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RACQUEL-SANTOS v. CA - G.R. No. 174986 - July 7, 2009

FACTS:
Finvest is a stock brokerage corporation duly organized under Philippine laws and is a member of
the PSE with one membership seat pledged to the latter. Armand O. Raquel-Santos (Raquel-Santos) was Finvest’s
President and nominee to the PSE from February 20, 1990 to July 16, 1998. Annalissa Mallari (Mallari) was
Finvest’s Administrative Officer until December 31, 1998. In the course of its trading operations, Finvest incurred
liabilities to PSE representing fines and penalties for non-payment of its clearing house obligations. PSE also
received reports that Finvest was not meeting its obligations to its clients. Consequently, PSE indefinitely suspended
Finvest from trading. The Securities and Exchange Commission (SEC) also suspended its license as broker. On June
17, 1998, PSE demanded from Finvest the payment of its obligations to the PSE in the amount ofP4,267,339.99 and
to its (Finvest’s) clients within 15 days. PSE also ordered Finvest to replace its nominee, Raquel-Santos. As of
August 11, 1998, Finvest’s total obligation to PSE, representing penalties, charges and fines for violations of
pertinent rules, was pegged at P5,990,839.99. Finvest promised to settle all obligations to its clients and to PSE
subject to verification of the amount due, but Finvest requested a deadline of July 31, 1999. PSE granted Finvest’s
request, with the warning that, should Finvest fail to meet the deadline, PSE might exercise its right to sell Finvest’s
membership seat and use the proceeds thereof to settle its obligations to the PSE, its member-brokers and its clients.
On February 3, 1999, PSE inquired from Finvest if it had already settled all duly acknowledged claims of its clients
and its liabilities to PSE. PSE also demanded that Finvest settle its liabilities to it not later than March 31, 1999. PSE
points out that it has made several demands on Finvest for the payment of its obligations and the amount due has
been computed after consultation with Finvest’s representative, Mr. Ernesto Lee. Considering, therefore, that
Finvest already acknowledged and ascertained its obligations with PSE and yet it defaulted in the payment thereof,
PSE had the right to sell at public auction Finvest’s pledged seat pursuant to the Pledge Agreement and in
accordance with Article 2112 of the Civil Code.

ISSUE: Whether or not Finvest incurred delay in its obligations.

HELD: NO. Under the law on contracts, mora solvendi or debtor’s default is defined as a delay in the fulfillment of
an obligation, by reason of a cause imputable to the debtor. There are three requisites necessary for a finding of
default. First, the obligation is demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtor’s performance. In the present petition, PSE insists that
Finvest’s liability for fines, penalties and charges has been established, determined and substantiated, hence,
liquidated. However, both trial court and CA have ruled otherwise. The findings of fact of both the trial court and
the CA are fully supported by the records and that they plainly show that the parties were negotiating to determine
the exact amount of Finvest’s obligations to PSE, during which period PSE repeatedly moved the deadlines it
imposed for Finvest to pay the fines, penalties and charges, apparently to allow for more time to thresh out the
details of the computation of said penalties.
A debt is liquidated when the amount is known or is determinable by inspection of the terms and
conditions of relevant documents. Under the attendant circumstances, it cannot be said that Finvest’s debt is
liquidated. At the time PSE left the negotiating table, the exact amount of Finvest’s fines, penalties and charges was
still in dispute and as yet undetermined. Consequently, Finvest cannot be deemed to have incurred in delay in the
payment of its bligations to PSE. It cannot be made to pay an obligation the amount of which was not fully
explained to it. The public sale of the pledged seat would, thus, be premature.
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RCBC vs. Court of Appeals -G.R. No. 133107, March 25, 1999 - 305 SCRA 449

FACTS:
Private respondent Atty. Felipe Lustre purchased a car from Toyota Shaw, Inc. for which he made a down
payment, the balance of which is to be paid in 24 equal monthly installments. He then issued 24 postdated checks in
the amount due for every month. To secure the balance, private respondent executed a promissory note and a
contract of Chattle Mortgage over the vehicle in favor of Toyota Shaw. The contract of Chattle Mortgage provided
for an acceleration clause stating that if there be default on the part of the mortgagor to pay any of the installments,
the whole amount remaining shall become due.
Toyota Shaw then assigned all its rights and interest in the Chattle Mortgage to petitioner Rizal
Commercial Banking Corporation (RCBC). The problem arose when one check was not signed by the private
respondent. On the theory that the respondent defaulted in his payments, petitioner demanded the payment of the
debt including liquidated damages. Atty. Lustre refused, prompting RCBC to file an action for replevin and
damages before the Regional Trial Court of Pasay City.
After trial, the RTC rendered a decision in favor of the private respondent, and held that he was not in
default. The Court of Appeals affirmed the decision of the lower court.
ISSUE:
Whether or not private respondent should be held in default.
HELD:
Article 1170 of the Civil Code states that “those who in the performance of their obligation are
guilty of delay are liable for damages.” The delay in the performance must be malicious or negligent. There was no
imputation, much less evidence, that private respondent acted with malice or negligence in failing to sign the check.
The Supreme Court agreed with the Court of Appeals that such omission was mere inadvertence on the part of
private respondent.
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Santos Ventura Hocorma Foundation, Inc. vs. Ernesto V. Santos

G.R. No. 153004 (November 5, 2004)

FACTS:
On October 26, 1990, the parties executed a Compromise Agreement wherein Foundation shall pay Santos P14.5
Million in the following manner: (a) P1.5 Million immediately upon the execution of this agreement; and (b) the
balance of P13 Million shall be paid, whether in lump sum or in installments, at the discretion of the Foundation,
within a period of not more than two (2) years from the execution of this agreement.
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil
cases. He also caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million. Subsequently, petitioner SVHFI
sold to Development Exchange Livelihood Corporation two real properties, which were previously subjects of lis
pendens. Discovering the disposition made by the petitioner, respondent Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million, which was ignored by the latter. Respondent Santos sent
another letter to petitioner inquiring when it would pay the balance of P13 million. There was no response from
petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City for the issuance of
a writ of execution.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging delay on
the part of SVHFI in paying the balance. They further alleged that under the Compromise Agreement, the obligation
became due on October 26, 1992, but payment of the remaining balance was effected only on November 22, 1994.
Thus, respondents prayed that petitioner be ordered to pay legal interest on the obligation, penalty, attorney’s fees
and costs of litigation. SVHFI alleged that the legal interest on account of fault or delay was not due and payable,
considering that the obligation had been superseded by the compromise agreement. Moreover, SVHFI argued that
absent a stipulation, Santos must ask for judicial intervention for purposes of fixing the period.

ISSUE:
Whether or not SVHFI incurred in delay based on the compromise agreement and thereby liable for legal interest

RULING:
Yes. SVHFI is liable for legal interest as penalty on account of delay. The general rule is that a compromise has
upon the parties the effect and authority of res judicata, with respect to the matter definitely stated therein, or which
by implication from its terms should be deemed to have been included therein. This holds true even if the agreement
has not been judicially approved. Article 1169 of the New Civil Code provides that 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 for the debtor to 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. In the case at bar, the obligation was already due and demandable after the
lapse of the two-year period from the execution of the contract. The Compromise Agreement was entered into by the
parties on October 26, 1990. It was judicially approved on September 30, 1991. Applying existing jurisprudence, the
compromise agreement as a consensual contract became binding between the parties upon its execution and not
upon its court approval. From the time a compromise is validly entered into, it becomes the source of the rights and
obligations of the parties thereto. Hence, the two-year period must be counted from October 26, 1990. Verily, the
petitioner is liable for damages for the delay in the performance of its obligation. This is provided for in Article 1170
of the New Civil Code.
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HEIRS OF LUIS BACUS vs. HON. COURT OF APPEALS

G.R. No. 127695 - DECEMBER 3, 2001

FACTS:

Luis Bacus leased to private respondent Faustino Duray a parcel of agricultural land. The contract
contained an option to buy clause. Under said option, the lessee had the exclusive and irrevocable right to buy 2,000
square meters of the property within five years from a year after the effectivity of the contract. Close to the
expiration of the contract, Luis Bacus died. Thereafter, the Duray spouses informed one of the heirs of Luis Bacus,
that they were willing and ready to purchase the property under the option to buy clause. Due to the refusal of
petitioners to sell the property, Duray filed a complaint for specific performance against the heirs of Luis Bacus
asking that he be allowed to purchase the lot specifically referred to in the lease contract with option to buy. On the
other hand, petitioners alleged that before Luis Bacus’ death, private respondents conveyed to them the former’s
lack of interest to exercise their option because of insufficiency of funds. They further alleged that private
respondents did not deposit the money as required by the Lupon and instead presented a bank certification which
cannot be deemed legal tender.

ISSUE:
Did private respondents incur in delay when they did not deliver the purchase price or consign it in court on
or before the expiration of the contract?

RULING:

Obligations under an option to buy are reciprocal obligations. The performance of one obligation is
conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment
of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor.
In this case, when private respondents opted to buy the property, their obligation was to advise petitioners of their
decision and their readiness to pay the price. They were not yet obliged to make actual payment. Only upon
petitioners’ actual execution and delivery of the deed of sale were they required to pay. Notice of the creditor’s
decision to exercise his option to buy need not be coupled with actual payment of the price, so long as this is
delivered to the owner of the property upon performance of his part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of the purchase price was not yet required.

Private respondents did not incur in delay when they did not yet deliver payment nor make a consignation
before the expiration of the contract. 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. Only from the moment one
of the parties fulfills his obligation, does delay by the other begin. In this case, as there was no compliance yet with
what was incumbent upon petitioners under the option to buy, private respondents had not incurred in delay when
the cashier’s check was issued even after the contract expired.
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CARMELITA LEAÑO vs. COURT OF APPEALS

G.R. No. 129018 - NOVEMBER 15, 2001

FACTS:

Hermogenes Fernando, as vendor and Carmelita Leaño, as vendee executed a contract to sell involving a
piece of land. In the contract, Leaño bound herself to pay Fernando P10,775.00 at the signing of the contract with
the balance of P96,975.00 to be paid within a period of TEN (10) years at a monthly amortization of P1,747.30. The
contract also provided for a grace period of one month within which to make payments, together with the one
corresponding to the month of grace. Should the month of grace expire without the installments for both months
having been satisfied, an interest of 18% per annum will be charged on the unpaid installments.

ISSUE:

Whether petitioner was in delay in the payment of the monthly amortizations.

RULING:

On the issue of whether petitioner Leaño was in delay in paying the amortizations, we rule that while the
contract provided that the total purchase price was payable within a ten-year period, the same contract specified that
the purchase price shall be paid in monthly installments for which the corresponding penalty shall be imposed in
case of default. Petitioner Leaño cannot ignore the provision on the payment of monthly installments by claiming
that the ten-year period within which to pay has not elapsed.

Article 1169 of the Civil Code provides that 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. In the case at bar, respondent Fernando
performed his part of the obligation by allowing petitioner Leaño to continue in possession and use of the property.
Clearly, when petitioner Leaño did not pay the monthly amortizations in accordance with the terms of the contract,
she was in delay and liable for damages. However, we agree with the trial court that the default committed by
petitioner Leaño in respect of the obligation could be compensated by the interest and surcharges imposed upon her
under the contract in question.

INTEGRATED PACKAGING CORP. vs. COURT OF APPEALS

G.R. No. 115117 - JUNE 8, 2000

FACTS:
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Petitioner and private respondent executed an order agreement whereby private respondent bound itself to
deliver to petitioner 3,450 reams of printing papers under specified schedule of delivery. As of July 30, 1979, private
respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450 reams stated in the
agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance because further delay
would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent delivered again to
petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner encountered
difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand upon
petitioner to settle the outstanding account. Private respondent filed a collection suit against petitioner for the sum of
P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on credit. In its answer,
petitioner denied the material allegations of the complaint. It alleged that private respondent was able to deliver only
1,097 reams of printing paper which was short of 2,875 reams, in total disregard of their agreement; that private
respondent failed to deliver the balance of the printing paper despite demand therefor, hence, petitioner suffered
actual damages and failed to realize expected profits.

ISSUE:

Whether or not private respondent violated the order agreement.

RULING:

The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself
to deliver printing paper to petitioner (buyer) which, in turn, binds itself to pay its equivalent (price). Both parties
concede that the order agreement gives rise to a reciprocal obligation such that the obligation of one is dependent
upon the obligation of the other. Reciprocal obligations are to be performed simultaneously, so that the performance
of one is conditioned upon the simultaneous fulfillment of the other. Thus, private respondent undertakes to deliver
printing paper of various quantities subject to petitioner’s corresponding obligation to pay, on a maximum 90-day
credit, for these materials. Clearly, petitioner did not fulfill its side of the contract as its last payment in August 1981
could cover only materials covered by delivery invoices dated September and October 1980. Thus, private
respondent did not violate the order agreement.

LAFORTEZA vs. MACHUCA

G.R. No. 137552 - JUNE 16, 2000

FACTS:

In the exercise of the Special Power of Attorney executed by their co-heirs, by Roberto Z. Laforteza and
Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff over the
subject house and lot for the sum of P630,000.00. On September 18, 1998, defendant heirs, through their counsel
wrote a letter to the plaintiff furnishing the latter a copy of the reconstituted title to the subject property, advising
him that he had thirty (3) days to produce the balance of P600,000.00 under the Memorandum of Agreement which
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plaintiff received on the same date. The plaintiff requested a 30-day extension within which he would pay the
balance of the purchase price. This was granted by Roberto Laforteza but not by Gonzalo Laforteza, the second
attorney-in-fact.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza,
that he already has the money. However, the defendants, refused to accept the told him that the subject property was
no longer for sale. Thereafter, plaintiff reiterated his request to tender payment of the balance but the defendants
insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific
performance.

ISSUE:

Whether or not defendants may rescind the contract of sale entered with Machuca.

RULING: Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the
contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the
respondent by Roberto Z. Laforteza was correctly found by the Court of Appeals to be ineffective inasmuch as the
signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special Powers of Attorney. However,
the evidence reveals that after the expiration of the six-month period provided for in the contract, the petitioners
were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the
house and lot. It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of
Agreement when the petitioners informed the respondent that they already had a copy of the reconstituted title and
demanded the payment of the balance of the purchase price. The respondent could not therefore be considered in
delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to
comply in a proper manner with what was incumbent upon him.

Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we
find that rescission of the contract will still not prosper. Delay in payment was only thirty days which was caused by
the respondent’s justified but mistaken belief that an extension to pay was granted to him. We agree with the Court
of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the respondents
to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very object of the parties in making the agreement.

CORTES vs CA - (G.R. No. 126083)

FACTS: This is a petition for reversal of decision made by the Court of Appeals setting aside the decision of Trial
Court to rescind the contract between Antonio Cortes and Villa Ezperenza Development Corporation for the contract
of sale of land amounting to 3.7 million pesos located at Baclaran, Metro Manila with the following terms:
 The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver the TCT for the 3
lots.
 The balance of 1.5M shall be payable within a year from the date of the execution.
The Corporation paid the partial the amount of P1,213,000.00 as downpayment but Cortes failed to deliver the CTC
and the original copy of the Deed of Sale arising resulting to the filing of this instant case by the Corporation
praying for specific performance to deliver the CTC and the Deed of sale from the petitioner. Cortes claimed that the
owner’s duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to
pay in full the agreed down payment. RTC ruled rescinding the contract of sale and return the downpayment with
interest for the Corporation having failed to pay in full the amount of P2,200,000.00 despite Cortes’ delivery of the
Deed of Absolute Sale and the TCTs, rescission of the contract is proper.
On appeal by the respondents, CA reversed the decision of the RTC directed Cortes to execute the Deed of Sale
simultaneous with the Corporation payment of the full balance of purchase. It found that the parties agreed that the
Corporation will fully pay the balance of the down payment upon Cortes’ delivery of the three TCTs to the
Corporation.  The records show that no such delivery was made, hence, the Corporation was not remiss in the
performance of its obligation and therefore justified in not paying the balance.
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However, Cortes file a petition praying for the reinstatement of rescinding the contract by RTC since the
Corporation failed in the performance of their obligation.

ISSUE: Whether or not there is delay in the performance of the parties’ obligation that would justify the rescission
of the contract of sale?

RULING: NO. There is no doubt that the contract of sale in question gave rise to a reciprocal obligation of the
parties.
Since Cortes did not perform his obligation to have the Deed notarized and to surrender the same together with the
TCTs, the trial court erred in concluding that he performed his part in the contract of sale and that it is the
Corporation alone that was remiss in the performance of its obligation.   Actually, both parties were in
delay.  Considering that their obligation was reciprocal, performance thereof must be simultaneous.   The mutual
inaction of Cortes and the Corporation therefore gave rise to a compensation morae or default on the part of both
parties because neither has completed their part in their reciprocal obligation. Cortes is yet to deliver the original
copy of the notarized Deed and the TCTs, while the Corporation is yet to pay in full the agreed down payment of
P2,200,000.00.  This mutual delay of the parties cancels out the effects of default, such that it is as if no one is guilty
of delay.
Cortes argument would have been correct if he actually surrendered the Deed and the TCTs to the
Corporation.  With such delivery, the Corporation would have been placed in default if it chose not to pay in full the
required down payment.  Under Article 1169 of the Civil Code, from the moment one of the parties fulfills his
obligation, delay by the other begins. 
The Court of Appeals therefore correctly ordered the parties to perform their respective obligation in the contract of
sale, i.e., for Cortes to, among others, deliver the necessary documents to the Corporation and for the latter to pay in
full, not only the down payment, but the entire purchase price.  
Legaspi Oil Co., Inc. v Court of Appeals, GR No. 96505, 01 July 1993

Facts: Petitioner Legaspi Oil Company had several transactions with Oseraos through the agents of the latter. The
transactions involve the sale of copras (coconut husk) by private respondent to the petitioner. The selling price of
Oseraos for every 100 kilos of copras depends on the prevailing market price at the time the contract was entered
into.

In one transaction, Oseraos committed to sell 100 tons of copra to Legaspi Oil for the price of P82 per 100 kilos
with delivery terms of 20 days effective 8 March 1975. After the period to deliver had lapsed, Oseraos was only able
to sell 46,334 kilos of copra thus leaving a balance of 53,666 kilos as per running account. Accordingly, demands
were made upon Oseraos to deliver the balance with a final warning embodied in a letter dated 6 October 1976 that
failure to deliver will mean cancellation of the contract, the balance to be purchased at open market and the price
deferential to be charged against Oseraos. Since there was still no compliance, Legaspi Oil purchased the
undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a price differential of
P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against private respondent.

Issue: WoN Oseraos is liable for damages arising from fraud or bad faith in deliberately breaching the contract of
sale entered into by the parties.

Held: Despite repeated demands by petitioner, private respondent failed to fulfill his contractual obligation to
deliver the remaining 53,666 kilograms of copra. Based on the foregoing facts, the actuality of private respondent’s
fraud cannot be gainsaid. In general fraud may be defined as the voluntary execution of a wrongful act, or a willful
omission, knowing and intending the effects which naturally and necessarily arise from such act or omission. The
conduct of the private respondent clearly manifests his deliberate faudulent intent to evade his contractual obligation
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for the price of copra had in the meantime more than doubled from P82.00 to P168.00 per 100 kilograms. Under
Art. 1170 of the Civil Code, those who in the performance of their obligation are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said article,
private respondent is liable for damages.
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Solid Bank Corp. vs Mindanao Ferroalloy Corp.

G.R. No. 153535 - July 28, 2005

Doctrine: It is axiomatic that solidary liability cannot be lightly inferred. Under Article 1207 of the Civil Code,
"there is a solidary liability only when the obligation expressly so states, or when the law or the nature of the
obligation requires solidarity."

Facts: Private respondents herein secured a loan to the petitioner bank under the name of the respondent
corporation. In the course of the corporations operation, it was not able to pay its obligation to the petitioner and has
to stop its operation. Petitioner bank filed an action against the corporation together with its principal officers for the
collection of the loan they acquired. The RTC ruled in favor of the bank petitioner and ordering the respondent
corporation to pay the amount of loan plus interest. On appeal, the CA held the decision of the RTC and ruled also
that the private respondents were not solidary liable to the petitioner.

Issue: Whether or not principal officers can be held personally liable upon signing the contract of loan under the
name of the corporation?

Ruling: Basic is the principle that a corporation is vested by law with a personality separate and distinct from that of
each person composing or representing it. Equally fundamental is the general rule that corporate officers cannot be
held personally liable for the consequences of their acts, for as long as these are for and on behalf of the corporation,
within the scope of their authority and in good faith. The separate corporate personality is a shield against the
personal liability of corporate officers, whose acts are properly attributed to the corporation. Moreover, it is
axiomatic that solidary liability cannot be lightly inferred. Since solidary liability is not clearly expressed in the
Promissory Note and is not required by law or the nature of the obligation in this case, no conclusion of solidary
liability can be made. Furthermore, nothing supports the alleged joint liability of the individual petitioners because,
as correctly pointed out by the two lower courts, the evidence shows that there is only one debtor: the corporation.
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THE INTERNATIONAL CORPORATE vs. SPS. GUECO

G.R. No. 141968 - FEBRUARY 12, 2001

FACTS:

The Gueco Spouses obtained a loan from petitioner International Corporate Bank (now Union Bank of the
Philippines) to purchase a car. In consideration thereof, the Spouses executed promissory notes which were payable
in monthly installments and chattel mortgage over the car to serve as security for the notes. The Spouses defaulted in
payment of installments. After some negotiations and computation, the amount of car loan was lowered. Finally,
Dr. Gueco delivered a manager’s check in the amount of reduced car loan but the car was not released because of his
refusal to sign the Joint Motion to Dismiss. Petitioner, however, insisted that the joint motion to dismiss is standard
operating procedure in their bank to effect a compromise and to preclude future filing of claims, counterclaims or
suits for damages.

ISSUE:

Whether or not there was fraud in the part of herein petitioner.

RULING:

Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the voluntary
execution of a wrongful act, or a willful omission, knowing and intending the effects which naturally and necessarily
arise from such act or omission. We fail to see how the act of the petitioner bank in requiring the respondent to sign
the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in informing Dr. Gueco
that the signing of a joint motion to dismiss is a standard operating procedure of petitioner bank. However, this can
not in anyway have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the benefit of Dr. Gueco, as
the case filed by petitioner against it before the lower court would be dismissed with prejudice. The whole point of
the parties entering into the compromise agreement was in order that Dr. Gueco would pay his outstanding account
and in return petitioner would return the car and drop the case for money and replevin before the Metropolitan Trial
Court. Petitioner's act of requiring Dr. Gueco to sign the joint motion to dismiss can not be said to be a deliberate
attempt on the part of petitioner to renege on the compromise agreement of the parties. It should, likewise, be noted
that in cases of breach of contract, moral damages may only be awarded when the breach was attended by fraud or
bad faith. The law presumes good faith. Dr. Gueco failed to present an iota of evidence to overcome this
presumption. Necessarily, the claim for exemplary damages must fail. In no way, may the conduct of petitioner be
characterized as “wanton, fraudulent, reckless, oppressive or malevolent.”
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Woodhouse v Halili, GR No L-4811 31 July 1953

Facts: The Plaintiff entered into an agreement with the defendant for the establishment of a partnership for bottling
and distribution of Mission soft drinks. Before the partnership was actually established the defendant required the
plaintiff to secure an exclusive franchise for the said venture. In behalf of the said partnership and upon obtaining
the said exclusive franchise the defendant stipulated to pay the plaintiff 30% of the profits. The plaintiff sought to
obtain the said exclusive franchise but was only given a temporary one, subject only to 30 days. The parties then
proceeded with the signing of the agreement. The partnership was still not initiated, only the agreement to work with
each other, with the plaintiff as manager and the defendant as financer, was established. 

Together the two parties went to the US to formally sign the contract of franchise with Mission Dry Corporation.
The defendant then found out about the temporary franchise right given to the plaintiff, different from the exclusive
franchise rights they stipulated in their contract. 

When the operations of the business began he was paid P 2,000 and was allowed the use of a car. But in the next
month, the pay was decreased to P 1,000 and the car was withdrawn from him. 

The plaintiff demanded the execution of the partnership, but the defendant excused himself, saying that there was no
hurry to do so. The Court of First Instance ordered the defendant to render an accounting of the profits and to pay
the plaintiff 15% of such amount. It also held that execution of the contract of partnership cannot be enforced upon
the defendant and that fraud as alleged by the defendant was also not proved. Hence the present action. 

Issues:

(1) WoN plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages
(2) WoN the representation of the plaintiff in saying that he had exclusive franchise rights rather than the
actual temporary right he possessed invalidated the contract

Held:

(1) Yes. Plaintiff did make false representations and this can be seen through his letters to Mission Dry Corporation
asking for the latter to grant him temporary franchise so that he could settle the agreement with defendant. The trial
court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement “to secure the
Mission Dry franchise for and in behalf of the proposed partnership.” The existence of this provision in the final
agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather
strengthens belief that he did actually make the representation. The defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be
transferred to the name of the partnership, and that, upon its dissolution or termination, the same shall be reassigned
to the plaintiff.

Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive
franchise, was to reduce, as he himself testified, plaintiff’s participation in the net profits to one half of that agreed
upon. He could not have had such a feeling had not plaintiff actually made him believe that he(plaintiff) was the
exclusive grantee of the franchise.

(2) No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal
fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders the party
who employs it liable for damages only. The Supreme Court has held that in order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo incidente) inducement to the making of the
contract.
16 | P a g e

The record abounds with circumstances indicative of the fact that the principal consideration, the main cause that
induced defendant to enter into the partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft prepared by
defendant’s counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. But if
plaintiff was guilty of a false representation, this was not the causal consideration, or the principal inducement, that
led plaintiff to enter into the partnership agreement. On the other hand, this supposed ownership of an exclusive
franchise was actually the consideration or price plaintiff gave in exchange for the share of 30 per cent granted him
in the net profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net profits
because he was transferring his exclusive franchise to the partnership.

Having arrived at the conclusion that the contract cannot be declared null and void, may the agreement be carried
out or executed? The SC finds no merit in the claim of plaintiff that the partnership was already a fait accompli from
the time of the operation of the plant, as it is evident from the very language of the agreement that the parties
intended that the execution of the agreement to form a partnership was to be carried out at a later date. , The
defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. The
law recognizes the individual’s freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.
17 | P a g e

REGALA v. CARIN

G.R. No. 188715 - April 6, 2011

FACTS:

Petitioner and respondent are adjacent neighbors at Spirig Street, BF Resort Village, Las Piñas City. When
petitioner decided to renovate his one storey residence by constructing a second floor, he under the guise of merely
building an extension to his residence, approached respondent sometime in May 1998 for permission to bore a hole
through a perimeter wall shared by both their respective properties, to which respondent verbally consented on
condition that petitioner would clean the area affected by the work.

As earlier indicated, petitioner’s real intention was to build a second floor, in fact with a terrace atop the
dividing wall. In the course of the construction of the second floor, respondent and his wife Marietta suffered from
the dust and dirt which fell on their property. As petitioner failed to address the problem to respondent’s
satisfaction, respondent filed a letter-complaint[3] with the Office of the City Engineer and Building Official of Las
Piñas City on June 9, 1998.

ISSUE:

Whether or not the injuries sustained by respondent was done maliciously.

RULING:

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity; it is different from the negative idea of negligence in that malice or bad faith contemplates a state
of mind affirmatively operating with furtive design or ill will. While the Court harbors no doubt that the incidents
which gave rise to this dispute have brought anxiety and anguish to respondent, it is unconvinced that the damage
inflicted upon respondent’s property was malicious or willful, an element crucial to merit an award of moral
damages under Article 2220 of the Civil Code.

Necessarily, the Court is not inclined to award exemplary damages.Petitioner, however, cannot steer clear from any
liability whatsoever. Respondent and his family’s rights to the peaceful enjoyment of their property have, at the very
least, been inconvenienced from the incident borne of petitioner’s construction work. Any pecuniary loss or damage
suffered by respondent cannot be established as the records are bereft of any factual evidence to establish the same.
Nominal damages may thus be adjudicated in order that a right of the plaintiff, respondent herein, which has been
violated or invaded by the defendant, petitioner herein, may be vindicated or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered by him.
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REPUBLIC OF THE PHILIPPINES vs. THE COURT OF TAX APPEALS

G.R. No. 139050 - OCTOBER 2, 2001

FACTS:

On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila International
Container Port (MICP). There has been a mistake in the name of the consignee provided in the shipment's Inward
Foreign Manifest. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign
Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc.
Subsequently, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in
turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence
Investigation Services (CIIS). The CIIS placed the subject shipment under Hold Order on the ground that GQ
GARMENTS, Inc., could not be located in its given address and was thus suspected to be a fictitious firm.
Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated.

ISSUE:

Whether or not the private respondent is guilty of fraud in relation to the shipment subject of the case at
bench.

RULING:

Petitioner asserts that all of the requisites for forfeiture proceedings under the Tariff and Customs Code are
present in this case. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an
inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due.

Fraud must be proved to justify forfeiture. It must be actual, amounting to intentional wrong-doing with the clear
purpose of avoiding the tax. Forfeiture is not favored in law nor in equity. Mere negligence is not equivalent to the
fraud contemplated by law. What is here involved is an honest mistake, not even directly attributable to private
respondent, which will not deprive the government of its right to collect the proper tax. The conclusion of the
appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can
be overturned by this Court.

3. Dy vs. Philippine Banking Corporation

689 SCRA 507
2013

FACTS:
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Sometime in 1989, Philbank’s Internal Auditing Department conducted a verification and audit of Marina’s accounts
with the former’s Balintawak, Quezon City branch. The audit team discovered that there were “fraudulent
manipulations and falsification of commercial documents which resulted to a loss to the bank of the amount of
US$1,538,094.49” in Marina’s export accounts with the bank. Philbank filed a complaint for a sum of money
with preliminary attachment against Marina, Tanjutco, and Alindogan. The complaint was later amended to
include the Dy spouses and Mercado as defendants.

The investigation had revealed that in June 1989, Tanjutco and Alindogan negotiated with Philbank various export
shipping documents totaling US$1,538,094.49. Philbank found that its bank officers, Dy and Mercado, authorized
the negotiation of the abovementioned shipping documents despite these being marked as “non-negotiable.” It
further alleged that Dy and Mercado colluded with Tanjutco and Alindogan in the scheme to defraud the bank.

When Philbank demanded the surrender of the negotiable bills of lading, with the corresponding stamp
“merchandise loaded on board,” in order to obtain reimbursement for the face value of the documents, Tanjutco and
Alindogan could not produce them. It was later found that there was, in fact, no merchandise to be shipped and the
documents presented to the bank were fictitious and fraudulent.
Philbank also alleged that Dy and Mercado allowed the outright purchase of said documents knowing them to be
fictitious and fraudulent. It also argued that even assuming the documents were genuine, Dy and Mercado could still
be held liable for the bank’s loss because they acted in excess of their authority since they approved the transaction
without the approval by the Board of Directors and contrary to bank practice and procedure
ALLEGATIONS:
- MARINA, Tanjutco, and Alindogan : denied any liability. They alleged that, assuming they received said
amount from the bank, it was by way of a loan, which was not yet due at the time of the filing of the case
before the RTC, and secured by the corporate earnings of Marina. If at all, any liability should be borne by
Marina alone. They further alleged that the bank was bound by its officers’ actions and could not belatedly
repudiate such actions by claiming that these transactions were irregular, fraudulent, and prejudicial to it.
They claimed to have transacted with Philbank’s officers in good faith, honestly believing that the latter
were acting under the authority given to them by the bank
- DY: while she had general supervision of Area II—which includes the Balintawak branch—her
participation in every transaction was not indispensable. She stated that she was never aware of any false
pretenses committed by Tanjutco and Alindogan and that she never authorized the purchase of the alleged
fraudulent documents.
- MERCADO: all the transactions were “handled in accordance with standard operating procedures and were
referred to and duly approved by his immediate superior, defendant Virginia Judy Dy.” He averred that the
subject transactions were “considered at the instance of and approved by defendant Virginia Judy Dy who
is the Assistant Vice-President and Area Head of plaintiff bank, and under whose jurisdiction, direction and
supervision defendant works as branch manager[.]”

RULING OF THE RTC: MARINA is held solely liable to Philbank, and the complaint against Tanjutco, Dy
spouses, and Mercado were dismissed.
RULING OF THE CA: Affirm RTC ruling with modification, insofar as defendants Tanjutco, Alindogan, and
Virginia Dy are held jointly and solidarily liable with MARINA. As to the liability of the bank’s officers, the CA
upheld the RTC’s judgment absolving Mercado of liability but reversed the finding on Dy’s guilt. The CA ruled that
Dy was jointly and solidarily liable with Marina, Tanjutco, and Alindogan.
The CA stated that “the transactions under question transpired because of Judy Dy’s approval.” Hence, the present
petition.
ISSUE:
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Whether or not Philbank’s evidence have sufficiently proved that petitioner Judy Dy was in conspiracy/collusion
with MARINA, Tanjutco, and Alindogan to defraud PHILBANK of the value of the subject export shipping
documents.
RULING:
The Court AFFIRMS the Court of Appeals. The evidence on record clearly bears out Dy’s liability. Based on the
testimonies of the witnesses, Dy brought in Marina’s account to Philbank and she directly transacted with Marina’s
officers. More importantly, there would have been no completed transaction without Dy’s approval. Her act of
approving the transaction was the single most important factor that allowed Tanjutco and Alindogan’s scheme to
succeed.
As the CA noted, only Dy could have supplied the key element that Tanjutco and Alindogan needed: the bank’s
approval. Mercado, by himself, could not approve the subject transactions. He had no such authority. He only signed
the export documents because Dy approved the same. Dy’s liability was further explained by Philbank’s internal
auditor, Laurito Abalos (Abalos). Abalos testified that Dy acted beyond her authority, considering that the
transaction was not considered a “regular” bank transaction. A regular bank transaction, according to Abalos means
all the documents are complete - that means if there is no discrepancy in the export bills that the bank is purchasing
then, all the documents are clean and in accordance with the terms and conditions. In this case, there is a very
important vital document that is missing here and this is the negotiable Bills of Lading because the Letters of Credit
states (sic) the terms and conditions that it has to be supported by a negotiable Bills of Lading, therefore, it is a
violation of the terms and conditions and Mrs. Judy Dy has no authority over it.
Finally, the Court agrees with the CA’s finding that Dy colluded with Tanjutco and Alindogan in the latter’s scheme
to divest the bank of its funds. Dy knew that Marina could not present the negotiable Bills of Lading; yet, she still
approved the purchase of Marina’s export bills. Tanjutco and Alindogan were holding non-negotiable export
documents, which they knew they could not negotiate with any other bank in the regular course of business. Thus,
the assurance of Dy’s approval was indispensable to their plans. The more logical conclusion is that Dy was fully
aware that Tanjutco and Alindogan were out to defraud Philbank and allowed herself to be part of the scheme. For
that, she must be held accountable.
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DIAZ VS. DAVAO LIGHT

GR No. 160959 April 2, 2007

FACTS:

Plaintiff asks for damages for defendant’s alleged malicious prosecution of a criminal case of theft of
electricity against him, for plaintiff’s filing of a charge of violation of P.D. 401 as amended after dismissal of the
theft case, the filing of a damage suit against him before the RTC of Cebu City which was dismissed and the filing
of another damage suit before the same Cebu RTC which is still pending. Damages are also being sought for
defendant’s removal of Electric Meter, but this is a subject matter of a case pending before Branch 13 of this Court
and therefore said court retains jurisdiction over the said cause of action.
The RTC held that while the City Prosecutor, and later the Secretary of Justice, concluded that there was no
probable cause for the crime of theft, this did not change the fact that plaintiff made an illegal connection for
electricity. A person’s right to litigate should not be penalized by holding him liable for damages.
On October 1, 2003, the CA affirmed the decision of the RTC. It concluded that the evidence on hand
showed good faith on the part of DLPC in filing the subject complaints. It pointed out that Diaz had been using the
electrical services of DLPC without its consent. As to the effect of the compromise agreement, the CA ruled that it
did not bar the filing of the criminal action. Thus, under the principle of damnum absque injuria, the legitimate
exercise of a person’s right, even if it causes loss to another, does not automatically result in an actionable injury.
Diaz, now petitioner, comes before this Court in this petition for review on certiorari

ISSUES:

1. Whether or not the compromise agreement entered into between DLPC and Diaz barred the former from
instituting further actions; and
2. Whether or not DLPC acted in bad faith in instituting the criminal cases against Diaz

RULING:
Article 2028 of the Civil Code defines a compromise as a contract whereby the parties, by making
reciprocal concessions, avoid litigation or put an end to one already commenced. The purpose of compromise is to
settle the claims of the parties and bar all future disputes and controversies. However, criminal liability is not
affected by compromise for it is a public offense which must be prosecuted and punished by the Government on its
own motion, though complete reparation should have been made of the damages suffered by the offended party. A
criminal case is committed against the People, and the offended party may not waive or extinguish the criminal
liability that the law imposes for the commission of the offense. Moreover, a compromise is not one of the grounds
prescribed by the Revised Penal Code for the extinction of criminal liability. On the other hand, malicious
prosecution has been defined as an action for damages brought by or against whom a criminal prosecution, civil suit
or other legal proceeding has been instituted maliciously and without probable cause, after the termination of such
prosecution, suit, or other proceeding in favor of the defendant therein. It is an established rule that in order for
malicious prosecution to prosper, the following requisites must be proven by petitioner: (1) the fact of prosecution
and the further fact that the defendant (respondent) was himself the prosecutor, and that the action finally terminated
with an acquittal; (2) that in bringing the action, the prosecutor acted without probable cause; and (3) that the
prosecutor was actuated or impelled by legal malice, that is, by improper or sinister motive. The foregoing are
necessary to preserve a person’s right to litigate which may be emasculated by the undue filing of malicious
prosecution cases. From the foregoing
requirements, it can be inferred that malice and want of probable cause must both be clearly established to justify an
award of damages based on malicious prosecution. DLPC was not motivated by malicious intent or by a sinister
design to unduly harass petitioner, but only by a well-founded anxiety to protect its rights. Respondent DLPC cannot
therefore be faulted in availing of the remedies provided for by law.
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YASOÑA VS. DE RAMOS GR No. 156339 October 6, 2004

FACTS:

Aurea Yasoña and her son, Saturnino, went to the house of Jovencio de Ramos to ask for financial
assistance in paying their loans to Philippine National Bank (PNB), otherwise their residential house and lot would
be foreclosed. Inasmuch as Aurea was his aunt, Jovencio acceded to the request. They agreed that, upon payment by
Jovencio of the loan to PNB, half of Yasoñas’ subject property would be sold to him. Jovencio paid Aurea’s bank
loan. As agreed upon, Aurea executed a deed of absolute sale in favor of Jovencio over half of the lot consisting of
123 square meters. Thereafter, the lot was surveyed and separate titles were issued by the Register of Deeds of Sta.
Cruz, Laguna in the names of Aurea and Jovencio
Twenty-two years later, in August 1993, Aurea filed an estafa complaint against brothers Jovencio and
Rodencio de Ramos on the ground that she was deceived by them when she asked for their assistance in 1971
concerning her mortgaged property. In her complaint, Aurea alleged that Rodencio asked her to sign a blank paper
on the pretext that it would be used in the redemption of the mortgaged property
On February 21, 1994, Assistant Provincial Prosecutor Rodrigo B. Zayenis dismissed the criminal
complaint for estafa for lack of evidence. On account of this dismissal, Jovencio and Rodencio filed a complaint for
damages on the ground of malicious prosecution. They alleged that the filing of the estafa complaint against them
was done with malice and it caused irreparable injury to their reputation, as Aurea knew full well that she had
already sold half of the property to Jovencio.

ISSUE: Whether or not the filing of the criminal complaint for estafa by petitioners against respondents constituted
malicious prosecution?

RULING: To constitute “malicious prosecution,” there must be proof that the prosecution was prompted by a
sinister design to vex or humiliate a person, and that it was initiated deliberately by the defendant knowing that his
charges were false and groundless. Concededly, the mere act of submitting a case to the authorities for prosecution
does not make one liable for malicious prosecution.
In this case, the records show that the sale of the property was evidenced by a deed of sale duly notarized
and registered with the local Register of Deeds. After the execution of the deed of sale, the property was surveyed
and divided into two portions. Separate titles were then issued in the names of Yasoña and Jovencio. Since 1973,
Jovencio had been paying the realty taxes of the portion registered in his name. In 1974, Aurea even requested
Jovencio to use his portion as bond for the temporary release of her son who was charged with malicious mischief.
Also, when Aurea borrowed money from the Rural Bank of Lumban in 1973 and the PNB in 1979, only her portion
was mortgaged.
All these pieces of evidence indicate that Aurea had long acknowledged Jovencio’s ownership of half of the
property. Furthermore, it was only in 1993 when petitioners decided to file the estafa complaint against respondents.
If petitioners had honestly believed that they still owned the entire property, it would not have taken them 22 years
to question Jovencio’s ownership of half of the property. Malicious prosecution, both in criminal and civil cases,
requires the elements of (1) malice and (2) absence of probable cause. These two elements are present in the present
controversy. The complaint for estafa was dismissed outright as the prosecutor did not find any probable cause
against respondents. A suit for malicious prosecution will prosper where legal prosecution is carried out without
probable cause.

FGU INSURANCE CORP. vs. G.P. SARMIENTO TRUCKING CORPORATION

G.R. No. 141910. AUGUST 6, 2002

FACTS:

G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver refrigerators aboard one of its
Isuzu truck, driven by Lambert Eroles, from the plant site of Concepcion Industries, Inc. to the Central
24 | P a g e

Luzon Appliances in Dagupan City. While the truck was traversing the north diversion road along
McArthur highway in Barangay Anupol, Bamban, Tarlac, it collided with an unidentified truck, causing it
to fall into a deep canal, resulting in damage to the cargoes. FGU Insurance Corporation (FGU), an
insurer of the shipment, paid to Concepcion Industries, Inc., the value of the covered cargoes. FGU, in
turn, being the subrogee of the rights and interests of Concepcion Industries, Inc., sought
reimbursement of the amount it had paid to the latter from GPS. Since the trucking company failed to
heed the claim, FGU filed a complaint for damages and breach of contract of carriage against GPS and its
driver Lambert Eroles. Respondents asserted that that the cause of damage was purely accidental.

ISSUE:

Whether or not GPS is liable for damages arising from negligence.

RULING:

In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. Respondent trucking corporation
recognizes the existence of a contract of carriage between it and petitioner and admits that the cargoes
it has assumed to deliver have been lost or damaged while in its custody. In such a situation, a default
on, or failure of compliance with, the obligation – in this case, the delivery of the goods in its custody to
the place of destination - gives rise to a presumption of lack of care and corresponding liability on the
part of the contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.

Respondent driver, without concrete proof of his negligence or fault, may not himself be
ordered to pay petitioner. The driver, not being a party to the contract of carriage between petitioner
and defendant, may not be held liable under the agreement. A contract can only bind the parties who
have entered into it or their successors who have assumed their personality or their juridical position.
Petitioner’s civil action against the driver can only be based on culpa aquiliana, which, unlike culpa
contractual, would require the claimant for damages to prove negligence or fault on the part of the
defendant.
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AMADO PICART vs. FRANK SMITH, JR.

G.R. No. L-12219 MARCH 15, 1918

FACTS:

The plaintiff, riding on his pony was half way across the Carlatan bridge when the defendant
approached from the opposite direction in an automobile, going at the rate of about ten or twelve miles
per hour. As the defendant neared the bridge he saw a horseman on it and blew his horn to give
warning of his approach. He continued his course and after he had taken the bridge he gave two more
successive blasts, as it appeared to him that the man on horseback before him was not observing the
rule of the road. The plaintiff saw the automobile coming and heard the warning signals. However,
thinking that he has no sufficient time to go to the other side of the road, he pulled the pony closely up
against the railing on the right side of the bridge instead of going to the left. The defendant, instead of
veering to the right while yet some distance away or slowing down, continued to approach directly
toward the horse. When he had gotten quite near, there being then no possibility of the horse getting
across to the other side, the defendant quickly turned his car sufficiently to the right to escape hitting
the horse alongside of the railing where it as then standing; but in so doing the automobile passed in
such close proximity to the animal that it became frightened and turned its body across the bridge with
its head toward the railing. In so doing, it as struck on the hock of the left hind leg by the flange of the
car and the limb was broken. The horse fell and its rider was thrown off with some violence. As a result
of its injuries the horse died. The plaintiff received contusions which caused temporary unconsciousness
and required medical attention for several days.

ISSUE: Whether or not the defendant is guilty of negligence.

RULING:

As the defendant started across the bridge, he had the right to assume that the horse and the
rider would pass over to the proper side; but as he moved toward the center of the bridge he clearly
saw that this would not be done; and he must in a moment have perceived that it was too late for the
horse to cross with safety in front of the moving vehicle. The control of the situation had then passed
entirely to the defendant; and it was his duty either to bring his car to an immediate stop or, seeing that
there were no other persons on the bridge, to take the other side and pass sufficiently far away from the
horse to avoid the danger of collision. Instead of doing this, the defendant ran straight on until he was
almost upon the horse.

The plaintiff himself was not free from fault, for he was guilty of antecedent negligence in
planting himself on the wrong side of the road. But it was the defendant who had the last clear chance
to avoid the impending harm and when he failed to do so, he is deemed negligent, thus liable to pay
damages in favor of the plaintiff.
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Saludaga v. FEU and De Jesus, G.R. No. 179337, 30 April 2008.

[YNARES-SANTIAGO, J.]
 
FACTS: Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University
(FEU) when he was shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school
premises on August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation
(FEU-NRMF) due to the wound he sustained. Meanwhile, Rosete was brought to the police station where
he explained that the shooting was accidental. Saludaga  thereafter filed a complaint for damages against
respondents on the ground that they breached their obligation to provide students with a safe and secure
environment and an atmosphere conducive to learning. Respondents, in turn, filed a Third-Party
Complaint against Galaxy Development and Management Corporation (Galaxy), the agency contracted
by respondent FEU to provide security services within its premises and Mariano D. Imperial (Imperial),
Galaxys President, to indemnify them for whatever would be adjudged in favor of petitioner, if any; and to
pay attorneys fees and cost of the suit.
 
ISSUE#1: What is the source of FEU’s obligation to indemnify Saludaga? What is needed to prove that
this obligation of FEU exists?

ISSUE#2: In the alternative, is FEU vicariously liable under Article 2180 of the Civil Code.
 
HELD#1: Culpa contractual.
It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief. In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard who was hired to maintain peace and
secure the premises, there is a prima facie showing that respondents failed to comply with its obligation to
provide a safe and secure environment to its students.

HELD#2: NO.
[R]espondents cannot be held liable for damages under Article 2180 of the Civil Code because
respondents are not the employers of Rosete. The latter was employed by Galaxy. The instructions
issued by respondents Security Consultant to Galaxy and its security guards are ordinarily no more than
requests commonly envisaged in the contract for services entered into by a principal and a security
agency. They cannot be construed as the element of control as to treat respondents as the employers of
Rosete.
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VICTORY LINER, INC. vs. GAMMAD - G.R. No. 159636. NOVEMBER 25, 2004

FACTS:

Marie Grace Pagulayan-Gammad was on board an air-conditioned Victory Liner bus bound for
Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a
ravine which resulted in the death of Marie Grace and physical injuries to other passengers. On May 14,
1996, respondent heirs of the deceased filed a complaint for damages arising from culpa contractual
against petitioner. In its answer, the petitioner claimed that the incident was purely accidental and that
it has always exercised extraordinary diligence in its 50 years of operation.

ISSUE:

Whether petitioner should be held liable for breach of contract of carriage.

RULING:

Petitioner was correctly found liable for breach of contract of carriage. A common carrier is
bound to carry its passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it
is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured.
Unless the presumption is rebutted, the court need not even make an express finding of fault or
negligence on the part of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.

In the instant case, there is no evidence to rebut the statutory presumption that the proximate
cause of Marie Grace’s death was the negligence of petitioner. Hence, the courts below correctly
ruled that petitioner was guilty of breach of contract of carriage
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METROPOLITAN BANK and TRUST COMPANY

v.
CENTRO DEVELOPMENT CORPORATION, CHONGKING KEHYENG, MANUEL CO KEHYENG and Quirino Kehyeng
G.R. No. 180974, June 13, 2012, SERENO, J.

FACTS:

On 20 March 1990, in a special meeting of the board of directors of respondent Centro Development
Corporation (Centro), its president Go Eng Uy was authorized to mortgage its properties and assets to secure the
medium-term loan of P 84 million of Lucky Two Corporation and Lucky Two Repacking. The properties and assets
consisted of a parcel of land with a building and improvements located at Salcedo St., Legaspi Village, Makati City,
and covered by Transfer Certificate of Title (TCT) Nos. 139880 and 139881. This authorization was subsequently
approved on the same day by the stockholders.

Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy, executed a Mortgage Trust
Indenture (MTI) with the Bank of the Philippines Islands (BPI).5 Under the MTI, respondent Centro, together with
its affiliates Lucky Two Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to obtain from
time to time loans and other credit accommodations from certain creditors for corporate and other business
purposes. To secure these obligations from different creditors, respondent Centro constituted a continuing
mortgage on all or substantially all of its properties and assets enumerated above unto and in favor of BPI, the
trustee. Should respondent Centro or any of its affiliates fail to pay their obligations when due, the trustee shall
cause the foreclosure of the mortgaged property.Thereafter, the mortgage was duly recorded with the Registry of
Deeds of Makati City.

Centro and BPI amended the MTI to allow an additional loan of P 36 million and to include San Carlos
Milling Company, Inc. (San Carlos) as a borrower in addition to Centro, Lucky Two Corp. and Lucky Two
Repacking. Then, on 28 July 1994, Centro and BPI again amended the MTI for another loan of P 24 million, bringing
the total obligation to P 144 million.

Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner Metropolitan Bank and
Trust Company (Metrobank) sometime in 1994 and proposed that the latter assume the role of successor-trustee
of the existing MTI. After petitioner Metrobank agreed to the proposal, the board of directors of respondent
Centro allegedly resolved on 12 August 1994 to constitute petitioner as successor-trustee of BPI. Thereafter, on 27
September 1994, petitioner and respondent Centro executed the assailed MTI,12 amending the previous
agreements by appointing the former as the successor-trustee of BPI. It is worth noting that this MTI did not
amend the amount of the total obligations covered by the previous MTIs.

It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel Co Kehyeng and
Quirino Kehyeng, allegedly discovered that the properties of respondent Centro had been mortgaged, and that the
MTI that had been executed appointing petitioner as trustee. Notably, respondent Chongking Kehyeng had been a
member of the board of directors of Centro since 1989, while the two other respondents, Manuel Co Kehyeng and
Quirino Keyheng, had been stockholders since 1987. Respondents Kehyeng were minority stockholders who
owned thirty percent (30%) of the outstanding capital stock of respondent Centro.

On different dates, the Kehyengs allegedly questioned the mortgage of the properties through letters
addressed to Go Eng Uy and Jacinta Go. They alleged that they were not aware of any board or stockholders’
meeting held on 12 August 1994, when petitioner was appointed as successor-trustee of BPI in the MTI.
Respondents demanded a copy of the minutes of the meeting held on that date, but received no response.
Thereafter, on 14 October 1998 and 19 November 1998, the Kehyengs allegedly wrote to petitioner, informing it
that they were not aware of the 12 August 1994 board of directors meeting. Petitioner did not respond to the
letters. During the period April 1998 to December 1998, San Carlos obtained loans in the total principal amount
of P 812,793,513.23 from petitioner Metrobank.
30 | P a g e

San Carlos failed to pay these outstanding obligations despite demand. Thus, petitioner, as trustee of the
MTI, enforced the conditions thereof and initiated foreclosure proceedings, denominated as Foreclosure No. S-04-
11, on the mortgaged properties. On 22 June 2000, petitioner Metrobank filed a Petition for Extrajudicial
Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC) of Makati City. Petitioner
alleged that the total amount of the Promissory Notes that San Carlos executed in favor of the former amounted
to P812,793,513.23. As of 30 April 2000, the total outstanding obligation, inclusive of interests and penalties,
was P1,178,961,181.45.

ISSUE:

1.) Whether or not the requirements of Section 40 of the Corporation Code was complied with in the
execution of the MTI;

2.) Whether petitioner was negligent or failed to exercise due diligence;

HELD:

1.) Reading carefully the Secretary’s Certificate, it is clear that the main purpose of the directors’
Resolution was to appoint petitioner as the new trustee of the previously executed and amended MTI. Going
through the original and the revised MTI, we find no substantial amendments to the provisions of the contract. We
agree with petitioner that the act of appointing a new trustee of the MTI was a regular business transaction. The
appointment necessitated only a decision of at least a majority of the directors present at the meeting in which
there was a quorum, pursuant to Section 25 of the Corporation Code.  

The second paragraph of the directors’ Resolution No. 005, s. 1994, which empowered Go Eng Uy "to sign
the Real Estate Mortgage and all documents/instruments with the said bank, for and in behalf of the Company
which are necessary and pertinent thereto," must be construed to mean that such power was limited by the
conditions of the existing mortgage, and not that a new mortgage was thereby constituted.

Moreover, it is worthy to note that respondents do not assail the previous MTI executed with BPI. They do
not question the validity of the mortgage constituted over all or substantially all of respondent Centro’s assets
pursuant to the 21 March 1994 MTI in the amount of P 84 million. Nor do they question the additional loans
increasing the value of the mortgage to P 144 million; or the use of Centro’s properties as collateral for the loans of
San Carlos, Lucky Two Corporation, and Lucky Two Repacking.
Thus, Section 40 of the Corporation Code finds no application in the present case, as there was no new mortgage
to speak of under the assailed directors’ Resolution.

2.) Republic Act No. 8971, or the General Banking Law of 2000, recognizes the vital role of banks in
providing an environment conducive to the sustained development of the national economy and the fiduciary
nature of banking; thus, the law requires banks to have high standards of integrity and performance. The fiduciary
nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family.  In
the case at bar, petitioner itself was negligent in the conduct of its business when it extended unsecured loans to
the debtors. Worse, it was in serious breach of its duty as the trustee of the MTI. It was not able to protect the
interests of the parties and was even instrumental in violating the terms of the MTI, to the detriment of the parties
thereto. Thus, petitioner has only itself to blame for being left with insufficient recourse against petitioner under
the assailed MTI. 
31 | P a g e

PHILIPPINE NATIONAL BANK v. CARMELITA S. SANTOS, GR No. 208293, 2014-12-10

Facts:
Sometime in May 1996, respondents discovered that their father maintained a premium savings account
with Philippine National Bank (PNB), Sta. Elena-Marikina City Branch.
Respondents went to PNB to withdraw their father's deposit.
However, Aguilar informed them that the deposit had already "been released to a certain Bernardito
Manimbo (Manimbo)... on April 1, 1997.
However, Aguilar informed them that the deposit had already "been released to a certain Bernardito
Manimbo (Manimbo)... on April 1, 1997."
On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for sum
of money and damages against PNB, Lina B. Aguilar, and a John Doe.
On May 20, 1998, respondents filed before the Regional Trial Court of Marikina City a complaint for sum
of money and damages against PNB, Lina B. Aguilar, and a John Doe.[
Issues:
We resolve the following issues:
Whether Philippine National Bank was negligent in releasing the deposit to Bernardito Manimbo;
Ruling:
The default standard of diligence in the performance of obligations is "diligence of a good father of a
family.
Other industries, because of their nature, are bound by law to observe higher standards of diligence.
Common carriers, for example, must observe "extraordinary diligence in the vigilance over the goods and
for the safety of [their] passengers"[84] because... it is considered a business affected with public interest.
"Extraordinary diligence" with respect to passenger safety is further qualified as "carrying the passengers
safely as far as human care and foresight can provide, using the utmost diligence of very cautious
persons, with... a due regard for all the circumstances.
Similar to common carriers, banking is a business that is impressed with public interest. It affects
economies and plays a significant role in businesses and commerce.[86] The public reposes its faith and
confidence upon banks, such that "even the humble... wage-earner has not hesitated to entrust his life's
savings to the bank of his choice, knowing that they will be safe in its custody and will even earn some
interest for him."[87] This is why we have recognized the fiduciary nature of the banks' functions,... and
attached a special standard of diligence for the exercise of their functions.
petitioners PNB and Aguilar either have no fixed standards for the release of their deceased clients'
deposits or they have standards that they disregard for convenience, favor, or upon exercise of discretion.
Both are inconsistent with the required... diligence of banks. These threaten the safety of the depositors'
accounts as they provide avenues for fraudulent practices by third persons or by bank officers
themselves.
Petitioner Aguilar was aware that there were other claimants to Angel C. Santos' deposit. Respondents
had already communicated with petitioner Aguilar regarding Angel C. Santos' account before Manimbo
appeared. Petitioner Aguilar even gave respondents the updated passbook of
Angel C. Santos' account.[107] Yet, petitioners PNB and Aguilar did not think twice before they released
the deposit to Manimbo. They did not doubt why no original death certificate could be submitted. They did
not doubt why Reyme L. Santos would execute an... affidavit of self-adjudication when he, together with
others, had previously asked for the release of Angel C. Santos' deposit. They also relied on the
certificate of time deposit and on Manimbo's representation that the passbook was lost when the
passbook had just been... previously presented to Aguilar for updating
Principles:
Petitioner PNB and its manager, petitioner Aguilar, failed to meet even the standard of diligence of a good
father of a family. Their actions and inactions... constitute gross negligence .
32 | P a g e

BJDC CONSTRUCTION v. NENA E. LANUZO

PONENTE: Bersamin, J.

TOPIC: Negligence

FACTS:

                This case involves a claim for damages arising from the death of a motorcycle rider in a nighttime
accident due to the supposed negligence of a construction company then undertaking re–blocking work
on a national highway. The plaintiffs insisted that the accident happened because the construction
company did not provide adequate lighting on the site, but the latter countered that the fatal accident was
caused by the negligence of the motorcycle rider himself.

                Nena alleged that she was the surviving spouse of the late Balbino who figured in the accident
that transpired at the site of the re–blocking work at about 6:30 p.m. on October 30, 1997; that Balbino’s
Honda motorcycle sideswiped the road barricade placed by the company in the right lane portion of the
road, causing him to lose control of his motorcycle and to crash on the newly cemented road, resulting in
his instant death; and that the company’s failure to place illuminated warning signs on the site of the
project, especially during night time, was the proximate cause of the death of Balbino.

                In its answer, BJDC denied Nena’s allegations of negligence, insisting that it had installed
warning signs and lights along the highway and on the barricades of the project; that at the time of the
incident, the lights were working and switched on; that its project was duly inspected by the Department
of Public Works and Highways (DPWH), the Office of the Mayor of Pili, and the Pili Municipal Police
Station; and that it was found to have satisfactorily taken measures to ensure the safety of motorists.

ISSUE:

                Whether or not heirs of Balbino were able to establish by preponderance of evidence the
negligence of BJDC.

HELD:

                NO. The party alleging the negligence of the other as the cause of injury has the burden to
establish the allegation with competent evidence. If the action based on negligence is civil in nature, the
proof required is preponderance of evidence.

                In civil cases, the burden of proof is on the party who would be defeated if no evidence is given on
either side. The burden of proof is on the plaintiff if the defendant denies the factual allegations of the
complaint in the manner required by the Rules of Court, but it may rest on the defendant if he admits
expressly or impliedly the essential allegations but raises affirmative defense or defenses, which if proved,
will exculpate him from liability.

                The Court affirmed the findings of the RTC, and rules that the Lanuzo heirs, the parties carrying
the burden of proof, did not establish by preponderance of evidence that the negligence on the part of the
company was the proximate cause of the fatal accident of Balbino.

                During the trial, the Lanuzo heirs attempted to prove inadequacy of illumination instead of the
total omission of illumination. In contrast, the company credibly refuted the allegation of
inadequate illumination. The Court observes, too, that SPO1 Corporal, a veteran police officer detailed for
more than 17 years at the Pili Police Station, enjoyed the presumption of regularity in the performance of
33 | P a g e

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

DEVELOPMENT BANK OF THE PHILIPPINES vs.

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

TOPIC: Contracts, Delay

FACTS:
                In July 1976, Guariña Corporation applied for a loan from DBP to finance the development of its
resort complex. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976.
Guariña Corporation executed a promissory note that would be due on November 3, 1988. On October 5,
1976, Guariña Corporation executed a real estate mortgage over several real properties in favor of DBP as
security for the repayment of the loan. On May 17, 1977, Guariña Corporation executed a 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. Prior to the release of the loan, DBP
required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the
buildings and other improvements on the resort complex.
                The loan was released in several installments, and Guariña Corporation used the proceeds to
defray the cost of additional improvements in the resort complex. In all, the amount released totaled
P3,003,617.49, from which DBP withheld P148,102.98 as interest.
                Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead,
DBP directly paid some suppliers of Guariña Corporation over the latter’s objection. DBP found upon
inspection of the resort project, its developments and improvements that Guariña Corporation had not
completed the construction works. In a letter dated February 27, 1978, and a telegram dated June 9, 1978,
DBP thus demanded that Guariña Corporation expedite the completion of the project, and warned that it
would initiate foreclosure proceedings should Guariña Corporation not do so.10
                Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated
extrajudicial foreclosure proceedings

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

HELD:
                NO. The Court held that the foreclosure of a mortgage prior to the mortgagor’s default on the
principal obligation is premature, and should be undone for being void and ineffectual. The mortgagee
who has been meanwhile given possession of the mortgaged property by virtue of a writ of possession
issued to it as the purchaser at the foreclosure sale may be required to restore the possession of the
property to the mortgagor and to pay reasonable rent for the use of the property during the intervening
period.
                The agreement between DBP and Guariña Corporation was a loan. Under the law, a loan requires
the delivery of money or any other consumable object by one party to another who acquires ownership
thereof, on the condition that the same amount or quality shall be paid. Loan is a reciprocal obligation, as
it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of
one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance
should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount
and the debtor repays it when it becomes due and demandable.
                The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case
bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee’s payment of the
amount when it falls due. The appellant did not release the total amount of the approved
loan. Appellant therefore could not have made a demand for payment of the loan since it had yet to fulfil
its own obligation. Moreover, the fact that appellee was not yet in default rendered the foreclosure
proceedings premature and improper.
                By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on
Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a party in a
reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to
perform what is expected of it while the other’s obligation remains unfulfilled. In other words, the latter
party does not incur delay.
35 | P a g e

 EASTERN SHIPPING LINES INC., vs.

BPI/MS INSURANCE CORP. and MITSUI SUM TOMO INSURANCE CO. LTD.,
G.R. No. 193986               January 15, 2014
 

PONENTE: Villarama Jr., J.

TOPIC: Negligence

FACTS:

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

                Calamba Steel filed an insurance claim with Mitsui through the latter’s settling agent, respondent
BPI/MS Insurance Corporation (BPI/MS), and the former was paid the sums of US$7,677.12,
US$14,782.05 and US$7,751.15 for the damage suffered by all three shipments. Correlatively, on August
31, 2004, as insurer and subrogee of Calamba Steel, Mitsui and BPI/MS filed a Complaint for Damages
against petitioner and ATI.

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

HELD:

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

                Verily, it is settled in maritime law jurisprudence that cargoes while being unloaded generally
remain under the custody of the carrier. As hereinbefore found by the RTC and affirmed by the CA based
on the evidence presented, the goods were damaged even before they were turned over to ATI. Such
damage was even compounded by the negligent acts of petitioner and ATI which both mishandled the
goods during the discharging operations. Thus, it bears stressing unto petitioner that common carriers,
from the nature of their business and for reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods transported by them.

                Subject to certain exceptions enumerated under Article 1734 of the Civil Code,

common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in the
possession of, and received by the carrier for transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the person who has a right to receive them.

                Owing to this high degree of diligence required of them, common carriers, as a general rule, are
presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they exercised extraordinary diligence in transporting the goods.
In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that
they observed such high level of diligence. In this case, petitioner failed to hurdle such burden.
36 | P a g e

LAND BANK OF THE PHILIPPINES v. NARCISO L. KHO

G.R. No. 205839, July 7, 2016
BRION, J.

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

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

Held:
The genuine check No. 07410 remained in Kho’s possession the entire time and Land Bank
admits that the check it cleared was a fake. When Land Bank’s CCD forwarded the deposited check to its
Araneta branch for inspection, its officers had every opportunity to recognize the forgery of their
signatures or the falsity of the check. Whether by error or neglect, the bank failed to do so, which led to
the withdrawal and eventual loss of the Php 25,000,000.00. This is the proximate cause of the loss. Land
Bank breached its duty of diligence and assumed the risk of incurring a loss on account of a forged or
counterfeit check. Hence, it should suffer the resulting damage.

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

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

G.R. No. 158911 : March 4, 2008

MANILA ELECTRIC COMPANY vs. MATILDE MACABAGDAL RAMOY

FACTS: In the year 1987, the National Power Corporation (NPC) filed with the MTC Quezon City a case
for ejectment against several persons allegedly illegally occupying its properties in Baesa, Quezon City.
among the defendants in the ejectment case was Leoncio Ramoy, one of the plaintiffs in the case at bar.
On April 28, 1989 the MTC rendered judgment for MERALCO to demolish or remove the building and
structure they built on the land of the plaintiff and to vacate the premises. On June 20, 1999 NPC wrote
to MERALCO requesting the immediate disconnection of electric power supply to all residential and
commercial establishments beneath the NPC transmission lines along Baesa, Quezon City.

In a letter dated August 17, 1990 MERALCO requested NPC for a joint survey to determine all the
establishments which are considered under NPC property. In due time, the electric service connection of
the plaintiffs was disconnected. During the ocular inspection ordered by the Court, it was found out that
the residence of the plaintiffs-spouses was indeed outside the NPC property.

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

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

RULING:

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

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

MINDANAO TERMINAL and BROKERAGE vs. PHOENIX ASSURANCE

GR No. 162467 May 8, 2009

TOPIC: Breach of Obligations

FACTS:

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

ISSUE:

- Whether or not Mindanao Terminal was careless and negligent in the loading and stowage of the cargoes
onboard M/V Mistrau making it liable for damages?
- Whether Phoenix and McGee has a cause of action against Mindanao Terminal under CC 2176 on quasi-
delict?
- Whether Mindanao Terminal observed the degree of diligence required by law of a stevedoring company?

RULING:

- The company filed by Phoenix and McGee against Mindanao Terminal states a cause of action.
39 | P a g e

- The present action is based on quasi-delict, arising from the negligent and careless loading and stowing of
the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix and McGee have only
been subrogated in the rights of Del Monte Produce, who is not a party to the contract of service between
Mindanao Terminal and Del Monte, still the insurance carriers may have a cause of action in light of the
Court’s consistent ruling that the act that breaks the contract may be also a tort.
- In fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract
- In the present case, Phoenix and McGee are not suing for damages for injuries arising from the breach of
the contract of service but from the alleged negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship between Del
Monte Produce and Mindanao Terminal, the allegation of negligence on the part of the defendant should
be sufficient to establish a cause of action arising from quasi-delict.
- Article 1173 of the Civil Code is very clear that if the law or contract does not state the degree of diligence
which is to be observed in the performance of an obligation then that which is expected of a good father
of a family or ordinary diligence shall be required.
- Mindanao Terminal, a stevedoring company which was charged with the loading and stowing the cargoes
of Del Monte Produce aboard M/V Mistrau, had acted merely as a labor provider in the case at bar. There
is no specific provision of law that imposes a higher degree of diligence than ordinary diligence for a
stevedoring company or one who is charged only with the loading and stowing of cargoes.
- It was neither alleged nor proven by Phoenix and McGee that Mindanao Terminal was bound by
contractual stipulation to observe a higher degree of diligence than that required of a good father of a
family. We therefore conclude that following Article 1173, Mindanao Terminal was required to observe
ordinary diligence only in loading and stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
- Mindanao Terminal, as a stevedore, was only charged with the loading and stowing of the cargoes from
the pier to the ship’s cargo hold; it was never the custodian of the shipment of Del Monte Produce.
- The loading and stowing of cargoes would not have a far reaching public ramification as that of a common
carrier and a warehouseman; the public is adequately protected by our laws on contract and on quasi-
delict.
- The public policy considerations in legally imposing upon a common carrier or a warehouseman a
higher degree of diligence is not present in a stevedoring outfit which mainly provides labor in loading
and stowing of cargoes for its clients.
- Phoenix and McGee failed to prove by preponderance of evidence that Mindanao Terminal had acted
negligently. 1avvphi1
- Phoenix and McGee relied heavily on the deposition of Byeong Yong Ahn and on the survey report of the
damage to the cargoes. Byeong, whose testimony was refreshed by the survey report, found that the
cause of the damage was improper stowage due to the manner the cargoes were arranged
- As admitted by Phoenix and McGee in their Comment before us, the latter is merely a stevedoring
company which was tasked by Del Monte to load and stow the shipments of fresh banana and pineapple
of Del Monte Produce aboard the M/V Mistrau.
- How and where it should load and stow a shipment in a vessel is wholly dependent on the shipper and the
officers of the vessel.
- we are of the opinion that damage occurred aboard the carrying vessel during sea transit, being caused by
ship’s heavy rolling and pitching under boisterous weather while proceeding from 1600 hrs on 7th
October to 0700 hrs on 12th October, 1994 as described in the sea protest.
- As it is clear that Mindanao Terminal had duly exercised the required degree of diligence in loading and
stowing the cargoes, which is the ordinary diligence of a good father of a family, the grant of the petition
is in order.
40 | P a g e

SICAM v JORGE- G.R. NO. 159617 August 8, 2007

FACTS:

On different dates from September to October 1987, Lulu V. Jorge pawned

several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre
Ave., BF Homes Parañaque, Metro Manila, to secure a loan in the total amount of
P59, 500.00. On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the pawnshop vault.
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing
her of the loss of her jewelry due to the robbery incident in the pawnshop. On
November 2, 1987, respondent Lulu then wrote a letter to petitioner Sicam
expressing disbelief stating that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop since it had been the
practice that before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then
requested petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge,
filed a complaint against petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry and payment of actual,
moral and exemplary damages as well as attorney's fees. However, petitioner
Sicam contends that he is not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that
petitioner corporation had exercised due care and diligence in the safekeeping of
the articles pledged with it and could not be made liable for an event that is
fortuitous. After trial ,the RTC rendered its Decision dismissing respondents’
complaint as well as petitioners’ counterclaim. The RTC held that robbery is a
fortuitous event which exempts the victim from liability for the loss and under
Art. 1174 of the Civil Code. It further held that the corresponding diligence
required of a pawnshop is that it should take steps to secure and protect the
pledged items and should take steps to insure itself against the loss of articles
which are entrusted to its custody as it derives earnings from the pawnshop trade
which petitioners failed to do and that robberies and hold-ups are foreseeable
risks in that those engaged in the pawnshop business are expected to foresee.
41 | P a g e

ISSUE:
Whether petitioners are liable for the loss of the pawned articles in their
possession.

RULING:
Fortuitous events by definition are extraordinary events not foreseeable or
avoidable. It is therefore, not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a fortuitous event, the following
elements must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations must be
independent of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be impossible to
avoid; (c) the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and, (d) the obligor must be free from any
participation in the aggravation of the injury or loss.

Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners. The
presentation of the police report of the Parañaque Police Station on the robbery
committed based on the report of petitioners' employees is not sufficient to
establish robbery. Such report also does not prove that petitioners were not at
fault. Also, the robbery in this case took place in 1987 when robbery was already
prevalent and petitioners in fact had already foreseen it as they wanted to
deposit the pawn with a nearby bank for safekeeping. Thus, petitioners are
negligent in securing their pawnshop.
42 | P a g e

DANTE LATONIO AND MARY ANN LATONIO and the minor ED

CHRISTIAN LATONIO, Petitioners, vs. MCGEORGE FOOD INDUSTRIES
INC., CEBU GOLDEN FOODS INDUSTRIES, INC., and TYKE PHILIP
LOMIBAO, Respondents.

GR No. 206184, December 6, 2017

TOPIC: torts, proximate cause

PONENTE: Peralta

FACTS:

On September 17, 2000, the petitioners, spouses Ed and Mary Ann Latonio
accompanied their eight-month-old child Ed Christian to a birthday party at the
McDonald’s Restaurant, Ayala Center, Cebu City.

During the party and as part of the birthday package, McDonald’s presented

two mascots – “Birdie” and “Grimace” – to entertain and dance for the guests.
Respondent Tyke Philip Lomibao was the person inside the “Birdie” mascot suit.

After the mascots danced, guests had their pictures taken with them. Intending to have
her child’s photo taken with the mascots, Mary Ann placed Ed Christian on a chair in
front of the mascot “Birdie.” The mascot positioned itself behind the child and extended
its “wings” to give a good pose for the camera.

As photos were about to be taken, Mary Ann released her hold of Ed Christian. Seconds
later, the child fell head first from the chair onto the floor. Several guests attended to Ed
Christian. Meanwhile, the employees of respondent Cebu Golden Food assisted
petitioners in giving first aid treatment to Ed Christian. Petitioners, nevertheless,
remained and continued with the party and left only after the party was over.

Respondent corporation assured the Latonios that they were ready to assist in whatever
medical attention would be required of Ed Christian. However, instead of giving
respondent Cebu Golden Food copies of the medical records of Ed Christian, the
Latonios demanded compensation in the amount of P15 million.

RTC found respondents Cebu Golden Foods and Lomibao to be liable of moral damages,
exemplary damages and attorney’s fees. CA reversed RTC’s decision.

ISSUE:        

Whether or not Mary Ann Latonio’s negligence was the proximate cause of Ed
Christian’s fall.
43 | P a g e

HELD: YES.

The Supreme Court agreed with CA that despite Mary Ann’s insistence that she made
sure that her baby was safe and secured before she released her grasp on Ed Christian,
her own testimony revealed that she had, in fact, acted negligently and carelessly.

The Court likewise agreed with the pronouncement of CA that indeed, it is

irresponsible for a mother to entrust the safety, even momentarily, of her
eight-month-old child to a mascot, not to mention a bird mascot in thick
leather suit that had no arms to hold the child and whose diminished ability
to see, hear, feel, and move freely was readily apparent. Moreover, by
merely tapping the mascot and saying “pa-picture ta”, Mary Ann Latonio
cannot be said to have “told, informed and instructed the mascot that she
was letting the mascot hold the baby momentarily.” Releasing her grasp of
the baby without waiting for any indication that the mascot heard and
understood her is just plain negligence on the part of Mary Ann.

Clearly, based on the foregoing, Mary Ann’s negligence was the proximate cause of Ed
Christian’s fall which caused him injury.

The Court added that the cause of Ed Christian’s fall is traceable to the negligent act of
Mary Ann of leaving him in the “hands” of Lomibao who was wearing the
Birdie mascot suit. The Court noted that “hands” and “wings” were used interchangeably
during the testimonies of the witnesses, thus, causing confusion. However, it must be
stressed that while indeed Lomibao has hands of his own, at the time of the incident he
was wearing the Birdie mascot suit. Suffice it to say that the Birdie mascot suit have no
hands but instead have wings. Lomibao cannot possibly hold or grasp anything while
wearing the thick Birdie mascot suit. In fact, even if he wanted to hold Ed Christian or
anything, he could not possibly do so.

Thus, all the aforementioned circumstances lead us to no other conclusion than that the
proximate cause of the injury sustained by Ed Christian was due to Mary Ann’s own
negligence. All told, in the absence of negligence on the part of respondents Cebu
Golden Foods and Lomibao, as well as their management and staff, they cannot be made
liable to pay for the damages prayed for by the petitioners.
44 | P a g e

REYES VS. SISTERS OF MERCY HOSPITAL

GR No. 130547 October 3, 2000

FACTS:

Jorge Reyes was taken to the Mercy Community Clinic. He was attended to by
respondent Dr. Marlyn Rico, a resident physician and admitting physician on duty, who gave
Jorge a physical examination and took his medical records. Typhoid fever was then prevalent in
the locality. Suspecting that Jorge could be suffering from this disease, Dr. Rico ordered a Widal
Test, a standard test for typhoid fever, to be performed on Jorge. The results of the test from
which Dr. Rico concluded that Jorge was positive for typhoid fever. As her shift was only up to
5:00 p.m., Dr. Rico indorsed Jorge to respondent Dr. Marivie Blanes. Dr. Blanes also took the
physical examination of Jorge. Antibiotics being the accepted treatment for typhoid fever, she
ordered that a compatibility test with the antibiotic chloromycetin be done on Jorge. As she did
not observe any adverse reaction, she ordered the first 500 mg. of said antibiotic. At around
1:00 in the morning, Dr. Blanes was called as Jorge’s temperature rose to 41 degrees and then
valium was administered. However, the patient did not respond to the treatment and slipped
into cyanosis, a bluish or purplish discoloration of the skin or mucous membrane due to
deficient oxygenation of the blood. At around 2:00 a.m. Jorge died.

ISSUES:

Whether the death of Jorge Reyes was due to or caused by the negligence, carelessness,
imprudence, and lack of skill or foresight on the part of the defendants.

RULING:
Petitioner’s action is for medical malpractice. It is a form of negligence which consists in
the failure of the physician or surgeon to apply to his practice of medicine that degree of care
and skill which is ordinarily employed by the profession. Four elements involve in medical
negligence cases, namely: duty, breach, injury, and proximate causation. In this case, there is no
doubt that physician-patient relationship existed between respondent doctors and Jorge Reyes.
It is breach of this duty which constitutes actionable malpractice. As to this aspect of medical
malpractice, the determination of reasonable level of care and breach thereof, expert
testimony is essential.
The petitioner presented Dr. Vacalares, Chief Pathologist of the Northern Mindanao
Training Hospital, Cagayan de Oro, who performed the autopsy of Jorge. He testified that Jorge
did not die of typhoid fever but of shock undetermined, which could be due to allergic reaction
or chloromycetin overdose. The court was not persuaded. Although Dr. Vacalares may have had
extensive experience in performing autopsies, he admitted that he had yet to do one on the
body of a typhoid victim at the time he conducted the post mortem of Jorge. It is also plain
from his testimony that he treated only about three cases of typhoid fever. On the other hand,
the two doctors presented by respondents clearly were experts on the subject. They vouched
for the correctness of Dr. Rico’s diagnosis. Dr. Gotiong, a diplomate whose specialization is
infectious diseases and microbiology and an associate professor at the Southern University
45 | P a g e

College of Medicine and the Gullas College of Medicine, testified that he has already treated
over a thousand cases of typhoid fever. According to him a case of typhoid fever is suspected
using the widal test, if the 1:320 results of the said test has been presented to him. As to the
treatment of the disease, he stated that chloromycetin was the drug of choice. He also
explained that despite the measures taken by respondents and the intravenous administration
of the two doses of chloromycetin, complications of the disease could not be discounted.
Dr. Marilyn did not depart from the reasonable standard recommended by the experts
as she in fact observed the due care required under the circumstances. Though the widal test is
not conclusive, it remains a standard diagnostic test for typhoid fever and, in the present case,
a greater accuracy through repeated testing was rendered unobtainable by the early death of
the patient. The results of the widal test and the patient’s history of fever with chills for five
days, taken with the fact that typhoid fever was then prevalent, were sufficient to give upon
any doctor of reasonable skill the impression that the patient had typhoid fever.
46 | P a g e

DR. RUBI LI v. SPS. SOLIMAN - G.R. No. 165279, June 07, 2011
FACTS:
On July 7, 1993, respondents' 11-year old daughter, Angelica Soliman, underwent a biopsy of
the mass located in her lower extremity at the St. Luke's Medical Center (SLMC).  Results showed that
Angelica was suffering from osteosarcoma,  osteoblastic type, a high-grade cancer of the bone which
usually afflicts teenage children.  Following this diagnosis and as primary intervention, Angelica's right
leg was amputated by Dr. Jaime Tamayo in order to remove the tumor.  As adjuvant treatment to
eliminate any remaining cancer cells, and hence minimize the chances of recurrence and prevent the
disease from spreading to other parts of the patient's body (metastasis), chemotherapy was suggested
by Dr. Tamayo. Dr. Tamayo referred Angelica to another doctor at SLMC, herein petitioner Dr. Rubi Li, a
medical oncologist.
On August 18, 1993, Angelica was admitted to SLMC.  However, she died on September 1, 1993,
just eleven (11) days after the administration of the first cycle of the chemotherapy regimen. 
On February 21, 1994, respondents filed a damage suit against petitioner, Dr. Leo Marbella, Mr.
Jose Ledesma, a certain Dr. Arriete and SLMC. Respondents charged them with negligence and disregard
of Angelica's safety, health and welfare by their careless administration of the chemotherapy drugs,
their failure to observe the essential precautions in detecting early the symptoms of fatal blood platelet
decrease and stopping early on the chemotherapy, which bleeding led to hypovolemic shock that caused
Angelica's untimely demise. Further, it was specifically averred that petitioner assured the respondents
that Angelica would recover in view of 95% chance of healing with and when asked regarding the side
effects, petitioner mentioned only slight vomiting, hair loss and weakness.  Respondents thus claimed
that they would not have given their consent to chemotherapy had petitioner not falsely assured them
of its side effects. In dismissing the complaint, the trial court held that petitioner was not liable for
damages as she observed the best known procedures and employed her highest skill and knowledge in
the administration of chemotherapy drugs on Angelica but despite all efforts said patient died.

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

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

PROFESSIONAL SERVICES VS. AGANA - GR No. 126467 February 11, 2008

FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because of
difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from
“cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a
surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to
her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividad’s husband to permit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes
performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation
and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered
in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was
searched by the surgeon but to no avail.
After a couple of days, Natividad complained excruciating pain in her anal region. She consulted
both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical
operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the
cancerous nodes which were not removed. Natividad and her husband went to the US to seek further
treatment. After 4 months she was told that she was free of cancer. They then flew back to the
Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her
vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by
hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr.
Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault.
A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina.
Another surgical operation was performed upon her.
Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes.
The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with
modification that Dr. Fuentes was dismissed.

ISSUE: Whether the Court of Appeals erred in absolving Dr. Fuentes of any liability.

RULING:
It was duly established that Dr. Ampil was the lead surgeon during the operation of Natividad. He
requested the assistance of Dr. Fuentes only to perform hysterectomy when he (Dr. Ampil) found that
the malignancy in her sigmoid area had spread to her left ovary. Dr. Fuentes performed the surgery and
thereafter reported and showed his work to Dr. Ampil. The latter examined it and finding everything to
be in order, allowed Dr. Fuentes to leave the operating room. Dr. Ampil then resumed operating on
Natividad. He was about to finish the procedure when the attending nurses informed him that two
pieces of gauze were missing. A "diligent search" was conducted, but the misplaced gauzes were not
found. Dr. Ampil then directed that the incision be closed. During this entire period, Dr. Fuentes was no
longer in the operating room and had, in fact, left the hospital.
Under the "Captain of the Ship" rule, the operating surgeon is the person in complete charge of
the surgery room and all personnel connected with the operation. Their duty is to obey his orders. As
stated before, Dr. Ampil was the lead surgeon. In other words, he was the "Captain of the Ship." That he
discharged such role is evident from his following conduct. Clearly, the control and management of the
thing which caused the injury was in the hands of Dr. Ampil, not Dr. Fuentes.
Here, the negligence was proven to have been committed by Dr. Ampil and not by Dr. Fuentes.
48 | P a g e

PROFESSIONAL SERVICES, INC. VS. COURT OF APPEALS - GR No. 126297 February 11, 2008

FACTS:
On April 04, 1984, Natividad Agana was admitted at the Medical City General Hospital because
of difficulty of bowel movement and bloody anal discharge. Dr. Ampil diagnosed her to be suffering from
“cancer of the sigmoid”. Thus, Dr. Ampil, assisted by the medical staff of Medical City, performed a
surgery upon her. During the surgery, he found that the malignancy in her sigmoid area had spread to
her left ovary, necessitating the removal of certain portions of it. Thus, Dr. Ampil obtained the consent
of Natividad’s husband topermit Dr. Fuentes to perform hysterectomy upon Natividad. Dr. Fuentes
performed and completed the hysterectomy. Afterwards, Dr. Ampil took over, completed the operation
and closed the incision. The operation, however, appeared to be flawed as the attending nurses entered
in the corresponding Record of Operation that there were 2 lacking sponge and announced that it was
searched by the surgeon but to no avail.

After a couple of days, Natividad complained excruciating pain in her anal region. She consulted
both Dr. Ampil and Dr. Fuentes. They told her that the pain was the natural consequence of the surgical
operation performed upon her. Dr. Ampil recommended that she consult an oncologist to treat the
cancerous nodes which were not removed. Natividad and her husband went to the US to seek further
treatment. After 4 months she was told that she was free of cancer. They then flew back to the
Philippines. Two weeks thereafter , Natividad’s daughter found a piece of gauze protruding from her
vagina. Dr. Ampil saw immediately informed. He proceeded to Natividad’s house where he extracted by
hand a piece of gauze. Natividad sought the treatment of Polymedic General Hospital thereat Dr.
Gutierrez detected a foreign object in her vagina - a foul-smelling gauze which infected her vaginal vault.
A recto-vaginal fistula had formed in her reproductive organ which forced stool to excrete in her vagina.
Another surgical operation was performed upon her.

Spouses Agana filed a complaint against PSI (owner of Medical City), Dr. Ampil and Dr. Fuentes.
The Trial Court found the respondents jointly and severally liable. The CA affirmed said decision with
modification that Dr. Fuentes was dismissed.

ISSUE: Whether there is an employee-employer relationship in order to hold PSI solidary liable.

RULING:
In general, a hospital is not liable for the negligence of an independent contractor-physician.
However, the hospital may be held liable if the physician is the “ostensible” agent of the hospital. This
exception is also known as the “doctrine of apparent authority”. The doctrine of apparent authority
involves two factors to determine the liability of an independent contractor-physician. First factor
focuses on the hospital’s manifestations and is sometimes described as an inquiry whether the hospital
acted in a manner which would lead a responsible person to conclude that the individual who was
alleged to be negligent was an employee or agent of the hospital. The second factor focuses on the
patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted in reliance
upon the conduct of the hospital or its agent, consistent with ordinary care and prudence. In this
case, it has been proven that the two factors were present. The hospital indeed made it appear that Dr.
Ampil was its employee when they advertise and displayed his name in the directory at the lobby of the
said hospital and that Natividad relied on such knowledge that Dr. Ampil was indeed an employee of the
hospital.

Wherefore PSI and Dr. Ampil are liable jointly and severally.
49 | P a g e

RAMOS VS. CA - GR No. 124354 December 29, 1999

FACTS:
Plaintiff Erlinda Ramos was a robust woman Except for occasional complaints of discomfort due
to pains allegedly caused by the presence of a stone in her gall bladder. Because the discomforts
somehow interfered with her normal ways, she sought professional advice. She was advised to undergo
an operation for the removal of a stone in her gall bladder. At around 7:30 A.M. of June 17, 1985
and while still in her room, she was prepared for the operation by the hospital staff. Her sister-in-law,
Herminda Cruz, who was the Dean of the College of Nursing at the Capitol Medical Center, was also
there for moral support. Herminda was allowed to stay inside the operating room.
At around 9:30 A.M., Dr. Gutierrez reached a nearby phone to look for Dr. Hosaka who was not
yet in Dr. Gutierrez thereafter informed Herminda Cruz about the prospect of a delay in the arrival of Dr.
Hosaka. Herminda then went back to the patient who asked, "Mindy, wala pa ba ang Doctor"? The
former replied, "Huwag kang mag-alaala, darating na iyon. Thereafter, Herminda went out of the
operating room and informed the patient's husband, Rogelio, that the doctor was not yet around.
At about 12:15 P.M., Herminda Cruz, who was inside the operating room with the patient, heard
somebody say that "Dr. Hosaka is already here." She then saw people inside the operating room
"moving, doing this and that, preparing the patient for the operation" As she held the hand of Erlinda
Ramos, she then saw Dr. Gutierrez intubating the hapless patient. She thereafter heard Dr. Gutierrez
say, "ang hirap ma-intubate nito, mali yata ang pagkakapasok. O lumalaki ang tiyan", because of the
remarks of Dra. Gutierrez, she focused her attention on what Dr. Gutierrez was doing. She thereafter
noticed bluish discoloration of the nailbeds of the left hand of the hapless Erlinda even as Dr. Hosaka
approached her. She then heard Dr. Hosaka issue an order for someone to call Dr. Calderon, another
anesthesiologist.

ISSUE: Whether the respondent doctors are negligent.

RULING:

Res ipsa loquitur is a Latin phrase which literally means "the thing or the transaction speaks for
itself." The phrase "res ipsa loquitur" is a maxim for the rule that the fact of the occurrence of an injury,
taken with the surrounding circumstances, may permit an inference or raise a presumption of
negligence, or make out a plaintiff's prima facie case, and present a question of fact for defendant to
meet with an explanation
At the time of submission, Erlinda was neurologically sound and, except for a few minor
discomforts, was likewise physically fit in mind and body. However, during the administration of
anesthesia and prior to the performance of cholecystectomy she suffered irreparable damage to her
brain. Thus, without undergoing surgery, she went out of the operating room already decerebrate and
totally incapacitated. Obviously, brain damage, which Erlinda sustained, is an injury which does not
normally occur in the process of a gall bladder operation. In fact, this kind of situation does not happen
in the absence of negligence of someone in the administration of anesthesia and in the use of
endotracheal tube. Normally, a person being put under anesthesia is not rendered decerebrate as a
consequence of administering such anesthesia if the proper procedure was followed. Furthermore, the
instruments used in the administration of anesthesia, including the endotracheal tube, were all under
the exclusive control of private respondents, who are the physicians-in-charge. Likewise, petitioner
Erlinda could not have been guilty of contributory negligence because she was under the influence of
anesthetics which rendered her unconscious.
50 | P a g e

NOGALES VS. CAPITOL MEDICAL CENTER

GR No. 45641 December 19, 2006

FACTS:

Pregnant with her fourth child, Corazon Nogales was under the exclusive prenatal care
of Dr. Estrada. While Corazon was on her lat trimester of pregnancy, Dr. Estrada noted an
increase in her blood pressure and development of leg edema indicating preeclampsia, which is
dangerous complication of pregnancy. When Corazon started to experience mild labor, he and
her husband, prompted to see Dr. Estrada at his home. After examining Corazon, he advised her
to immediate admission to the Capitol Medical Center. Upon admission at the CMC, Rogelio
Nogales executed and signed the Consent on Admission and Agreement and Admission
Agreement. Then Corazon was brought to the labor room. Dr. Uy, a resident physician,
conducted an internal examination of Corazon and notified Dr. Estrada of her findings. Dr.
Estrada ordered for 10 mg. of valium to be administered immediately by intramascular
injection. Later he ordered that start of intravenous administration of syntocinon admixed with
dextrose, 5% in lactated Ringers’ solution, at the rate of eight to ten micro-drops per minute.

Dr. Enriquez, an anesthesiologist, was notified of Corazon’s admission. Subsequently he

asked if Dr. Estrada needed his service but the latter refused. Despite refusal he stayed to
observe Corazon’s condition. Corazon’s water bag ruptured spontaneously and started to
experience convulsions. Dr. Estrada ordered the injectionof ten grams of magnesium sulfate.
However, Dr. Villaflor, who is assisting Dr. Estrada, administered only 2.5 grams of magnesium
sulfate. Dr. Estrada applied low forceps to extract the baby. The baby came out in a weak and
injured condition and consequently had to be intubated and resuscitated. Corazon began to
manifest moderate vaginal bleeding which rapidly became profuse. Dr. Estrada ordered blood
typing and cross matching with bottled blood. Dr. Espinola, head of the Obstetrics-Gynecology
Department of the CMC, was apprised of Corazon’s condition by telephone. Upon being
informed of Corazon’s profuse bleeding, Dr. Espinola ordered immediate hysterectomy. Dr.
Espinola, due to the inclement weather, arrived about an hour late. he examined the patient
but despite his efforts Corazon died. Petitioners filed a case against CMC personnel and
physicians on the ground that they were negligent in the treatment and management of
Corazon’s condition and charged CMC with negligence in the selection and supervision of
defendant physicians and hospital staff. After more than 11 years the Trial Court rendered its
judgment finding Dr. Estrada solely liable for damages.

ISSUE:
Whether CMC is vicariously liable for the negligence of Dr. Estrada.
51 | P a g e

RULING:

Under the doctrine of apparent authority a hospital can be held vicariously liable for the
negligent act of a physician providing care at eh hospital, regardless of whether the physician is
an independent contractor, unless the patient knows, or should have known, that the physician
is an independent contractor. The doctrine of apparent authority involves two factors to
determine the liability of an independent contractor-physician. First factor focuses on the
hospital’s manifestations and is sometimes described as an inquiry whether the hospital acted
in a manner which would lead a responsible person to conclude that the individual who was
alleged to be negligent was an employee or agent of the hospital. The second factor focuses on
the patient’s reliance. It is sometimes characterized as an inquiry on whether the plaintiff acted
in reliance upon the conduct of the hospital or its agent, consistent with ordinary care and
prudence.
In this case, CMC impliedly held out Dr. Estrada as a member of its medical staff. First,
CMC granted staff privileges to Dr. Estrada when it extended its medical staff and facilities.
Upon request to admit Corazon, through its personnel, readily accommodated the patient and
updated Dr. Estrada of the patient’s condition. Second, CMC made Rogelio sign a consent forms
printed in CMC letterhead. And third, Dr. Estrada’s referral to Dr. Espinola, who then was the
Head of the Obstetrics and Gynecology Department of CMC.
Wherefore the court finds respondent Capitol Medical Center vicariously liable for the
negligence of Dr. Oscar Estrada.
52 | P a g e

Cantre vs Go
GR No. 160889 April 27, 2007

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

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

Held: Yes. The Hippocratic oath mandates physicians to give primordial consideration to the well-being of their
patients. If a doctor fails to live up to his precept, he is accountable for his acts. This is notwithstanding, courts face
a unique restraint in adjudicating medical negligence cases because physicians are not guardians of care and they
never set out to intentionally cause injury to their patients. However, intent is immaterial in negligence cases
because where negligence exist and is proven, it automatically gives the injured a right to reparation for the damage
caused.

In cases, involving medical negligence, the doctrine of res ipsa liquitor allows the mere existence of an injury to
justify a presumption of negligence on the part of the person who controls the instrument causing the injury,
provided that the following requisites concur:

1. The accident is of a kind which ordinarily does not occur in the absence of someone’s negligence;
2. It is caused by an instrumentality within the exclusive control of the defendant or defendants;
3. The possibility of contributing conduct which would make the plaintiff responsible is eliminated.

All of these three requisites were present in the case at bar.

Under the the captain of the ship doctrine, the surgeon in charge of the operation is liable for the negligence of his
assistants during the time when those are under the surgeons control.
53 | P a g e

Dr. Solidum v. People, G.R. No. 192123, 10 March 2014.

FACTS:

Gerald Albert Gercayo (Gerald) was born with an imperforate anus. Two days
after his birth, Gerald underwent colostomy, a surgical procedure to bring one end of the
large intestine out through the abdominal wall, enabling him to excrete through a
colostomy bag attached to the side of his body. When Gerald was three years old, he
was admitted at the Ospital ng Maynila for a pull-through operation Dr. Leandro
Resurreccion headed the surgical team, and was assisted by Dr. Joselito Luceño, Dr.
Donatella Valeña and Dr. Joseph Tibio. The anesthesiologists included Dr. Marichu
Abella, Dr. Arnel Razon and petitioner Dr. Fernando Solidum (Dr. Solidum). During the
operation, Gerald experienced bradycardia, and went into a coma. His coma lasted for
two weeks, but he regained consciousness only after a month. He could no longer see,
hear or move.

A criminal complaint for Reckless Imprudence Resulting in Serious Physical

Injuries was filed against Dr. Solidum. The RTC rendered a judgment of conviction
against Dr. Solidum with Ospital ng Maynila jointly and severally liable. The CA affirmed
the RTC judgment. The SC ruled that Dr. Solidum must be acquitted because the
prosecution did not prove beyond reasonable doubt that Dr. Solidum had been
recklessly imprudent in administering the anesthetic agent to Gerald.  Indeed, Dr.
Vertido’s findings did not preclude the probability that other factors related to Gerald’s
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.

ISSUE#1: Will the acquittal of Dr. Solidum exempt him from civil liability arising from the
crime?

HELD#1: NO, it does not follow.

We have to clarify that the acquittal of Dr. Solidum would not immediately exempt him
from civil liability. 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.
54 | P a g e

ISSUE#2: Is the decree that Ospital ng Maynila is jointly and severally liable with Dr.
Solidum correct?

HELD#2: NO, the decree is not correct.

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.

However, Ospital ng Maynila, being a public hospital, was not engaged in industry
conducted for profit but purely in charitable and humanitarian work. Secondly, assuming
that Ospital ng Maynila was engaged in industry for profit, Dr. Solidum must be shown
to be an employee of Ospital ng Maynila acting in the discharge of his duties during the
operation on Gerald. Yet, he definitely was not such employee but a consultant of the
hospital. And, thirdly, assuming that civil liability was adjudged against Dr. Solidum as
an employee (which did not happen here), the execution against him was unsatisfied
due to his being insolvent.
 
N.B.
In criminal prosecutions, the civil action for the recovery of civil liability that is deemed
instituted with the criminal action refers only to that arising from the offense charged. It
is puzzling, therefore, how the RTC and the CA could have adjudged Ospital ng
Maynila jointly and severally liable with Dr. Solidum for the damages despite the
obvious fact that Ospital ng Maynila, being an artificial entity, had not been charged
along with Dr. Solidum. The 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.
55 | P a g e

NILO B. ROSIT vs DAVAO DOCTORS HOSPITAL GR No. 210445, December 7, 2015

Facts:

On January 15, 1999, Rosit figured in a motorcycle accident. The X-ray soon taken the next day at the
Davao Doctors Hospital (DDH) showed that he fractured his jaw. Rosit was then referred to Dr.Gestuvo, a
specialist in mandibular injuries. During the operation, Dr.Gestuvo used a metal plate fastened to the jaw
with metal screws to immobilize the mandible. As the operation required the smallest screws available,
Dr.Gestuvo cut the screws on hand to make them smaller. Dr.Gestuvo knew that there were smaller
titanium screws available in Manila, but did not so inform Rosit supposing that the latter would not be able
to afford the same. Following the procedure, Rosit could not properly open and close his mouth and was
in pain. X-rays done on Rosit two (2) days after the operation showed that the fracture in his jaw was
aligned but the screws used on him touched his molar. Given the X-ray results, Dr.Gestuvoreferred Rosit
to a dentist. The dentist who checked Rosit, Dr.Pangan, opined that another operation is necessary and
that it is to be performed in Cebu. In Cebu, Dr.Pangan removed the plate and screws thus installed by
Dr.Gestuvo and replaced them with smaller titanium plate and screws. Dr.Pangan also extracted Rosit’s
molar that was hit with a screw and some bone fragments. Three days (3) after the operation, Rosit was
able to eat and speak well and could open and close his mouth normally. On his return to Davao, Rosit
demanded that Dr.Gestuvo reimburse him for the cost of the operation and the expenses he incurred in
Cebu amounting to P140,000, as well as for the P50,000 that Rosit would have to spend for the removal
of the plate and screws that Dr.Panganinstalled. Dr.Gestuvo refused to pay.

Unlike the RTC, the CA ruled that the res ipsa loquitur principle is not applicable and that the testimony of
an expert witness is necessary for a finding of negligence. The appellate court also gave credence to
Dr.Pangan’s letter stating the opinion that Dr.Gestuvo did not commit gross negligence in his emergency
management of Rosit’s fractured mandible.

Issue: Whether the appellate court correctly absolved Dr.Gestuvo from liability.

Held: No. The petition is impressed with merit.

The Court have further held that resort to the doctrine of res ipsa loquitur as an exception to the
requirement of an expert testimony in medical negligence cases may be availed of if the following
essential requisites are satisfied: (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.

Without a doubt, Dr.Gestuvo is guilty of withholding material information which would have been vital in
the decision of Rosit in going through with the operation with the materials at hand. Thus, Dr.Gestuvo is
also guilty of negligence on this ground.
Dr.Pangan’s Affidavit is not admissible. The belief of Dr.Pangan whether Dr.Gestuvo is guilty of
negligence or not will not bind the Court. The Court must weigh and examine such testimony and decide
for itself the merits thereof.
WHEREFORE, the instant petition is GRANTED. The CA Decision dated January 22, 2013 and
Resolution dated November 7, 2013 in CA-G.R. CV No. 00911-MIN are hereby REVERSED and SET
ASIDE. Further, the Decision dated September 14, 2004 of the Regional Trial Court, Branch 33 in Davao
City in Civil Case No. 27,345-99 is hereby REINSTATED and AFFIRMED.
56 | P a g e

Borromeo vs. Family Care Hospital and Dr. Inso

G. R. 191018 Jan. 25, 2016

Facts:
Borromeo brought his wife to the family care hospital because of acute pain at the lower
stomach area and fever for 2 days, he was admitted in said hospital and placed under the care
of Dr. Inso. Dr. Inso conducted the surgery and by then he confirmed his hypothesis that Lillian
has an acute appendicitis. The operation was successfully done however after 16 hours, Lilian
was returned to her room where she starts to become restless and dropped her blood pressure,
she was not even responded to blood transfusion hence the tube connected to oxygen tank was
inserted by dr. Inso into Lilian and order her to put into in an Intensive care unit. Though being
a secondary hospital, it does not. Have. An ICU, dr. Inso arranged with other hospital with ICU
and transfer there Lilian. Unfortunately, Lilian passed away there despite of trying to
resuscitate her.
In his autopsy report, Dr. Reyes concluded that Lilian died due to hemorrhage and concluded
that the internal bleeding was caused by .5 x .5 cm opening in the repair site. Further, he opined
that it could be avoided if the site was repaired with double suturing instead of the single
continuing suture repair that he found. Hence the petitioner filed a complaint against family
care hospital and Dr. Inso for. Medical malpractice basing it to the autopsy report made by
Reyes and pursue the case with having Reyes as the witness.
RTC ruled in favor of the petitioner, believing in the theory of Dr. Reyes on the. 5x. 5cm. And
applied the doctrine of res ipsa loquitor. And ordered the respondents to pay for damages,
death indemnity, moral and exemplary, loss of earning payment, atty.’s fees, cost of suit.
When the respondents appealed, CA reversed. Hence this petition for certiorari of Carlos
Boromeo

ISSUE:

Whether respondents are guilty of medical malpractice and that the doctrine of res ipsa loquitor
can be applied in the case.

Held:
No. The basic legal principle that equally applies to both civil and criminal cases that whoever
alleges the fact has the burden of proof. Petitioner’s failure to present expert witnesses resulted
in his failure to prove petitioners' negligence.

During the investigation Reyes found to be not an expert in the subject matter having no
training residency in pathology nor in surgery after he passed the medical board exam.
On the other hand, the respondent shows as a witnesses Dr. Ramos.
57 | P a g e

Dr. Ramos graduated from the Far Eastern University, Nicanor Reyes Medical Foundation, in
1975. He took up his post-graduate internship at the Quezon Memorial Hospital in Lucena City,
before taking the board exams. After obtaining his professional license, he underwent residency
training in pathology at the Jose R. Reyes Memorial Center from 1977 to 1980. He passed the
examination in Anatomic, Clinical, and Physical Pathology in 1980 and was inducted in 1981.
He also took the examination in anatomic pathology in 1981 and was inducted in 1982. At the
time of his testimony, Dr. Ramos is a practicing pathologist with over 20 years of experience. He
is an associate professor at the Department of Surgery of the Fatima Medical Center, the Manila
Central University, and the Perpetual Help Medical Center. He is a Fellow of the Philippine
College of Surgeons, a Diplomate of the Philippine Board of Surgery, and a Fellow of the
Philippine Society of General Surgeons. He also headed the Perpetual Help General Hospital
Pathology department as well as the Batangas general hospital.

Being an expert in the subject matter, the testimony of Dr. Ramos carry greater than od Dr.
Reyes. Dr. Ramos discredited Dr. Reyes' theory that the 0.5 x 0.5 cm opening at the repair site
caused Lilian's internal bleeding. According to Dr. Ramos, appendicle vessels measure only 0.1
to 0.15 cm, a claim that was not refuted by the petitioner. If the 0.5 x 0.5 cm opening had caused
Lilian's hemorrhage, she would not have survived for over 16 hours; she would have died
immediately, within 20 to 30 minutes, after surgery.

Dr. Ramos submitted that the cause of Lilian's death was hemorrhage due to DIC, a blood
disorder that leads to the failure of the blood to clot; Dr. Ramos considered the abundant
petechial hemorrhage in the myocardia sections and the hemorrhagic right lung; the multiple
bleeding points indicate that Lilian was afflicted with DIC.

The court denies the petition for lack of merit.

58 | P a g e

MARITER MENDOZA v. CASUMPANG

Josephine Casumpang, substituted by her respondent husband Adriano

and their children Jennifer Adriane and John Andre, filed an action for
damages against petitioner Dr. Mariter Mendoza in 1993 before the
Regional Trial Court (RTC) of Iloilo City. On February 13, 1993 Josephine
underwent hysterectomy and myomectomy that Dr. Mendoza performed on
her at the Iloilo Doctors' Hospital.  After her operation, Josephine
experienced recurring fever, nausea, and vomiting.  Three months after the
operation, she noticed while taking a bath something protruding from her
genital.  She tried calling Dr. Mendoza to report it but the latter was
unavailable.  Josephine instead went to see another physician, Dr. Edna
Jamandre-Gumban, who extracted a foul smelling, partially expelled rolled
gauze from her cervix. The discovery of the gauze and the illness she went
through prompted Josephine to file a damage suit against Dr. Mendoza
before the RTC of Iloilo City.  Because Josephine died before trial could
end, her husband and their children substituted her in the case.  She was a
housewife and 40 years old when she died.

On March 7, 2005 the RTC rendered judgment, finding Dr. Mendoza guilty
of neglect that caused Josephine's illness and eventual death and ordering
her to pay plaintiff's heirs actual damages of P50,000.00, moral damages of
P200,000.00, and attorney's fees of P20,000.00 plus costs of suit.

On motion for reconsideration, however, the RTC reversed itself and

dismissed the complaint in an order dated June 23, 2005.

On appeal, the Court of Appeals (CA) rendered a decision on March 18,

2011, reinstating the RTC's original decision.  The CA held that Dr.
Mendoza committed a breach of her duty as a physician when a gauze
remained in her patient's body after surgery.  The CA denied her motion for
reconsideration on July 18, 2011, prompting her to file the present petition.

Petitioner claims that no gauze or surgical material was left in Josephine's

body after her surgery as evidenced by the surgical sponge count in the
hospital record.
59 | P a g e

But she raises at this Court's level a question of fact when parties may raise
only questions of law before it in petitions for review on certiorari from the
CA.  With few exceptions, the factual findings of the latter court are
generally binding.  None of those exceptions applies to this case.

As the RTC pointed out, Josephine did not undergo any other surgical
operation.  And it would be much unlikely for her or for any woman to
inject a roll of gauze into her cervix.  As the Court held in Professional
Services, Inc. v. Agana:

An operation requiring the placing of sponges in the incision is not

complete until the sponges are properly removed, and it is settled that the
leaving of sponges or other foreign substances in the wound after the
incision has been closed is at least prima facie negligence by the operating
surgeon.  To put it simply, such act is considered so inconsistent with due
care as to raise an inference of negligence.  There are even legions of
authorities to the effect that such act is negligence per se.

The Court notes, however, that neither the CA nor the RTC awarded
exemplary damages against Dr. Mendoza when, under Article 2229 of the
Civil Code, exemplary damages are imposed by way of example or
correction for the public good, in addition to moral damages.  Exemplary
damages may also be awarded in cases of gross negligence.[4]

A surgical operation is the responsibility of the surgeon performing it.  He

must personally ascertain that the counts of instruments and materials
used before the surgery and prior to sewing the patient up have been
correctly done.  To provide an example to the medical profession and to
stress the need for constant vigilance in attending to a patient's health, the
award of exemplary damages in this case is in order.

Further, in view of Josephine's death resulting from petitioner's negligence,

civil indemnity under Article 2206[5] of the Civil Code should be given to
respondents as heirs.  The amount of P50,000.00 is fixed by prevailing
jurisprudence for this kind.
60 | P a g e

Arrieta v. National Rice and Corn Corporation, 10 SCRA 79

FACTS :

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

ISSUE :

Does NARIC liable for damages?

HELD :

Yes, because the reason of the cancellation of the contract by Arrieta in Ragoon, Burma
was the failure of NARIC to open the letter of credit within a specific period of time. One
who assumes contractual obligation and fails to perform in which he knew and was
aware when he entered in the contract, should be liable for his failure to do what is
required by a law. Under the Art. 1170 of the Civil Code, not only the debtors guilty of
fraud, negligence or default but also a debtor of every, in general, who fails in the
performance of his obligation is bound to indemnify for the losses and damages caused
thereby.
61 | P a g e

CATHAY PACIFIC AIRWAYS LTD., petitioner,

vs. SPOUSES DANIEL VASQUEZ and MARIA LUISA MADRIGAL VASQUEZ, respondents.
[G.R. No. 150843.  March 14, 2003]

FACTS:
In respondents’ return flight to Manila from Hongkong, they were deprived of their original seats in
Business Class with their companions because of overbooking. Since respondents were privileged
members, their seats were upgraded to First Class. Respondents refused but eventually persuaded to
accept it. Upon return to Manila, they demanded that they be indemnified in the amount of  P1million for
the “humiliation and embarrassment” caused by its employees. Petitioner’s Country Manager failed to
respond. Respondents instituted action for damages. The RTC ruled in favor of respondents. The Court of
Appeals affirmed the RTC decision with modification in the award of damages.
ISSUE:
Whether or not the petitioners (1) breached the contract of carriage, (2) acted with fraud and (3) were
liable for damages.

RULING:
(1) YES. Although respondents have the priority of upgrading their seats, such priority may be waived, as
what respondents did. It should have not been imposed on them over their vehement objection.

(2) NO. There was no evident bad faith or fraud in upgrade of seat neither on overbooking of flight as it is
within 10% tolerance.

(3) YES. Nominal damages (Art. 2221, NCC) were awarded in the amount of P5,000.00. Moral damages
(Art.2220, NCC) and attorney’s fees were set aside and deleted from the Court of Appeals’ ruling.
 62 | P a g e

Philcomsat v. Globe Telecom

429 SCRA 153, G.R. No. 147324 (May 25, 2004)

Facts:

1. Globe Telecom, Inc. (Globe) is engaged in the coordination of the provision of

various communication facilities for the military bases of the United States of America
(US) in the Clark Air Base and Subic Naval Base.
2. Saud communication facilities were installed and configured for the exclusive use
of the US Defense Communications Agency (USDCA).
3. Globe contracted Philippine Communications Satellite Corporation (Philcomsat)
for the provision of the communication facilities.
4. Philcomsat and Globe entered into an agreement whereby Philcomsat obliged
itself to establish, operate and provide an IBS Standard B earth station (earth station)
for the exclusive use of the USDCA. Globe promised to pay Philcomsat monthly rentals
for each leased circuit involved.
5. Philcomsat installed and established the earth station and the USDCA made use
of the same.
6. Senate passed and adopted its resolution, expressing its decision not to concur in
the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the use by the US
of Subic Naval Base, among others.
7. PH government sent a Note Verbale to the US government through the US
Embassy, notifying it of the Philippine termination of the RP-US Military Base
Agreement. The withdrawal of all US military forces from Subic Naval Base should be
completed by December 31. 1992.
8. Globe notified Philcomsat of its intention to discontinue the use of the earth
station.
9. Philcomsat demand payment of rentals for the balance of lease term, despite the
non-use of earth station.

Issue/s:

1. Whether the termination of the RP-US Military Base Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security, and the consequent
withdrawal of US military forces and personnel from Cubi Point constitute force
majeure which would exempt Globe from complying with its obligation to pay rentals
under its Agreement with Philcomsat.
2. Whether Globe is liable to pay rentals under the Agreement for the month of
December 1992.
3. Whether Philcomsat is entitled to attorney’s fees and exemplary damages.
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Ruling:

1. Yes. Philcomsat and Globe had no control over the non-renewal of the term of the
RP-US Military Base Agreement when the same expired in 1991, because the prerogative
to ratify the treaty extending the life thereof belonged to the Senate. Neither did the
parties have control over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992.

As a consequence of the termination of the RP-US Military Base Agreement the

continued stay of all US Military forces and personnel from Subic Naval Base would no
longer be allowed, hence, plaintiff would no longer be in any position to render service it
was obligated under the Agreement.

Events made impossible the continuation of the Agreement until the end of its five-year
term without fault on the part of either party. Such fortuitous events rendered Globe
exempt from payment of rentals for the remainder of the term of the Agreement.

Philcomsat would like to charge globe rentals for the balance of the lease term without
being any corresponding telecommunications service subject of the lease. It will be
grossly unfair and iniquitous to hold globe liable for lease charges for a service that was
not and could not have been rendered due to an act of the government which was clearly
beyond globes control.

2. Yes. The US military forces and personnel completely withdrew from Cubi Point
only on December 31, 1992. Thus, until that date, USDCA had control over the earth
station and had the option of using the same. Furthermore, Philcomsat could not have
removed or rendered ineffective said communication facility until after December 31,
1992 because Cubi Point was accessible only to US naval personnel up to that time.

3. No. The award of attorney’s fees is the exemption rather than the rule. In cases
where both parties have legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of both parties were sustained in
part, an award of attorney’s fees would not be warranted.

Exemplary damages may be awarded in cases involving contracts, if the erring party
acted in wanton, fraudulent, reckless, oppressive or malevolent manner. It was not
shown that Globe acted wantonly or oppressively in not heeding Philcomsats demands
for payment of rentals. Globe had valid grounds for refusing to comply with its
contractual obligations after 1992.
64 | P a g e

Austria vs. Court of Appeals

G.R. No. L-29640, June 10, 1971

FACTS:

On January 30, 1961, Maria G. Abad acknowledged that she received from Guillermo Austria one
(1) pendant with diamonds to be sold on a commission basis or to be returned on demand. However,
on February 1, 1961, while walking home to her residence, Abad was said to have been accosted by
two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and
cash, and ran away.

Since Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought
in the Court of First Instance of Manila an action against her and her husband for recovery of the
pendant or of its value, and damages. On their answer, the defendant spouses set up the defense
that the alleged robbery had extinguished their obligation.

The trial court rendered judgment in favor for the plaintiff which is Austria. It held that defendant
failed to prove the fact of robbery, or, if indeed it was committed, the defendant was guilty of
negligence. The defendants appealed to the Court of Appeals and secured a reversal of judgment. It
declared respondents not responsible for the loss of the jewelry on account of fortuitous event, and
relieved them from liability for damages to the owner. Hence, this case contending that for robbery to
fall under the category of fortuitous event and relieve the obligor form his obligation under a contract,
there ought to be prior judgment on the guilt of the persons responsible therefor.

ISSUE:

Whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior
conviction for robbery before the loss of the article shall exempt the consignee from liability for such
loss.

RULING:

NO, the law provides that except in case expressly specified by law, or when it is otherwise declared
by stipulation, or when the nature of the obligation require the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable.

It must be noted that to avail of the exemption granted in the law, it is not necessary that the persons
responsible for the occurrence should be punished; it would only be sufficient to establish that the
enforceable event, the robbery in this case did take place without any concurrent fault on the
debtor`s part, and this can be done by preponderant evidence.

It must also be noted that a court finding that a robbery has happened would not necessarily mean
that those accused in the criminal action should be found guilty of the crime; nor would be a ruling
that those actually accused did not commit the robbery be inconsistent with a finding that a robbery
did take place. The evidence to establish these facts would not necessarily be the same.
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Co v. CA
G.R. No. 124922, June 22, 1998, 291 SCRA 111

FACTS:

Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in
accordance with the job contract. After petitioner paid in full the repair bill in the amount of
P1,397.00, private respondent issued to him a gate pass for the release of the vehicle on said date.
But came July 21, 1990, the latter could not release the vehicle as its battery was weak and was not
yet replaced. Left with no option, petitioner himself bought a new battery nearby and delivered it to
private respondent for installation on the same day. However, the battery was not installed and the
delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought
to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped earlier that
morning while being road-tested by private respondents employee along Pedro Gil and Perez
Streets in Paco, Manila. Private respondent said that the incident was reported to the police.

ISSUE:

Whether or not a repair shop can be held liable for the loss of a customers’ vehicle due to
carnapping while the same is in its custody for repair or other job services?

RULING:

It is a not a defense for a repair shop of motor vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully
taken from another’s rightful possession, as in cases of carnapping, does not automatically give rise
to a fortuitous event. Assuming further that there was no delay, still working against private
respondent is the legal presumption under Article 1265 that its possession of the thing at the time it
was lost was due to its fault. This presumption is reasonable since he who has the custody and care
of the thing can easily explain the circumstances of the loss. The vehicle owner has no duty to show
that the repair shop was at fault. All that petitioner needs to prove, as claimant, is the simple fact that
private respondent was in possession of the vehicle at the time it was lost. In this case, private
respondents possession at the time of the loss is undisputed. Consequently, the burden shifts to the
possessor who needs to present controverting evidence sufficient enough to overcome that
presumption. Moreover, the exempting circumstances – earthquake, flood, storm or other natural
calamity – when the presumption of fault is not applicable do not concur in this case. Accordingly,
having failed to rebut the presumption and since the case does not fall under the exceptions, private
respondent is answerable for the loss.
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LEA MER INDUSTRIES INC VS MALAYAN INSURANCE CO, INC.

GR No. 161745, SEPTEMBER 30, 2005

FACTS:

Ilian Silica Mining entered into a contract of carriage with the petitioner, Lea Mer Industries Inc.
for the shipment of 900 metric tons of silica sand worth P565,000. The cargo was consigned to
Vulcan Industrial and Mining Corporation and was to be shipped from Palawan to Manila. The
silica sand was boarded to Judy VII, the vessel leased by Lea Mer. However, during the course
of its voyage, the vessel sank which led to the loss of the cargo.

Consequently, the respondent, as the insurer, paid Vulcan the value of the lost cargo. Malayan
Insurance Co., Inc. then collected from the petitioner the amount it paid to Vulcan as
reimbursement and as its exercise on the right of subrogation. Lea Mer refused to pay which led
Malayan to institute a complaint with the RTC. The RTC dismissed the complaint stating that the
loss was due to a fortuitous event, Typhoon Trining. Petitioner did not know that a typhoon was
coming and that it has been cleared by the Philippine Coast Guard to travel from Palawan to
Manila. The CA reversed the ruling of the trial court for the reason that said vessel was not
seaworthy when it sailed to Manila.

ISSUE:
Whether or not the petitioner is liable for the loss of the cargo.

HELD:

CA reversed. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods, or both — by land, water, or air —
when this service is offered to the public for compensation. Petitioner is clearly a common
carrier, because it offers to the public its business of transporting goods through its vessels. Thus,
the Court corrects the trial court's finding that petitioner became a private carrier when Vulcan
chartered it. Charter parties are classified as contracts of demise (or bareboat) and affreightment,
which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people
and becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused
by negligence. To create a demise, the owner of a vessel must completely and exclusively
relinquish possession, command and navigation thereof to the charterer; anything short of such a
complete transfer is a contract of affreightment (time or voyage charter party) or not a charter
party at all."

The distinction is significant, because a demise or bareboat charter indicates a business

undertaking that is private in character. Consequently, the rights and obligations of the parties to
a contract of private carriage are governed principally by their stipulations, not by the law on
common carriers. The Contract in the present case was one of affreightment, as shown by the
fact that it was petitioner's crew that manned the tugboat M/V Ayalit and controlled the barge
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Judy VII.

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods
and the safety of the passengers they transport, as required by the nature of their business and for
reasons of public policy. Extraordinary diligence requires rendering service with the greatest skill
and foresight to avoid damage and destruction to the goods entrusted for carriage and delivery.

Common carriers are presumed to have been at fault or to have acted negligently for loss or
damage to the goods that they have transported. This presumption can be rebutted only by proof
that they observed extraordinary diligence, or that the loss or damage was occasioned by any of
the following causes:
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that constituted the caso
fortuito must have been impossible to foresee or, if foreseeable, impossible to avoid; (c) the
occurrence must have been such as to render it impossible for the debtors to fulfill their
obligation in a normal manner; and (d) the obligor must have been free from any participation in
the aggravation of the resulting injury to the creditor. To excuse the common carrier fully of any
liability, the fortuitous event must have been the proximate and only cause of the loss. Moreover,
it should have exercised due diligence to prevent or minimize the loss before, during and after
the occurrence of the fortuitous event. As required by the pertinent law, it was not enough for the
common carrier to show that there was an unforeseen or unexpected occurrence. It had to show
that it was free from any fault — a fact it miserably failed to prove.
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PHILIPPINE REALTY AND HOLDINGS CORPORATION (PRHC)

vs. LEY CONSTRUCTION AND DEVELOPMENT (LCDC) CORPORATION
G. R. No. 165548 & G. R. No. 167879 (13 June 2011)

FACTS

Project contractor LCDC and project owner PRHC (with Engr. Dennis Abcede as its project
construction manager, and Joselito Santos, its general manager and vice-president for
operations) entered into several construction projects, including the Tektite Building.

LCDC president, Manuel Ley, met with Abcede to discuss the unanticipated delay in
construction due to sudden, unexpected hike in the prices of cement and other construction
materials. Abcede asked LCDC to advance the amount necessary to complete construction. Ley
acceded on condition that PRHC would allow escalation of contract price and disregard the
prohibition contained in the agreements. The PRHC board of directors turned down the
request, but it gave no notice to LCDC of said denial. Instead, Abcede signed a letter and sent it
to LCDC, asking for its conformity, to the effect that should it infuse P36M into the project, a
contract price escalation for the same amount would be granted in LCDC’s favor. However, the
letter-agreement revealed no signature above PRHC’s name. Notwithstanding the absence of
said signature, LCDC proceeded with the construction of Tektite Building. It infused amounts
totalling P38.2M, and religiously submitted to PRHC monthly reports on the same. But PRHC
never replied to any of these monthly reports.
 
When Ley inquired from Abcede and Santos why its requests for extension of time were not
granted in full, the two assured him that LCDC would not be penalized with damages because
the fact that it was working hard on the Tektite Building project was known to PRHC. However,
when 96.43% of Tektite Building had been completed and LCDC requested the release of the
P36M escalation price, PRHC did not reply. After the construction of the building was
completed, it conveyed its decision to set off, in the form of liquidated damages, its claim to the
supposed LCDC’s liability.

LCDC’s alleged liability included the corrective works to redo or repair the defective
waterproofing in one of the projects. LCDC denied the same by alleging that PRHC, as the
principal, forced LCDC, as the agent, into hiring Vulchem Corp., as sub-agent or substitute, for
the waterproofing works. It argued that under Art. 1892 of the Civil Code 1, “an agent is
responsible for the acts of the substitute if he was given the power to appoint a substitute.
Conversely, if it is the principal and not the agent who appointed the substitute, the agent
bears no responsibility for the acts of the sub-agent”.

LCDC filed a Complaint before the RTC in Makati City which ruled in its favor. PRHC filed a
Notice of Appeal. The Court of Appeals (CA) reversed RTC’s amended Decision.
1 “Art. 1892. The agent may appoint a substitute if the principal has not prohibited him from doing so; but he shall be responsible for the
acts of the substitute: (1) When he was not given the power to appoint one; (2) When he was given such power, but without designating
the person, and the person appointed was notoriously incompetent or insolvent.”
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ISSUES (related to Business Organization I, particularly on the topic of Agency)

1. Whether or not the signed letter of Abcede, without the signature above PRHC’s name,
could bind PRHC to the escalation agreement with LCDC.

2. Whether or not LCDC correctly applied Article 1892 on the principles of agency to the case at
bar.

HELD

1. SC ruled that the signature of Abcede, as PRHC construction manager, on the letter-
agreement (contract) is sufficient to bind PRHC because it indicated authority to make such
representation on behalf of PRHC. SC further agreed with LCDC that the actions of Abcede and
Santos, assuming they were beyond the authority given to them by PRHC which they were
representing, still bound PRHC under the doctrine of apparent authority2. Thus, the lack of
authority on their part should not be used to prejudice it, considering that the two were
clothed with apparent authority to execute such agreements.
 
2. SC ruled that LCDC’s reliance on Art. 1892 was misplaced. The principles of agency could not
to be applied to this case, since the legal relationship between PRHC and LCDC was not one of
agency, but was rather that between the owner of the project and an independent contractor
under a contract of service. Thus, it is the agreement between the parties and not the Civil
Code provisions on agency that should be applied to resolve this issue.
 
SC set aside CA’s decision and ruled to set off the respective liabilities of the parties against
each other, and PRHC was directed to pay LCDC the net amount due.

2 “[a]lthough an officer or agent acts without, or in excess of, his actual authority if he acts within the scope of an apparent authority with
which the corporation has clothed him by holding him out or permitting him to appear as having such authority, the corporation is bound
thereby in favor of a person who deals with him in good faith in reliance on such apparent authority, as where an officer is allowed to
exercise a particular authority with respect to the business, or a particular branch of it, continuously and publicly, for a considerable time.”
Also, “if a private corporation intentionally or negligently clothes its officers or agents with apparent power to perform acts for it, the
corporation will be estopped to deny that such apparent authority is real, as to innocent third persons dealing in good faith with such
officers or agents.” (Yao Ka Sin Trading v. Court of Appeals, et al. G.R. No. 53820, 15 June 1992, 209 SCRA 763)
 70 | P a g e

Juan Nakpil & Sons v. Court of Appeals 144 SCRA 597, G.R. No. L-47851 (October
3, 1996)

Facts:

1. Philippine Bar Association (PBA) decided to construct an office building at Intramuros,

Manila.
2. The construction was undertaken by the United Construction, Inc. (United) on an
“administration basis”, on the suggestion of Juan J. Carlos (Carlos), the president and general
manager of United.
3. Plans and specifications for the building were prepared by the third-party defendants
Juan F. Nakpil & Sons(Nakpil)
4. The building was completed on June 1966.
5. On August 2, 1968, an unusually strong earthquake hit Manila and its environs and the
building in question sustained major damage.
6. PBA commenced an action for the recovery of damages arising from the partial collapse
of the building against United. In turn, United filed a third-party complaint against the
architects (Nakpil) who prepared the plans and specifications.
7. Parties agreed to refer the technical issues involved in the case to a Commissioner, Mr.
Andres O. Hizon (Hizon).
8. On April 30, 1979 the building was authorized to be demolished at the expense of United
and Nakpil.
9. Hizon submitted his report with the findings that while the damage sustained by the PBA
building was caused by the earthquake, they were also caused by the (1) defects in the plans and
specifications prepared by the architects, (2) deviations from said plans and specifications by
United and (3) failure of United to observe the requisite workmanship in construction of the
building and of the contractors and architects to exercise the requisite degree of supervision in
the construction of the said building.
10. The United Architects of the Philippines, the Association of Civil Engineers, and the
Philippine Institute of Architects filed with the Court a motion to intervene as amicus curiae.
11. The amicus curiae gave the opinion that the plans and specifications of the Nakpils were
not defective. (In contradiction to the opinion of Hizon)

Issue/s:

1. Whether or not an act of God – an unusually strong earthquake – which caused the
failure of the building, exempts from liability, parties who are otherwise liable because of their
negligence.

Ruling:

1. No, they are not exempted from liability. There is no dispute that the earthquake is a
fortuitous event or an act of god. But, if upon the happening of a fortuitous event or an act of
God, here concurs a corresponding fraud, negligence, delay or violation or contravention in any
manner of the tenor of the obligation, which results in loss or damage, the obligor cannot escape
liability.
 71 | P a g e

The principle embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and all human agencies are to be
excluded from creating or entering into the cause of the mischief. When the effect, the
cause of which is to be considered, is found to be in part the result of the participation of
man, whether it be from active intervention or neglect, or failure to act, the whole
occurrence is thereby HUMANIZED, as it were, and removed from the rules applicable
to the acts of God.

United was found to have made substantial deviations from the plans and specifications
and to have failed to observe the requisite workmanship in the construction as well as to
exercise the requisite degree of supervision. And the Nakpins were found to have
inadequacies or defects in the plans and specifications prepared by them. The deviations
made by United caused indirectly the damage sustained and that those deviations not
only added but also aggravated the damage caused by the defects made by the Nakpins.

Thus, one who negligently creates a dangerous condition cannot escape liability for the
natural and probably consequences thereof, although the act of a third person, or an act
of God for which he is not responsible, intervenes to precipitate the loss. The destruction
was not purely an act of God. Truth to tell hundreds of ancient buildings in the vicinity
were hardly affected by the earthquake. Only one thing spells out the fatal difference;
gross negligence and evident bad faith, without which the damage would not have
occurred.

 Notes / Law / Doctrine:

 (New Civil Code) Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years from the completion of
the structure the same should collapse by reason of a defect in those plans and specifications, or
due to the defects in the ground. The contractor is likewise responsible for the damage if the
edifice fags within the same period on account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to any violation of the terms of the
contract. If the engineer or architect supervises the construction, he shall be solidarily liable
with the contractor.

Acceptance of the building, after completion, does not imply waiver of any of the causes
of action by reason of any defect mentioned in the preceding paragraph.

The action must be brought within ten years following the collapse of the building.

 (New Civil Code) Art. 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.

 A Breach of an obligation due to an “Act of God”, the following must concur:

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1. The cause of the breach of the obligation must be independent of the will of
debtor;
2. The event must be either unforeseeable or unavoidable;
3. The event must be such as to render it impossible for the debtor to fulfil his
obligation in a normal manner;
4. The debtor must be free from any participation in, or aggravation of the injury to
the creditor.
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Metro Concast Steel Corporation vs. Allied Bank Corporation G.R. No. 177921, December 4, 2013

Facts: On various dates and for different amounts, Metro Concast, a corporation duly organized and
existing under and by virtue of Philippine laws and engaged in the business of manufacturing steel,
through its officers obtained several loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts.

Petitioners failed to settle their obligations under the aforementioned promissory note and trust receipts,
hence, Allied Bank, through counsel, sent them demand letters,20 all dated December 10, 1998, seeking
payment but to no avail. Thus, Allied Bank was prompted to file a complaint for collection of sum of
money against petitioners before the RTC. The petitioners purported that the economic reverses suffered
by the economy and the devaluation of the peso against the US dollar contributed to the downfall of the
steel industry, directly affecting the business of Metro Concast and eventually leading to its cessation.
Petitioners offered the sale of Metro Concast’s remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter refused. Instead, Allied Bank advised them to sell the
equipment and apply the proceeds of the sale to their outstanding obligations. Petitioners offered the
equipment for sale, but there were no takers, and it was reduced into scrap metal.

Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest
in buying the scrap metal. A Memorandum of Agreement dated November 8, 2002 (MoA) was drawn
between Metro Concast, represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under
which Peakstar obligated itself to purchase the scrap metal.

Unfortunately, Peakstar defaulted on all its obligations under the MoA. In this regard, petitioners averred
that their failure to pay their outstanding loan obligations to Allied Bank must be considered as force
majeure, and therefore extinguished.

Issue: Whether or not the loan obligations incurred by the petitioners under the subject promissory note
and various trust receipts have already been extinguished due to force majeure or fortuitous event.

Held:

No. The loan obligation was not extinguished.  

Article 1231 of the Civil Code states that obligations are extinguished either by payment or performance,
the loss of the thing due, the condonation or remission of the debt, the confusion or merger of the rights of
creditor and debtor, compensation or novation.

In the present case, petitioners argued that their loan obligations to Allied Bank had already been
extinguished due to Peakstar’s failure to perform its own obligations to Metro Concast pursuant to the
MoA. Petitioners classify Peakstar’s default as a form of force majeure in the sense that they
have, beyond their control, lost the funds they expected to have received from the Peakstar which they
would, in turn, use to pay their own loan obligations to Allied Bank.

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

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN KHE, petitioners,
vs.COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and PHILAM INSURANCE CO.,
INC., respondents.
G.R. No. 144169 March 28, 200

FACTS:

Petitioner Khe Hong Chang is the owner of the vessel which said vessel shipped 3,400 bags of copra at
Masbate owned by the Philippine Agricultural Trading Corporation. The shipment of copra was covered
by an insurance issued by American Home Insurance Company. The vessel sank while at sea which
resulted to the loss of bags of copra. The insurer paid the amount of Php 345,000.00 to the consignee.
The American Home filed a case for the recovery of the money paid to the consignee, based on
breach of contract of carriage. During the pendency of the case, petitioner executed deed of donation in
favor of his children Sandra and Ray.
The trial court rendered its deciusion in favor of the plaintiff however when the Sheriff executed
the writ of executuin they found out that petitioner no longer had any property and that he conveyed
the subject propertiues to his children.
Respondent Philam filed a complaint for the rescission of the deeds of donation executed by petitioner
Khe Hong Cheng in favor of his children and for the nullification of their titles. Respondent Philam
alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid deeds in fraud of his creditors,
including respondent Philam.
The RTC rendered its decision in favoir of Philam. The Ca affirmed the decision of RTC.

ISSUE:

When does accion pauliano accrues?

RULING:
An accion pauliana accrues only when the creditor discovers that he has no other legal remedy
for the satisfaction of his claim against the debtor other than an accion pauliana. The accion pauliana is
an action of a last resort. For as long as the creditor still has a remedy at law for the enforcement of his
claim against the debtor, the creditor will not have any cause of action against the creditor for rescission
of the contracts entered into by and between the debtor and another person or persons. Indeed, an
accion pauliana presupposes a judgment and the issuance by the trial court of a writ of execution for the
satisfaction of the judgment and the failure of the Sheriff to enforce and satisfy the judgment of the
court. It presupposes that the creditor has exhausted the property of the debtor. The date of the
decision of the trial court against the debtor is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of his property. After all, the decision
of the trial court against the debtor will retroact to the time when the debtor became indebted to the
creditor.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
77 | P a g e

PROJECT BUILDERS, INC. vs. THE COURT OF APPEALS

G. R. No. 99433 2001 Jun 19

FACTS:

On August 21, 1975, plaintiff and defendant PBI entered into an agreement whereby it was agreed that
plaintiff would provide a maximum amount of P2,000,000.00 against which said defendant would discount and
assign to plaintiff on a ‘with recourse non-collection basis’ its accounts receivable under the contracts to sell
specified in said agreement. And on June 15, 1976, the same parties entered into an agreement whereby it was
agreed that PBI’s credit line with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of
P5,000,000.00 granted includes the amount already assigned/discounted. The discounts were on different date
accounts receivables with different maturity dates from different condominium-unit buyers. And each time a
certain account receivable was discounted, the covering Contract to Sell was assigned by defendant to plaintiff.
The total amount of receivables discounted by defendant PBI is P7,986,815.38 and consists of twenty accounts. Of
such receivables amounting to P7,986,815.38 plaintiff released to defendant PBI the amount of P4,549,132.72 and
the difference of P3,437,682.66 represents the discounting fee or finance fee. To secure compliance, defendants
executed a Deed of Real Estate Mortgage in favor of plaintiff. When defendants allegedly defaulted in the payment
of the subject account, plaintiff foreclosed the mortgage and plaintiff was the highest bidder in the amount of
P3,500,000.00. The foreclosed property was redeemed a year later, but after application of the redemption
payment, plaintiff claims that there is still a deficiency in the amount of P1,323,053.08. The trial court dismissed
the complaint. The Court of Appeals however overturned the judgment of the trial court.

ISSUE:
Whether or not the assignment of credit is valid.

RULING:

An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an assignor to
an assignee who would then be capable of proceeding against the debtor for enforcement or satisfaction of the
credit. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all
appurtenant accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon
acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same
defenses he could set up against the assignor. Where the assignment is on account of pure liberality on the part of
the assignor, the rules on donation would likewise be pertinent; where valuable consideration is involved, the
assignment partakes of the nature of a contract of sale or purchase.

Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the assignor and
in a position to enforce the contract to sell to the same extent as the assignor could. In an assignment of credit, the
consent of the debtor is not essential for its perfection, his knowledge thereof or lack of it affecting only the
efficaciousness or inefficaciousness of any payment he might make.Consent is not necessary in order that
assignment may fully produce legal effects. Hence, the duty to pay does not depend on the consent of the debtor.
Otherwise, all creditors would be prevented from assigning their credits because of the possibility of the debtors’
refusal to give consent. What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor’s
consent. The purpose of the notice is only to inform the debtor that from the date of the assignment, payment
should be made to the assignee and not to the original creditor.

In the case, the assignment, was "with recourse", and default in the payment of installments had been duly
established when petitioner corporation foreclosed on the mortgaged parcels of land.
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WILLIAM ONG GENATO vs. BENJAMIN BAYHON

G.R. No. 171035 August 24, 2009

FACTS:

Respondent Benjamin Bayhon alleged that on July 3, 1989, he obtained from the petitioner a loan amounting
to PhP 1,000,000.00;3 that to cover the loan, he executed a Deed of Real Estate Mortgage over the property
covered by Transfer Certificate of Title (TCT) No. 38052; that, however, the execution of the Deed of Real Estate
Mortgage was conditioned upon the personal assurance of the petitioner that the said instrument is only a private
memorandum of indebtedness and that it would neither be notarized nor enforced according to its tenor. In his
Answer, petitioner Genato denied the claim of the respondent regarding the death of the latter’s wife.8 He alleged
that on the date that the real estate mortgage was to be signed, respondent introduced to him a woman as his
wife.9 He alleged that the respondent signed the dacion en pago and that the execution of the instrument was
above-board.

Petitioner further averred that despite demands, respondent refused to execute the requisite documents to
transfer to him the ownership of the lot subject of the dacion en pago. Petitioner prayed, inter alia, for the court to
order the respondent to execute the final deed of sale and transfer of possession of the said lot.

ISSUE:

Whether or not the dacion en pago is void.

RULING:

Under our law, therefore, the general rule is that a party's contractual rights and obligations are transmissible
to the successors. The rule is a consequence of the progressive "depersonalization" of patrimonial rights and duties
that, as observed by Victorio Polacco, has characterized the history of these institutions. From the Roman concept
of a relation from person to person, the obligation has evolved into a relation from patrimony to patrimony, with
the persons occupying only a representative position, barring those rare cases where the obligation is strictly
personal, i.e., is contracted intuitu personae, in consideration of its performance by a specific person and by no
other. The transition is marked by the disappearance of the imprisonment for debt.28 (Emphasis supplied)

The loan in this case was contracted by respondent. He died while the case was pending before the Court of
Appeals. While he may no longer be compelled to pay the loan, the debt subsists against his estate. No property or
portion of the inheritance may be transmitted to his heirs unless the debt has first been satisfied. Notably,
throughout the appellate stage of this case, the estate has been amply represented by the heirs of the deceased,
who are also his co-parties in Civil Case No. Q-90-7012.

The procedure in vindicating monetary claims involving a defendant who dies before final judgment is governed by
Rule 3, Section 20 of the Rules of Civil Procedure.
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MANILA TRADING SUPPLY CO. VS. MEDINA (2 SCRA 549, 1961)

FACTS:

Mariano Medina had an account prior to May 7, 1956 with Manila Trading and Supply Co. with an
amount of P60,000 for which Medina executed a promissory note. The note provided that upon failure
to pay the installments, the remaining amount will immediately become due and payable at the option
of the holder of the note with 33.33% amount due for attorney’s fees and expenses of collection.
Compiled by: FCSB MYCK  On January 8, 1957, Manila Trading & Co. filed a complaint against Medina
for failure to pay installments from September 1956 to January 7, 1957. Medina filed an answer
admitting allegations but said the 33.33% for attorneys fees were exorbitant and unconscionable. He
pleaded that on January 24, 1957, an additional P4,000 was paid so that he will not be sued and allowed
to pay the balance. Upon petition of plaintiff, a writ of attachment was issued and levied upon eleven of
defendant's buses. His counterclaim was damages for the loss of his earnings. Plaintiff denied the
defense and counterclaim. Plaintiff provided evidence of 21 payments made by defendant from June 6,
1956 to Jan. 21, 1957. The defendant testified that he has 10 other payments with receipts but the dates
and serial numbers are unclear for it was eaten by ‘anay’. Defendant claims that his payment on Jan.
1957 gives rise to the presumption that prior installments have been paid.

ISSUE:

Are the presented receipts genuine to raise the presumption that prior installments were paid?

RULING:

No. Appellant avers that the genuine receipts dated January, 1957 raise the presumption that prior
installments were paid. This might be true if such receipts recited that they were issued for the
installments corresponding to the month of January, 1957; but nowhere does that fact appear. And
even if such recital had been made, the resultingpresumption would only be prima facie, and the
evidence before us is clear that the payments made do not correspond to the installments falling due on
the dates of the genuine receipts. As pointed out by the trial court, it is highly suspicious that these
receipts should be mutilated precisely at the places where the serial numbers and the year of issue must
appear, while the receipts for intervening payments recognized by the plaintiff remained intact. In
addition, the numbers that Medina attributed to them are not in sequence. It is difficult to believe that a
trading company should issue receipts numbered at random, since it would make auditing control
impossible.
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Marquez vs Elisan Credit Corporation

Case Digest GR 194642 Apr 6 2015
Facts:
Marquez obtained from Elisan Credit Corporation a loan payable in weekly installments and
subject to annual interest with monthly penalties and attorney’s in case of nonpayment.  A
chattel mortgage was also executed stipulating that “the motor vehicle shall stand as a security
for all other obligations of every kind already incurred or which hereafter may be incurred”. 
The payment of that loan was acknowledged by both parties.
Subsequently, Marquez obtained another loan evidenced by a promissory note with the same
terms and conditions as the first loan.  When the second loan matured, there still remained an
unpaid balance. Marquez requested the creditor to pay the unpaid balance by daily
installments until the loan is paid; the creditor agreed.  Thus, several months after the maturity
of the loan, Marquez had already paid a total amount which is greater than the amount of the
principal.
Despite such, the creditor filed a complaint for foreclosure of the CM on the ground that
Marquez allegedly failed to pay the principal of the second loan despite demand. It was also
prayed that the unpaid balance plus accrued penalties and interests be paid because, allegedly,
Marquez’ failure to pay upon maturity triggered the imposition of monthly penalties and
attorney’s fees.
Marquez, citing Art 1176 and 1235 of the Civil Code, insists that his daily payments should be
deemed to have been credited against the principal, as the official receipts issued by the
creditor were silent with respect to the payment of interest and penalties.
Issue 1:  W/N the creditor waived the payment of the interest
No.  The fact that the official receipts did not indicate whether the payments were made for the
principal or the interest does not prove that the creditor waived the interest.  There is no
presumption of waiver of interest without any evidence showing that the creditor accepted the
daily instruments as payments for the principal.
Issue 2:  W/N the daily payments made by the debtor be applied to the interest
Yes.  Notwithstanding the fact it was not indicated in the receipts whether the payments were
applied to the principal or the interest, such failure should not be taken against the creditor. 
Under  Article 1253 of the Civil Code, if the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests have been covered.  Thus, the
creditor in this case has a right to credit the payments to the interest first.
Issue 3:  W/N an order for foreclosure is proper
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No.  Foreclosure in this case is without legal and factual basis because the chattel mortgage was
already extinguished when the obligation under the first loan was duly paid.
A CM can only cover obligations existing at the time the mortgage is constituted. For a CM  to
cover debts yet to be contracted, a fresh chattel mortgage may be executed or the old contract
be amended conformably to the form prescribed by the CM Law. Here, since there was no
showing that a new agreement was executed, the security can no longer apply to the second
loan. The chattel mortgage was already extinguished because being merely an accessory in
nature, it cannot exist independently of the principal obligation.
Although a promise expressed in a chattel mortgage to include debts that are yet to be
contracted can be a binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel mortgage agreement
covering the newly contracted debt is executed either by concluding a fresh chattel
mortgage or by amending the old contract conformably with the form prescribed by the Chattel
Mortgage Law.
Refusal on the part of the borrower to execute the agreement so as to cover the after-incurred
obligation can constitute an act of default on the part of the borrower of the financing
agreement whereon the promise is written, but the remedy of foreclosurecan only cover the
debts extant at the time of constitution and during the life of the chattel mortgage sought to be
foreclosed.
The Chattel Mortgage Law requires the parties to the contract to attach an affidavit of good
faith and execute an oath that –
“… the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purposes, and that the same is a just and valid obligation, and one not
entered into for the purposes of fraud.”
It is obvious therefore that the debt referred in the law is a current, not an obligation that is yet
merely contemplated.
The only obligation specified in the chattel mortgage contract was the first loan which the
petitioner later fully paid.  By virtue of Section 3 of the Chattel Mortgage Law, the payment of
the obligation automatically rendered the chattel mortgage terminated; the chattel mortgage
had ceased to exist upon full payment of the first loan.  Being merely an accessory in nature, it
cannot exist independently of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage
to comply with the Chattel Mortgage Law which requires that the obligation must be specified
in the affidavit of good faith.  Simply put, there no longer was any chattel mortgage that could
cover the second loan upon full payment of the first loan.  The order to foreclose the motor
vehicle therefore had no legal basis.
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