said should be read in lieu of 100% halothane was the pure oxygen

introduced after something went amiss in the operation and the halothane itself was reduced or
shut off.
The key question remains what was the quantity of halothane used before bradycardia set in?
The implication of Dr. Vertidos admission is that there was no overdose of the anesthetic agent,
and the accused Dr. Solidum stakes his liberty and reputation on this conclusion. He made the
assurance that he gave his patient the utmost medical care, never leaving the operating room
except for a few minutes to answer the call of nature but leaving behind the other members of his
team Drs. Abella and Razon to monitor the operation. He insisted that he administered only a point
1% not 100% halothane, receiving corroboration from Dr. Abella whose initial MA in the record
should be enough to show that she assisted in the operation and was therefore conversant of the
things that happened. She revealed that they were using a machine that closely monitored the
concentration of the agent during the operation.
But most compelling is Dr. Solidums interpretation of the anesthesia record itself, as he takes the
bull by the horns, so to speak. In his affidavit, he says, reading from the record, that the quantity of
halothane used in the operation is one percent (1%) delivered at time intervals of 15 minutes. He
studiedly mentions the concentration of halothane as reflected in the anesthesia record (Annex D
of the complaint-affidavit) is only one percent (1%) The numbers indicated in 15 minute
increments for halothane is an indication that only 1% halothane is being delivered to the patient
Gerard Gercayo for his entire operation; The amount of halothane delivered in this case which is
only one percent cannot be summated because halothane is constantly being rapidly eliminated by
the body during the entire operation.
xxxx
In finding the accused guilty, despite these explanations, the RTC argued that the volte-face of Dr.
Vertido on the question of the dosage of the anesthetic used on the child would not really validate
the non-guilt of the anesthesiologist. Led to agree that the halothane used was not 100% as initially
believed, he was nonetheless unaware of the implications of the change in his testimony. The court
observed that Dr. Vertido had described the condition of the child as hypoxia which is deprivation of
oxygen, a diagnosis supported by the results of the CT Scan. All the symptoms attributed to a
failing central nervous system such as stupor, loss of consciousness, decrease in heart rate, loss of
usual acuity and abnormal motor function, are manifestations of this condition or syndrome. But
why would there be deprivation of oxygen if 100% oxygen to 1% halothane was used? Ultimately, to
the court, whether oxygen or halothane was the object of mistake, the detrimental effects of the
operation are incontestable, and they can only be led to one conclusion if the application of
anesthesia was really closely monitored, the event could not have happened. 34
The Prosecution did not prove the elements of reckless imprudence beyond reasonable doubt
because the circumstances cited by the CA were insufficient to establish that Dr. Solidum had been
guilty of inexcusable lack of precaution in monitoring the administration of the anesthetic agent to
Gerald. The Court aptly explained in Cruz v. Court of Appeals35 that:
Whether or not a physician has committed an "inexcusable lack of precaution" in the treatment of
his patient is to be determined according to the standard of care observed by other members of the
profession in good standing under similar circumstances bearing in mind the advanced state of the
profession at the time of treatment or the present state of medical science. In the recent case of
Leonila Garcia-Rueda v. Wilfred L. Pacasio, et. al., this Court stated that in accepting a case, a
doctor in effect represents that, having the needed training and skill possessed by physicians and
surgeons practicing in the same field, he will employ such training, care and skill in the treatment of
his patients. He therefore has a duty to use at least the same level of care that any other
reasonably competent doctor would use to treat a condition under the same circumstances. It is in
this aspect of medical malpractice that expert testimony is essential to establish not only the
standard of care of the profession but also that the physician's conduct in the treatment and care
falls below such standard. Further, inasmuch as the causes of the injuries involved in malpractice
actions are determinable only in the light of scientific knowledge, it has been recognized that expert
testimony is usually necessary to support the conclusion as to causation.
xxxx
In litigations involving medical negligence, the plaintiff has the burden of establishing appellant's
negligence and for a reasonable conclusion of negligence, there must be proof of breach of duty on

the part of the surgeon as well as a causal connection of such breach and the resulting death of his
patient. In Chan Lugay v. St Luke's Hospital, Inc., where the attending physician was absolved of
liability for the death of the complainants wife and newborn baby, this Court held that:
"In order that there may be a recovery for an injury, however, it must be shown that the injury for
which recovery is sought must be the legitimate consequence of the wrong done; the connection
between the negligence and the injury must be a direct and natural sequence of events, unbroken
by intervening efficient causes. In other words, the negligence must be the proximate cause of the
injury. For, negligence, no matter in what it consists, cannot create a right of action unless it is the
proximate cause of the injury complained of. And the proximate cause of an injury is that cause,
which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces
the injury, and without which the result would not have occurred."
An action upon medical negligence whether criminal, civil or administrative calls for the plaintiff
to prove by competent evidence each of the following four elements, namely: (a) the duty owed by
the physician to the patient, as created by the physician-patient relationship, to act in accordance
with the specific norms or standards established by his profession; (b) the breach of the duty by the
physicians failing to act in accordance with the applicable standard of care; (3) the causation, i.e.,
there must be a reasonably close and causal connection between the negligent act or omission and
the resulting injury; and (4) the damages suffered by the patient. 36
In the medical profession, specific norms or standards to protect the patient against unreasonable
risk, commonly referred to as standards of care, set the duty of the physician to act in respect of
the patient. Unfortunately, no clear definition of the duty of a particular physician in a particular
case exists. Because most medical malpractice cases are highly technical, witnesses with special
medical qualifications must provide guidance by giving the knowledge necessary to render a fair
and just verdict. As a result, the standard of medical care of a prudent physician must be
determined from expert testimony in most cases; and in the case of a specialist (like an
anesthesiologist), the standard of care by which the specialist is judged is the care and skill
commonly possessed and exercised by similar specialists under similar circumstances. The
specialty standard of care may be higher than that required of the general practitioner. 37
The standard of care is an objective standard by which the conduct of a physician sued for
negligence or malpractice may be measured, and it does not depend, therefore, on any individual
physicians own knowledge either. In attempting to fix a standard by which a court may determine
whether the physician has properly performed the requisite duty toward the patient, expert medical
testimony from both plaintiff and defense experts is required. The judge, as the trier of fact,
ultimately determines the standard of care, after listening to the testimony of all medical experts. 38
Here, the Prosecution presented no witnesses with special medical qualifications in anesthesia to
provide guidance to the trial court on what standard of care was applicable. It would consequently
be truly difficult, if not impossible, to determine whether the first three elements of a negligence
and malpractice action were attendant.
Although the Prosecution presented Dr. Benigno Sulit, Jr., an anesthesiologist himself who served as
the Chairman of the Committee on Ethics and Malpractice of the Philippine Society of
Anesthesiologists that investigated the complaint against Dr. Solidum, his testimony mainly focused
on how his Committee had conducted the investigation.39 Even then, the report of his Committee
was favorable to Dr. Solidum,40 to wit:
Presented for review by this committee is the case of a 3 year old male who underwent a pull-thru
operation and was administered general anesthesia by a team of anesthesia residents. The patient,
at the time when the surgeons was manipulating the recto-sigmoid and pulling it down in
preparation for the anastomosis, had bradycardia. The anesthesiologists, sensing that the cause
thereof was the triggering of the vago-vagal reflex, administered atropine to block it but despite the
administration of the drug in two doses, cardiac arrest ensued. As the records show, prompt
resuscitative measures were administered and spontaneous cardiac function re-established in less
than five (5) minutes and that oxygen was continuously being administered throughout,
unfortunately, as later become manifest, patient suffered permanent irreversible brain damage.
In view of the actuations of the anaesthesiologists and the administration of anaesthesia, the
committee find that the same were all in accordance with the universally accepted standards of
medical care and there is no evidence of any fault or negligence on the part of the
anaesthesiologists.

Dr. Antonio Vertido, a Senior Medico-Legal Officer of the National Bureau of Investigation, was also
presented as a Prosecution witness, but his testimony concentrated on the results of the physical
examination he had conducted on Gerald, as borne out by the following portions of his direct
examination, to wit:
FISCAL CABARON Doctor, what do you mean by General Anesthetic Agent?
WITNESS General Anesthetic Agent is a substance used in the conduction of Anesthesia and in this
case, halothane was used as a sole anesthetic agent.
xxxx
Q Now under paragraph two of page 1 of your report you mentioned that after one hour and 45
minutes after the operation, the patient experienced a bradycardia or slowing of heart rate, now as
a doctor, would you be able to tell this Honorable Court as to what cause of the slowing of heart
rate as to Gerald Gercayo?
WITNESS Well honestly sir, I cannot give you the reason why there was a bradycardia of time
because is some reason one way or another that might caused bradycardia.
FISCAL CABARON What could be the possible reason?
A Well bradycardia can be caused by anesthetic agent itself and that is a possibility, were talking
about possibility here.
Q What other possibility do you have in mind, doctor?
A Well, because it was an operation, anything can happen within that situation.
FISCAL CABARON Now, this representation would like to ask you about the slowing of heart rate,
now what is the immediate cause of the slowing of the heart rate of a person?
WITNESS Well, one of the more practical reason why there is slowing of the heart rate is when you
do a vagal reflex in the neck wherein the vagal receptors are located at the lateral part of the neck,
when you press that, you produce the slowing of the heart rate that produce bradycardia.
Q I am pro[p]ounding to you another question doctor, what about the deficiency in the supply of
oxygen by the patient, would that also cause the slowing of the heart rate?
A Well that is a possibility sir, I mean not as slowing of the heart rate, if there is a hypoxia or there
is a low oxygen level in the blood, the normal thing for the heart is to pump or to do not a
bradycardia but a to counter act the Hypoxia that is being experienced by the patient
(sic).
xxxx
Q Now, you made mention also doctor that the use of general anesthesia using 100% halothane
and other anesthetic medications probably were contributory to the production of hypoxia.
A Yes, sir in general sir.41
On cross-examination, Dr. Vertido expounded more specifically on his interpretation of the
anesthesia record and the factors that could have caused Gerald to experience bradycardia, viz:
ATTY. COMIA I noticed in, may I see your report Doctor, page 3, will you kindly read to this
Honorable court your last paragraph and if you will affirm that as if it is correct?
A "The use of General Anesthesia, that is using 100% Halothane probably will be contributory to the
production of Hypoxia and - - - -"
ATTY COMIA And do you affirm the figure you mentioned in this Court Doctor?

WITNESS Based on the records, I know the - - Q 100%?

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

Q And that is one of the risk of that major operation is that correct?
A That is the risk sir.42
At the continuation of his cross-examination, Dr. Vertido maintained that Geralds operation for his
imperforate anus, considered a major operation, had exposed him to the risk of suffering the same
condition.43 He then corrected his earlier finding that 100% halothane had been administered on
Gerald by saying that it should be 100% oxygen. 44
Dr. Solidum was criminally charged for "failing to monitor and regulate properly the levels of
anesthesia administered to said Gerald Albert Gercayo and using 100% halothane and other
anesthetic medications."45However, the foregoing circumstances, taken together, did not prove
beyond reasonable doubt that Dr. Solidum had been recklessly imprudent in administering the
anesthetic agent to Gerald. Indeed, Dr. Vertidos findings did not preclude the probability that other
factors related to Geralds major operation, which could or could not necessarily be attributed to
the administration of the anesthesia, had caused the hypoxia and had then led Gerald to
experience bradycardia. Dr. Vertido revealingly concluded in his report, instead, that "although the
anesthesiologist followed the normal routine and precautionary procedures, still hypoxia and its
corresponding side effects did occur."46
The existence of the probability about other factors causing the hypoxia has engendered in the
mind of the Court a reasonable doubt as to Dr. Solidums guilt, and moves us to acquit him of the
crime of reckless imprudence resulting to serious physical injuries. "A reasonable doubt of guilt,"
according to United States v. Youthsey:47
x x x is a doubt growing reasonably out of evidence or the lack of it. It is not a captious doubt; not a
doubt engendered merely by sympathy for the unfortunate position of the defendant, or a dislike to
accept the responsibility of convicting a fellow man. If, having weighed the evidence on both sides,
you reach the conclusion that the defendant is guilty, to that degree of certainty as would lead you
to act on the faith of it in the most important and crucial affairs of your life, you may properly
convict him. Proof beyond reasonable doubt is not proof to a mathematical demonstration. It is not
proof beyond the possibility of mistake.
We have to clarify that the acquittal of Dr. Solidum would not immediately exempt him from civil
liability.1wphi1 But we cannot now find and declare him civilly liable because the circumstances
that have been established here do not present the factual and legal bases for validly doing so. His
acquittal did not derive only from reasonable doubt. There was really no firm and competent
showing how the injury to Gerard had been caused. That meant that the manner of administration
of the anesthesia by Dr. Solidum was not necessarily the cause of the hypoxia that caused the
bradycardia experienced by Gerard. Consequently, to adjudge Dr. Solidum civilly liable would be to
speculate on the cause of the hypoxia. We are not allowed to do so, for civil liability must not rest
on speculation but on competent evidence.
Liability of Ospital ng Maynila
Although the result now reached has resolved the issue of civil liability, we have to address the
unusual decree of the RTC, as affirmed by the CA, of expressly holding Ospital ng Maynila civilly
liable jointly and severally with Dr. Solidum. The decree was flawed in logic and in law.
In criminal prosecutions, the civil action for the recovery of civil liability that is deemed instituted
with the criminal action refers only to that arising from the offense charged. 48 It is puzzling,
therefore, how the RTC and the CA could have adjudged Ospital ng Maynila jointly and severally
liable with Dr. Solidum for the damages despite the obvious fact that Ospital ng Maynila, being an
artificial entity, had not been charged along with Dr. Solidum. The lower courts thereby acted
capriciously and whimsically, which rendered their judgment against Ospital ng Maynila void as the
product of grave abuse of discretion amounting to lack of jurisdiction.
Not surprisingly, the flawed decree raises other material concerns that the RTC and the CA
overlooked. We deem it important, then, to express the following observations for the instruction of
the Bench and Bar.
For one, Ospital ng Maynila was not at all a party in the proceedings. Hence, its fundamental right
to be heard was not respected from the outset. The R TC and the CA should have been alert to this
fundamental defect. Verily, no person can be prejudiced by a ruling rendered in an action or

proceeding in which he was not made a party. Such a rule would enforce the constitutional
guarantee of due process of law.
Moreover, Ospital ng Maynila could be held civilly liable only when subsidiary liability would be
properly enforceable pursuant to Article 103 of the Revised Penal Code. But the subsidiary liability
seems far-fetched here. The conditions for subsidiary liability to attach to Ospital ng Maynila should
first be complied with. Firstly, pursuant to Article 103 of the Revised Penal Code, Ospital ng Maynila
must be shown to be a corporation "engaged in any kind of industry." The term industry means any
department or branch of art, occupation or business, especially one that employs labor and capital,
and is engaged in industry.49 However, Ospital ng Maynila, being a public hospital, was not engaged
in industry conducted for profit but purely in charitable and humanitarian work. 50Secondly,
assuming that Ospital ng Maynila was engaged in industry for profit, Dr. Solidum must be shown to
be an employee of Ospital ng Maynila acting in the discharge of his duties during the operation on
Gerald. Yet, he definitely was not such employee but a consultant of the hospital. And, thirdly,
assuming that civil liability was adjudged against Dr. Solidum as an employee (which did not
happen here), the execution against him was unsatisfied due to his being insolvent.
WHEREFORE, the Court GRANTS the petition for review on certiorari; REVERSES AND SETS ASIDE
the decision promulgated on January 20, 2010; ACQUITS Dr. Fernando P. Solidum of the crime of
reckless imprudence resulting to serious physical injuries; and MAKES no pronouncement on costs
of suit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 77648 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and ONG TENG, respondents.
G.R. No. 77647 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and EDERLINA NAVALTA, respondents.
G.R. No. 77649 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and JOSE LIWANAG, respondents.
G.R. No. 77650 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and LEANDRO CANLAS, respondents.
G.R. No. 77651 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and VICTORIA SUDARIO respondents.
G.R. No.77652 August 7, 1989
CETUS DEVELOPMENT, INC., petitioner,
vs.
COURT OF APPEALS and FLORA NAGBUYA respondents.

MEDIALDEA, J.:
This is a petition for review on certiorari of the decision dated January 30, 1987 of the Court of
Appeals in CA-GR Nos. SP-07945-50 entitled, "Cetus Development, Inc., Petitioner vs. Hon. Conrado
T. Limcaoco, Presiding Judge, Regional Trial Court of Manila, Branch Ederlina Navalta, et. al.,
respondents.
The following facts appear in the records:
The private respondents, Ederlina Navalta, Ong Teng, Jose Liwanag, Leandro Canlas, Victoria
Sudario, and Flora Nagbuya were the lessees of the premises located at No. 512 Quezon Boulevard,
Quiapo, Manila, originally owned by the Susana Realty. These individual verbal leases were on a
month-to month basis at the following rates: Ederlina Navalta at the rate of P80.50; Ong Teng at the
rate of P96.10; Jose Liwanag at the rate of P40.35; Leandro Canlas at the rate of P80.55; Victoria
Sudario at the rate of P50.45 and Flora Nagbuya at the rate of P80.55. The payments of the rentals
were paid by the lessees to a collector of the Susana Realty who went to the premises monthly.

Sometime in March, 1984, the Susana Realty sold the leased premises to the petitioner, Cetus
Development, Inc., a corporation duly organized and existing under the laws of the Philippines.
From April to June, 1984, the private respondents continued to pay their monthly rentals to a
collector sent by the petitioner. In the succeeding months of July, August and September 1984, the
respondents failed to pay their monthly individual rentals as no collector came.
On October 9, 1984, the petitioner sent a letter to each of the private respondents demanding that
they vacate the subject premises and to pay the back rentals for the months of July, August and
September, 1984, within fifteen (15) days from the receipt thereof. Immediately upon the receipt of
the said demand letters on October 10, 1984, the private respondents paid their respective
arrearages in rent which were accepted by the petitioner subject to the unilateral condition that the
acceptance was without prejudice to the filing of an ejectment suit. Subsequent monthly rental
payments were likewise accepted by the petitioner under the same condition.
For failure of the private respondents to vacate the premises as demanded in the letter dated
October 9, 1984, the petitioner filed with the Metropolitan Trial Court of Manila complaints for
ejectment against the manner, as follows: (1) 105972-CV, against Ederlina Navalta (2) 105973-CV,
against Jose Liwanag; (3) 105974-CV, against Flora Nagbuya; (4) 105975-CV, against Leandro
Canlas; (5) 105976-CV, against Victoria Sudario and (6) 105977-CV, against Ong Teng.
In their respective answers, the six (6) private respondents interposed a common defense. They
claimed that since the occupancy of the premises they paid their monthly rental regularly through a
collector of the lessor; that their non-payment of the rentals for the months of July, August and
September, 1984, was due to the failure of the petitioner (as the new owner) to send its collector;
that they were at a loss as to where they should pay their rentals; that sometime later, one of the
respondents called the office of the petitioner to inquire as to where they would make such
payments and he was told that a collector would be sent to receive the same; that no collector was
ever sent by the petitioner; and that instead they received a uniform demand letter dated October
9, 1984.
The private respondents, thru counsel, later filed a motion for consolidation of the six cases and as
a result thereof, the said cases were consolidated in the Metropolitan Trial Court of Manila, Branch
XII, presided over by Judge Eduardo S. Quintos, Jr. On June 4, 1985, the trial court rendered its
decision dismissing the six cases, a pertinent portion of which reads, as follows:
The records of this case show that at the time of the filing of this complaint, the
rentals had all been paid. Hence, the plaintiff cannot eject the defendants from the
leased premises, because at the time these cases were instituted, there are no
rentals in arrears.
The acceptance of the back rental by the plaintiff before the filing of the complaint,
as in these case, the alleged rental arrearages were paid immediately after receipt of
the demand letter, removes its cause of action in an unlawful detainer case, even if
the acceptance was without prejudice.
x x x.
Furthermore, the court has observed that the account involved which constitutes the
rentals of the tenants are relatively small to which the ejectment may not lie on
grounds of equity and for humanitarian reasons.
Defendants' counterclaim for litigation expenses has no legal and factual basis for
assessing the same against plaintiff.
WHEREFORE, judgment is hereby rendered dismissing these cases, without
pronouncement as to costs.
Defendants' counterclaim is likewise dismissed.
SO ORDERED. (pp. 32-33, Rollo, G.R. No. 77647)
Not satisfied with the decision of the Metropolitan Trial Court, the petitioner appealed to the
Regional Trial Court of Manila and the same was assigned to Branch IX thereof presided over by

Judge Conrado T. Limcaoco (now Associate Justice of the Court of Appeals).lwph1.t In its
decision dated November 19, 1985, the Regional Trial Court dismissed the appeal for lack of merit.
In due time, a petition for review of the decision of the Regional Trial Court was filed by the
petitioner with the Court of Appeals. Said petition was dismissed on January 30, 1987, for lack of
merit.
Aggrieved by the decision of the Court of Appeals, petitioner now comes to Us in this petition,
assigning the following errors:
ASSIGNMENT OF ERRORS
I
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THE
CAUSE OF ACTION FOR UNLAWFUL DETAINER IN THESE CASES DID NOT EXIST WHEN
THE COMPLAINTS WERE FILED BECAUSE PRIVATE RESPONDENTS TENDERED, AND
PETITIONER ACCEPTED, THE PAYMENT OF THE THREE (3) MONTHS RENTAL IN
ARREARS WITHIN THE FIFTEEN (15) DAY PERIOD FROM PRIVATE RESPONDENTS'
RECEIPT OF PETITIONER'S DEMAND LETTERS TO VACATE THE SUBJECT PREMISES AND
TO PAY THE RENTALS IN ARREARS.
II
RESPONDENT COURT OF APPEALS COMMITTED A GRAVEABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION COMMITTED A GRAVE WHEN IT ERRED IN
AFFIRMING THE DISMISSAL OF THE COMPLAINTS IN THESE CASES NOTWITHSTANDING
THE EXISTENCE OF VALID GROUNDS FOR THE JUDICIAL EJECTMENT OF PRIVATE
RESPONDENT.
III
RESPONDENT COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION,
AMOUNTING TO LACK OF JURISDICTION, WHEN IT ERRED IN HOLDING THAT THESE
CASES ARE CLASSIC EXAMPLES TO CIRCUMVENT THE RENT CONTROL LAW. (pp. 164165, Rollo, G.R. No. 77647)
The Court of Appeals defined the basic issue in this case as follows: whether or not there exists a
cause of action when the complaints for unlawful detainer were filed considering the fact that upon
demand by petitioner from private respondents for payment of their back rentals, the latter
immediately tendered payment which was accepted by petitioner.
In holding that there was no cause of action, the respondent Court relied on Section 2, Rule 70 of
the Rules of Court, which provides:
Sec. 2. Landlord to proceed against tenant only after demand. No landlord or his
legal representative or assign, shall be such action against a tenant for failure to pay
rent due or to comply with the conditions of his lease, unless the tenant shall have
failed to pay such rent or comply with such conditions for a period of fifteen (15) days
or five (5) days in case of building, after demand therefor, made upon qqqm
personally, or by serving written notice of such demand upon the person found on
the premises, or by posting such notice on the premises if no persons be found
thereon.
It interpreted the said provision as follows:
.....the right to bring an action of ejectment or unlawful detainer must be counted
from the time the defendants failed to pay rent after the demand therefor. It is not
the failure per se to pay rent as agreed in the contract, but the failure to pay the rent
after a demand therefor is made, that entitles the lessor to bring an action for
unlawful detainer. In other words, the demand contemplated by the above-quoted
provision is not a demand to vacate, but a demand made by the landlord upon his
tenant for the latter to pay the rent due if the tenant fails to comply with the said

demand with the period provided, his possession becomes unlawful and the landlord
may then bring the action for ejectment. (p. 28, , G.R. No. 77647)
We hold that the demand required and contemplated in Section 2, aforequoted, is a jurisdictional
requirement for the purpose of bringing an unlawful detainer suit for failure to pay rent or comply
with the conditions of lease. It partakes of an extrajudicial remedy that must be pursued before
resorting for judicial action so much so that when there is full compliance with the demand, there
arises no necessity for court action.
As to whether this demand is merely a demand to pay rent or comply with the conditions of the
lease or also a demand to vacate, the answer can be gleaned from said Section 2. This section
presupposes the existence of a cause of action for unlawful detainer as it speaks of "failure to pay
rent due or comply with the conditions of the lease." The existence of said cause of action gives the
lessor the right under Article 1659 of the New Civil Code to ask for the rescission of the contract of
lease and indemnification for damages, or only the latter, allowing the contract to remain in force.
Accordingly, if the option chosen is for specific performance, then the demand referred to is
obviously to pay rent or to comply with the conditions of the lease violated. However, if rescission is
the option chosen, the demand must be for the lessee to pay rents or to comply with the conditions
of the lease and to vacate. Accordingly, the rule that has been followed in our jurisprudence where
rescission is clearly the option taken, is that both demands to pay rent and to vacate are necessary
to make a lessee a deforciant in order that an ejectment suit may be filed (Casilan et al. vs.
Tomassi, L-16574, February 28,1964, 10 SCRA 261; Rickards vs. Gonzales, 109 Phil. 423, Dikit vs.
Icasiano, 89 Phil. 44).lwph1.t
Thus, for the purpose of bringing an ejectment suit, two requisites must concur, namely: (1) there
must be failure to pay rent or comply with the conditions of the lease and (2) there must be
demand both to pay or to comply and vacate within the periods specified in Section 2, Rule 70,
namely 15 days in case of lands and 5 days in case of buildings. The first requisite refers to the
existence of the cause of action for unlawful detainer while the second refers to the jurisdictional
requirement of demand in order that said cause of action may be pursued.
It is very clear that in the case at bar, no cause of action for ejectment has accrued. There was no
failure yet on the part of private respondents to pay rents for three consecutive months. As the
terms of the individual verbal leases which were on a month-to-month basis were not alleged and
proved, the general rule on necessity of demand applies, to wit: there is default in the fulfillment of
an obligation when the creditor demands payment at the maturity of the obligation or at anytime
thereafter. This is explicit in Article 1169, New Civil Code which provides that "(t)hose obliged to
deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation." Petitioner has not shown that its case falls
on any of the following exceptions where demand is not required: (a) when the obligation or the law
so declares; (b) when from the nature and circumstances of the obligation it can be inferred that
time is of the essence of the contract; and (c) when demand would be useless, as when the obligor
has rendered it beyond his power to perform.
The demand required in Article 1169 of the Civil Code may be in any form, provided that it can be
proved. The proof of this demand lies upon the creditor. Without such demand, oral or written, the
effects of default do not arise. This demand is different from the demand required under Section 2,
Rule 70, which is merely a jurisdictional requirement before an existing cause of action may be
pursued.
The facts on record fail to show proof that petitioner demanded the payment of the rentals when
the obligation matured. Coupled with the fact that no collector was sent as previously done in the
past, the private respondents cannot be held guilty of mora solvendi or delay in the payment of
rentals. Thus, when petitioner first demanded the payment of the 3-month arrearages and private
respondents lost no time in making tender and payment, which petitioner accepted, no cause of
action for ejectment accrued. Hence, its demand to vacate was premature as it was an exercise of a
non-existing right to rescind.
In contradistinction, where the right of rescission exists, payment of the arrearages in rental after
the demand to pay and to vacate under Section 2, Rule 70 does not extinguish the cause of action
for ejectment as the lessor is not only entitled to recover the unpaid rents but also to eject the
lessee.

Petitioner correctly argues that acceptance of tendered payment does not constitute a waiver of the
cause of action for ejectment especially when accepted with the written condition that it was
"without prejudice to the filing of an ejectment suit". Indeed, it is illogical or ridiculous not to accept
the tender of payment of rentals merely to preserve the right to file an action for unlawful detainer.
However, this line of argument presupposes that a cause of action for ejectment has already
accrued, which is not true in the instant case.
Petitioner likewise claims that its failure to send a collector to collect the rentals cannot be
considered a valid defense for the reason that sending a collector is not one of the obligations of
the lessor under Article 1654. While it is true that a lessor is not obligated to send a collector, it has
been duly established that it has been customary for private respondents to pay the rentals through
a collector. Besides Article 1257, New Civil Code provides that where no agreement has been
designated for the payment of the rentals, the place of payment is at the domicile of the
defendants. Hence, it could not be said that they were in default in the payment of their rentals as
the delay in paying the same was not imputable to them. Rather, it was attributable to petitioner's
omission or neglect to collect.
Petitioner also argues that neither is its refused to accept the rentals a defense for non-payment as
Article 1256 provides that "[i]f the creditor to whom the tender of payment has been made refuses
without just cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing due." It bears emphasis that in this case there was no unjustified refusal on the part of
petitioner or non-acceptance without reason that would constitute mora accipiendi and warrant
consignation. There was simply lack of demand for payment of the rentals.
In sum, We hold that respondent Court of Appeals did not commit grave abuse of discretion
amounting to lack of jurisdiction in its conclusion affirming the trial court's decision dismissing
petitioner's complaint for lack of cause of action. We do not agree, however, with the reasons relied
upon.
ACCORDINGLY, the petition for review on certiorari is hereby DENIED for lack of merit and the
decision dated January 30, 1987 of respondent Court of Appeals is hereby AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO
A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific performance to compel herein
petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in Quezon City entered into by the
parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter
referred to as Coronels) executed a document entitled "Receipt of Down Payment"
(Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as
Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment

P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 119627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the
down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the
deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall
immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon
execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property
registered in the name of their deceased father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute
the deed of absolute sale in favor of Ramona and the latter will pay the former the
whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz
(hereinafter referred to as Concepcion), mother of Ramona, paid the down payment
of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the name of the Coronels'
father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to
intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One
Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona
by depositing the down payment paid by Concepcion in the bank in trust for Ramona
Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific performance
against the Coronels and caused the annotation of a notice of lis pendens at the back
of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim
covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh.
"6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the name of
Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs
therein (now private respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits
as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits
"1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties,
the trial court gave them thirty (30) days within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to submit their corresponding comment or
reply thereof, after which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was
then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the
Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering
defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel
of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together with all the
improvements existing thereon free from all liens and encumbrances, and once
accomplished, to immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the
plaintiffs are ordered to pay defendants the whole balance of the purchase price
amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject property and

deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors are hereby
dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon
City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render
anew decision by the undersigned Presiding Judge should be denied for the following
reasons: (1) The instant case became submitted for decision as of April 14, 1988
when the parties terminated the presentation of their respective documentary
evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The
fact that they were allowed to file memoranda at some future date did not change
the fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the defendants
and intervenor did not object to the authority of Judge Reynaldo Roura to decide the
case prior to the rendition of the decision, when they met for the first time before the
undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q46145 on November 11, 1988, they were deemed to have acquiesced thereto and
they are now estopped from questioning said authority of Judge Roura after they
received the decision in question which happens to be adverse to them; (3) While it is
true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the
Court, he was in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose his authority
to decide or resolve such cases submitted to him for decision or resolution because
he continued as Judge of the Regional Trial Court and is of co-equal rank with the
undersigned Presiding Judge. The standing rule and supported by jurisprudence is
that a Judge to whom a case is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or region of the same court (Sec.
9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1,
1989 rendered in the instant case, resolution of which now pertains to the
undersigned Presiding Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the Decision of March 1,
1989 is supported by evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul
Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March
20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals
(Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private
respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however, reraffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the
Justice to whom the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court
in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the
case at bar is the precise determination of the legal significance of the document entitled "Receipt
of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between Ramona Patricia Alcaraz on the one
hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which
reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the "Receipt of Down Payment" embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract could not possibly ripen into a
contract absolute sale.
Plainly, such variance in the contending parties' contentions is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on record, this, Court, as were the
courts below, is now called upon to adjudge what the real intent of the parties was at the time the
said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell until the happening of
an event, which for present purposes we shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the
entire amount of the purchase price is delivered to him. In other words the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had
occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a
contract to sell where the ownership or title is retained by the seller and is not to
pass until the full payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from acquiring binding
force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, the prospective seller's obligation to sell the subject property by entering into a

contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of
sale where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that
if there had already been previous delivery of the property subject of the sale to the buyer,
ownership thereto automatically transfers to the buyer by operation of law without any further act
having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the
purchase price, ownership will not automatically transfer to the buyer although the property may
have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in
cases where the subject property is sold by the owner not to the party the seller contracted with,
but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the fulfillment of the suspensive condition
such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith
and the prospective buyer cannot seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to the buyer after registration because
there is no defect in the owner-seller's title per se, but the latter, of course, may be used for
damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to transfer
to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who
may have had actual or constructive knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be a registrant in good faith. Such
second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature
of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down
Payment" that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT
No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural
and ordinary idea conveyed is that they sold their property.
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the
transfer certificate of title was still in the name of petitioner's father, they could not fully effect such
transfer although the buyer was then willing and able to immediately pay the purchase price.
Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent
Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of
their father, after which, they promised to present said title, now in their names, to the latter and to
execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the
purchase price.
The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full payment of the purchase
price. Under the established facts and circumstances of the case, the Court may safely presume
that, had the certificate of title been in the names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell
the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by
the buyer with certain terms and conditions, promised to sell the property to the latter. What may
be perceived from the respective undertakings of the parties to the contract is that petitioners had
already agreed to sell the house and lot they inherited from their father, completely willing to
transfer full ownership of the subject house and lot to the buyer if the documents were then in
order. It just happened, however, that the transfer certificate of title was then still in the name of
their father. It was more expedient to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance of a new transfer of the certificate of
title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the
new certificate of title is issued in their names, petitioners were committed to immediately execute
the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the
purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment therefor, in the contract entered
into in the case at bar, the sellers were the one who were unable to enter into a contract of
absolute sale by reason of the fact that the certificate of title to the property was still in the name
of their father. It was the sellers in this case who, as it were, had the impediment which prevented,
so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
"Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners' father, Constancio P.
Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985
(Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the deed of
absolute sale in a public instrument, which petitioners unequivocally committed themselves to do
as evidenced by the "Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,

Art. 1475. The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
From the moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening
of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private respondent Ramona P.
Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her
part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our
names from our deceased father Constancio P. Coronel, the transfer certificate of title
immediately upon receipt of the downpayment above-stated". The sale was still
subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the
title to the property under their names, there could be no perfected contract of sale.
(Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners
as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated
as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale
subject only to the suspensive condition that the sellers shall effect the issuance of new certificate
title from that of their father's name to their names and that, on February 6, 1985, this condition
was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which pertinently provides
Art. 1187. The effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in each case, the
retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale
became mutually due and demandable as of the time of fulfillment or occurrence of the

suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of

both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights
and obligations to be extent and value of the inheritance of a person are transmitted
through his death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent
Constancio P. Coronel are compulsory heirs who were called to succession by operation of
law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights or obligations pertaining
thereto became binding and enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of the decedent (Article 777, Civil
Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared unless the creditors
have been paid is rendered moot by the fact that they were able to effect the transfer of the title to
the property from the decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into
an agreement at that time and they cannot be allowed to now take a posture contrary to that which
they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as against the person
relying thereon.
Having represented themselves as the true owners of the subject property at the time of
sale, petitioners cannot claim now that they were not yet the absolute owners thereof at
that time.
Petitioners also contend that although there was in fact a perfected contract of sale between them
and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible
the consummation thereof by going to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the
instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations
found only in their responsive pleadings, which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The
records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We
have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio
vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not
an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February
6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the
contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the
buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted

for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was
made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of
Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they
raise any objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the
contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to
pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense
of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to
show that they actually presented the new transfer certificate of title in their names and signified
their willingness and readiness to execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the
amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations
may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfill his obligation, delay by the other begins.
(Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a
case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should if be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof to the person who
presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the
issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first
buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in
good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right).
Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights
except when the second buyer first registers in good faith the second sale (Olivares
vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of
the first sale defeats his rights even if he is first to register, since knowledge taints
his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530,
26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA
656), it has held that it is essential, to merit the protection of Art. 1544, second
paragraph, that the second realty buyer must act in good faith in registering his deed
of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No.
95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the
subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea
conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a
clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in
good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second
buyer was a buyer in good faith but whether or not said second buyer registers such second sale in
good faith, that is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith,
registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a
notice of lis pendens had been annotated on the transfer certificate of title in the names of
petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the
time of registration, therefore, petitioner Mabanag knew that the same property had already been
previously sold to private respondents, or, at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect
in petitioners' title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has acquired knowledge that
there was a previous sale of the same property to a third party or that another person
claims said property in a pervious sale, the registration will constitute a registration
in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected
on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18,
1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as
principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned,
the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this
point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 108129 September 23, 1999

AEROSPACE CHEMICAL INDUSTRIES, INC., petitioner,
vs.
COURT OF APPEALS, PHILIPPINE PHOSPHATE FERTILIZER, CORP., respondents.

QUISUMBING, J.:
This petition for review assails the Decision 1 dated August 19, 1992, of the Court of Appeals, which
set aside the judgment of the Regional Trial Court of Pasig, Branch 151. The case stemmed from a
complaint filed by the buyer (herein petitioner) against the seller (private respondent) for alleged
breach of contract. Although petitioner prevailed in the trial court, the appellate court reversed and
instead found petitioner guilty of delay and therefore liable for damages, as follows:
WHEREFORE, the Decision of the court a quo is SET ASIDE and a new one rendered,
dismissing the complaint with costs against the plaintiff (herein petitioner) and, on
the counterclaim, ordering the plaintiff Aerospace Chemical Industries, Inc. to pay the
defendant, Philippine Phosphate Fertilizer Corporation the sum of P324,516.63
representing the balance of the maintenance cost and tank rental charges incurred
by the defendant for the failure of the plaintiff to haul the rest of the rest of the
sulfuric acid on the designated date.
Costs against plaintiff-appellee.

As gleaned from the records, the following are the antecedents:

On June 27, 1986, petitioner Aerospace Industries, Inc. (Aerospace) purchased five hundred (500)
metric tons of sulfuric acid from private respondent Philippine Phosphate Fertilizer Corporation
(Philphos). The contract 3 was in letter-form as follows:
27 June 1986
AEROSPACE INDUSTRIES INC.
203 E. Fernandez St.
San Juan, Metro Manila
Attention: Mr. Melecio Hernandez
Manager
Subject : Sulfuric Acid Shipment
Gentlemen:
This is to confirm our agreement to supply your Sulfuric Acid requirement under the
following terms and conditions:
A. Commodity : Sulfuric Acid in Bulk
B. Concentration : 98-99% H2SO4

C. Quantity : 500 MT-100 MT Ex-Basay

400 MT Ex-Sangi
D. Price : US$ 50.00/MT-FOB Cotcot,
Basay, Negros Or.
US$ 54.00/MT-FOB Sangi, Cebu
E. Payment : Cash in Philippine currency
payable to Philippine Phosphate
Fertilizer Corp. (MAKATI) at
PCIB selling rate at the time of
payment at least five (5) days prior
to shipment date.
F. Shipping Conditions
1. Laycan : July
2. Load port : Cotcot, Basay, Negros Or. and
Atlas Pier, Sangi, Cebu
xxx xxx xxx
11. Other terms and Conditions: To be mutually agreed upon.
Very truly yours,
Philippine Phosphate Fertilizer Corp.
Signed: Herman J. Rustia
Sr. Manager, Materials & Logistics
CONFORME:
AEROSPACE INDUSTRIES, INC.
Signed: Mr. Melecio Hernandez
Manager
Initially set beginning July 1986, the agreement provided that the buyer shall pay its purchases in
equivalent Philippine currency value, five days prior to the shipment date. Petitioner as buyer
committed to secure the means of transport to pick-up the purchases from private respondent's
loadports. Per agreement, one hundred metric tons (100 MT) of sulfuric acid should be taken from
Basay, Negros Oriental storage tank, while the remaining four hundred metric tons (400 MT) should
be retrieved from Sangi, Cebu.
On August 6, 1986, private respondent sent an advisory letter 4 to petitioner to withdraw the
sulfuric acid purchased at Basay because private respondent had been incurring incremental
expense of two thousand (P2,000.00) pesos for each day of delay in shipment.
On October 3, 1986, petitioner paid five hundred fifty-three thousand, two hundred eighty
(P553,280.00) pesos for 500 MT of sulfuric acid.

On November 19, 1986, petitioner chartered M/T Sultan Kayumanggi, owned by Ace Bulk Head
Services. The vessel was assigned to carry the agreed volumes of freight from designated loading
areas. M/T Kayumanggi withdrew only 70.009 MT of sulfuric acid from Basay because said vessel
heavily tilted on its port side. Consequently, the master of the ship stopped further loading.
Thereafter, the vessel underwent repairs.
In a demand letter 5 dated December 12, 1986, private respondent asked petitioner to retrieve the
remaining sulfuric acid in Basay tanks so that said tanks could be emptied on or before December
15, 1986. Private respondent said that it would charge petitioner the storage and consequential
costs for the Basay tanks, including all other incremental expenses due to loading delay, if
petitioner failed to comply.
On December 18, 1986, M/T Sultan Kayumanggi docked at Sangi, Cebu, but withdrew only 157.51
MT of sulfuric acid. Again, the vessel tilted. Further loading was aborted. Two survey reports
conducted by the Societe Generale de Surveillance (SGS) Far East Limited, dated December 17,
1986 and January 2, 1987, attested to these occurrences.
Later, on a date not specified in the record, M/T Sultan Kayumanggi sank with a total of 227.51 MT
of sulfuric acid on board.1wphi1.nt
Petitioner chartered another vessel, M/T Don Victor, with a capacity of approximately 500 MT. 6 On
January 26 and March 20, 1987, Melecio Hernandez, acting for the petitioner, addressed letters to
private respondent, concerning additional orders of sulfuric acid to replace its sunken purchases,
which letters are hereunder excerpted:
January 26, 1987
xxx xxx xxx
We recently charter another vessel M/T DON VICTOR who will be authorized by us to
lift the balance approximately 272.49 MT.
We request your goodselves to grant us for another Purchase Order with quantity of
227.51 MT and we are willing to pay the additional order at the prevailing market
price, provided the lifting of the total 500 MT be centered/confined to only one safe
berth which is Atlas Pier, Sangi, Cebu. 7
March 20, 1987
This refers to the remaining balance of the above product quantity which were not
loaded to the authorized cargo vessel, M/T Sultan Kayumanggi at your load port
Sangi, Toledo City.
Please be advised that we will be getting the above product quantity within the
month of April 1987 and we are arranging for a 500 MT Sulfuric Acid inclusive of
which the remaining balance: 272.49 MT an additional product quantity thereof of
227.51 MT. 8
Petitioner's letter

dated May 15, 1987, reiterated the same request to private respondent.

On January 25, 1988, petitioner's counsel, Atty. Pedro T. Santos, Jr., sent a demand letter 10 to
private respondent for the delivery of the 272.49 MT of sulfuric acid paid by his client, or the return
of the purchase price of three hundred seven thousand five hundred thirty (P307,530.00) pesos.
Private respondent in reply, 11 on March 8, 1988, instructed petitioner to lift the remaining 30 MT of
sulfuric acid from Basay, or pay maintenance and storage expenses commencing August 1, 1986.
On July 6, 1988, petitioner wrote another letter, insisting on picking up its purchases consisting of
272.49 MT and an additional of 227.51 MT of sulfuric acid. According to petitioner it had paid the
chartered vessel for the full capacity of 500 MT, stating that:
With regard to our balance of sulfuric acid product at your shore tank/plant for
272.49 metric ton that was left by M/T Sultana Kayumanggi due to her sinking, we
request for an additional quantity of 227.51 metric ton of sulfuric acid, 98%
concentration.

The additional quantity is requested in order to complete the shipment, as the

chartered vessel schedule to lift the high grade sulfuric acid product is contracted for
her full capacity/load which is 500 metric tons more or less.
We are willing to pay the additional quantity 227.51 metric tons high grade sulfuric
acid in the prevailing price of the said product. 12
xxx xxx xxx
By telephone, petitioner requested private respondent's Shipping Manager, Gil Belen, to get its
additional order of 227.51 MT of sulfuric acid at Isabel, Leyte. 13 Belen relayed the information to his
associate, Herman Rustia, the Senior Manager for Imports and International Sales of private
respondent. In a letter dated July 22, 1988, Rustia replied:
Subject: Sulfuric Acid Ex-Isabel
Gentlemen:
Confirming earlier telcon with our Mr. G.B. Belen, we regret to inform you that we
cannot accommodate your request to lift Sulfuric Acid ex-Isabel due to Pyrite
limitation and delayed arrival of imported Sulfuric Acid from Japan. 14
On July 25, 1988, petitioner's counsel wrote to private respondent another demand letter for the
delivery of the purchases remaining, or suffer tedious legal action his client would commence.
On May 4, 1989, petitioner filed a complaint for specific performance and/or damages before the
Regional Trial Court of Pasig, Branch 151. Private respondent filed its answer with counterclaim,
stating that it was the petitioner who was remiss in the performance of its obligation in arranging
the shipping requirements of its purchases and, as a consequence, should pay damages as
computed below:
Advanced Payment by Aerospace (Oct. 3, 1986) P553,280.00
Less Shipments
70.009 MT sulfuric acid P72,830.36
151.51 MT sulfuric acid 176,966.27 (249,796.63)

Balance P303,483.37
Less Charges
Basay Maintenance Expense
from Aug. 15 to Dec. 15, 1986
(P2,000.00/day x 122 days) P244,000.00
Sangi Tank Rental
from Aug. 15, 1986 to Aug. 15, 1987
(P32,000.00/mo. x 12 mos.) 384,000.00 (628,000.00)

Receivable/Counterclaim (P324,516.63)
===========

Trial ensued and after due proceedings, judgment was rendered by the trial court in petitioner's
favor, disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant,
directing the latter to pay the former the following sums:
1. P306,060.77 representing the value of the undelivered 272.49
metric tons of sulfuric acid plaintiff paid to defendant;
2. P91,818.23 representing unrealized profits, both items with 12%
interest per annum from May 4, 1989, when the complaint was filed
until fully paid;
3. P30,000.00 as exemplary damages; and
4. P30,000.00 as attorney's fees and litigation expenses, both last
items also with 12% interest per annum from date hereof until fully
paid.
Defendant's counterclaims are hereby dismissed for lack of merit.
Costs against defendant.

15

In finding for the petitioner, the trial court held that the petitioner was absolved in its obligation to
pick-up the remaining sulfuric acid because its failure was due to force majeure. According to the
trial court, it was private respondent who committed a breach of contract when it failed to
accommodate the additional order of the petitioner, to replace those that sank in the sea, thus:
To begin with, even if we assume that it is incumbent upon the plaintiff to "lift" the
sulfuric acid it ordered from defendant, the fact that force majeure intervened when
the vessel which was previouly (sic) listing, but which the parties, including a
representative of the defendant, did not mind, sunk, has the effect of absolving
plaintiff from "lifting" the sulfuric acid at the designated load port. But even assuming
the plaintiff cannot be held entirely blameless, the allegation that plaintiff agreed to a
payment of a 2,000-peso incremental expenses per day to defendant for delayed
"lifting has not been proven." . . .
Also, if it were true that plaintiff is indebted to defendant, why did defendant accept a
second additional order after the transaction in litigation? Why also, did defendant
not send plaintiff statements of account until after 3 years?
All these convince the Court that indeed, defendant must return what plaintiff has
paid it for the goods which the latter did not actually receive. 16
On appeal by private respondent, the Court of Appeals reversed the decision of the trial court, as
follows:
Based on the facts of this case as hereinabove set forth, it is clear that the plaintiff
had the obligation to withdraw the full amount of 500 MT of sulfuric acid from the
defendant's loadport at Basay and Sangi on or before August 15, 1986. As early as
August 6, 1986 it had been accordingly warned by the defendant that any delay in
the hauling of the commodity would mean expenses on the part of the defendant
amounting to P2,000.00 a day. The plaintiff sent its vessel, the "M/T Sultan
Kayumanggi", only on November 19, 1987. The vessel, however; was not capable of
loading the entire 500 MT and in fact, with its load of only 227.519 MT, it sank.
Contrary to the position of the trial court, the sinking of the "M/T Sultan Kayumanggi"
did not absolve the plaintiff from its obligation to lift the rest of the 272.481 MT of
sulfuric acid at the agreed time. It was the plaintiff's duty to charter another vessel
for the purpose. It did contract for the services of a new vessel, the "M/T Don Victor",
but did not want to lift the balance of 272.481 MT only but insisted that its additional
order of 227.51 MT be also given by the defendant to complete 500 MT. apparently so
that the vessel may be availed of in its full capacity.

xxx xxx xxx

We find no basis for the decision of the trial court to make the defendant liable to the
plaintiff not only for the cost of the sulfuric acid, which the plaintiff itself failed to
haul, but also for unrealized profits as well as exemplary damages and attorney's
fees. 17
Respondent Court of Appeals found the petitioner guilty of delay and negligence in the performance
of its obligation. It dismissed the complaint of petitioner and ordered it to pay damages
representing the counterclaim of private respondent.
The motion for reconsideration filed by petitioner was denied by respondent court in its Resolution
dated December 21, 1992, for lack of merit.
Petitioner now comes before us, assigning the following errors:
I.
RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT TO
HAVE COMMITTED A BREACH OF CONTRACT WHEN IT IS NOT DISPUTED THAT
PETITIONER PAID IN FULL THE VALUE OF 500 MT OF SULFURIC ACID TO PRIVATE
RESPONDENT BUT THE LATTER WAS ABLE TO DELIVER TO PETITIONER ONLY 227.51
M.T.
II.
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING PETITIONER LIABLE
FOR DAMAGES TO PRIVATE RESPONDENT ON THE BASIS OF A XEROX COPY OF AN
ALLEGED AGREEMENT TO HOLD PETITIONER LIABLE FOR DAMAGES FOR THE DELAY
WHEN PRIVATE RESPONDENT FAILED TO PRODUCE THE ORIGINAL IN CONTRAVENTION
OF THE RULES ON EVIDENCE.
III.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO CONSIDER THE UNDISPUTED
FACTS THAT PETITIONER'S PAYMENT FOR THE GOODS WAS RECEIVED BY PRIVATE
RESPONDENT WITHOUT ANY QUALIFICATION AND THAT PRIVATE RESPONDENT
ENTERED INTO ANOTHER CONTRACT TO SUPPLY PETITIONER 227.519 MT OF
SULFURIC ACID IN ADDITION TO THE UNDELIVERED BALANCE AS PROOF THAT ANY
DELAY OF PETITIONER WAS DEEMED WAIVED BY SAID ACTS OF RESPONDENT.
IV.
RESPONDENT COURT OF APPEALS ERRED IN NOT CONSIDERING THE LAW THAT WHEN
THE SALE INVOLVES FUNGIBLE GOODS AS IN THIS CASE THE EXPENSES FOR
STORAGE AND MAINTENANCE ARE FOR THE ACCOUNT OF THE SELLER (ARTICLE 1504
CIVIL CODE).
V.
RESPONDENT COURT OF APPEALS ERRED IN FAILING TO RENDER JUDGMENT FOR
PETITIONER AFFIRMING THE DECISION OF THE TRIAL COURT.
From the assigned errors, we synthesize the pertinent issues raised by the petitioner as follows:
1. Did the respondent court err in holding that the petitioner
committed breach of contract, considering that:
a) the petitioner allegedly paid the full value of its
purchases, yet received only a portion of said
purchases?

b) petitioner and private respondent allegedly had also

agreed for the purchase and supply of an additional
227.519 MT of sulfuric acid, hence prior delay, if any,
had been waived?
2. Did the respondent court err in awarding damages to private
respondent?
3. Should expenses for the storage and preservation of the purchased
fungible goods, namely sulfuric acid, be on seller's account pursuant to
Article 1504 of the Civil Code?
To resolve these issues, petitioner urges us to review factual findings of respondent court and its
conclusion that the petitioner was guilty of delay in the performance of its obligation. According to
petitioner, that conclusion is contrary to the factual evidence. It adds that respondent court
disregarded the rule that findings of the trial court are given weight, with the highest degree of
respect. Claiming that respondent court's findings conflict with those of the trial court, petitioner
prays that the trial court's findings be upheld over those of the appellate court.
Petitioner argues that it paid the purchase price of sulfuric acid, five (5) days prior to the withdrawal
thereof, or on October 3, 1986, hence, it had complied with the primary condition set in the sales
contract. Petitioner claims its failure to pick-up the remaining purchases on time was due to a
storm, a force majeure, which sank the vessel. It thus claims exemption from liability to pay
damages. Petitioner also contends that it was actually the private respondent's shipping officer,
who advised petitioner to buy the additional 227.51 MT of sulfuric acid, so as to fully utilize the
capacity of the vessel it chartered. Petitioner insists that when its ship was ready to pick-up the
remaining balance of 272.49 MT of sulfuric acid, private respondent could not comply with the
contract commitment due to "pyrite limitation."
While we agree with petitioner that when the findings of the Court of Appeals are contrary to those
of the trial court, 18 this Court may review those findings, we find the appellate court's conclusion
that petitioner violated the subject contract amply supported by preponderant evidence.
Petitioner's claim was predicated merely on the allegations of its employee, Melecio Hernandez,
that the storm or force majeure caused the petitioner's delay and failure to lift the cargo of sulfuric
acid at the designated loadports. In contrast, the appellate court discounted Hernandez' assertions.
For on record, the storm was not the proximate cause of petitioner's failure to transport its
purchases on time. The survey report submitted by a third party surveyor, SGS Far East Limited,
revealed that the vessel, which was unstable, was incapable of carrying the full load of sulfuric acid.
Note that there was a premature termination of loading in Basay, Negros Oriental. The vessel had to
undergo several repairs before continuing its voyage to pick-up the balance of cargo at Sangi,
Cebu. Despite repairs, the vessel still failed to carry the whole lot of 500 MT of sulfuric acid due to
ship defects like listing to one side. Its unfortunate sinking was not due to force majeure. It sunk
because it was, based on SGS survey report, unstable and unseaworthy.
Witness surveyor Eugenio Rabe's incident report, dated December 13, 1986 in Basay, Negros
Oriental, elucidated this point:
Loading was started at 1500hrs. November 19. At 1600Hrs. November 20, loading
operation was temporarily stopped by the vessel's master due to ships stability was
heavily tilted to port side, ship's had tried to transfer the loaded acid to stbdside but
failed to do so, due to their auxiliary pump on board does not work out for acid.
xxx xxx xxx
Note. Attending surveyor arrived BMC Basay on November 22, due to delayed advice
of said vessel Declared quantity loaded onboard based on data's provided by
PHILPHOS representative.
On November 26, two representative of shipping company arrived Basay to assist the
situation, at 1300Hrs repairing and/or welding of tank number 5 started at 1000Hrs
November 27, repairing and/or welding was suspended due to the explosion of tank
no. 5. Explosion ripped about two feet of the double bottom tank.
November 27 up to date no progress of said vessel.

19

While at Sangi, Cebu, the vessel's condition (listing) did not improve as the survey report therein
noted:
Declared quantity loaded on board was based on shore tank withdrawal due to ship's
incomplete tank calibration table. Barge displacement cannot be applied due to ship
was listing to Stboard side which has been loaded with rocks to control her stability. 20
These two vital pieces of information were totally ignored by trial court. The appellate court
correctly took these into account, significantly. As to the weather condition in Basay, the appellate
court accepted surveyor Rabe's testimony, thus:
Q. Now, Mr. Witness, what was the weather condition then at Basay,
Negros Oriental during the loading operation of sulfuric acid on board
the Sultana Kayumanggi?
A. Fair, sir.

21

Since the third party surveyor was neither petitioner's nor private respondent's employee, his
professional report should carry more weight than that of Melecio Hernandez, an employee of
petitioner. Petitioner, as the buyer, was obligated under the contract to undertake the shipping
requirements of the cargo from the private respondent's loadports to the petitioner's designated
warehouse. It was petitioner which chartered M/T Sultan Kayumanggi. The vessel was petitioner's
agent. When it failed to comply with the necessary loading conditions of sulfuric acid, it was
incumbent upon petitioner to immediately replace M/T Sultan Kayumanggi with another seaworthy
vessel. However, despite repeated demands, petitioner did not comply seasonably.
Additionally, petitioner claims that private respondent's employee, Gil Belen, had recommended to
petitioner to fully utilize the vessel, hence petitioner's request for additional order to complete the
vessel's 500 MT capacity. This claim has no probative pertinence nor solid basis. A party who
asserts that a contract of sale has been changed or modified has the burden of proving the change
or modification by clear and convincing evidence. 22Repeated requests and additional orders were
contained in petitioner's letters to private respondent. In contrast, Belen's alleged action was only
verbal; it was not substantiated at all during the trial. Note that, using the vessel to full capacity
could redound to petitioner's advantage, not the other party's. If additional orders were at the
instance of private respondent, the same must be properly proved together with its relevance to
the question of delay. Settled is the principle in law that proof of verbal agreements offered to vary
the terms of written agreements is inadmissible, under the parol evidence rule. 23Belen's purported
recommendation could not be taken at face value and, obviously, cannot excuse petitioner's
default.
Respondent court found petitioner's default unjustified, and on this conclusion we agree:
It is not true that the defendant was not in a position to deliver the 272.481 MT which
was the balance of the original 500 MT purchased by the plaintiff. The whole lot of
500 MT was ready for lifting as early as August 15, 1986. What the defendant could
not sell to the plaintiff was the additional 227.51 MT which said plaintiff was ordering,
for the reason that the defendant was short of the supply needed. The defendant,
however, had no obligation to agree to this additional order and may not be faulted
for its inability to meet the said additional requirements of the plaintiff. And the
defendant's incapacity to agree to the delivery of another 227.51 MT is not a legal
justification for the plaintiffs refusal to lift the remaining 272.481.
It is clear from the plaintiff's letters to the defendant that it wanted to send the "M/T
Don Victor" only if the defendant would confirm that it was ready to deliver 500 MT.
Because the defendant could not sell another 227.51 MT to the plaintiff, the latter did
not send a new vessel to pick up the balance of the 500 MT originally contracted for
by the parties. This, inspite the representations made by the defendant for the
hauling thereof as scheduled and its reminders that any expenses for the delay would
be for the account of the plaintiff. 24
We are therefore constrained to declare that the respondent court did not err when it absolved
private respondent from any breach of contract.

Our next inquiry is whether damages have been properly awarded against petitioner for its
unjustified delay in the performance of its obligation under the contract. Where there has been
breach of contract by the buyer, the seller has a right of action for damages. Following this rule, a
cause of action of the seller for damages may arise where the buyer refuses to remove the goods,
such that buyer has to remove them. 25 Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud, negligence, or
delay and those who in any manner contravene the tenor thereof, are liable for
damages.
Delay begins from the time the obligee judicially or extrajudicially demands from the obligor the
performance of the obligation. 26 Art. 1169 states:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
In order that the debtor may be in default, it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially. 27
In the present case, private respondent required petitioner to ship out or lift the sulfuric acid as
agreed, otherwise petitioner would be charged for the consequential damages owing to any delay.
As stated in private respondent's letter to petitioner, dated December 12, 1986:
Subject: M/T "KAYUMANGGI"
Gentlemen:
This is to reiterate our telephone advice and our letter HJR-8612-031 dated 2
December 1986 regarding your sulfuric acid vessel, M/T "KAYUMANGGI".
As we have, in various instances, advised you, our Basay wharf will have to be
vacated 15th December 1986 as we are expecting the arrival of our chartered vessel
purportedly to haul our equipments and all other remaining assets in Basay. This
includes our sulfuric acid tanks. We regret,therefore, that if these tanks are not
emptied on or before the 15th of December, we either have to charge you for the
tanks waiting time at Basay and its consequential costs (i.e. chartering of another
vessel for its second pick-up at Basay, handling, etc.) as well as all other incremental
costs on account of the protracted loading delay. 28 (Emphasis supplied)
Indeed the above demand, which was unheeded, justifies the finding of delay. But when did such
delay begin? The above letter constitutes private respondent's extrajudicial demand for the
petitioner to fulfill its obligation, and its dateline is significant. Given its date, however, we cannot
sustain the finding of the respondent court that petitioner's delay started on August 6, 1986. The
Court of Appeals had relied on private respondent's earlier letter to petitioner of that date for
computing the commencement of delay. But as averred by petitioner, said letter of August 6th is
not a categorical demand. What it showed was a mere statement of fact, that "[F]for your
information any delay in Sulfuric Acid withdrawal shall cost us incremental expenses of P2,000.00
per day." Noteworthy, private respondent accepted the full payment by petitioner for purchases on
October 3, 1986, without qualification, long after the August 6th letter. In contrast to the August 6th
letter, that of December 12th was a categorical demand.
Records reveal that a tanker ship had to pick-up sulfuric acid in Basay, then proceed to get the
remaining stocks in Sangi, Cebu. A period of three days appears to us reasonable for a vessel to
travel between Basay and Sangi. Logically, the computation of damages arising from the shipping
delay would then have to be from December 15, 1986, given said reasonable period after the
December 12th letter. More important, private respondent was forced to vacate Basay wharf only
on December 15th. Its Basay expenses incurred before December 15, 1986, were necessary and
regular business expenses for which the petitioner should not be obliged to pay.
Note that private respondent extended its lease agreement for Sangi, Cebu storage tank until
August 31, 1987, solely for petitioner's sulfuric acid. It stands to reason that petitioner should
reimburse private respondent's rental expenses of P32,000 monthly, commencing December 15,

1986, up to August 31, 1987, the period of the extended lease. Note further that there is nothing on
record refuting the amount of expenses abovecited. Private respondent presented in court two
supporting documents: first, the lease agreement pertaining to the equipment, and second a letter
dated June 15, 1987, sent by Atlas Fertilizer Corporation to private respondent representing the
rental charges incurred. Private respondent is entitled to recover the payment for these charges. It
should be reimbursed the amount of two hundred seventy two thousand
(P272,000.00) 29 pesos, corresponding to the total amount of rentals from December 15, 1986 to
August 31, 1987 of the Sangi, Cebu storage tank.
Finally, we note also that petitioner tries to exempt itself from paying rental expenses and other
damages by arguing that expenses for the preservation of fungible goods must be assumed by the
seller. Rental expenses of storing sulfuric acid should be at private respondent's account until
ownership is transferred, according to petitioner. However, the general rule that before delivery, the
risk of loss is borne by the seller who is still the owner, is not applicable in this case because
petitioner had incurred delay in the performance of its obligation. Article 1504 of the Civil Code
clearly states:
Unless otherwise agreed, the goods remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual delivery has been made or
not, except that:
xxx xxx xxx
(2) Where actual delivery has been delayed through the fault of either the buyer or
seller the goods are at the risk of the party at fault. (emphasis supplied)
On this score, we quote with approval the findings of the appellate court, thus:
. . . The defendant [herein private respondent] was not remiss in reminding the
plaintiff that it would have to bear the said expenses for failure to lift the commodity
for an unreasonable length of time.
But even assuming that the plaintiff did not consent to be so bound, the provisions of
Civil Code come in to make it liable for the damages sought by the defendant.
Art. 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of fraud,
negligence, or delay and those who in any manner contravene the
tenor thereof, are liable for damages.
Certainly, the plaintiff [herein petitioner] was guilty of negligence and delay in the
performance of its obligation to lift the sulfuric acid on August 15, 1986 and had
contravened the tenor of its letter-contract with the defendant. 30
As pointed out earlier, petitioner is guilty of delay, after private respondent made the necessary
extrajudicial demand by requiring petitioner to lift the cargo at its designated loadports. When
petitioner failed to comply with its obligations under the contract it became liable for its
shortcomings. Petitioner is indubitably liable for proven damages.
Considering, however, that petitioner made an advance payment for the unlifted sulfuric acid in the
amount of three hundred three thousand, four hundred eighty three pesos and thirty seven
centavos (P303,483.37), it is proper to set-off this amount against the rental expenses initially paid
by private respondent. It is worth noting that the adjustment and allowance of private respondent's
counterclaim or set-off in the present action, rather than by another independent action, is
encouraged by the law. Such practice serves to avoid circuitry of action, multiplicity of suits,
inconvenience, expense, and unwarranted consumption of the court's time. 31 The trend of judicial
decisions is toward a liberal extension of the right to avail of counterclaims or set-offs. 32 The rules
on counterclaims are designed to achieve the disposition of a whole controversy involving the
conflicting claims of interested parties at one time and in one action, provided all parties can be
brought before the court and the matter decided without prejudicing the right of any party. 33 Setoff in this case is proper and reasonable. It involves deducting P272,000.00 (rentals) from

P303,483.37 (advance payment), which will leave the amount of P31,483.37 refundable to
petitioner.
WHEREFORE, the petition is hereby DENIED. The assailed decision of the Court of Appeals in CA
G.R. CV No. 33802 is AFFIRMED, with MODIFICATION that the amount of damages awarded in favor
of private respondent is REDUCED to Two hundred seventy two thousand pesos (P272,000.00). It is
also ORDERED that said amount of damages be OFFSET against petitioner's advance payment of
Three hundred three thousand four hundred eighty three pesos and thirty-seven centavos
(P303,483.37) representing the price of the 272.481 MT of sulfuric acid not lifted. Lastly, it is
ORDERED that the excess amount of thirty one thousand, four hundred eighty three pesos and
thirty seven centavos (P31,483.37) be RETURNED soonest by private respondent to herein
petitioner.1wphi1.nt
Costs against the petitioner.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154017

December 8, 2003

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

vs.
The INTESTATE ESTATE of MARCELO M. VILLALBA and VALENTA BALICUA
VILLALBA, respondents.
DECISION
PANGANIBAN, J.:
There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is
an action to collect the balance or to rescind the contract within the time allowed by law. In this
case, laches barring the claim of petitioner to recover the property has already set in. However, in
the interest of substantial justice, and pursuant to the equitable principle proscribing unjust
enrichment, she is entitled to receive the unpaid balance of the purchase price plus legal interest
thereon.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the
November 9, 2001 Decision2 and the May 23, 20023 Resolution of the Court of Appeals (CA) in CAGR CV No. 42024. The assailed Decision disposed as follows:
"WHEREFORE, the Decision appealed from is AFFIRMED."4
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts are narrated by the CA, as follows:
"On May 5, 1982, [Petitioner] Desamparados M. Soliva filed a complaint for recovery of ownership,
possession and damages against [Respondent] Valenta Balicua Villalba x x x alleging that she is the
owner of a parcel of agricultural land situated at Hinaplanan, Claveria, Misamis Oriental, containing
an area of 16,542 square meters and covered by Original Certificate of Title No. 8581; that on
January 4, 1966, the late Capt. Marcelo Villalba asked her permission to occupy her house on said
land, promised to buy the house and lot upon receipt of his money from Manila and gave
her P600.00 for the occupation of the house; that Capt. Villalba died in 1978 without having paid
the consideration for the house and lot; and that after [the] death of Capt. Villalba, his widow,
[Respondent Valenta], refused to vacate the house and lot despite demands, destroyed the house
thereon and constructed a new one.
"For failure to file an answer, [Respondent Valenta] was declared in default and [petitioner] was
allowed to present her evidence ex-parte.
"On March 26, 1984, the court a quo rendered judgment restoring to [petitioner] her right of
ownership and possession of the property and ordering [Respondent Valenta] to pay
[her] P25,000.00 as actual damages and P5,000.00 as attorneys fees. Said decision became final
and [petitioner] was placed in possession of the subject property.
"A petition for relief from judgment was filed by [Respondent Valenta] on June 5, 1984 alleging that
her failure to file an answer to the complaint was caused by her confusion as to whether the
property formed part of the estate of her late husband, Marcelo Villalba; that she referred the
matter to Atty. Eleno Kabanlit, the administrator of the estate, but the latter informed her that the
property was not included in the inventory of the estate; and that she has a meritorious defense as

her late husband had already paid the amount of P2,250.00 out of the purchase price of P3,500.00
for the house and lot.
"The petition for relief was denied by the court a quo in an Order dated September 3, 1984 on the
grounds that the failure of [Respondent Valenta] to file an answer was not due to excusable
negligence and that she does not seem to have a valid and meritorious defense.
"[Respondent Valenta] appealed to [the CA], which rendered a Decision on February 21, 1990
finding that the failure of [Respondent Valenta] to file an answer to the complaint was due to
excusable negligence; that she has a meritorious defense, and that the complaint should have been
filed not against her but against the administrator of the estate of deceased Marcelo Villalba. The
dispositive portion of said Decision reads:
WHEREFORE, the order appealed from is hereby REVERSED; the judgment by default in Civil Case
No. 8515, subject matter of the petition for relief, is SET ASIDE; the trial court is ORDERED to
continue with the proceedings in said case; and [Petitioner] Desamparados M. Soliva x x x is
ORDERED to amend [her] complaint by substituting the administrator of the intestate testate (sic)
of the late Marcelo M. Villalba for Valenta Baricua-Villalba [respondent] as defendant in said
amended complaint. No pronouncement as to costs.
SO ORDERED.
"Consequently, an amended complaint was filed in Civil Case No. 8515 by substituting the Intestate
Estate of Marcelo M. Villalba, represented by its Administrator, Atty. Eleno M. Kabanlit, for
[Respondent Valenta], as defendant therein.
"Answering the complaint, the Administrator alleged that the house and lot were sold to the late
Marcelo Villalba by Magdaleno Soliva, the late husband of [petitioner], on December 18, 1965
for P3,500.00 on installment basis and that Marcelo Villalba had paid the total amount of P2,250.00;
that no demands were made on [Respondent Valenta] to vacate the property prior to the filing of
the original complaint in 1982; and that [Respondent Valenta] has been in continuous, public and
uninterrupted possession of the property for seventeen (17) years, i.e., from 1965 to 1982, so that
[petitioners] claim of ownership has already prescribed.
"An answer-in-intervention was filed by [Respondent Valenta] alleging that the original transaction
between her late husband and the late husband of [petitioner] covered seventy [two] (72) hectares
of land, twenty-nine (29) heads of cattle and the subject house and lot; that [petitioner] and her
husband delivered to them only twenty-seven (27) hectares and twelve (12) heads of cattle and
they had to pay separately for the house and lot; and that she renovated the house and lot at a
cost of not less than P30,000.00 and planted numerous fruit trees and permanent crops, all valued
at not less than P50,000.00.
"On March 11, 1993, the court a quo rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered dismissing the complaint and the counterclaims without
special pronouncement as to costs, and ordering the reconveyance of subject lot to [respondent]
and intervenor."5
Ruling of the Court of Appeals
Affirming the RTC, the CA held that laches had already set in. The inaction of petitioner for almost
16 years had barred her action to recover the disputed property from the Villalbas. The appellate
court found that 1) until the death of Marcelo Villalba in 1978, his payment of the full purchase price
of the disputed house and lot was never demanded; 2) no evidence was presented to show when
petitioner had made a verbal demand on Valenta Villalba to vacate the premises; and 3) the
complaint for recovery of ownership and possession was filed only on May 5, 1982 -- 16 years after
the formers cause of action had accrued.
Hence, this Petition.6
Issues
Petitioner submits the following issues for our consideration:

"1. Whether or not Capt. Marcelo M. Villalba who died in 1978 after declaring that he would not pay
anymore the full consideration of the price of the house and lot and after exhausting extrajudicial
remedies would bar Desamparados M. Soliva or her successor-in-interest from asserting her claim
over her titled property.
"2. Whether or not the Decision of the Court of Appeals affirming the Decision of the Regional Trial
Court ordering the reconveyance of the subject lot to defendant and intervenor although Capt.
Marcelo Villalba nor his wife Valenta Balicua Villalba had not yet paid the full consideration of the
price of the house and lot would unjustly enrich spouses Marcelo and Valenta Villalba at the
expense of Desamparados M. Soliva."7
Simply put, the issues boil down to the following: (1) whether petitioner is barred from recovering
the disputed property; and (2) whether the conveyance ordered by the court a quo would unjustly
enrich respondents at her expense.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Petitioners Claim Already Barred
Petitioner contests the appellate courts finding that she slept on her rights for 16 years and
thereby allowed prescription and laches to set in and bar her claim. She avers that she undertook
extrajudicial measures to collect the unpaid balance of the purchase price from the Villalbas. She
also emphasizes that as a result of her original action, the trial court restored her to the possession
of the disputed house and lot on March 26, 1984.
It is readily apparent that petitioner is raising issues of fact that have amply been ruled upon by the
appellate court. The CAs findings of fact are generally binding upon this Court and will not be
disturbed on appeal -- especially when, as in this case, they are the same as those of the trial
court.8 Petitioner has failed to show sufficient reason for us to depart from this rule. Accordingly, we
shall review only questions of law that have been distinctly set forth. 9
No Invalidation of Sale Due
to Nonpayment of Full Price
Petitioner argues that the transaction between the parties was a contract to sell rather than a
contract of sale. This argument was properly brushed aside by the appellate court, which held that
she was bound by her admission in her Complaint10 and during the hearings11 that she had sold the
property to the Villalbas.
Petitioner further contends that the oral contract of sale between the parties was invalid, because
the late Captain Marcelo Villalba and his wife had failed to comply with their obligation to pay in full
the purchase price of the house and lot. She is mistaken.
Under Article 1318 of the Civil Code, the following are the essential requisites of a valid contract: 1)
the consent of the contracting parties, 2) the object certain which is the subject matter of the
contract, and 3) the cause of the obligation which is established. When all the essential requisites
are present, a contract is obligatory in whatever form it may have been entered into, save in cases
where the law requires that it be in a specific form to be valid and enforceable. 12
With respect to real property, Article 1358(1) of the Civil Code specifically requires that a contract of
sale thereof be in a public document. However, an otherwise unenforceable oral contract of sale of
realty under Article 1403(2) of the Civil Code may be ratified by the failure to object to the
presentation of oral evidence to prove it or by the acceptance of benefits granted by it. 13
All the essential elements of a valid contract are present in this case. No issue was raised by
petitioner on this point. Moreover, while the contract between the parties might have been
unenforceable under Article 1403(2) of the Civil Code, the admission14 by petitioner that she had
accepted payments under the oral contract of sale took the case out of the scope of the Statute of
Frauds.15 The ratification of the contract rendered it valid and enforceable.

Furthermore, contrary to petitioners submission, the nonpayment of the full consideration did not
invalidate the contract of sale. Under settled doctrine, nonpayment is a resolutory condition that
extinguishes the transaction existing for a time and discharges the obligations created
thereunder.16 The remedy of the unpaid seller is to sue for collection17 or, in case of a substantial
breach, to rescind the contract.18 These alternative remedies of specific performance and rescission
are provided under Article 1191 of the Civil Code as follows:
"Art.1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
"The injured party may choose between fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.
"The Court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
"x x x

xxx

x x x."

The rescission of a sale of immovables, on the other hand, is governed by Article 1592 of the Civil
Code as follows:
"Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or extrajudicially or by a notarial
act. After the demand, the court may not grant him a new term."
Upon the facts found by the trial and the appellate courts, petitioner did not exercise her right
either to seek specific performance or to rescind the verbal contract of sale until May 1982, when
she filed her complaint for recovery of ownership and possession of the property. This factual
finding brings to the fore the question of whether by 1982, she was already barred from recovering
the property due to laches and prescription.
Action Barred by Laches
In general, laches is the failure or neglect, for an unreasonable and unexplained length of time, to
do that which -- by the exercise of due diligence -- could or should have been done earlier. 19 It is the
negligence or omission to assert a right within a reasonable period, warranting the presumption
that the party entitled to assert it has either abandoned or declined to assert it. 20
Under this time-honored doctrine, relief has been denied to litigants who, by sleeping on their rights
for an unreasonable length of time -- either by negligence, folly or inattention -- have allowed their
claims to become stale.21 Vigilantibus, sed non dormientibus, jura subveniunt. The laws aid the
vigilant, not those who slumber on their rights.22
The following are the essential elements of laches:
(1) Conduct on the part of the defendant that gave rise to the situation complained of; or the
conduct of another which the defendant claims gave rise to the same;
(2) Delay by the complainant in asserting his right after he has had knowledge of the
defendants conduct and after he has had an opportunity to sue;
(3) Lack of knowledge by or notice to the defendant that the complainant will assert the
right on which he bases his suit; and
(4) Injury or prejudice to the defendant in the event relief is accorded to the complainant. 23
Petitioner complied with her obligation to deliver the property in 1966. 24 However, respondents
husband failed to comply with his reciprocal obligation to pay, when the money he had been
expecting from Manila never materialized.25 He also failed to make further installments after May
13, 1966.26 As early as 1966, therefore, petitioner already had the right to compel payment or to
ask for rescission, pursuant to Article 1169 of the Civil Code, which reads:

"Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
"However, the demand by the creditor shall not be necessary in order that delay may exist:
xxx

xxx

xxx

"In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins." (Italics supplied)
Nonetheless, petitioner failed to sue for collection or rescission. Due to insufficiency of evidence,
the lower courts brushed aside her assertions that she had availed herself of extrajudicial remedies
to collect the balance or to serve an extrajudicial demand on Villalba, prior to her legal action in
1982. Meanwhile, respondent had spent a considerable sum in renovating the house and
introducing improvements on the premises.27
In view thereof, the appellate court aptly ruled that petitioners claim was already barred by laches.
It has been consistently held that laches does not concern itself with the character of the
defendants title, but only with the issue of whether or not the plaintiff -- by reason of long inaction
or inexcusable neglect -- should be barred entirely from asserting the claim, because to allow such
action would be inequitable and unjust to the defendant. 28
Likewise, it must be stressed that unlike prescription, laches is not concerned merely with the fact
of delay, but even more with the effect of unreasonable delay. 29 In Vda. de Cabrera v. CA,30 we
explained:
"In our jurisdiction, it is an enshrined rule that even a registered owner of property may be barred
from recovering possession of property by virtue of laches. Under the Land Registration Act (now
the Property Registration Decree), no title to registered land in derogation to that of the registered
owner shall be acquired by prescription or adverse possession. The same is not true with regard to
laches. As we have stated earlier in Mejia de Lucas vs. Gamponia, while the defendant may not be
considered as having acquired title by virtue of his and his predecessors long continued possession
(37 years) the original owners right to recover x x x the possession of the property and the title
thereto from the defendant has, by the latters long period of possession and by patentees inaction
and neglect, been converted into a stale demand."31
The contention of petitioner that her right to recover is imprescriptible because the property was
registered under the Torrens system32 also fails to convince us. It was the finding of the trial court
that the property was not yet covered by a free patent on January 4, 1966, when Captain Villalba
acquired possession thereof. Indeed, the evidence shows that as of that date, the documents
relating to the property were still in the name of Pilar Castrence, from whom petitioner purchased
the property on April 27, 1966;33 that she applied for a free patent therefor between January 4 and
April 27, 1966;34 and that the original certificate of title over the lot was issued to her under Free
Patent No. (x-1) 3732 only on August 16, 1974.35
It is apparent, then, that petitioner sold the house and lot to respondent on January 4, 1966, before
she had even acquired the title to convey it. Moreover, she applied for a free patent after she lost,
by operation of law,36 the title she had belatedly acquired from Castrence. These circumstances
raise serious questions over the formers good faith in delaying the assertion of her rights to the
property. They bar her from seeking relief under the principle that "one who comes to court must
come with clean hands."37
Action Barred by Prescription
Moreover, we find that the RTC and the CA correctly appreciated the operation of ordinary
acquisitive prescription in respondents favor.1wphi1 To acquire ownership and other real rights
over immovables under Article 1134 of the Civil Code, possession must be for 10 years. It must also
be in good faith and with just title.38
Good faith consists of the reasonable belief that the person from whom the possessor received the
thing was its owner, but could not transmit the ownership thereof.39 On the other hand, there is just
title when the adverse claimant came into possession of the property through one of the modes

recognized by law for the acquisition of ownership or other real rights, but the grantor was not the
owner or could not transmit any right.40
The RTC and the CA held that the Villalbas had continuously possessed the property from January
4, 1966 until May 5, 198241 or for a total of 16 years. Capt. Villalba came into possession through a
sale by petitioner, whom he believed was the owner, though -- at the time of the sale -- she was
not. Clearly, all the elements of ordinary acquisitive prescription were present.
Petitioner is thus precluded from invoking the 30-year prescriptive period for commencing real
action over immovables. Prescription of the action is without prejudice to acquisitive prescription,
according to Article 1141 of the Civil Code, which we quote:
"Art. 1141. Real actions over immovables prescribe after thirty years.
"This provision is without prejudice to what is established for the acquisition of ownership and other
real rights by prescription." (Italics supplied)
Second Issue:
Unjust Enrichment
While petitioner is now barred from recovering the subject property, all is not lost for her. By
Respondent Villalbas own admission,42 a balance of P1,250 of the total purchase price remains
unpaid. Reason and fairness suggest that petitioner be allowed to collect this sum. It is a basic rule
in law that no one shall unjustly enrich oneself at the expense of another. Niguno non deue
enriquecerse tortizamente condao de otro. For indeed, to allow respondent to keep the property
without paying fully for it amounts to unjust enrichment on her part.
Since the obligation consists of the payment of a sum of money, and Respondent Villalba has
incurred delay in satisfying that obligation, legal interest at six percent (6%) per annum 43 is hereby
imposed on the balance of P1,250, to be computed starting May 5, 1982 -- when the claim was
made judicially -- until the finality of this Courts judgment. Following our ruling in Eastern Shipping
Lines, Inc. v. CA,44 the sum so awarded shall likewise bear interest at the rate of 12 percent per
annum from the time this judgment becomes final and executory until its satisfaction.
WHEREFORE, the Petition is partly GRANTED. The Decision of the Court of Appeals is AFFIRMED,
with the MODIFICATION that respondent is ordered to pay the balance of the purchase price
of P1,250 plus 6 percent interest per annum, from May 5, 1982 until the finality of this judgment.
Thereafter, interest of 12 percent per year shall then be imposed on that amount upon the finality
of this Decision until the payment thereof. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174269

May 8, 2009

POLO S. PANTALEON, Petitioner,

vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in
any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the
entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The group
was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond
polishing that lasted for around ten minutes.1 Afterwards, the group was led to the stores
showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to
purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond
close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase a
pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the tour
group was slated to depart from the store. The sales clerk took the cards imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondents Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and informed the
other members of the Pantaleon family that the entire tour group was waiting for them. As it was
already 9:40 a.m., and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait
a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed
his daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the
items even without respondents approval of the purchase. The spouses Pantaleon returned to the
bus. It is alleged that their offers of apology were met by their tourmates with stony silence. 4 The
tour groups visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m.
ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to
take a tranquilizer to calm his nerves.
It later emerged that Pantaleons purchase was first transmitted for approval to respondents
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondents Manila office at 9:33
a.m, then finally approved at 10:19 a.m., Amsterdam time. 6 The Approval Code was transmitted to
respondents Amsterdam office at 10:38 a.m., several minutes after petitioner had already left
Coster, and 78 minutes from the time the purchases were electronically transmitted by the jewelry
store to respondents Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use
his AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase childrens shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a letter 7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and
his family thereby suffered" for respondents refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleons demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded P2,000,000.00, as moral
damages; P500,000.00, as exemplary damages; P100,000.00, as attorneys fees; and P50,000.00
as litigation expenses.12
On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding
him P500,000.00 as moral damages, P300,000.00 as exemplary damages, P100,000.00 as
attorneys fees, and P85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while
Pantaleon moved for partial reconsideration, praying that the trial court award the increased
amount of moral and exemplary damages he had prayed for.14The RTC denied Pantaleons motion
for partial reconsideration, and thereafter gave due course to respondents Notice of Appeal. 15
On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence,
this petition.
The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon and respondents
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of
seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on the
part of respondent in approving the purchases. However, it made two critical conclusions in favor of
respondent. First, the appellate court ruled that the delay was not attended by bad faith, malice, or
gross negligence. Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge pattern" petitioner had
established for himself, as exemplified by the fact that at Coster, he was "making his very first
single charge purchase of US$13,826," and "the record of [petitioner]s past spending with
[respondent] at the time does not favorably support his ability to pay for such purchase." 17
On the premise that there was an obligation on the part of respondent "to approve or disapprove
with dispatch the charge purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of respondent in the performance of
its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to
him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a finding of default are
that the obligation is demandable and liquidated; the debtor delays performance; and the creditor
judicially or extrajudicially requires the debtors performance.18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora accipiendi, which relates to delay on the part of
the obligee in accepting the performance of the obligation by the obligor. The requisites of mora
accipiendi are: an offer of performance by the debtor who has the required capacity; the offer must
be to comply with the prestation as it should be performed; and the creditor refuses the
performance without just cause.19 The error of the appellate court, argues petitioner, is in relying on

the invocation by respondent of "just cause" for the delay, since while just cause is determinative of
mora accipiendi, it is not so with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor, 20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the depositor is
considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and
again see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioners perspective appears more sensible than if we were to still regard respondent
as the creditor in the context of this cause of action. If there was delay on the part of respondent in
its normal role as creditor to the cardholder, such delay would not have been in the acceptance of
the performance of the debtors obligation (i.e., the repayment of the debt), but it would be delay in
the extension of the credit in the first place. Such delay would not fall under mora accipiendi, which
contemplates that the obligation of the debtor, such as the actual purchases on credit, has already
been constituted. Herein, the establishment of the debt itself (purchases on credit of the jewelry)
had not yet been perfected, as it remained pending the approval or consent of the respondent
credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioners
purchases with "timely dispatch," or for the purposes of this case, within a period significantly less
than the one hour it apparently took before the purchase at Coster was finally approved.
The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioners purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customers purchase request, whether such
action be favorable or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for purchases was a
matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.
Defendants credit authorizer Edgardo Jaurique likewise testified:
Q. You also testified that on normal occasions, the normal approval time for charges would
be 3 to 4 seconds?
A. Yes, Maam.
Both parties likewise presented evidence that the processing and approval of plaintiffs charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by
the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the
Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that defendants
Amsterdam office received the request to approve plaintiffs charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic successive queries of
Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how
long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times

Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for authorization, defendants own record
shows:
01:22 the authorization is referred to Manila Amexco
01:32 Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.
01:33 Netherlands asks "How long will this take?"
02:08 Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to
act on his use of the card abroad "with special handling." 22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit
card company to approve or disapprove a customers purchase, much less one specifically
contracted upon by the parties. Yet this is one of those instances when "youd know it when youd
see it," and one hour appears to be an awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a
bank a kilometer away, withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase
"in timely dispatch," and not "to approve the purchase instantaneously or within seconds."
Certainly, had respondent disapproved petitioners purchase "within seconds" or within a timely
manner, this particular action would have never seen the light of day. Petitioner and his family
would have returned to the bus without delay internally humiliated perhaps over the rejection of
his card yet spared the shame of being held accountable by newly-made friends for making them
miss the chance to tour the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction. The culpable failure of respondent
herein is not the failure to timely approve petitioners purchase, but the more elemental failure to
timely act on the same, whether favorably or unfavorably. Even assuming that respondents credit
authorizers did not have sufficient basis on hand to make a judgment, we see no reason why
respondent could not have promptly informed petitioner the reason for the delay, and duly advised
him that resolving the same could take some time. In that way, petitioner would have had informed
basis on whether or not to pursue the transaction at Coster, given the attending circumstances.
Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a foreign land and
soon forced to confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in
bad faith, and the court should find that under the circumstances, such damages are due. The
findings of the trial court are ample in establishing the bad faith and unjustified neglect of
respondent, attributable in particular to the "dilly-dallying" of respondents Manila credit authorizer,
Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or travellers checks, which can be

delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained
off for reasons known only to defendant at that time. This, to the Courts mind, amounts to a
wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its
rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since
it alleges to have consumed more than one hour to simply go over plaintiffs past credit history with
defendant, his payment record and his credit and bank references, when all such data are already
stored and readily available from its computer. This Court also takes note of the fact that there is
nothing in plaintiffs billing history that would warrant the imprudent suspension of action by
defendant in processing the purchase. Defendants witness Jaurique admits:
Q. But did you discover that he did not have any outstanding account?
A. Nothing in arrears at that time.
Q. You were well aware of this fact on this very date?
A. Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiffs account. 25
It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under Article
1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so this
decision should not be cause for relief for those who time the length of their credit card transactions
with a stopwatch. The somewhat unusual attending circumstances to the purchase at Coster that
there was a deadline for the completion of that purchase by petitioner before any delay would
redound to the injury of his several traveling companions gave rise to the moral shock, mental
anguish, serious anxiety, wounded feelings and social humiliation sustained by the petitioner, as
concluded by the RTC.27Those circumstances are fairly unusual, and should not give rise to a
general entitlement for damages under a more mundane set of facts.
We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-andfast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or
injury suffered.28 Petitioners original prayer for P5,000,000.00 for moral damages is excessive
under the circumstances, and the amount awarded by the trial court of P500,000.00 in moral
damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and the amount
of P300,000.00 appropriate. There is similarly no cause though to disturb the determined award
of P100,000.00 as attorneys fees, and P85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case No. 921665 is hereby REINSTATED. Costs against respondent.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 160758

January 15, 2014

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
GUARIA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION, Respondent.
DECISION
BERSAMIN, J.:
The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is
premature, and should be undone for being void and ineffectual. The mortgagee who has been
meanwhile given possession of the mortgaged property by virtue of a writ of possession issued to it
as the purchaser at the foreclosure sale may be required to restore the possession of the property
to the mortgagor and to pay reasonable rent for the use of the property during the intervening
period.
The Case
In this appeal, Development Bank of the Philippines (DBP) seeks the reversal of the adverse
decision promulgated on March 26, 2003 in C.A.-G.R. CV No. 59491, 1 whereby the Court of Appeals
(CA) upheld the judgment rendered on January 6, 19982 by the Regional Trial Court, Branch 25, in
Iloilo City (RTC) annulling the extra-judicial foreclosure of the real estate and chattel mortgages at
the instance of DBP because the debtor-mortgagor, Guaria Agricultural and Realty Development
Corporation (Guaria Corporation), had not yet defaulted on its obligations in favor of DBP.
Antecedents
In July 1976, Guaria Corporation applied for a loan from DBP to finance the development of its
resort complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was
approved on August 5, 1976.3Guaria Corporation executed a promissory note that would be due on
November 3, 1988.4 On October 5, 1976, Guaria Corporation executed a real estate mortgage over
several real properties in favor of DBP as security for the repayment of the loan. On May 17, 1977,
Guaria Corporation executed a chattel mortgage over the personal properties existing at the resort
complex and those yet to be acquired out of the proceeds of the loan, also to secure the
performance of the obligation.5 Prior to the release of the loan, DBP required Guaria Corporation to
put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements
on the resort complex.
The loan was released in several instalments, and Guaria Corporation used the proceeds to defray
the cost of additional improvements in the resort complex. In all, the amount released
totalled P3,003,617.49, from which DBP withheld P148,102.98 as interest.6
Guaria Corporation demanded the release of the balance of the loan, but DBP refused. Instead,
DBP directly paid some suppliers of Guaria Corporation over the latter's objection. DBP found upon
inspection of the resort project, its developments and improvements that Guaria Corporation had
not completed the construction works.7In a letter dated February 27, 1978,8 and a telegram dated
June 9, 1978,9 DBP thus demanded that Guaria Corporation expedite the completion of the project,
and warned that it would initiate foreclosure proceedings should Guaria Corporation not do so. 10
Unsatisfied with the non-action and objection of Guaria Corporation, DBP initiated extrajudicial
foreclosure proceedings. A notice of foreclosure sale was sent to Guaria Corporation. The notice
was eventually published, leading the clients and patrons of Guaria Corporation to think that its
business operation had slowed down, and that its resort had already closed. 11
On January 6, 1979, Guaria Corporation sued DBP in the RTC to demand specific performance of
the latter's obligations under the loan agreement, and to stop the foreclosure of the mortgages

(Civil Case No. 12707).12However, DBP moved for the dismissal of the complaint, stating that the
mortgaged properties had already been sold to satisfy the obligation of Guaria Corporation at a
public auction held on January 15, 1979 at the Costa Mario Resort Beach Resort in Oton, Iloilo. 13 Due
to this, Guaria Corporation amended the complaint on February 6, 1979 14 to seek the nullification
of the foreclosure proceedings and the cancellation of the certificate of sale. DBP filed its answer on
December 17, 1979,15 and trial followed upon the termination of the pre-trial without any
agreement being reached by the parties.16
In the meantime, DBP applied for the issuance of a writ of possession by the RTC. At first, the RTC
denied the application but later granted it upon DBP's motion for reconsideration. Aggrieved,
Guaria Corporation assailed the granting of the application before the CA on certiorari (C.A.-G.R.
No. 12670-SP entitled Guaria Agricultural and Realty Development Corporation v. Development
Bank of the Philippines). After the CA dismissed the petition for certiorari, DBP sought the
implementation of the order for the issuance of the writ of possession. Over Guaria Corporation's
opposition, the RTC issued the writ of possession on June 16, 1982. 17
Judgment of the RTC
On January 6, 1998, the RTC rendered its judgment in Civil Case No. 12707, disposing as follows:
WHEREFORE, premises considered, the court hereby resolves that the extra-judicial sales of the
mortgaged properties of the plaintiff by the Office of the Provincial Sheriff of Iloilo on January 15,
1979 are null and void, so with the consequent issuance of certificates of sale to the defendant of
said properties, the registration thereof with the Registry of Deeds and the issuance of the transfer
certificates of title involving the real property in its name.
It is also resolved that defendant give back to the plaintiff or its representative the actual
possession and enjoyment of all the properties foreclosed and possessed by it. To pay the plaintiff
the reasonable rental for the use of its beach resort during the period starting from the time it
(defendant) took over its occupation and use up to the time possession is actually restored to the
plaintiff.
And, on the part of the plaintiff, to pay the defendant the loan it obtained as soon as it takes
possession and management of the beach resort and resume its business operation.
Furthermore, defendant is ordered to pay plaintiff's attorney's fee of P50,000.00.
So ORDERED.18
Decision of the CA
On appeal (C.A.-G.R. CV No. 59491), DBP challenged the judgment of the RTC, and insisted that:
I
THE TRIAL COURT ERRED AND COMMITTED REVERSIBLE ERROR IN DECLARING DBP'S
FORECLOSURE OF THE MORTGAGED PROPERTIES AS INVALID AND UNCALLED FOR.
II
THE TRIAL COURT GRIEVOUSLY ERRED IN HOLDING THE GROUNDS INVOKED BY DBP TO JUSTIFY
FORECLOSURE AS "NOT SUFFICIENT." ON THE CONTRARY, THE MORTGAGE WAS FORECLOSED BY
EXPRESS AUTHORITY OF PARAGRAPH NO. 4 OF THE MORTGAGE CONTRACT AND SECTION 2 OF P.D.
385 IN ADDITION TO THE QUESTIONED PAR. NO. 26 PRINTED AT THE BACK OF THE FIRST PAGE OF
THE MORTGAGE CONRACT.
III
THE TRIAL COURT ERRED IN HOLDING THE SALES OF THE MORTGAGED PROPERTIES TO DBP AS
INVALID UNDER ARTICLES 2113 AND 2141 OF THE CIVIL CODE.
IV

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

ownership thereof, on the condition that the same amount or quality shall be paid. 26 Loan is a
reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other
the debtor.27 The obligation of one party in a reciprocal obligation is dependent upon the obligation
of the other, and the performance should ideally be simultaneous. This means that in a loan, the
creditor should release the full loan amount and the debtor repays it when it becomes due and
demandable.28
In its assailed decision, the CA found and held thusly:
xxxx
x x x It is undisputed that appellee obtained a loan from appellant, and as security, executed real
estate and chattel mortgages. However, it was never established that appellee was already in
default. Appellant, in a telegram to the appellee reminded the latter to make good on its
construction works, otherwise, it would foreclose the mortgage it executed. It did not mention that
appellee was already in default. The records show that appellant did not make any demand for
payment of the promissory note. It appears that the basis of the foreclosure was not a default on
the loan but appellee's failure to complete the project in accordance with appellant's standards. In
fact, appellant refused to release the remaining balance of the approved loan after it found that the
improvements introduced by appellee were below appellant's expectations.
The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case
bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee's payment of
the amount when it falls due. Furthermore, the loan was evidenced by the promissory note which
was secured by real estate mortgage over several properties and additional chattel mortgage.
Reciprocal obligations are those which arise from the same cause, and in which each party is a
debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation
of the other (Areola vs. Court of Appeals, 236 SCRA 643). They are to be performed simultaneously
such that the performance of one is conditioned upon the simultaneous fulfilment of the other
(Jaime Ong vs. Court of Appeals, 310 SCRA 1). The promise of appellee to pay the loan upon due
date as well as to execute sufficient security for said loan by way of mortgage gave rise to a
reciprocal obligation on the part of appellant to release the entire approved loan amount. Thus,
appellees are entitled to receive the total loan amount as agreed upon and not an incomplete
amount.
The appellant did not release the total amount of the approved loan. Appellant therefore could not
have made a demand for payment of the loan since it had yet to fulfil its own obligation. Moreover,
the fact that appellee was not yet in default rendered the foreclosure proceedings premature and
improper.
The properties which stood as security for the loan were foreclosed without any demand having
been made on the principal obligation. For an obligation to become due, there must generally be a
demand. Default generally begins from the moment the creditor demands the performance of the
obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise
(Namarco vs. Federation of United Namarco Distributors, Inc., 49 SCRA 238; Borje vs. CFI of Misamis
Occidental, 88 SCRA 576).
xxxx
Appellant also admitted in its brief that it indeed failed to release the full amount of the approved
loan. As a consequence, the real estate mortgage of appellee becomes unenforceable, as it cannot
be entirely foreclosed to satisfy appellee's total debt to appellant (Central Bank of the Philippines
vs. Court of Appeals, 139 SCRA 46).
Since the foreclosure proceedings were premature and unenforceable, it only follows that appellee
is still entitled to possession of the foreclosed properties. However, appellant took possession of the
same by virtue of a writ of possession issued in its favor during the pendency of the case. Thus, the
trial court correctly ruled when it ordered appellant to return actual possession of the subject
properties to appellee or its representative and to pay appellee reasonable rents.
However, the award for attorney's fees is deleted. As a rule, the award of attorney's fees is the
exception rather than the rule and counsel's fees are not to be awarded every time a party wins a
suit. Attorney's fees cannot be recovered as part of damages because of the policy that no premium
should be placed on the right to litigate (Pimentel vs. Court of Appeals, et al., 307 SCRA 38). 29

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

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

the premature and invalid foreclosure had unjustly dispossessed Guarifia Corporation of its properties.
Consequently, the restoration of possession and the payment of reasonable rentals were in accordance with
Article 561 of the Civil Code, which expressly states that one who recovers, according to law, possession
unjustly lost shall be deemed for all purposes which may redound to his benefit to have enjoyed it without
interruption.
WHEREFORE, the Court AFFIRMS the decision promulgated on March 26, 2003; and ORDERS the petitioner to
pay the costs of suit.SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184458

January 14, 2015

RODRIGO RIVERA, Petitioner,

vs.
SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision1 of the Court of Appeals in CA-G.R. SP No. 90609 which affirmed with
modification the separate rulings of the Manila City trial courts, the Regional Trial Court, Branch 17
in Civil Case No. 02-1052562 and the Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No.
163661,3 a case for collection of a sum of money due a promissory note. While all three (3) lower
courts upheld the validity and authenticity of the promissory note as duly signed by the obligor,
Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the appellate court modified the trial courts
consistent awards: (1) the stipulated interest rate of sixty percent (60%) reduced to twelve percent
(12%) per annumcomputed from the date of judicial or extrajudicial demand, and (2) reinstatement
of the award of attorneys fees also in a reduced amount of P50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was no valid promissory note and
questions the entire ruling of the lower courts. On the other hand, petitioners in G.R. No. 184472,
Spouses Salvador and Violeta Chua (Spouses Chua), take exception to the appellate courts
reduction of the stipulated interest rate of sixty percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other since 1973: Rivera and Salvador
are kumpadres, the former is the godfather of the Spouses Chuas son.
On 24 February 1995, Rivera obtained a loan from the Spouses Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA
SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (P120,000.00) on
December 31, 1995.
It is agreed and understood that failure on my part to pay the amount of (120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to
twenty percent (20%) of the total amount due and payable as and for attorneys fees which in no
case shall be less than P5,000.00 and to pay in addition the cost of suit and other incidental
litigation expense.
Any action which may arise in connection with this note shall be brought in the proper Court of the
City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment stipulated in the promissory note,
Rivera, as partial payment for the loan, issued and delivered to the SpousesChua, as payee, a check
numbered 012467, dated 30 December 1998, drawn against Riveras current account with the
Philippine Commercial International Bank (PCIB) in the amount of P25,000.00.
On 21 December 1998, the Spouses Chua received another check presumably issued by Rivera,
likewise drawn against Riveras PCIB current account, numbered 013224, duly signed and dated,
but blank as to payee and amount. Ostensibly, as per understanding by the parties, PCIB Check No.
013224 was issued in the amount of P133,454.00 with "cash" as payee. Purportedly, both checks
were simply partial payment for Riveras loan in the principal amount of P120,000.00.
Upon presentment for payment, the two checks were dishonored for the reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged at P366,000.00 covering the
principal of P120,000.00 plus five percent (5%) interest per month from 1 January 1996 to 31 May
1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Riveras unjustified refusal to pay, the Spouses Chua were constrained to file a suit on
11 June 1999. The case was raffled before the MeTC, Branch 30, Manila and docketed as Civil Case
No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered that: (1) he never executed the
subject Promissory Note; (2) in all instances when he obtained a loan from the Spouses Chua, the
loans were always covered by a security; (3) at the time of the filing of the complaint, he still had
an existing indebtedness to the Spouses Chua, secured by a real estate mortgage, but not yet in
default; (4) PCIB Check No. 132224 signed by him which he delivered to the Spouses Chua on 21
December 1998, should have been issued in the amount of only 1,300.00, representing the amount
he received from the Spouses Chuas saleslady; (5) contrary to the supposed agreement, the
Spouses Chua presented the check for payment in the amount of P133,454.00; and (6) there was
no demand for payment of the amount of P120,000.00 prior to the encashment of PCIB Check No.
0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note and denied his indebtedness
thereunder.
The MeTC summarized the testimonies of both parties respective witnesses:
[The spouses Chuas] evidence include[s] documentary evidence and oral evidence (consisting of
the testimonies of [the spouses] Chua and NBI Senior Documents Examiner Antonio Magbojos). x x
x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the NBI (1987); NBI document
examiner (1989); NBI Senior Document Examiner (1994 to the date he testified); registered
criminologist; graduate of 18th Basic Training Course [i]n Questioned Document Examination
conducted by the NBI; twice attended a seminar on US Dollar Counterfeit Detection conducted by
the US Embassy in Manila; attended a seminar on Effective Methodology in Teaching and
Instructional design conducted by the NBI Academy; seminar lecturer on Questioned Documents,
Signature Verification and/or Detection; had examined more than a hundred thousand questioned
documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported signature of [Rivera] appearing in
the Promissory Note and compared the signature thereon with the specimen signatures of [Rivera]
appearing on several documents. After a thorough study, examination, and comparison of the
signature on the questioned document (Promissory Note) and the specimen signatures on the
documents submitted to him, he concluded that the questioned signature appearing in the
Promissory Note and the specimen signatures of [Rivera] appearing on the other documents

submitted were written by one and the same person. In connection with his findings, Magbojos
prepared Questioned Documents Report No. 712-1000 dated 8 January 2001, with the following
conclusion: "The questioned and the standard specimen signatures RODGRIGO RIVERA were written
by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are "kumpadres;" in May 1998, he
obtained a loan from [respondent] Salvador and executed a real estate mortgage over a parcel of
land in favor of [respondent Salvador] as collateral; aside from this loan, in October, 1998 he
borrowed P25,000.00 from Salvador and issued PCIB Check No. 126407 dated 30 December 1998;
he expressly denied execution of the Promissory Note dated 24 February 1995 and alleged that the
signature appearing thereon was not his signature; [respondent Salvadors] claim that PCIB Check
No. 0132224 was partial payment for the Promissory Note was not true, the truth being that he
delivered the check to [respondent Salvador] with the space for amount left blank as he and
[respondent] Salvador had agreed that the latter was to fill it in with the amount of P1,300.00 which
amount he owed [the spouses Chua]; however, on 29 December 1998 [respondent] Salvador called
him and told him that he had written P133,454.00 instead of P1,300.00; x x x. To rebut the
testimony of NBI Senior Document Examiner Magbojos, [Rivera] reiterated his averment that the
signature appearing on the Promissory Note was not his signature and that he did not execute the
Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]: P120,000.00 plus stipulated interest at
the rate of 5% per month from 1 January 1996, and legal interest at the rate of 12% percent per
annum from 11 June 1999, as actual and compensatory damages; 20% of the whole amount due as
attorneys fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the Decision of the MeTC, but
deleted the award of attorneys fees to the Spouses Chua:
WHEREFORE, except as to the amount of attorneys fees which is hereby deleted, the rest of the
Decision dated October 21, 2002 is hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly bore the signature of Rivera.
Undaunted, Rivera appealed to the Court of Appeals which affirmed Riveras liability under the
Promissory Note, reduced the imposition of interest on the loan from 60% to 12% per annum, and
reinstated the award of attorneys fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that
the interest rate of 60% per annum is hereby reduced to12% per annum and the award of
attorneys fees is reinstated atthe reduced amount of P50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera in G.R. No. 184458 and the
Spouses Chua in G.R. No. 184472, respectively raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING
THE RULING OF THE RTC AND M[e]TC THAT THERE WAS A VALID PROMISSORY NOTE
EXECUTED BY [RIVERA].
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
DEMAND IS NO LONGER NECESSARY AND IN APPLYING THE PROVISIONS OF THE
NEGOTIABLE INSTRUMENTS LAW.
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN AWARDING
ATTORNEYS FEES DESPITE THE FACT THAT THE SAME HAS NO BASIS IN FACT AND IN
LAW AND DESPITE THE FACT THAT [THE SPOUSES CHUA] DID NOT APPEAL FROM THE
DECISION OF THE RTC DELETING THE AWARD OF ATTORNEYS FEES.10
B. In G.R. No. 184472
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED GROSS LEGAL ERROR WHEN
IT MODIFIED THE APPEALED JUDGMENT BY REDUCING THE INTEREST RATE FROM 60% PER ANNUM
TO 12% PER ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE
DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS EXORBITANT, UNCONSCIONABLE,
UNREASONABLE, INEQUITABLE, ILLEGAL, IMMORAL OR VOID. 11
As early as 15 December 2008, wealready disposed of G.R. No. 184472 and denied the petition, via
a Minute Resolution, for failure to sufficiently show any reversible error in the ruling of the appellate

court specifically concerning the correct rate of interest on Riveras indebtedness under the
Promissory Note.12
On 26 February 2009, Entry of Judgment was made in G.R. No. 184472.
Thus, what remains for our disposition is G.R. No. 184458, the appeal of Rivera questioning the
entire ruling of the Court of Appeals in CA-G.R. SP No. 90609.
Rivera continues to deny that heexecuted the Promissory Note; he claims that given his friendship
withthe Spouses Chua who were money lenders, he has been able to maintain a loan account with
them. However, each of these loan transactions was respectively "secured by checks or sufficient
collateral."
Rivera points out that the Spouses Chua "never demanded payment for the loan nor interest
thereof (sic) from [Rivera] for almost four (4) years from the time of the alleged default in payment
[i.e., after December 31, 1995]."13
On the issue of the supposed forgery of the promissory note, we are not inclined to depart from the
lower courts uniform rulings that Rivera indeed signed it.
Rivera offers no evidence for his asseveration that his signature on the promissory note was forged,
only that the signature is not his and varies from his usual signature. He likewise makes a confusing
defense of having previously obtained loans from the Spouses Chua who were money lenders and
who had allowed him a period of "almost four (4) years" before demanding payment of the loan
under the Promissory Note.
First, we cannot give credence to such a naked claim of forgery over the testimony of the National
Bureau of Investigation (NBI) handwriting expert on the integrity of the promissory note. On that
score, the appellate court aptly disabled Riveras contention:
[Rivera] failed to adduce clear and convincing evidence that the signature on the promissory note is
a forgery. The fact of forgery cannot be presumed but must be proved by clear, positive and
convincing evidence. Mere variance of signatures cannot be considered as conclusive proof that the
same was forged. Save for the denial of Rivera that the signature on the note was not his, there is
nothing in the records to support his claim of forgery. And while it is true that resort to experts is
not mandatory or indispensable to the examination of alleged forged documents, the opinions of
handwriting experts are nevertheless helpful in the courts determination of a documents
authenticity.
To be sure, a bare denial will not suffice to overcome the positive value of the promissory note and
the testimony of the NBI witness. In fact, even a perfunctory comparison of the signatures offered in
evidence would lead to the conclusion that the signatures were made by one and the same person.
It is a basic rule in civil cases that the party having the burden of proof must establish his case by
preponderance of evidence, which simply means "evidence which is of greater weight, or more
convincing than that which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the Spouses Chua] have established a
prima faciecase in their favor, hence, the burden of evidence has shifted to [Rivera] to prove his
allegation of forgery. Unfortunately for [Rivera], he failed to substantiate his defense. 14 Wellentrenched in jurisprudence is the rule that factual findings of the trial court, especially when
affirmed by the appellate court, are accorded the highest degree of respect and are considered
conclusive between the parties.15 A review of such findings by this Court is not warranted except
upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court
are grounded entirely on speculation, surmises or conjectures; (2) when a lower court's inference
from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse
of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the
issues of the case, or fail to notice certain relevant facts which, if properly considered, will justify a
different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are
conclusions without mention of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on record. 16None of these exceptions obtains
in this instance. There is no reason to depart from the separate factual findings of the three (3)
lower courts on the validity of Riveras signature reflected in the Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations which he sets up in his Answer to
the plaintiffs claim or cause of action, upon which issue is joined, whether they relate to the whole
case or only to certain issues in the case.17
In this case, Riveras bare assertion is unsubstantiated and directly disputed by the testimony of a
handwriting expert from the NBI. While it is true that resort to experts is not mandatory or
indispensable to the examination or the comparison of handwriting, the trial courts in this case, on

its own, using the handwriting expert testimony only as an aid, found the disputed document
valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the following: categorical statement of
[respondent] Salvador that [Rivera] signed the Promissory Note before him, in his ([Riveras])
house; the conclusion of NBI Senior Documents Examiner that the questioned signature (appearing
on the Promissory Note) and standard specimen signatures "Rodrigo Rivera" "were written by one
and the same person"; actual view at the hearing of the enlarged photographs of the questioned
signature and the standard specimen signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed exists, it is beyond logic for a
money lender to extend another loan on May 4, 1998 secured by a real estate mortgage, when he
was already in default and has not been paying any interest for a loan incurred in February 1995." 20
We disagree.
It is likewise likely that precisely because of the long standing friendship of the parties as
"kumpadres," Rivera was allowed another loan, albeit this time secured by a real estate mortgage,
which will cover Riveras loan should Rivera fail to pay. There is nothing inconsistent with the
Spouses Chuas two (2) and successive loan accommodations to Rivera: one, secured by a real
estate mortgage and the other, secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the parties, Rivera was allowed a
substantial amount of time before the Spouses Chua demanded payment of the obligation due
under the Promissory Note.
In all, Riveras evidence or lack thereof consisted only of a barefaced claim of forgery and a
discordant defense to assail the authenticity and validity of the Promissory Note. Although the
burden of proof rested on the Spouses Chua having instituted the civil case and after they
established a prima facie case against Rivera, the burden of evidence shifted to the latter to
establish his defense.21 Consequently, Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and subsequently, that he did not fail to pay
his obligation thereunder. On the whole, there was no question left on where the respective
evidence of the parties preponderatedin favor of plaintiffs, the Spouses Chua. Rivera next argues
that even assuming the validity of the Promissory Note, demand was still necessary in order to
charge him liable thereunder. Rivera argues that it was grave error on the part of the appellate
court to apply Section 70 of the Negotiable Instruments Law (NIL). 22
We agree that the subject promissory note is not a negotiable instrument and the provisions of the
NIL do not apply to this case. Section 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a sum certain in money;
(c) Must be payable on demand, or at a fixed or determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must be named or otherwise
indicated therein with reasonable certainty.
On the other hand, Section 184 of the NIL defines what negotiable promissory note is: SECTION
184. Promissory Note, Defined. A negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another, signed by the maker, engaging to
pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the makers own order, it is not complete until indorsed by him.
The Promissory Note in this case is made out to specific persons, herein respondents, the Spouses
Chua, and not to order or to bearer, or to the order of the Spouses Chua as payees. However, even
if Riveras Promissory Note is not a negotiable instrument and therefore outside the coverage of
Section 70 of the NIL which provides that presentment for payment is not necessary to charge the
person liable on the instrument, Rivera is still liable under the terms of the Promissory Note that he
issued.
The Promissory Note is unequivocal about the date when the obligation falls due and becomes
demandable31 December 1995. As of 1 January 1996, Rivera had already incurred in delay when

he failed to pay the amount of P120,000.00 due to the Spouses Chua on 31 December 1995 under
the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute the debtor in default: (1)
when there is an express stipulation to that effect; (2) where the law so provides; (3) when the
period is the controlling motive or the principal inducement for the creation of the obligation; and
(4) where demand would be useless. In the first two paragraphs, it is not sufficient that the law or
obligation fixes a date for performance; it must further state expressly that after the period lapses,
default will commence.
We refer to the clause in the Promissory Note containing the stipulation of interest:
It is agreed and understood that failure on my part to pay the amount of (P120,000.00) One
Hundred Twenty Thousand Pesos on December 31, 1995. (sic) I agree to pay the sum equivalent to
FIVE PERCENT (5%) interest monthly from the date of default until the entire obligation is fully paid
for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly interest from the "date of default"
until the entire obligation is fully paid for. The parties evidently agreed that the maturity of the
obligation at a date certain, 31 December 1995, will give rise to the obligation to pay interest. The
Promissory Note expressly provided that after 31 December 1995, default commences and the
stipulation on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996, the day following 31 December
1995, the due date of the obligation. On that date, Rivera became liable for the stipulated interest
which the Promissory Note says is equivalent to 5% a month. In sum, until 31 December 1995,
demand was not necessary before Rivera could be held liable for the principal amount
of P120,000.00. Thereafter, on 1 January 1996, upon default, Rivera became liable to pay the
Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who are guilty of delay, in the
performance of their obligations is laid down on Article 1170 24 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of payment of interest as an indemnity for
damages when the obligor incurs in delay:
Art. 2209. If the obligation consists inthe 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 the interest agreed upon, and in the absence of stipulation, the legal interest, which is six
percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the obligation is for a sum of
money; (2) the debtor, Rivera, incurred in delay when he failed to pay on or before 31 December
1995; and (3) the Promissory Note provides for an indemnity for damages upon default of Rivera
which is the payment of a 5%monthly interest from the date of default.
We do not consider the stipulation on payment of interest in this case as a penal clause although
Rivera, as obligor, assumed to pay additional 5% monthly interest on the principal amount
of P120,000.00 upon default.

Article 1226 of the Civil Code provides:

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there isno stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.
The penal clause is generally undertaken to insure performance and works as either, or both,
punishment and reparation. It is an exception to the general rules on recovery of losses and
damages. As an exception to the general rule, a penal clause must be specifically set forth in the
obligation.25
In high relief, the stipulation in the Promissory Note is designated as payment of interest, not as a
penal clause, and is simply an indemnity for damages incurred by the Spouses Chua because
Rivera defaulted in the payment of the amount of P120,000.00. The measure of damages for the
Riveras delay is limited to the interest stipulated in the Promissory Note. In apt instances, in default
of stipulation, the interest is that provided by law. 26
In this instance, the parties stipulated that in case of default, Rivera will pay interest at the rate of
5% a month or 60% per annum. On this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly states the date of payment
tobe 31 December 1995. Given this circumstance, demand by the creditor isno longer necessary in
order that delay may exist since the contract itself already expressly so declares. The mere failure
of [Spouses Chua] to immediately demand or collect payment of the value of the note does not
exonerate [Rivera] from his liability therefrom. Verily, the trial court committed no reversible error
when it imposed interest from 1 January 1996 on the ratiocination that [Spouses Chua] were
relieved from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or 60% per annum in addition to
legal interests and attorneys fees is, indeed, highly iniquitous and unreasonable. Stipulated interest
rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when
necessary. Since the interest rate agreed upon is void, the parties are considered to have no
stipulation regarding the interest rate, thus, the rate of interest should be 12% per annum
computed from the date of judicial or extrajudicial demand. 27
The appellate court found the 5% a month or 60% per annum interest rate, on top of the legal
interest and attorneys fees, steep, tantamount to it being illegal, iniquitous and unconscionable.
Significantly, the issue on payment of interest has been squarely disposed of in G.R. No. 184472
denying the petition of the Spouses Chua for failure to sufficiently showany reversible error in the
ruling of the appellate court, specifically the reduction of the interest rate imposed on Riveras
indebtedness under the Promissory Note. Ultimately, the denial of the petition in G.R. No. 184472 is
res judicata in its concept of "bar by prior judgment" on whether the Court of Appeals correctly
reduced the interest rate stipulated in the Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the following requisites concur: (1)
the former judgment or order must be final; (2) the judgment or order must be on the merits; (3)
the decision must have been rendered by a court having jurisdiction over the subject matter and
the parties; and (4) there must be, between the first and the second action, identity of parties, of
subject matter and of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve an identity of parties and subject
matter raising specifically errors in the Decision of the Court of Appeals. Where the Court of
Appeals disposition on the propriety of the reduction of the interest rate was raised by the Spouses
Chua in G.R. No. 184472, our ruling thereon affirming the Court of Appeals is a "bar by prior
judgment."
At the time interest accrued from 1 January 1996, the date of default under the Promissory Note,
the then prevailing rate of legal interest was 12% per annum under Central Bank (CB) Circular No.
416 in cases involving the loan or for bearance of money.29 Thus, the legal interest accruing from
the Promissory Note is 12% per annum from the date of default on 1 January 1996. However, the
12% per annumrate of legal interest is only applicable until 30 June 2013, before the advent and
effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of
legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery Frames, 30 BSP Circular No.
799 is prospectively applied from 1 July 2013. In short, the applicable rate of legal interest from 1
January 1996, the date when Rivera defaulted, to date when this Decision becomes final and

executor is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1
January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July 2013 to date when this Decision
becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial demand was made, to the date
when this Decision becomes final and executory, such is likewise divided into two periods: (1) 12%
per annum from 11 June 1999, the date of judicial demand to 30 June 2013; and (2) 6% per annum
from 1 July 2013 to date when this Decision becomes final and executor. 31 We base this imposition
of interest on interest due earning legal interest on Article 2212 of the Civil Code which provides
that "interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount owed by Rivera to the Spouses
Chua could already be determined with reasonable certainty given the wording of the Promissory
Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable 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 for bearance 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 extra judicial demand under and subject to the provisions ofArticle 1169 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 court at the rate of 6% per annum.1wphi1 No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can
be established with reasonable certainty. 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
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 6% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a for bearance of credit. And, in addition to the above, judgments that
have become final and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed therein.
(Emphasis supplied)
On the reinstatement of the award of attorneys fees based on the stipulation in the Promissory
Note, weagree with the reduction thereof but not the ratiocination of the appellate court that the
attorneys fees are in the nature of liquidated damages or penalty. The interest imposed in the
Promissory Note already answers as liquidated damages for Riveras default in paying his
obligation. We award attorneys fees, albeit in a reduced amount, in recognition that the Spouses
Chua were compelled to litigate and incurred expenses to protect their interests. 34Thus, the award
of P50,000.00 as attorneys fees is proper.
For clarity and to obviate confusion, we chart the breakdown of the total amount owed by Rivera to
the Spouses Chua:
Face value of the
Promissory Note

Stipulated Interest A &

B

February 24,
1995 to
December 31,

A. January 1, 1996 to
June 30, 2013

Interest due earning

legal interest A & B

Attorneys
fees

A. June 11, 1999 (date Wholesale

of judicial demand) to Amount
June 30, 2013

Total
Amount

1995

B. July 1 2013 to date

when this Decision
becomes final and
executory

B. July 1, 2013 to date

when this Decision
becomes final and
executory

P120,000.00

A. 12 % per annumon
the principal amount
of P120,000.00
B. 6% per annumon
the principal amount
of P120,000.00

A. 12% per annumon

the total amount of
column 2
B. 6% per annumon
the total amount of
column 235

P50,000.00

Total amount
of Columns
1-4

The total amount owing to the Spouses Chua set forth in this Decision shall further earn legal
interest at the rate of 6% per annum computed from its finality until full payment thereof, the
interim period being deemed to be a forbearance of credit.
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The Decision of the Court of Appeals in CAG.R. SP No. 90609 is MODIFIED. Petitioner Rodrigo Rivera is ordered to pay respondents Spouse
Salvador and Violeta Chua the following:
(1) the principal amount of P120,000.00;
(2) legal interest of 12% per annumof the principal amount of P120,000.00 reckoned from 1
January 1996 until 30 June 2013;
(3) legal interest of 6% per annumof the principal amount of P120,000.00 form 1 July 2013
to date when this Decision becomes final and executory;
(4) 12% per annumapplied to the total of paragraphs 2 and 3 from 11 June 1999, date of
judicial demand, to 30 June 2013, as interest due earning legal interest;
(5) 6% per annumapplied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date
when this Decision becomes final and executor, asinterest due earning legal interest;
(6) Attorneys fees in the amount of P50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the finality of this
Decision until full payment thereof.
Costs against petitioner Rodrigo Rivera.
SO ORDERED.