1
Consequently, Frank placed concrete monuments
G.R. No. 164601
FIRST DIVISION
G.R. No. 164601             September 27, 2006
SPOUSES ERLINDA BATAL AND FRANK
BATAL, petitioners,
vs.
SPOUSES LUZ SAN PEDRO AND KENICHIRO
TOMINAGA, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule
45 of the Rules of Court questioning the Decision1 dated September
29, 2003 promulgated by the Court of Appeals (CA) in CA-G.R.
CV No. 71758, which affirmed the Decision dated May 31, 2004 of
the Regional Trial Court, Branch 7, Malolos, Bulacan (RTC); and
the CA Resolution2 dated July 19, 2004.
This case originated from an action for damages filed with the RTC
by Spouses Luz San Pedro and Kenichiro Tominaga (respondents)
against Spouses Erlinda Batal and Frank Batal (petitioners) for
failure to exercise due care and diligence by the latter in the
preparation of a survey which formed the basis for the construction
of a perimeter fence that was later discovered to have encroached on
a right of way.
The facts of the case, as found by the RTC and summarized by the
CA, are as follows:
The spouses Luz San Pedro (Luz) and Kenichiro
Tominaga (Kenichiro) are the owners of a parcel
of land, on which their house was erected,
described as Lot 1509-C-3 with an area of 700
square meters situated in Barangay Malis,
Guiguinto, Bulacan. Said property was acquired
by them from one Guillermo Narciso as
evidenced by a "Bilihan ng Bahagi ng Lupa"
dated March 18, 1992.
The spouses Luz and Kenichiro then contracted
the services of Frank Batal (Frank) who
represented himself as a surveyor to conduct a
survey of their lot for the sum of P6,500.00. As
Luz and Kenichiro wanted to enclose their
property, they again procured the services of
Frank for an additional fee of P1,500.00 in order
to determine the exact boundaries of the same by
which they will base the construction of their
perimeter fence.
marked P.S. on all corners of the lot which were
used as guides by Luz and Kenichiro in erecting a
concrete fence measuring about eight (8) feet in
height and cost them P250,000.00 to build.
Sometime in 1996, a complaint was lodged
against Luz and Kenichiro before the barangay on
the ground that the northern portion of their fence
allegedly encroached upon a designated right-of-
way known as Lot 1509-D. Upon verification
with another surveyor, Luz and Kenichiro found
that their wall indeed overlapped the adjoining
lot. They also discovered that it was not Frank but
his wife Erlinda Batal (Erlinda), who is a licensed
geodetic engineer.
During their confrontations before the barangay,
Frank admitted that he made a mistake and
offered to share in the expenses for the demolition
and reconstruction of the questioned portion of
Luz and Kenichiro's fence. He however failed to
deliver on his word, thus the filing of the instant
suit.
In their defense, the defendants-spouses Frank
and Erlinda Batal submitted that Frank never
represented himself to be a licensed geodetic
engineer. It was Erlinda who supervised her
husband's work [and t]hat the house and lot of
plaintiffs, Luz and Kenichiro, were already fenced
even before they were contracted to do a resurvey
of the same and the laying out of the concrete
monuments. The spouses Frank and Erlinda also
refuted the spouses Luz's and Kenichiro's
allegation of negligence and averred that the
subject complaint was instituted to harass them.3
On May 31, 2001, the RTC rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in
favor of plaintiffs and against defendants, as
follows:
1. Ordering the defendants [petitioners] to pay to
plaintiffs [respondents] the sum of P6,500.00 as
refund for their professional fees by reason of the
erroneous relocation survey of the property in
question;
2. Ordering the defendants to pay to plaintiffs the
sum of Three Hundred Thousand Pesos
(P300,000.00) as actual damages;
3. Ordering the defendants to pay to plaintiffs the
sum of P50,000.00 as attorney's fees; and
4. Ordering the defendants to pay to plaintiffs the
costs of this suit.

SO ORDERED.4
Regarding the issue whether the petitioners failed to exercise due
care and diligence in the conduct of the resurvey which eventually
caused damage to the respondents, the RTC held:
As against the bare and self-serving denials of the
[petitioners], the testimony of [respondent] Luz
San Pedro that she constructed the encroaching
perimeter fence in question using as guide the
cyclone concrete monuments marked P.S. that
were installed by [petitioner] Frank Batal and his
survey team, is more credible. As testified to by
[respondent] Luz San Pedro, she proceeded with
the construction of the perimeter fence in question
upon assurance given by [petitioner] Frank Batal
that she could already do so as there were already
concrete monuments placed on the boundaries of
her property x x x.
xxxx
It does not matter that the location plan dated May
3, 1992 (Exhibit "B") was later approved by the
DENR, as it is quite apparent that the mistake
committed by [petitioner] Frank Batal pertains to
the wrong locations of the concrete monuments
that he placed on the subject property and which
were used or relied upon by the [respondents] in
putting up the fence in question. Such mistake or
negligence happened because quite obviously the
installation of said concrete monuments was
without the needed supervision of [respondent]
Erlinda Batal, the one truly qualified to supervise
the same. x x x x
x x x x5
The RTC found that indeed the perimeter fence constructed by the
respondents encroached on the right-of-way in question; that the
preponderance of evidence supports the finding that the
encroachment was caused by the negligence of the petitioners; that,
in particular, respondents constructed the fence based on the
concrete cyclone monuments that were installed by petitioner Frank
Batal and after he gave his assurance that they can proceed
accordingly; that the negligence in the installation of the
monuments was due to the fact that petitioner Erlinda Batal, the one
truly qualified, did not provide the needed supervision over the
work; and, lastly, that the testimonies of the petitioners on the whole
were not credible.
The petitioners appealed to the CA. On September 29, 2003, the CA
rendered its Decision affirming the RTC decision in its entirety.6
In concurring with the findings of the RTC, the CA in addition held
that the petitioners cannot claim that the error of the construction of
the fence was due to the unilateral act of respondents in building the
same without their consent, since the former gave their word that
the arrangement of the monuments of title accurately reflected the
boundaries of the lot; and that, as a result, the northern portion of
2
the fence had to be demolished and rebuilt in order to correct the
error.
Hence, the instant Petition assigning the following errors:
I.
The Court of Appeals erred in ruling for the
Respondents and basing its decision [o]n the
following jurisprudence:
(a) "[A] party, having performed affirmative acts
upon which another person based his subsequent
actions, cannot thereafter refute his acts or renege
on the effects of the same, to the prejudice of the
latter. (Pureza vs. Court of Appeals, 290 SCRA
110)"; and
(b) "Findings of fact made by the trial court [are]
entitled to great weight and respect. (Lopez vs.
Court of Appeals, 322 SCRA 686).
II.
The Court of Appeals erred in ruling in favor of
Respondents by premising its Decision on [a]
misapprehension of facts amounting to grave
abuse of discretion . . . which is also a ground for
a Petition for Review.7
The petition must fail.
The petitioners insist that there had been no error in their resurvey,
but rather, the error occurred in respondents' fencing; that the
proximate cause of the damage had been respondents' own
negligence such that the fencing was done unilaterally and solely by
them without the prior approval and supervision of the petitioners.
And to justify their case, the petitioners argue that the courts a quo
misapprehended the facts. Accordingly, they ask this Court to
review findings of fact.
A review of the factual findings of the CA and the RTC are matters
not ordinarily reviewable in a petition for review on certiorari.8
Well-established is the rule that factual findings of the trial court
and the CA are entitled to great weight and respect9 and will not be
disturbed on appeal save in exceptional circumstances,10 none of
which obtains in the present case. This Court must stress that the
findings of fact of the CA are conclusive on the parties and carry
even more weight when these coincide with the factual findings of
the trial court,11 as in this case.
The Court will not weigh the evidence all over again unless there is
a showing that the findings of the lower court are totally devoid of
support or are clearly erroneous so as to constitute serious abuse of
discretion.12 The petitioners failed to demonstrate this point. On the
contrary, the finding of the courts a quo that the damage caused to
the respondents was due to petitioners' negligence is sufficiently
supported by the evidence on record. For these reasons, the
petitioner's contentions bear no import.

Culpa, or negligence, may be understood in two different senses:
either as culpa aquiliana, which is the wrongful or negligent act or
omission which creates a vinculum juris and gives rise to an
obligation between two persons not formally bound by any other
obligation, or as culpa contractual, which is the fault or negligence
incident in the performance of an obligation which already existed,
and which increases the liability from such already existing
obligation.13 Culpa aquiliana is governed by Article 2176 of the
Civil Code and the immediately following Articles; while culpa
contractual is governed by Articles 1170 to 1174 of the same
Code.14
Articles 1170 and 1173 provide:
ART. 1170. Those who in the performance of
their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the
persons, of the time and of the place. When
negligence shows bad faith, the provisions of
articles 1171 and 2202, paragraph 2, shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that
which is expected of a good father of a family
shall be required.
In the present case, it is clear that the petitioners, in carrying out
their contractual obligations, failed to exercise the requisite
diligence in the placement of the markings for the concrete
perimeter fence that was later constructed. The placement of the
markings had been done solely by petitioner Frank Batal who is not
a geodetic engineer. It was later discovered that it was not he but his
wife, petitioner Erlinda Batal, who is the licensed geodetic engineer
and who is, therefore, the one qualified to do the work. Petitioner
Frank Batal's installation of the concrete cyclone monuments had
been done without the adequate supervision of his wife, Erlinda. As
a result, the placement of the monuments did not accurately reflect
the dimensions of the lot. The respondents, upon assurance given by
petitioner Frank Batal that they could proceed with the construction
of the perimeter fence by relying on the purported accuracy of the
placement of the monuments, erected their fence which turned out
to encroach on an adjacent easement. Because of the encroachment,
the respondents had to demolish and reconstruct the fence and, thus,
suffered damages.
The Court affirms and adopts the findings of the CA, to wit:
Records show that the services of the [petitioners]
Frank and Erlinda were initially contracted to
segregate Luz and Kenichiro's property from its
adjoining lots. When the [respondent] spouses
Luz and Kenichiro planned to fence the
segregated lot, they again commissioned
[petitioners] Frank and Erlinda to conduct a
3
resurvey in order to determine the precise
boundaries of their property upon which they will
base the construction of their fence. It was also
shown that in the course of the resurvey, Frank
caused the installation of monuments of title on
the four (4) corners of Luz and Kenichiro's
property and that he instructed them to just follow
the same in building their fence.
[Petitioners] Frank and Erlinda cannot thus
validly claim that the error in the construction of
the northern portion of the fence was due to the
spouses Luz and Kenichiro's act of building the
same without their consent. This is considering
that the former led the latter to believe the
purported accuracy of the resurvey and exactness
of the lot's boundaries based on the monuments of
title which they installed.
It has been ruled that "[A] party, having
performed affirmative acts upon which another
person based his subsequent actions, cannot
thereafter refute his acts or renege on the effects
of the same, to the prejudice of the latter."
(Pureza v. Court of Appeals, 290 SCRA 110)
The foregoing clearly supports the findings of the
RTC that the spouses Batal committed a mistake
in the conduct of their business that led to the
encroachment of plaintiffs-appellees' fence on the
adjoining alley-lot. As a result, the northern
portion ha[d] to be torn down and rebuilt in order
to correct the error in its original construction.
The defendants-appellants cannot be excused
from the effects of their actions in the survey of
plaintiffs-appellees' lot.
We therefore concur with the findings of the RTC
holding defendants-appellants liable for damages
in the case at bar. "Findings of fact made by the
trial court is entitled to great weight and respect."
(Lopez v. Court of Appeals, 322 SCRA 686)15
Being guilty of a breach of their contract, petitioners are liable for
damages suffered by the respondents in accordance with Articles
1170 and 2201 of the Civil Code,16 which state:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay and those who in any manner contravene
the tenor thereof are liable for damages
Art. 2201. In contracts and quasi-contracts, the
damages for which the obligor who acted in good
faith is liable shall be those that are the natural
and probable consequences of the breach of the
obligation, and which the parties have foreseen or
could have reasonably foreseen at the time the
obligation was constituted.

In case of fraud, bad faith, malice or wanton
attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to
the non-performance of the obligation.
Thus, the Court agrees with the CA's affirmance of the findings of
the RTC on the matter of damages, to wit:
Going now to the claims for damages, Engr.
Arnold Martin testified on his computation and
estimate (Exhibits "G" and "G-1) that the total
cost for the demolition and reconstruction of the
perimeter fence in question would be in the total
amount of P428,163.90, and this was not at all
disputed by the defendants, whose counsel waived
cross-examination. This estimate is practically
double the amount of the cost of constructing said
fence as testified to by plaintiff Luz San Pedro as
she was told that it is much costlier to demolish
and reconstruct a fence than to simply erect one
because of the added expense involved in tearing
it down and hauling its debris. On the other hand,
said plaintiff stated that the iron decorative grills
of the fence, which is re-usable, cost her
P50,000.00, and it is only proper to deduct said
amount from the total cost of reconstructing the
fence in question. At the same time, some figures
in the said estimate appear to be quite excessive,
such as the estimated cost for demolition which
was quoted at P25,000.00 in addition to the
amount of excavation priced at P30,000.00 and
the cost of hauling of scrap materials at
P10,000.00. The court believes that the sum of
P300,000.00 for the demolition and reconstruction
of the fence in question would be reasonable
considering that the original cost for its
construction was only about P200,000.00, and
considering further that its iron grills are re-
usable.
The plaintiffs are likewise entitled to recover
attorney's fees considering that they were
compelled by the defendants to resort to court
action in order to protect their rights and interest,
as defendants, particularly defendant Frank Batal,
failed and refused repeatedly to even attend the
confrontation of conciliation meetings arranged
between him and the plaintiffs by the barangay
authorities concerned, and to honor his promise to
help in shouldering the cost of reconstructing the
fence in question.
On the other hand, there is no legal or factual
bases for the claim of the plaintiffs for moral or
exemplary damages as there was no showing at
all that defendants acted with malice or in bad
faith.
In a long line of cases, we have
consistently ruled that in the absence of a
4
wrongful act or omission or of fraud or
bad faith, moral damages cannot be
awarded. (R & B Surety Insurance Co. v.
Intermediate Court of Appeals, 129
SCRA 736; Guita v. Court of Appeals,
139 SCRA 576).17
WHEREFORE, the instant petition is DENIED and the assailed
Decision and Resolution of the Court of Appeals are AFFIRMED.
Costs against petitioners.
SO ORDERED.
Panganiban, C.J., Chairperson, Ynares-Santiago, Callejo, Sr.,
Chico-Nazario, J.J., concur.
Footnotes
1
Penned by Associate Justice Elvi John S.
Asuncion, with Associate Justices Mercedes
Gozo-Dadole (now retired) and Lucas P.
Bersamin, concurring.
8
Food Terminal, Inc. v. Court of Appeals, 330
Phil. 903, 906 (1996).
9
Food Terminal, Inc. v. Court of Appeals, id. at
906; Nazareno v. Court of Appeals, 397 Phil. 707,
724-725 (2000); Liberty Construction &
Development Co. v. Court of Appeals, 327 Phil.
490, 495 (1996); Philippine Airlines, Inc. v. Court
of Appeals, 326 Phil. 823, 835 (1996); Tay Chun
Suy v. Court of Appeals, G.R. No. 93640, January
7, 1994, 229 SCRA 151, 156.
10
See Heirs of Dicman v. Cariño, G.R. No.
146459, June 8, 2006.
11
Liberty Construction & Development Co. v.
Court of Appeals, supra note 9, at 495; Philippine
Airlines, Inc. v. Court of Appeals, id. at 835.
12
Nazareno v. Court of Appeals, supra at 725.
G.R. No. 96505

9-12 minutes
LEGASPI OIL CO., INC., petitioner,
vs.
THE COURT OF APPEALS and BERNARD
OSERAOS, respondent.
Duran, Lanuzo & Associates for petitioner.
Leovigildo Mijares III for private respondent.
MELO, J.:
The petition for review on certiorari before us seeks to set aside the
decision dated March 23, 1990 of the Court of Appeals in CA-G.R.
CV No. 05828, penned by the Honorable Justice Abelardo Dayrit
with whom Justices Javellana and Kalalo concurred, which
dismissed petitioner's complaint for damages (p. 48, Rollo).
Petitioner does not dispute the facts of the case, as found by
respondent Court of Appeals. The findings of the respondent Court
are thus adopted, to wit:
From the evidence presented by the plaintiff-
appellee [now petitioner Legaspi Oil Company,
Inc.], it appears that defendant-appellant [now
private respondent Bernard Oseraos] acting
through his authorized agents, had several
transactions with appellee Legaspi Oil Co. for the
sale of copra to the latter. The price at which
appellant sells the copra varies from time to time,
depending on the prevailing market price when
the contract is entered into. One of his authorized
agents, Jose Llover, had previous transactions
with appellee for the sale and delivery of copra.
The records show that he concluded a sale for 70
tons of copra at P95.00 per 100 kilos on May 27,
1975 (Exhibit G-5) and another sale for 30 tons of
P102.00 per 100 kilos on September 23, 1975
(Exhibit G-3). Subsequently, on November 6,
1975, another designated agent signed a contract
in behalf of appellant for the sale of 100 tons of
copra at P79.00 per 100 kilos with the delivery
terms of 25 days effective December 15, 1975
(Exhibit G-2). At this point, it must be noted that
the price of copra had been fluctuating (going up
and down), indicating its unsteady position in the
market.
On February 16, 1976, appellant's agent Jose
Llover signed contract No. 3804 for the sale of
100 tons of copra at P82.00 per 100 kilos with
delivery terms of 20 days effective March 8, 1976
(Exhibit G, for the plaintiff). As compared to
appellant's transaction on November 6, 1975, the
current price agreed upon is slightly higher than
the last contract. In all these contracts though, the
5
selling price had always been stated as "total
price" rather than per 100 kilos. However, the
parties had understood the same to be per 100
kilos in their previous transactions.
After the period to deliver had lapsed, appellant
sold only 46,334 kilos of copra thus leaving a
balance of 53,666 kilos as per running account
card (Exhibit "F"). Accordingly, demands were
made upon appellant to deliver the balance with a
final warning embodied in a letter dated October
6, 1976, that failure to deliver will mean
cancellation of the contract, the balance to be
purchased at open market and the price
differential to be charged against appellant. On
October 22, 1976, since there was still no
compliance, appellee exercised its option under
the contract and 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 appellant.
(pp. 43-44, Rollo)
On November 3, 1976, petitioner filed a complaint against private
respondent for breach of a contract and for damages.
After trial, the then Court of First Instance (now Regional Trial
Court) of Albay in Civil Case No. 5529 rendered a decision holding
herein private respondent (then defendant) Oseraos liable for
damages in the amount of P48,152.76, attorney's fees (P2,000), and
litigation costs.
Oseraos appealed to respondent Court which thereafter rendered a
reversal decision on March 23, 1990, ordering the dismissal of the
complaint.
Hence, the instant petition for review on certiorari.
The sole issued posed by the petition is whether or not private
respondent Oseraos is liable for damages arising from fraud or bad
faith in deliberately breaching the contract of sale entered into by
the parties.
After a review of the case, we believe and thus hold, that private
respondent is guilty of fraud in the performance of his obligation
under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from
March 8, 1976. However within the delivery period, Oseraos
delivered only 46,334 kilograms of copra to petitioner, leaving an
undelivered balance of 53,666 kilograms. Petitioner made repeated
demands upon private respondent to comply with his contractual
undertaking to deliver the balance of 53,666 kilograms but private
respondent elected to ignore the same. In a letter dated October 6,
1976, petitioner made a final demand with a warning that, should
private respondent fail to complete delivery of the balance of 53,666
kilograms of copra, petitioner would purchase the balance at the
open market and charge the price differential to private respondent.
Still private respondent failed to fulfill his contractual obligation to
 6

deliver the remaining 53,666 kilograms of copra. On October 22,
1976, since there was still no compliance by private respondent,
petitioner exercised its right under the contract and purchased
53,666 kilograms of copra, the undelivered balance, at the open
market at the then prevailing price of P168.00 per 100 kilograms, a
price differential of P86.00 per 100 kilograms or a total price
differential of P46,152.76.
Under the foregoing undisputed circumstances, 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 wilfull
omission, knowing and intending the effects which naturally and
necessarily arise from such act or omission; the fraud referred to in
Article 1170 of the Civil Code of the Philippines is the deliberate
and intentional evasion of the normal fulfillment of obligation; it is
distinguished from negligence by the presence of deliberate intent,
which is lacking in the latter (Tolentino's Civil Code of the
Philippines, Vol. IV, p. 110). The conduct of private respondent
clearly manifests his deliberate fraudulent intent to evade his
contractual obligation for the price of copra had in the meantime
more than doubled from P82.00 to P168 per 100 kilograms. Under
Article 1170 of the Civil Code of the Philippines, 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.
The next point of inquiry, therefore, is the amount of damages
which private respondent is liable to pay petitioner. As
aforementioned, on account of private respondent's deliberate
breach of his contractual obligation, petitioner was compelled to
buy the balance of 53,666 kilos of copra in the open market at the
then prevailing price of P168 per 100 kilograms thereby paying
P46,152.76 more than he would have paid had private respondent
completed delivery of the copra as agreed upon. Thus, private
respondent is liable to pay respondent the amount of P46,152.76 as
damages. In case of fraud, bad faith, malice, or wanton attitude, the
guilty party is liable for all damages which may be reasonably
attributed to the non performance of the obligation (Magat vs.
Medialdea, 121 SCRA 418 [1983]). Article 1101 of the old Civil
Code, later to be reproduced as Article 1170 of our present Civil
Code, was the basis of our decision in an old case, Acme Films, Inc.
vs. Theaters Supply Corporation, (63 Phil, 657 [1936]), wherein we
held:
printing of programs, posters paraded through the
streets with bands of music to announce the
showing of the films which the plaintiff company
failed to supply, amount to from P400 to P550.
The plaintiff company did not submit evidence to
rebut the testimony of said witness and the fact
that the estimate of the expenses is approximate
does not make said estimate inadmissible. It was
incumbent upon the plaintiff company to submit
evidence in rebuttal, or at least ascertain the
amount of the different items in cross-
examination. There being no evidence to the
contrary, it is logical to admit that the defendant
company spent at least the sum of P400.
Inasmuch as the plaintiff company had failed to
comply with a part of its booking contract, and as
the defendant company had suffered damages as a
result thereof, the former is liable to indemnify
the damages caused to the latter, in accordance
with the provisions of Article 1101 of the Civil
Code.
(at page 663.)
WHEREFORE, the instant petition is hereby GRANTED. The
decision of the respondent Court of Appeals in CA-G.R. CV No.
05828 is ANNULLED and SET ASIDE and the decision of the trial
court in Civil Case No. 5529 REINSTATED, with costs against
private respondent.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur

It is not denied that the plaintiff company failed to

supply the defendant with the cinematographic
films which were the subject matter of the
contracts entered into on March 20, 1934
(Exhibits 1 and 2), and two films under the
contract of March 24, 1934 (Exhibit 3), one of
said films being a serial entitled "Whispering
Shadow". Guillermo Garcia Bosque testified that
because the plaintiff company had failed to supply
said films, the defendants had to resort to the
Universal Pictures Corporation and ask for films
to replace those which said plaintiff had failed to
supply under the contract, having had to pay
therefor five per cent more than for those films
contracted with said plaintiff Acme Films, Inc.,
and that the total cost thereof, including the

G.R. No. 171428
THIRD DIVISION
G.R. No. 171428               November 11, 2013
ALEJANDRO V. TANKEH, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES,
STERLING SHIPPING LINES, INC., RUPERTO V.
TANKEH, VICENTE ARENAS, and ASSET
PRIVATIZATION TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed
October 25, 2005 Decision and the February 9, 2006 Resolution of
the Court of Appeals1 be reversed, and that the January 4, 1996
Decision of the Regional Trial Court of Manila Branch 32 be
affirmed. Petitioner prays that this Court grant his claims for moral
damages and attorney’s fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping
Lines, Inc. It was incorporated on April 23, 1979 to operate ocean-
going vessels engaged primarily in foreign trade.2 Ruperto V.
Tankeh applied for a $3.5 million loan from public respondent
Development Bank of the Philippines for the partial financing of an
ocean-going vessel named the M/V Golden Lilac. To authorize the
loan, Development Bank of the Philippines required that the
following conditions be met:
1) A first mortgage must be obtained over the vessel, which by then
had been renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose
Marie Vargas, as well as respondents Sterling Shipping Lines, Inc.
and Vicente Arenas should become liable jointly and severally for
the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds
of Charter and Shipping Contracts, should be assigned to
Development Bank of the Philippines; and
4) Development Bank of the Philippines should be assigned no less
than 67% of the total subscribed and outstanding voting shares of
the company. The percentage of shares assigned should be
maintained at all times, and the assignment was to subsist as long as
the assignee, Development Bank of the Philippines, deemed it
necessary during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V.
Tankeh approached him sometime in 1980.4 Ruperto informed
petitioner that he was operating a new shipping line business.
Petitioner claimed that respondent, who is also petitioner’s younger
7
brother, had told him that petitioner would be given one thousand
(1,000) shares to be a director of the business. The shares were
worth ₱1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of
Stock with Voting Rights.6 Petitioner then signed the May 12, 1981
promissory note in December 1981. He was the last to sign this note
as far as the other signatories were concerned.7 The loan was
approved by respondent Development Bank of the Philippines on
March 18, 1981. The vessel was acquired on September 29, 1981
for $5.3 million.8 On December 3, 1981, respondent corporation
Sterling Shipping Lines, Inc. through respondent Ruperto V.
Tankeh executed a Deed of Assignment in favor of Development
Bank of the Philippines. The deed stated that the assignor, Sterling
Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE
(DBP), its successors and assigns, future earnings of the mortgaged
M/V "Sterling Ace," including proceeds of charter and shipping
contracts, it being understood that this assignment shall continue to
subsist for as long as the ASSIGNOR’S obligation with the herein
ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V.
Tankeh saying that he was severing all ties and terminating his
involvement with Sterling Shipping Lines, Inc.10 He required that
its board of directors pass a resolution releasing him from all
liabilities, particularly the loan contract with Development Bank of
the Philippines. In addition, petitioner asked that the private
respondents notify Development Bank of the Philippines that he had
severed his ties with Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the
Development Bank of the Philippines were transferred to public
respondent Asset Privatization Trust on June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the
Privatization and Management Office. Asset Privatization Trust was
a government agency created through Presidential Proclamation No.
50, issued in 1986. Through Administrative Order No. 14, issued by
former President Corazon Aquino dated February 3, 1987, assets
including loans in favor of Development Bank of the Philippines
were ordered to be transferred to the national government. In turn,
the management and facilitation of these assets were delegated to
Asset Privatization Trust, pursuant to Presidential Proclamation No.
50. In 1999, Republic Act No. 8758 was signed into law, and it
provided that the corporate term of Asset Privatization Trust would
end on December 31, 2000. The same law empowered the President
of the Philippines to determine which office would facilitate the
management of assets held by Asset Privatization Trust. Thus, on
December 6, 2000, former President Joseph E. Estrada signed
Executive Order No. 323, creating the Privatization Management
Office. Its present function is to identify disposable assets, monitor
the progress of privatization activities, and approve the sale or
divestment of assets with respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore
for $350,000.00 by Development Bank of the Philippines’ legal
counsel Atty. Prospero N. Nograles. When petitioner came to know
of the sale, he wrote respondent Development Bank of the

Philippines to express that the final price was inadequate, and
therefore, the transaction was irregular. At this time, petitioner was
still bound as a debtor because of the promissory note dated May
12, 1981, which petitioner signed in December of 1981. The
promissory note subsisted despite Sterling Shipping Lines, Inc.’s
assignment of all future earnings of the mortgaged M/V Sterling
Ace to Development Bank of the Philippines. The loan also
continued to bind petitioner despite Sterling Shipping Lines, Inc.’s
cash equity contribution of ₱13,663,200.00 which was used to cover
part of the acquisition cost of the vessel, pre-operating expenses,
and initial working capital.14
Petitioner filed several Complaints15 against respondents, praying
that the promissory note be declared null and void and that he be
absolved from any liability from the mortgage of the vessel and the
note in question.
In the Complaints, petitioner alleged that respondent Ruperto V.
Tankeh, together with Vicente L. Arenas, Jr. and Jose Maria
Vargas, had exercised deceit and fraud in causing petitioner to bind
himself jointly and severally to pay respondent Development Bank
of the Philippines the amount of the mortgage loan.16 Although he
had been made a stockholder and director of the respondent
corporation Sterling Shipping Lines, Inc., petitioner alleged that he
had never invested any amount in the corporation and that he had
never been an actual member of the board of directors.17 He
alleged that all the money he had supposedly invested was provided
by respondent Ruperto V. Tankeh.18 He claimed that he only
attended one meeting of the board. In that meeting, he was
introduced to two directors representing Development Bank of the
Philippines, namely, Mr. Jesus Macalinag and Mr. Gil Corpus.
Other than that, he had never been notified of another meeting of
the board of directors.
Petitioner further claimed that he had been excluded deliberately
from participating in the affairs of the corporation and had never
been compensated by Sterling Shipping Lines, Inc. as a director and
stockholder.19 According to petitioner, when Sterling Shipping
Lines, Inc. was organized, respondent Ruperto V. Tankeh had
promised him that he would become part of the administration staff
and oversee company operations. Respondent Ruperto V. Tankeh
had also promised petitioner that the latter’s son would be given a
position in the company.20 However, after being designated as vice
president, petitioner had not been made an officer and had been
alienated from taking part in the respondent corporation.21
Petitioner also alleged that respondent Development Bank of the
Philippines had been inexcusably negligent in the performance of its
duties.22 He alleged that Development Bank of the Philippines
must have been fully aware of Sterling Shipping Lines, Inc.’s
financial situation. Petitioner claimed that Sterling Shipping Lines,
Inc. was controlled by the Development Bank of the Philippines
because 67% of voting shares had been assigned to the latter.23
Furthermore, the mortgage contracts had mandated that Sterling
Shipping Lines, Inc. "shall furnish the DBP with copies of the
minutes of each meeting of the Board of Directors within one week
after the meeting. Sterling Shipping Lines Inc. shall likewise furnish
DBP its annual audited financial statements and other information
or data that may be needed by DBP as its accommodations [sic]
with DBP are outstanding."24 Petitioner further alleged that the
Development Bank of the Philippines had allowed "highly
8
questionable acts"25 to take place, including the gross undervaluing
of the M/V Sterling Aces.26 Petitioner alleged that one day after
Development Bank of the Philippines’ Atty. Nograles sold the
vessel, the ship was re-sold by its buyer for double the amount that
the ship had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that
since Arenas had been the treasurer of Sterling Shipping Lines, Inc.
and later on had served as its vice president, he was also responsible
for the financial situation of Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner
impleaded respondent Asset Privatization Trust for being the agent
and assignee of the M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the
following defenses against petitioner: Respondent Development
Bank of the Philippines categorically denied receiving any amount
from Sterling Shipping Lines, Inc.’s future earnings and from the
proceeds of the shipping contracts. It maintained that equity
contributions could not be deducted from the outstanding loan
obligation that stood at ₱245.86 million as of December 31, 1986.
Development Bank of the Philippines also maintained that it is
immaterial to the case whether the petitioner is a "real stockholder"
or merely a "pseudo-stockholder" of the corporation.29 By affixing
his signature to the loan agreement, he was liable for the obligation.
According to Development Bank of the Philippines, he was in pari
delicto and could not be discharged from his obligation.
Furthermore, petitioner had no cause of action against Development
Bank of the Philippines since this was a case between family
members, and earnest efforts toward compromise should have been
complied with in accordance with Article 222 of the Civil Code of
the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily
signed the promissory note in favor of Development Bank of the
Philippines and with full knowledge of the consequences.
Respondent Tankeh also alleged that he did not employ any fraud or
deceit to secure petitioner’s involvement in the company, and
petitioner had been fully aware of company operations. Also, all
that petitioner had to do to avoid liability had been to sell his
shareholdings in the company.31
Respondent Asset Privatization Trust raised that petitioner had no
cause of action against them since Asset Privatization Trust had
been mandated under Proclamation No. 50 to take title to and
provisionally manage and dispose the assets identified for
privatization or deposition within the shortest possible period.
Development Bank of the Philippines had transferred and conveyed
all its rights, titles, and interests in favor of the national government
in accordance with Administrative Order No. 14. In line with that,
Asset Privatization Trust was constituted as trustee of the assets
transferred to the national government to effect privatization of
these assets, including respondent Sterling Shipping Lines, Inc.32
Respondent Asset Privatization Trust also filed a compulsory
counterclaim against petitioner and its co-respondents Sterling
Shipping Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr.
for the amount of ₱264,386,713.84.

Respondent Arenas did not file an Answer to any of the Complaints
of petitioner but filed a Motion to Dismiss that the Regional Trial
Court denied. Respondent Asset Privatization Trust filed a Cross
Claim against Arenas. In his Answer33 to Asset Privatization
Trust’s Cross Claim, Arenas claimed that he had been released from
any further obligation to Development Bank of the Philippines and
its successor Asset Privatization Trust because an extension had
been granted by the Development Bank of the Philippines to the
debtors of Sterling Shipping Lines, Inc. and/or Ruperto V. Tankeh,
which had been secured without Arenas’ consent.
The trial proceeded with the petitioner serving as a sole witness for
his case. In a January 4, 1996 Decision,34 the Regional Trial Court
ruled:
Here, we find –
1. Plaintiff being promised by his younger brother, Ruperto V.
Tankeh, 1,000 shares with par value of ₱1 Million with all the perks
and privileges of being stockholder and director of SSLI, a new
international shipping line;
2. That plaintiff will be part of the administration and operation of
the business, so with his son who is with the law firm Romulo
Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real
McCoy or the primordial end of congregating the incorporators
proposed - - that he sign the promissory note (Exhibit "C"), the
mortgage contract (Exhibit "A"), and deed of assignment so SSLI
could get the US $3.5 M loan from DBP to partially finance the
importation of vessel M.V. "Golden Lilac" renamed M.V. "Sterling
ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-
President in 1979 but he was never notified of any meeting of the
Board except only once, and only to be introduced to the two (2)
directors representing no less than 67% of the total subscribed and
outstanding voting shares of the company. Thereafter, he was
excluded from any board meeting, shorn of his powers and duties as
director or Vice-President, and was altogether deliberately
demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their
incorporators, one of their Directors and their paper Vice-President
in 1979 by preventing him access to corporate books, to corporate
earnings, or losses, and to any compensation or remuneration
whatsoever? Whose President and Treasurer did not submit the
required SEC yearly report? Who did not remit to DBP the proceeds
on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was
then diverted to Singapore to be disposed on negotiated sale, and
not by public bidding contrary to COA Circular No. 86-264 and
without COA’s approval. Sterling Ace was seaworthy but was sold
as scrap in Singapore. No foreclosure with public bidding was made
in contravention of the Promissory Note to recover any deficiency
should DBP seeks [sic] to recover it on the outstanding mortgage
loan. Moreover the sale was done after the account and asset (nay,
9
now only a liability) were transferred to APT. No approval of SSLI
Board of Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V. Tankeh,
dated June 15, 1983 (Exhibit "D") his letter thru his lawyer to DBP
(Exhibit "J") and another letter to it (Exhibit "K") show no estoppel
on his part as he consistently and continuously assailed the several
injurious acts of defendants while assailing the Promissory Note
itself x x x (Citations omitted) applying the maxim: Rencintiatio
non praesumitur. By this Dr. Tankeh never waived the right to
question the Promissory Note contract terms. He did not ratify, by
concurring acts, express or tacit, after the reasons had surfaced
entitling him to render the contract voidable, defendants’ acts in
implementing or not the conditions of the mortgage, the promissory
note, the deed of assignment, the lack of audit and accounting, and
the negotiated sale of MV Sterling Ace. He did not ratify defendants
[sic] defective acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the
fraud committed by plaintiff’s brother before the several documents
were signed (SEC documents, Promissory Note, Mortgage (MC)
Contract, assignment (DA)), namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the
latter of his new shipping business. The project was good business
proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth ₱1 Million
and he’s going to be a Director.
3. He tells his brother that he will be part of the company’s
Administration and Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one
for the business, and they therefore need a loan, and they could
secure a loan from DBP with the vessel brought to have a first
mortgage with DBP but anyway the other two directors and
comptroller will be from DBP with a 67% SSLI shares voting
rights.
Without these insidious, devastating and alluring words, without the
machinations used by defendant Ruperto V. Tankeh upon the
doctor, without the inducement and promise of ownership of shares
and the exercise of administrative and operating functions, and the
partial financing by one of the best financial institutions, the DBP,
plaintiff would not have agreed to join his brother; and the
safeguarding of the Bank’s interest by its nominated two (2)
directors in the Board added to his agreeing to the new shipping
business. His consent was vitiated by the fraud before the several
contracts were consummated.
This alone convenes [sic] this Court to annul the Promissory Note
as it relates to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19,
NCC, provides him the way as it requires every person, in the
exercise of his rights and performance of his duties, to act with
justice, give everyone his due, and observe honesty and good faith
(Velayo vs. Shell Co. of the Phils., G.R. L-7817, October 31, 1956).
Not to release him from the clutch of the Promissory Note when he

was never made a part of the operation of the SSLI, when he was
not notified of the Board Meetings, when the corporation nary
remitted earnings of M/V Sterling Ace from charter or shipping
contracts to DBP, when the SSLI did not comply with the deed of
assignment and mortgage contract, and when the vessel was sold in
Singapore (he, learning of the sale only from the newspapers) in
contravention of the Promissory Note, and which he questioned,
will be an injustice, inequitable, and even iniquitous to plaintiff.
SSLI and the private defendants did not observe honesty and good
faith to one of their incorporators and directors. As to DBP, the
Court cannot put demerits on what plaintiff’s memorandum has
pointed out:
While defendant DBP did not exercise the caution and prudence in
the discharge of their functions to protect its interest as expected of
them and worst, allowed the perpetuation of the illegal acts
committed in contrast to the virtues they publicly profess, namely:
"palabra de honor, delicadeza, katapatan, kaayusan, pagkamasinop
at kagalingan" Where is the vision banking they have for our
country?
Had DBP listened to a cry in the wilderness – that of the voice of
the doctor – the doctor would not have allowed the officers and
board members to defraud DBP and he would demand of them to
hew and align themselves to the deed of assignment.
Prescinding from the above, plaintiff’s consent to be with SSLI was
vitiated by fraud. The fact that defendant Ruperto Tankeh has not
questioned his liability to DBP or that Jose Maria Vargas has been
declared in default do not detract from the fact that there was
attendant fraud and that there was continuing fraud insofar as
plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang
sense of righteous indignation and fairness, tatahimik na lang siya,
sira naman ang pinangangalagaan niyang pangalan, honor and
family prestige [sic] (Emphasis provided).35
xxxx
All of the defendants’ counterclaims and cross-claims x x x
including plaintiff’s and the other defendants’ prayer for damages
are not, for the moment, sourced and proven by substantial
evidence, and must perforce be denied and dismissed.
WHEREFORE, this Court, finding and declaring the Promissory
Note (Exhibit "C") and the Mortgage Contract (Exhibit "A") null
and void insofar as plaintiff DR. ALEJANDRO V. TANKEH is
concerned, hereby ANNULS and VOIDS those documents as to
plaintiff, and it is hereby further ordered that he be released from
any obligation or liability arising therefrom.
All the defendants’ counterclaims and cross-claims and plaintiff’s
and defendants’ prayer for damages are hereby denied and
dismissed, without prejudice.
SO ORDERED.36
10
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and
Arenas immediately filed their respective Notices of Appeal with
the Regional Trial Court. The petitioner filed a Motion for
Reconsideration with regard to the denial of his prayer for damages.
After this Motion had been denied, he then filed his own Notice of
Appeal.
In a Decision37 promulgated on October 25, 2005, the Third
Division of the Court of Appeals reversed the trial court’s findings.
The Court of Appeals held that petitioner had no cause of action
against public respondent Asset Privatization Trust. This was based
on the Court of Appeals’ assessment of the case records and its
findings that Asset Privatization Trust did not commit any act
violative of the right of petitioner or constituting a breach of Asset
Privatization Trust’s obligations to petitioner. The Court of Appeals
found that petitioner’s claim for damages against Asset
Privatization Trust was based merely on his own self-serving
allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second and
third amendments, the plaintiff imputes fraud only to defendant
Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by
Ruperto V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr.
and Jose Maria Vargas signed a promissory note in favor of the
defendant, DBP, wherein plaintiff bound himself to jointly and
severally pay the DBP the amount of the mortgage loan. This
document insofar as plaintiff is concerned is a simulated document
considering that plaintiff was never a real stockholder of Sterling
Shipping Lines, Inc. (Emphasis provided)
More allegations of deceit were added in the Second Amended
Complaint, but they are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH
IS SHOWN BY THE FACT THAT when the Sterling Shipping
Lines, Inc. was organized in 1980, Ruperto V. Tankeh promised
plaintiff that he would be a part of the administration staff so that he
could oversee the operation of the company. He was also promised
that his son, a lawyer, would be given a position in the company.
None of these promsies [sic] was complied with. In fact he was not
even allowed to find out the data about the income and expenses of
the company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO
SHOWN BY THE FACT THAT PLAINTIFF WAS INVITED TO
ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE
SOLE PURPOSE OF INTRODUCING HIM TO THE TWO
DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS
MACALINAG AND MR. GIL CORPUS. THEREAFTER HE
WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC.

FOR HIS BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
xxxx
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER
PLAINTIFF MADE EARNEST EFFORTS TOWARDS A
COMPROMISE BETWEEN HIM AND HIS BROTHER
RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED
BY RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS
OF THE SALE OF THE ‘STERLING ACE’ WAS PUBLISHED
AT THE NEWSPAPER, PLAINTIFF TRIED ALL EFFORTS TO
CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS WITH
THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL
ASSISTANCE FROM HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the
other defendants, namely, the DBP, Vicente Arenas, Sterling
Shipping Lines, Inc., and the Asset Privatization Trust, the
plaintiff’s evidence thereon should only be against Ruperto, since a
plaintiff is bound to prove only the allegations of his complaint. In
any case, no evidence of fraud or deceit was ever presented against
defendants DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the
testimony of the plaintiff. None of his documentary evidence would
prove that Ruperto was guilty of fraud or deceit in causing him to
sign the subject promissory note.39
xxxx
Analyzing closely the foregoing statements, we find no evidence of
fraud or deceit. The mention of a new shipping lines business and
the promise of a free 1,000-share and directorship in the corporation
do not amount to insidious words or machinations. In any case, the
shipping business was indeed established, with the plaintiff himself
as one of the incorporators and stockholders with a share of 4,000,
worth ₱4,000,000.00 of which ₱1,000,000.00 was reportedly paid
up. As such, he signed the Articles of Incorporation and the
corporation’s By-Laws which were registered with the Securities
and Exchange Commission in April 1979. It was not until May 12,
1981 that he signed the questioned promissory note. From his own
declaration at the witness stand, the plaintiff signed the promissory
note voluntarily. No pressure, force or intimidation was made to
bear upon him. In fact, according to him, only a messenger brought
the paper to him for signature. The promised shares of stock were
given and recorded in the plaintiff’s name. He was made a director
and Vice-President of SSLI. Apparently, only the promise that his
son would be given a position in the company remained unfulfilled.
However, the same should have been threshed out between the
plaintiff and his brother, defendant Ruperto, and its non-fulfillment
did not amount to fraud or deceit, but was only an unfulfilled
promise.
It should be pointed out that the plaintiff is a doctor of medicine and
a seasoned businessman. It cannot be said that he did not understand
the import of the documents he signed. Certainly he knew what he
was signing. He should have known that being an officer of SSLI,
11
his signing of the promissory note together with the other officers of
the corporation was expected, as the other officers also did. It
cannot therefore be said that the promissory note was simulated.
The same is a contract validly entered into, which the parties are
obliged to comply with.40 (Citations omitted)
The Court of Appeals ruled that in the absence of any competent
proof, Ruperto V. Tankeh did not commit any fraud. Petitioner
Alejandro V. Tankeh was unable to prove by a preponderance of
evidence that fraud or deceit had been employed by Ruperto to
make him sign the promissory note. The Court of Appeals reasoned
that:
Fraud is never presumed but must be proved by clear and
convincing evidence, mere preponderance of evidence not even
being adequate. Contentions must be proved by competent evidence
and reliance must be had on the strength of the party’s evidence and
not upon the weakness of the opponent’s defense. The plaintiff
clearly failed to discharge such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment
and ordered that plaintiff’s Complaint be dismissed. Petitioner filed
a Motion for Reconsideration dated October 25, 2005 that was
denied in a Resolution42 promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of
Appeals seriously erred and gravely abused its discretion in acting
and deciding as if the evidence stated in the Decision of the
Regional Trial Court did not exist. He averred that the ruling of lack
of cause of action had no leg to stand on, and the Court of Appeals
had unreasonably, whimsically, and capriciously ignored the ample
evidence on record proving the fraud and deceit perpetrated on the
petitioner by the respondent. He stated that the appellate court failed
to appreciate the findings of fact of the lower court, which are
generally binding on appellate courts. He also maintained that he is
entitled to damages and attorney's fees due to the deceit and
machinations committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that
petitioner had chosen the wrong remedy. He ought to have filed a
special civil action of certiorari and not a Petition for Review.
Petitioner raised questions of fact, and not questions of law, and this
required the review or evaluation of evidence. However, this is not
the function of this Court, as it is not a trier of facts. He also
contended that petitioner had voluntarily entered into the loan
agreement and the position with Sterling Shipping Lines, Inc. and
that he did not fraudulently induce the petitioner to enter into the
contract.
Respondents Development Bank of the Philippines and Asset
Privatization Trust also contended that petitioner's mode of appeal
had been wrong, and he had actually sought a special civil action of
certiorari. This alone merited its dismissal.
The main issue in this case is whether the Court of Appeals erred in
finding that respondent Rupert V. Tankeh did not commit fraud
against the petitioner.

The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to
address a procedural issue raised by respondents. Collectively,
respondents argue that the Petition is actually one of certiorari under
Rule 65 of the Rules of Court43 and not a Petition for Review on
Certiorari under Rule 45.44 Thus, petitioner’s failure to show that
there was neither appeal nor any other plain, speedy or adequate
remedy merited the dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy contemplated by
petitioner is clearly that of a Rule 45 Petition for Review. In Tagle
v. Equitable PCI Bank,45 this Court made the distinction between a
Rule 45 Petition for Review on Certiorari and a Rule 65 Petition for
Certiorari:
Certiorari is a remedy designed for the correction of errors of
jurisdiction, not errors of judgment.1âwphi1 In Pure Foods
Corporation v. NLRC, we explained the simple reason for the rule
in this light: When a court exercises its jurisdiction, an error
committed while so engaged does not deprive it of the jurisdiction
being exercised when the error is committed x x x. Consequently,
an error of judgment that the court may commit in the exercise of its
jurisdiction is not correctable through the original civil action of
certiorari.
xxxx
Even if the findings of the court are incorrect, as long as it has
jurisdiction over the case, such correction is normally beyond the
province of certiorari. Where the error is not one of jurisdiction, but
of an error of law or fact a mistake of judgment, appeal is the
remedy.
In this case, what petitioner seeks to rectify may be construed as
errors of judgment of the Court of Appeals. These errors pertain to
the petitioner’s allegation that the appellate court failed to uphold
the findings of facts of the lower court. He does not impute any
error with respect to the Court of Appeals’ exercise of jurisdiction.
As such, this Petition is simply a continuation of the appellate
process where a case is elevated from the trial court of origin, to the
Court of Appeals, and to this Court via Rule 45.
Contrary to respondents’ arguments, the allegations of petitioner
that the Court of Appeals "committed grave abuse of discretion"46
did not ipso facto render the intended remedy that of certiorari
under Rule 65 of the Rules of Court.47
In any case, even if the Petition is one for the special civil action of
certiorari, this Court has the discretion to treat a Rule 65 Petition for
Certiorari as a Rule 45 Petition for Review on Certiorari. This is
allowed if (1) the Petition is filed within the reglementary period for
filing a Petition for review; (2) when errors of judgment are
averred; and (3) when there is sufficient reason to justify the
relaxation of the rules.48 When this Court exercises this discretion,
there is no need to comply with the requirements provided for in
Rule 65.
In this case, petitioner filed his Petition within the reglementary
period of filing a Petition for Review.49 His Petition assigns errors
12
of judgment and appreciation of facts and law on the part of the
Court of Appeals. Thus, even if the Petition was designated as one
that sought the remedy of certiorari, this Court may exercise its
discretion to treat it as a Petition for Review in the interest of
substantial justice.
We now proceed to the substantive issue, that of petitioner’s
imputation of fraud on the part of respondents. We are required by
the circumstances of this case to review our doctrines of fraud that
are alleged to be present in contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
x x x fraud when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter into a
contract which, without them, he would not have agreed to.
This is followed by the articles which provide legal examples and
illustrations of fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal
them, as when the parties are bound by confidential relations,
constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in themselves
fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on the
former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created substantial
mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent
but may constitute error. (n)
The distinction between fraud as a ground for rendering a contract
voidable or as basis for an award of damages is provided in Article
1344:
In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting
parties.
Incidental fraud only obliges the person employing it to pay
damages. (1270)
There are two types of fraud contemplated in the performance of
contracts: dolo incidente or incidental fraud and dolo causante or
fraud serious enough to render a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:

This fraud or dolo which is present or employed at the time of birth
or perfection of a contract may either be dolo causante or dolo
incidente. The first, or causal fraud referred to in Article 1338, are
those deceptions or misrepresentations of a serious character
employed by one party and without which the other party would not
have entered into the contract. Dolo incidente, or incidental fraud
which is referred to in Article 1344, are those which are not serious
in character and without which the other party would still have
entered into the contract. Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to
some particular or accident of the obligation. The effects of dolo
causante are the nullity of the contract and the indemnification of
damages, and dolo incidente also obliges the person employing it to
pay damages.51
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et
al.,52 this Court elaborated on the distinction between dolo causante
and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious
machination, manipulation, concealment or misrepresentation -- that
would lead an ordinarily prudent person into error after taking the
circumstances into account. In contracts, a fraud known as dolo
causante or causal fraud is basically a deception used by one party
prior to or simultaneous with the contract, in order to secure the
consent of the other. Needless to say, the deceit employed must be
serious. In contradistinction, only some particular or accident of the
obligation is referred to by incidental fraud or dolo incidente, or that
which is not serious in character and without which the other party
would have entered into the contract anyway.53
Under Article 1344, the fraud must be serious to annul or avoid a
contract and render it voidable. This fraud or deception must be so
material that had it not been present, the defrauded party would not
have entered into the contract. In the recent case of Spouses Carmen
S. Tongson and Jose C. Tongson, et al., v. Emergency Pawnshop
Bula, Inc.,54 this Court provided some examples of what
constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of
causal fraud include: (1) when the seller, who had no intention to
part with her property, was "tricked into believing" that what she
signed were papers pertinent to her application for the reconstitution
of her burned certificate of title, not a deed of sale; (2) when the
signature of the authorized corporate officer was forged; or (3)
when the seller was seriously ill, and died a week after signing the
deed of sale raising doubts on whether the seller could have read, or
fully understood, the contents of the documents he signed or of the
consequences of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it
follows that this type of fraud is not serious enough so as to render
the original contract voidable.
A classic example of dolo incidente is Woodhouse v. Halili.56 In
this case, the plaintiff Charles Woodhouse entered into a written
agreement with the defendant Fortunato Halili to organize a
partnership for the bottling and distribution of soft drinks. However,
the partnership did not come into fruition, and the plaintiff filed a
Complaint in order to execute the partnership. The defendant filed a
13
Counterclaim, alleging that the plaintiff had defrauded him because
the latter was not actually the owner of the franchise of a soft drink
bottling operation. Thus, defendant sought the nullification of the
contract to enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The
defendant was made to believe, and he actually believed, that
plaintiff had the exclusive franchise. x x x The record abounds with
circumstances indicative that 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. x x x The defendant was, therefore,
led to the belief that plaintiff had the exclusive franchise, but that
the same was to be secured for or transferred to the partnership. The
plaintiff no longer had the exclusive franchise, or the option thereto,
at the time the contract was perfected. But while he had already lost
his option thereto (when the contract was entered into), the principal
obligation that he assumed or undertook was to secure said
franchise for the partnership, as the bottler and distributor for the
Mission Dry Corporation. We declare, therefore, that if he 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.
But, 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 percent 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. x x x.
Plaintiff had never been a bottler or a chemist; he never had
experience in the production or distribution of beverages. As a
matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that
plaintiff had the exclusive franchise did not vitiate defendant's
consent to the contract, it was used by plaintiff to get from
defendant a share of 30 per cent of the net profits; in other words,
by pretending that he had the exclusive franchise and promising to
transfer it to defendant, he obtained the consent of the latter to give
him (plaintiff) a big slice in the net profits. This is the dolo
incidente defined in article 1270 of the Spanish Civil Code, because
it was used to get the other party's consent to a big share in the
profits, an incidental matter in the agreement.57
Thus, this Court held that the original agreement may not be
declared null and void. This Court also said that the plaintiff had
been entitled to damages because of the refusal of the defendant to
enter into the partnership. However, the plaintiff was also held
liable for damages to the defendant for the misrepresentation that
the former had the exclusive franchise to soft drink bottling
operations.
To summarize, if there is fraud in the performance of the contract,
then this fraud will give rise to damages. If the fraud did not compel
the imputing party to give his or her consent, it may not serve as the

basis to annul the contract, which exhibits dolo causante. However,
the party alleging the existence of fraud may prove the existence of
dolo incidente.
This may make the party against whom fraud is alleged liable for
damages.
Quantum of Evidence to Prove the Existence of Fraud and the
Liability of the Parties
The Civil Code, however, does not mandate the quantum of
evidence required to prove actionable fraud, either for purposes of
annulling a contract (dolo causante) or rendering a party liable for
damages (dolo incidente). The definition of fraud is different from
the quantum of evidence needed to prove the existence of fraud.
Article 1338 provides the legal definition of fraud. Articles 1339 to
1343 constitute the behavior and actions that, when in conformity
with the legal provision, may constitute fraud.
Jurisprudence has shown that in order to constitute fraud that
provides basis to annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causante or it must be fraud in
obtaining the consent of the party. Second, this fraud must be
proven by clear and convincing evidence. In Viloria v. Continental
Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he
would not have agreed to. 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. In Samson v.
Court of Appeals, causal fraud was defined as "a deception
employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other." Also, fraud must be
serious and its existence must be established by clear and
convincing evidence. (Citations omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating that
mere preponderance of evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or
machinations of one of the contracting parties, the other is induced
to enter into a contract which without them, he would not have
agreed to.
Art. 1344. In order that fraud may make a contract voidable, it
should be serious and should not have been employed by both
contracting parties.
To quote Tolentino again, the "misrepresentation constituting the
fraud must be established by full, clear, and convincing evidence,
and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to
lead an ordinarily prudent person into error; that which cannot
deceive a prudent person cannot be a ground for nullity. The
14
circumstances of each case should be considered, taking into
account the personal conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the
following must happen: First, the deceit must be serious or
sufficient to impress and lead an ordinarily prudent person to error.
If the allegedly fraudulent actions do not deceive a prudent person,
given the circumstances, the deceit here cannot be considered
sufficient basis to nullify the contract. In order for the deceit to be
considered serious, it is necessary and essential to obtain the
consent of the party imputing fraud. To determine whether a person
may be sufficiently deceived, the personal conditions and other
factual circumstances need to be considered.
Second, the standard of proof required is clear and convincing
evidence. This standard of proof is derived from American common
law. It is less than proof beyond reasonable doubt (for criminal
cases) but greater than preponderance of evidence (for civil cases).
The degree of believability is higher than that of an ordinary civil
case. Civil cases only require a preponderance of evidence to meet
the required burden of proof. However, when fraud is alleged in an
ordinary civil case involving contractual relations, an entirely
different standard of proof needs to be satisfied. The imputation of
fraud in a civil case requires the presentation of clear and
convincing evidence. Mere allegations will not suffice to sustain the
existence of fraud. The burden of evidence rests on the part of the
plaintiff or the party alleging fraud. The quantum of evidence is
such that fraud must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding
fraud to ascertain the liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo
incidente or dolo causante that must be proven by clear and
convincing evidence. It stands to reason that both dolo incidente and
dolo causante must be proven by clear and convincing evidence.
The only question is whether this fraud, when proven, may be the
basis for making a contract voidable (dolo causante), or for
awarding damages (dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly
and to assess the personal circumstances of the party alleging fraud.
This may require a review of the case facts and the evidence on
record.
In general, this Court is not a trier of facts. It makes its rulings
based on applicable law and on standing jurisprudence. The
findings of the Court of Appeals are generally binding on this Court
provided that these are supported by the evidence on record. In the
recent case of Medina v. Court of Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition
for review on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the Supreme Court
is not a trier of facts. Generally, we are not duty-bound to analyze
again and weigh the evidence introduced in and considered by the
tribunals below. When supported by substantial evidence, the
findings of fact of the Court of Appeals are conclusive and binding

on the parties and are not reviewable by this Court, unless the case
falls under any of the following recognized exceptions: (1) When
the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) When the inference made is
manifestly mistaken, absurd or impossible; (3) Where there is a
grave abuse of discretion; (4) When the judgment is based on a
misapprehension of facts; (5) When the findings of fact are
conflicting; (6) When the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) When the findings
are contrary to those of the trial court; (8) When the findings of fact
are conclusions without citation of specific evidence on which they
are based; (9) When the facts set forth in the petition as well as in
the petitioner’s main and reply briefs are not disputed by the
respondents; and (10) When the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record. (Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of
this case differently.
The Court of Appeals was not correct in saying that petitioner could
only raise fraud as a ground to annul his participation in the contract
as against respondent Rupert V. Tankeh, since the petitioner did not
make any categorical allegation that respondents Development
Bank of the Philippines, Sterling Shipping Lines, Inc., and Asset
Privatization Trust had acted fraudulently. Admittedly, it was only
in the Petition before this Court that the petitioner had made the
allegation of a "well-orchestrated fraud"64 by the respondents.
However, Rule 10, Section 5 of the Rules of Civil Procedure
provides that:
Amendment to conform to or authorize presentation of evidence. —
When issues not raised by the pleadings are tried with the express or
implied consent of the parties they shall be treated in all respects as
if they had been raised in the pleadings. Such amendment of the
pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does
not effect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be
amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be
subserved thereby. The court may grant a continuance to enable the
amendment to be made. (5a)
In this case, the commission of fraud was an issue that had been
tried with the implied consent of the respondents, particularly
Sterling Shipping Lines, Inc., Asset Privatization Trust,
Development Bank of the Philippines, and Arenas. Hence, although
there is a lack of a categorical allegation in the pleading, the courts
may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter
into the contract with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the
Sterling Shipping Lines, Incorporated" [sic]
15
DR. TANKEH: Sometime in the year 1980, I was approached by
Ruperto Tankeh mentioning to me that he is operating a new
shipping lines business and he is giving me free one thousand
shares (1,000) to be a director of this new business which is worth
one million pesos (₱1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that
I will be made a part of the administration staff so that I can oversee
the operation of the business plus my son, the eldest one who is
already a graduate lawyer with a couple of years of experience in
the law firm of Romulo Ozaeta Law Offices (TSN, April 28, 1988,
pp. 10-11.).65
The Second Amended Complaint of petitioner is substantially
reproduced below to ascertain the claim:
xxxx
2. That on May 12, 1981, due to the deceit and fraud exercised by
Ruperto V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr.
and Jose Maria Vargas, signed a promissory note in favor of the
defendant DBP, wherein plaintiff bound himself to jointly and
severally pay the DBP the amount of the mortgage loan. This
document insofar as plaintiff is concerned is a simulated document
considering that plaintiff was never a real stockholder of the
Sterling Shipping Lines, Inc.
3. That although plaintiff’s name appears in the records of Sterling
Shipping Lines, Inc. as one of its incorporators, the truth is that he
had never invested any amount in said corporation and that he had
never been an actual member of said corporation. All the money
supposedly invested by him were put by defendant Ruperto V.
Tankeh. Thus, all the shares of stock under his name in fact belongs
to Ruperto V. Tankeh. Plaintiff was invited to attend the board
meeting of the Sterling Shipping Lines, Inc. only once, which was
for the sole purpose of introducing him to the two directors of the
DBP, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter
he was never invited again. Plaintiff was never compensated by the
Sterling Shipping Lines, Inc. for his being a so-called director and
stockholder. It is clear therefore that the DBP knew all along that
plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH
IS SHOWN BY THE FACT THAT when the Sterling Shipping
Lines, Inc. was organized in 1980, Ruperto V. Tankeh promised
plaintiff that he would be a part of the administration staff so that he
could oversee the operation of the company. He was also promised
that his son, a lawyer, would be given a position in the company.
None of these promises was complied with. In fact, he was not even
allowed to find out the data about the income and expenses of the
company.

5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO
SHOWN BY THE FACT THAT PLAINTIFF WAS INVITED TO
ATTEND THE BOARD MEETING OF THE STERLING
SHIPPING LINES, INC. ONLY ONCE, WHICH WAS FOR THE
SOLE PUPOSE OF INTRODUCING HIM TO THE TWO
DIRECTORS OF THE DBP IN THE BOARD OF THE
STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS
MACALINAG AND MR. GIL CORPUS. THEREAFTER HE
WAS NEVER INVITED AGAIN. PLAINTIFF WAS NEVER
COMPENSATED BY THE STERLING SHIPPING LINES, INC.
FOR HIS BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool
to realize the purposes of Ruperto V. Tankeh, plaintiff officially
informed the company by means of a letter dated June 15, 1983
addressed to the company that he has severed his connection with
the company, and demanded among others, that the company board
of directors pass a resolution releasing him from any liabilities
especially with reference to the loan mortgage contract with the
DBP and to notify the DBP of his severance from the Sterling
Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER,
PLAINTIFF MADE EARNEST EFFORTS TOWARDS A
COMPROMISE BETWEEN HIM AND HIS BROTHER
RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED
BY RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS
OF THE SALE OF THE "STERLING ACE" WAS PUBLISHED
AT THE NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS
TO CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF
ARRIVING AT SOME COMPROMISE, BUT DEFENDANT
RUPERTO V. TANKEH AVOIDED ALL CONTACTS [sic]
WITH THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK
LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the
undersigned counsel, and to the Honorable Court, most respectfully
alleges:
xxxx
3. That paragraph 4 is admitted that herein answering defendant
together with the plaintiff signed the promissory note in favor of
DBP but specifically denied that the same was done through deceit
and fraud of herein answering defendant the truth being that
plaintiff signed said promissory note voluntarily and with full
knowledge of the consequences thereof; it is further denied that said
document is a simulated document as plaintiff was never a real
stockholder of the company, the truth being those alleged in the
special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially
the imputation of deceit and fraud against herein answering
defendant, the truth being those alleged in the special and
affirmative defenses;
xxxx
16
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein
answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company
organized in accordance with the laws of the Republic of the
Philippines with the plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the board
was fully aware of the by-laws of the company and if he attended
the board meeting only once as alleged, the reason thereof was
known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting
through its board of directors, herein answering defendant could not
have promised plaintiff that he would be a part of the administration
staff;
12. As member of the board, plaintiff had all the access to the data
and records of the company; further, as alleged in the complaint,
plaintiff has a son who is a lawyer who could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his
connection with the company, he should have been aware that all he
had to do was sell all his holdings in the company;
14. Herein answering defendant came to know only of plaintiff’s
alleged predicament when he received the summons and copy of the
complaint; x x x.67
An assessment of the allegations in the pleadings and the findings
of fact of both the trial court and appellate court based on the
evidence on record led to the conclusion that there had been no dolo
causante committed against the petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder of the
company without contributing a single peso to pay for the shares of
stock given to him by Ruperto V. Tankeh. This fact was admitted
by both petitioner and respondent in their respective pleadings
submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had
never invested any amount in said corporation and that he had never
been an actual member of said corporation. All the money
supposedly invested by him were put up by defendant Ruperto V.
Tankeh."69 This fact alone should have already alerted petitioner to
the gravity of the obligation that he would be undertaking as a
member of the board of directors and the attendant circumstances
that this undertaking would entail. It also does not add any
evidentiary weight to strengthen petitioner’s claim of fraud. If
anything, it only strengthens the position that petitioner’s consent
was not obtained through insidious words or deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some
exaggerations in trade which negates fraud. It reads:

Art. 1340. The usual exaggerations in trade, when the other party
had an opportunity to know the facts, are not in themselves
fraudulent.
Given the standing and stature of the petitioner, he was in a position
to ascertain more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in
ascertaining whether a party is guilty of fraud in obtaining the
consent of the party claiming that fraud existed. The plaintiff
Lamberto Songco sought to recover earnings from a promissory
note that defendant George Sellner had made out to him for
payment of Songco’s sugar cane production. Sellner claimed that he
had refused to pay because Songco had promised that the crop
would yield 3,000 piculs of sugar, when in fact, only 2,017 piculs of
sugar had been produced. This Court held that Sellner would still be
liable to pay the promissory note, as follows:
Notwithstanding the fact that Songco's statement as to the probable
output of his crop was disingenuous and uncandid, we nevertheless
think that Sellner was bound and that he must pay the price
stipulated. The representation in question can only be considered
matter of opinion as the cane was still standing in the field, and the
quantity of the sugar it would produce could not be known with
certainty until it should be harvested and milled. Undoubtedly
Songco had better experience and better information on which to
form an opinion on this question than Sellner. Nevertheless the
latter could judge with his own eyes as to the character of the cane,
and it is shown that he measured the fields and ascertained that they
contained 96 1/2 hectares.
xxxx
The law allows considerable latitude to seller's statements, or
dealer's talk; and experience teaches that it is exceedingly risky to
accept it at its face value. The refusal of the seller to warrant his
estimate should have admonished the purchaser that that estimate
was put forth as a mere opinion; and we will not now hold the seller
to a liability equal to that which would have been created by a
warranty, if one had been given.
xxxx
It is not every false representation relating to the subject matter of a
contract which will render it void. It must be as to matters of fact
substantially affecting the buyer's interest, not as to matters of
opinion, judgment, probability, or expectation. (Long vs.
Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.], 95;
Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs.
McFadden, 23 Fla., 143, 11 Am. St. Rep., 345.) When the purchaser
undertakes to make an investigation of his own, and the seller does
nothing to prevent this investigation from being as full as he
chooses to make it, the purchaser cannot afterwards allege that the
seller made misrepresentations. (National Cash Register Co. vs.
Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs. Holt,
147 N. C., 515.)
We are aware that where one party to a contract, having special or
expert knowledge, takes advantage of the ignorance of another to
impose upon him, the false representation may afford ground for
17
relief, though otherwise the injured party would be bound. But we
do not think that the fact that Songco was an experienced farmer,
while Sellner was, as he claims, a mere novice in the business,
brings this case within that exception.71
The following facts show that petitioner was fully aware of the
magnitude of his undertaking:
First, petitioner was fully aware of the financial reverses that
Sterling Shipping Lines, Inc. had been undergoing, and he took
great pains to release himself from the obligation.
Second, his background as a doctor, as a bank organizer, and as a
businessman with experience in the textile business and real estate
should have apprised him of the irregularity in the contract that he
would be undertaking. This meant that at the time petitioner gave
his consent to become a part of the corporation, he had been fully
aware of the circumstances and the risks of his participation. Intent
is determined by the acts.
Finally, the records showed that petitioner had been fully aware of
the effect of his signing the promissory note. The bare assertion that
he was not privy to the records cannot counteract the fact that
petitioner himself had admitted that after he had severed ties with
his brother, he had written a letter seeking to reach an amicable
settlement with respondent Rupert V. Tankeh. Petitioner’s actions
defied his claim of a complete lack of awareness regarding the
circumstances and the contract he had been entering.
The required standard of proof – clear and convincing evidence –
was not met. There was no dolo causante or fraud used to obtain the
petitioner’s consent to enter into the contract. Petitioner had the
opportunity to become aware of the facts that attended the signing
of the promissory note. He even admitted that he has a lawyer-son
who the petitioner had hoped would assist him in the administration
of Sterling Shipping Lines, Inc. The totality of the facts on record
belies petitioner’s claim that fraud was used to obtain his consent to
the contract given his personal circumstances and the applicable
law.
However, in refusing to allow petitioner to participate in the
management of the business, respondent Ruperto V. Tankeh was
liable for the commission of incidental fraud. In Geraldez, this
Court defined incidental fraud as "those which are not serious in
character and without which the other party would still have entered
into the contract."72
Although there was no fraud that had been undertaken to obtain
petitioner’s consent, there was fraud in the performance of the
contract. The records showed that petitioner had been unjustly
excluded from participating in the management of the affairs of the
corporation. This exclusion from the management in the affairs of
Sterling Shipping Lines, Inc. constituted fraud incidental to the
performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not
have promised plaintiff that he would be a part of the administration
staff"73 since petitioner had been fully aware that, as a corporation,

Sterling Shipping Lines, Inc. acted through its board of directors.
Respondent admitted that petitioner had been "an incorporator and
member of the board of directors"74 and that petitioner "was fully
aware of the by-laws of the company."75 It was incumbent upon
respondent to act in good faith and to ensure that petitioner would
not be excluded from the affairs of Sterling Shipping Lines, Inc.
After all, respondent asserted that petitioner had entered into the
contract voluntarily and with full consent.
Second, respondent claimed that if petitioner was intent on severing
his connection with the company, all that petitioner had to do was to
sell all his holdings in the company. Clearly, the respondent did not
consider the fact that the sale of the shares of stock alone did not
free petitioner from his liability to Development Bank of the
Philippines or Asset Privatization Trust, since the latter had signed
the promissory and had still been liable for the loan. A sale of
petitioners’ shares of stock would not have negated the petitioner’s
responsibility to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioner’s
claim that the latter only received news about the sale of the vessel
M/V Sterling Ace through the media and not as one of the board
members or directors of Sterling Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare assertion that
petitioner had access to the records cannot discredit the fact that the
petitioner had been effectively deprived of the opportunity to
actually engage in the operations of Sterling Shipping Lines, Inc.
Petitioner had a reasonable expectation that the same level of
engagement would be present for the duration of their working
relationship. This would include an undertaking in good faith by
respondent Ruperto V. Tankeh to be transparent with his brother
that he would not automatically be made part of the company’s
administration.
However, this Court finds there is nothing to support the assertion
that Sterling Shipping Lines, Inc. and Arenas committed incidental
fraud and must be held liable. Sterling Shipping Lines, Inc. acted
through its board of directors, and the liability of respondent
Tankeh cannot be imposed on Sterling Shipping Lines, Inc. The
shipping line has a separate and distinct personality from its
officers, and petitioner’s assertion that the corporation conspired
with the respondent Ruperto V. Tankeh to defraud him is not
supported by the evidence and the records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against
several defendants, some of whom answer and the others do not, the
latter or those in default acquire a vested right not only to own the
defense interposed in the answer of their co-defendant or co-
defendants not in default but also to expect a result of the litigation
totally common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiffs’ cause against
all the defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and indivisibility of
justice itself.77
As such, despite Arenas’ failure to submit his Answer to the
Complaint or his declaration of default, his liability or lack thereof
18
is concomitant with the liability attributed to his co-defendants or
co-respondents. However, unlike respondent Ruperto V. Tankeh’s
liability, there is no action or series of actions that may be attributed
to Arenas that may lead to an inference that he was liable for
incidental fraud. In so far as the required evidence for both Sterling
Shipping Lines, Inc. and Arenas is concerned, there is no basis to
justify the claim of incidental fraud.
In addition, respondents Development Bank of the Philippines and
Asset Privatization Trust or Privatization and Management Office
cannot be held liable for fraud. Incidental fraud cannot be attributed
to the execution of their actions, which were undertaken pursuant to
their mandated functions under the law. "Absent convincing
evidence to the contrary, the presumption of regularity in the
performance of official functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older
brother, petitioner Alejandro, for damages. The obligation to pay
damages to petitioner is based on several provisions of the Civil
Code.
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a single
action may serve as the source of several obligations to pay
damages in accordance with the Civil Code. Thus, the liability of
respondent Ruperto V. Tankeh is based on the law, under Article
1344, which provides that the commission of incidental fraud
obliges the person employing it to pay damages.
In addition to this obligation as the result of the contract between
petitioner and respondents, there was also a patent abuse of right on
the part of respondent Tankeh. This abuse of right is included in
Articles 19 and 21 of the Civil Code which provide that:
Article 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
Article 21. Any person who willfully causes loss or injury to
another in manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.

Respondent Ruperto V. Tankeh abused his right to pursue
undertakings in the interest of his business operations. This is
because of his failure to at least act in good faith and be transparent
with petitioner regarding Sterling Shipping Lines, Inc.’s daily
operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay,79
this Court held that:
When a right is exercised in a manner not conformable with the
norms enshrined in Article 19 and like provisions on human
relations in the Civil Code, and the exercise results to [sic] the
damage of [sic] another, a legal wrong is committed and the
wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by the
following circumstances.
First, petitioner was informed by Development Bank of the
Philippines that it would still pursue his liability for the payment of
the promissory note. This would not have happened if petitioner had
allowed himself to be fully apprised of Sterling Shipping Lines,
Inc.’s financial straits and if he felt that he could still participate in
the company’s operations. There is no evidence that respondent
Ruperto V. Tankeh showed an earnest effort to at least allow the
possibility of making petitioner part of the administration a reality.
The respondent was the brother of the petitioner and was also the
primary party that compelled petitioner Alejandro Tankeh to be
solidarily bound to the promissory note. Ruperto V. Tankeh should
have done his best to ensure that he had exerted the diligence to
comply with the obligations attendant to the participation of
petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter into an
agreement or settlement with petitioner after the latter’s discovery
of the sale of the M/V Sterling Ace was an action that constituted
bad faith. Due to Ruperto’s refusal, his brother, petitioner
Alejandro, became solidarily liable for an obligation that the latter
could have avoided if he had been given an opportunity to
participate in the operations of Sterling Shipping Lines, Inc. The
simple sale of all of petitioner’s shares would not have solved
petitioner’s problems, as it would not have negated his liability
under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping
Lines, Inc., namely, public respondents Development Bank of the
Philippines and Asset Privatization Trust. This is an additional
financial burden for petitioner. Nothing in the records suggested the
possibility that Development Bank of the Philippines or Asset
Privatization Trust through the Privatization Management Office
will not pursue or is precluded from pursuing its claim against the
petitioner. Although petitioner Alejandro voluntarily signed the
promissory note and became a stockholder and board member,
respondent should have treated him with fairness, transparency, and
consideration to minimize the risk of incurring grave financial
reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may
be awarded on the following bases:
19
To recover moral damages in an action for breach of contract, the
breach must be palpably wanton, reckless, malicious, in bad faith,
oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of
contract, moral damages may be recovered when the defendant
acted in bad faith or was guilty of gross negligence (amounting to
bad faith) or in wanton disregard of his contractual obligation and,
exceptionally, when the act of breach of contract itself is
constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the
defendant acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence, it
imports a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some motive or
interest or ill will that partakes of the nature of fraud.
xxxx
The person claiming moral damages must prove the existence of
bad faith by clear and convincing evidence for the law always
presumes good faith. It is not enough that one merely suffered
sleepless nights, mental anguish, serious anxiety as the result of the
actuations of the other party. Invariably such action must be shown
to have been willfully done in bad faith or will ill motive. Mere
allegations of besmirched reputation, embarrassment and sleepless
nights are insufficient to warrant an award for moral damages. It
must be shown that the proximate cause thereof was the unlawful
act or omission of the [private respondent] petitioners.
An award of moral damages would require certain conditions to be
met, to wit: (1) first, there must be an injury, whether physical,
mental or psychological, clearly sustained by the claimant; (2)
second, there must be culpable act or omission factually established;
(3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4)
fourth, the award of damages is predicated on any of the cases
stated in Article 2219 of the Civil Code. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First,
petitioner suffered an injury due to the mental duress of being
bound to such an onerous debt to Development Bank of the
Philippines and Asset Privatization Trust. Second, the wrongful acts
of undue exclusion done by respondent Ruperto V. Tankeh clearly
fulfilled the same requirement. Third, the proximate cause of his
injury was the failure of respondent Ruperto V. Tankeh to comply
with his obligation to allow petitioner to either participate in the
business or to fulfill his fiduciary responsibilities with candor and
good faith. Finally, Article 221983 of the Civil Code provides that
moral damages may be awarded in case of acts and actions referred
to in Article 21, which, as stated, had been found to be attributed to
respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of Appeals to
demand from respondents, except from respondent Asset
Privatization Trust, the amount of five million pesos
(₱5,000,000.00). This Court finds that the amount of five hundred

thousand pesos (₱500,000.00) is a sufficient amount of moral
damages.
In addition to moral damages, this Court may also impose the
payment of exemplary damages.1âwphi1 Exemplary damages are
discussed in Article 2229 of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way
of example or correction of the public good, in addition to moral,
temperate, liquidated or compensatory damages.
Exemplary damages are further discussed in Articles 2233 and
2234, particularly regarding the pre-requisites of ascertaining moral
damages and the fact that it is discretionary upon this Court to
award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of
right; the court will decide whether or not they should be
adjudicated.
ART. 2234. While the amount of the exemplary damages need not
be proven, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages should be
awarded x x x
The purpose of exemplary damages is to serve as a deterrent to
future and subsequent parties from the commission of a similar
offense. The case of People v. Rante85 citing People v. Dalisay86
held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or
corrective damages are intended to serve as a deterrent to serious
wrong doings, and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty
of outrageous conduct. These terms are generally, but not always,
used interchangeably. In common law, there is preference in the use
of exemplary damages when the award is to account for injury to
feelings and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and
wantonly inflicted, the theory being that there should be
compensation for the hurt caused by the highly reprehensible
conduct of the defendant—associated with such circumstances as
willfulness, wantonness, malice, gross negligence or recklessness,
oppression, insult or fraud or gross fraud—that intensifies the
injury. The terms punitive or vindictive damages are often used to
refer to those species of damages that may be awarded against a
person to punish him for his outrageous conduct. In either case,
these damages are intended in good measure to deter the wrongdoer
and others like him from similar conduct in the future.87
To justify an award for exemplary damages, the wrongful act must
be accompanied by bad faith, and an award of damages would be
allowed only if the guilty party acted in a wanton, fraudulent,
reckless or malevolent manner.88 In this case, this Court finds that
respondent Ruperto V. Tankeh acted in a fraudulent manner through
the finding of dolo incidente due to his failure to act in a manner
consistent with propriety, good morals, and prudence.
20
Since exemplary damages ensure that future litigants or parties are
enjoined from acting in a similarly malevolent manner, it is
incumbent upon this Court to impose the damages in such a way
that will serve as a categorical warning and will show that wanton
actions will be dealt with in a similar manner. This Court finds that
the amount of two hundred thousand pesos (₱200,000.00) is
sufficient for this purpose.
In sum, this Court must act in the best interests of all future litigants
by establishing and applying clearly defined standards and
guidelines to ascertain the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED. The
Decision of the Court of Appeals as to the assailed Decision in so
far as the finding of fraud is SUSTAINED with the
MODIFICATION that respondent RUPERTO V. TANKEH be
ordered to pay moral damages in the amount of FIVE HUNDRED
THOUSAND PESOS (₱500,000.00) and the amount of TWO
HUNDRED THOUSAND PESOS (₱200,000.00) by way of
exemplary damages.
SO ORDERED.
MARVIC MARIO VICTOR F. LEONEN
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.*
Associate Justice Associate Justice
JOSE C. MENDOZA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
PRESBITERO J. VELASCO, JR.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson’s Attestation, I certify that the conclusions in
the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.
MARIA LOURDES P. A. SERENO
Chief Justice
 21

Footnotes to file his Petition. The Court received the Petition on March 20,
2006.
13 <http://www.pmo.gov.ph/about.htm>, (last visited August 15,
2013). 50 G.R. No. 108253, February 23, 1994, 230 SCRA 320.

14 Rollo, pp. 105-106.
15 Complaint dated July 22, 1987, Rollo, pp. 63-69; Amended
Complaint dated September 14, 1987, Rollo, pp. 76-82; Second
Amended Complaint dated October 30, 1987, Rollo, pp. 84-91;
Amended Complaint dated April 16, 1991, Rollo, pp. 102-109.
43 RULES OF COURT, Rule 65, Sec. 1:
Section 1. Petition for certiorari. — When any tribunal, board or
officer exercising judicial or quasi- judicial functions has acted
without or in excess its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such
incidental reliefs as law and justice may require.
44 RULES OF COURT, Rule 45, Sec. 1:
51 Id. at 336 citing A.M. TOLENTINO, COMMENTARIES AND
JURISPRUDENCE ON THE CIVIL CODE OF THE
PHILIPPINES 509 (Vol. IV, 1986) and JURADO, COMMENTS
AND JURISPRUDENCE ON OBLIGATIONS AND
CONTRACTS, 438 (1987 Ed.).
63 Id. citing Cirtek Employees Labor Union-Federation of Free
Workers v. Cirtek Electronics, Inc., G.R. No. 190515, June 6, 2011,
650 SCRA 656, 660.
82 Id. at 748-750.
83 CIVIL CODE, Article 2219. Moral damages may be recovered
in the following and analogous cases: (1) A criminal offense
resulting in physical injuries; (2) Quasi-delicts causing physical
injuries; (3) Seduction, abduction, rape, or other lascivious acts; (4)
Adultery or concubinage; (5) Illegal or arbitrary detention or arrest;
(6) Illegal search; (7) Libel, slander or any other form of
defamation; (8) Malicious prosecution; (9) Acts mentioned in
Article 309; (10) Acts and actions referred to in Articles 21, 26, 27,
28, 29, 30, 32, 34, and 35.

Section 1. Filing of petition with Supreme Court. — A party 88 Cervantes v. Court of Appeals, G.R. No. 125138, March 2, 1999,
desiring to appeal by certiorari from a judgment or final order or 304 SCRA 25, 33 citing J. C. SANGCO, PHILIPPINE
resolution of the Court of Appeals, the Sandiganbayan, the Regional LAW ON TORTS AND DAMAGES, 1034 (Vol. II,
Trial Court or other courts whenever authorized by law, may file 1993).
with the Supreme Court a verified petition for review on certiorari.
The petition shall raise only questions of law which must be
distinctly set forth.

47 RULES OF COURT, Rule 65, Section 1:

Section 1. Petition for certiorari. — When any tribunal, board or

officer exercising judicial or quasi- judicial functions has acted
without or in excess its or his jurisdiction, or with grave abuse of
discretion amounting to lack or excess of jurisdiction, and there is
no appeal, or any plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a
verified petition in the proper court, alleging the facts with certainty
and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such
incidental reliefs as law and justice may require.

48 China Banking Corporation v. Cebu Printing and Packaging

Corporation, G.R. No. 172880, August 11, 2010, 628 SCRA 154,
168 citing Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22,
2008, 552 SCRA 424.

49 The petitioner received the denial of his Motion for

Reconsideration on February 15, 2006. Petitioner had until March 2,
2006 within which to file the Petition. Petitioner filed a Motion for
Extension of Time to File Petition for a period of thirty (30) days,
which was granted by the Court. Petitioner had until April 2, 2006

G.R. No. 138334
FIRST DIVISION
G.R. No. 138334               August 25, 2003
ESTELA L. CRISOSTOMO, Petitioner,
vs.
The Court of Appeals and CARAVAN TRAVEL &
TOURS INTERNATIONAL, INC., Respondents.
DECISION
YNARES-SANTIAGO, J.:
In May 1991, petitioner Estela L. Crisostomo contracted the
services of respondent Caravan Travel and Tours International, Inc.
to arrange and facilitate her booking, ticketing and accommodation
in a tour dubbed "Jewels of Europe". The package tour included the
countries of England, Holland, Germany, Austria, Liechstenstein,
Switzerland and France at a total cost of P74,322.70. Petitioner was
given a 5% discount on the amount, which included airfare, and the
booking fee was also waived because petitioner’s niece, Meriam
Menor, was respondent company’s ticketing manager.
Pursuant to said contract, Menor went to her aunt’s residence on
June 12, 1991 – a Wednesday – to deliver petitioner’s travel
documents and plane tickets. Petitioner, in turn, gave Menor the full
payment for the package tour. Menor then told her to be at the
Ninoy Aquino International Airport (NAIA) on Saturday, two hours
before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her
journey from Manila to Hongkong. To petitioner’s dismay, she
discovered that the flight she was supposed to take had already
departed the previous day. She learned that her plane ticket was for
the flight scheduled on June 14, 1991. She thus called up Menor to
complain.
Subsequently, Menor prevailed upon petitioner to take another tour
– the "British Pageant" – which included England, Scotland and
Wales in its itinerary. For this tour package, petitioner was asked
anew to pay US$785.00 or P20,881.00 (at the then prevailing
exchange rate of P26.60). She gave respondent US$300 or
P7,980.00 as partial payment and commenced the trip in July 1991.
Upon petitioner’s return from Europe, she demanded from
respondent the reimbursement of P61,421.70, representing the
22
difference between the sum she paid for "Jewels of Europe" and the
amount she owed respondent for the "British Pageant" tour. Despite
several demands, respondent company refused to reimburse the
amount, contending that the same was non-refundable.1 Petitioner
was thus constrained to file a complaint against respondent for
breach of contract of carriage and damages, which was docketed as
Civil Case No. 92-133 and raffled to Branch 59 of the Regional
Trial Court of Makati City.
In her complaint,2 petitioner alleged that her failure to join "Jewels
of Europe" was due to respondent’s fault since it did not clearly
indicate the departure date on the plane ticket. Respondent was also
negligent in informing her of the wrong flight schedule through its
employee Menor. She insisted that the "British Pageant" was merely
a substitute for the "Jewels of Europe" tour, such that the cost of the
former should be properly set-off against the sum paid for the latter.
For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioner’s failure to
join the first tour. Chipeco insisted that petitioner was informed of
the correct departure date, which was clearly and legibly printed on
the plane ticket. The travel documents were given to petitioner two
days ahead of the scheduled trip. Petitioner had only herself to
blame for missing the flight, as she did not bother to read or confirm
her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount
paid for "Jewels of Europe", considering that the same had already
been remitted to its principal in Singapore, Lotus Travel Ltd., which
had already billed the same even if petitioner did not join the tour.
Lotus’ European tour organizer, Insight International Tours Ltd.,
determines the cost of a package tour based on a minimum number
of projected participants. For this reason, it is accepted industry
practice to disallow refund for individuals who failed to take a
booked tour.3
Lastly, respondent maintained that the "British Pageant" was not a
substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a
mistake in missing her flight for "Jewels of Europe". Petitioner was
allowed to make a partial payment of only US$300.00 for the
second tour because her niece was then an employee of the travel
agency. Consequently, respondent prayed that petitioner be ordered
to pay the balance of P12,901.00 for the "British Pageant" package
tour.
After due proceedings, the trial court rendered a decision,4 the
dispositive part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
as follows:
1. Ordering the defendant to return and/or refund
to the plaintiff the amount of Fifty Three
Thousand Nine Hundred Eighty Nine Pesos and
Forty Three Centavos (P53,989.43) with legal
interest thereon at the rate of twelve percent
(12%) per annum starting January 16, 1992, the
date when the complaint was filed;

2. Ordering the defendant to pay the plaintiff the
amount of Five Thousand (P5,000.00) Pesos as
and for reasonable attorney’s fees;
3. Dismissing the defendant’s counterclaim, for
lack of merit; and
4. With costs against the defendant.
SO ORDERED.5
The trial court held that respondent was negligent in erroneously
advising petitioner of her departure date through its employee,
Menor, who was not presented as witness to rebut petitioner’s
testimony. However, petitioner should have verified the exact date
and time of departure by looking at her ticket and should have
simply not relied on Menor’s verbal representation. The trial court
thus declared that petitioner was guilty of contributory negligence
and accordingly, deducted 10% from the amount being claimed as
refund.
Respondent appealed to the Court of Appeals, which likewise found
both parties to be at fault. However, the appellate court held that
petitioner is more negligent than respondent because as a lawyer
and well-traveled person, she should have known better than to
simply rely on what was told to her. This being so, she is not
entitled to any form of damages. Petitioner also forfeited her right to
the "Jewels of Europe" tour and must therefore pay respondent the
balance of the price for the "British Pageant" tour. The dispositive
portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional
Trial Court dated October 26, 1995 is hereby REVERSED and SET
ASIDE. A new judgment is hereby ENTERED requiring the
plaintiff-appellee to pay to the defendant-appellant the amount of
P12,901.00, representing the balance of the price of the British
Pageant Package Tour, the same to earn legal interest at the rate of
SIX PERCENT (6%) per annum, to be computed from the time the
counterclaim was filed until the finality of this decision. After this
decision becomes final and executory, the rate of TWELVE
PERCENT (12%) interest per annum shall be additionally imposed
on the total obligation until payment thereof is satisfied. The award
of attorney’s fees is DELETED. Costs against the plaintiff-appellee.
SO ORDERED.6
Upon denial of her motion for reconsideration,7 petitioner filed the
instant petition under Rule 45 on the following grounds:
I entity engaged in the business of transporting either passengers or
It is respectfully submitted that the Honorable
Court of Appeals committed a reversible error in
reversing and setting aside the decision of the trial
court by ruling that the petitioner is not entitled to
a refund of the cost of unavailed "Jewels of
Europe" tour she being equally, if not more,
negligent than the private respondent, for in the
contract of carriage the common carrier is obliged
23
to observe utmost care and extra-ordinary
diligence which is higher in degree than the
ordinary diligence required of the passenger.
Thus, even if the petitioner and private respondent
were both negligent, the petitioner cannot be
considered to be equally, or worse, more guilty
than the private respondent. At best, petitioner’s
negligence is only contributory while the private
respondent [is guilty] of gross negligence making
the principle of pari delicto inapplicable in the
case;
II
The Honorable Court of Appeals also erred in not
ruling that the "Jewels of Europe" tour was not
indivisible and the amount paid therefor
refundable;
III
The Honorable Court erred in not granting to the
petitioner the consequential damages due her as a
result of breach of contract of carriage.8
Petitioner contends that respondent did not observe the standard of
care required of a common carrier when it informed her wrongly of
the flight schedule. She could not be deemed more negligent than
respondent since the latter is required by law to exercise
extraordinary diligence in the fulfillment of its obligation. If she
were negligent at all, the same is merely contributory and not the
proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its
employee’s gross negligence.
Petitioner’s contention has no merit.
By definition, a contract of carriage or transportation is one
whereby a certain person or association of persons obligate
themselves to transport persons, things, or news from one place to
another for a fixed price.9 Such person or association of persons are
regarded as carriers and are classified as private or special carriers
and common or public carriers.10 A common carrier is defined
under Article 1732 of the Civil Code as persons, corporations, firms
or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an
goods and is therefore, neither a private nor a common carrier.
Respondent did not undertake to transport petitioner from one place
to another since its covenant with its customers is simply to make
travel arrangements in their behalf. Respondent’s services as a
travel agency include procuring tickets and facilitating travel
permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the
efforts of respondent company, this does not mean that the latter
ipso facto is a common carrier. At most, respondent acted merely as

an agent of the airline, with whom petitioner ultimately contracted
for her carriage to Europe. Respondent’s obligation to petitioner in
this regard was simply to see to it that petitioner was properly
booked with the airline for the appointed date and time. Her
transport to the place of destination, meanwhile, pertained directly
to the airline.
The object of petitioner’s contractual relation with respondent is the
latter’s service of arranging and facilitating petitioner’s booking,
ticketing and accommodation in the package tour. In contrast, the
object of a contract of carriage is the transportation of passengers or
goods. It is in this sense that the contract between the parties in this
case was an ordinary one for services and not one of carriage.
Petitioner’s submission is premised on a wrong assumption.
The nature of the contractual relation between petitioner and
respondent is determinative of the degree of care required in the
performance of the latter’s obligation under the contract. For
reasons of public policy, a common carrier in a contract of carriage
is bound by law to carry passengers as far as human care and
foresight can provide using the utmost diligence of very cautious
persons and with due regard for all the circumstances.11 As earlier
stated, however, respondent is not a common carrier but a travel
agency. It is thus not bound under the law to observe extraordinary
diligence in the performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for
services, the standard of care required of respondent is that of a
good father of a family under Article 1173 of the Civil Code.12
This connotes reasonable care consistent with that which an
ordinarily prudent person would have observed when confronted
with a similar situation. The test to determine whether negligence
attended the performance of an obligation is: did the defendant in
doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same
situation? If not, then he is guilty of negligence.13
In the case at bar, the lower court found Menor negligent when she
allegedly informed petitioner of the wrong day of departure.
Petitioner’s testimony was accepted as indubitable evidence of
Menor’s alleged negligent act since respondent did not call Menor
to the witness stand to refute the allegation. The lower court applied
the presumption under Rule 131, Section 3 (e)14 of the Rules of
Court that evidence willfully suppressed would be adverse if
produced and thus considered petitioner’s uncontradicted testimony
to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor
was negligent and maintains that petitioner’s assertion is belied by
the evidence on record. The date and time of departure was legibly
written on the plane ticket and the travel papers were delivered two
days in advance precisely so that petitioner could prepare for the
trip. It performed all its obligations to enable petitioner to join the
tour and exercised due diligence in its dealings with the latter.
We agree with respondent.
Respondent’s failure to present Menor as witness to rebut
petitioner’s testimony could not give rise to an inference
unfavorable to the former. Menor was already working in France at
24
the time of the filing of the complaint,15 thereby making it
physically impossible for respondent to present her as a witness.
Then too, even if it were possible for respondent to secure Menor’s
testimony, the presumption under Rule 131, Section 3(e) would still
not apply. The opportunity and possibility for obtaining Menor’s
testimony belonged to both parties, considering that Menor was not
just respondent’s employee, but also petitioner’s niece. It was thus
error for the lower court to invoke the presumption that respondent
willfully suppressed evidence under Rule 131, Section 3(e). Said
presumption would logically be inoperative if the evidence is not
intentionally omitted but is simply unavailable, or when the same
could have been obtained by both parties.16
In sum, we do not agree with the finding of the lower court that
Menor’s negligence concurred with the negligence of petitioner and
resultantly caused damage to the latter. Menor’s negligence was not
sufficiently proved, considering that the only evidence presented on
this score was petitioner’s uncorroborated narration of the events. It
is well-settled that the party alleging a fact has the burden of
proving it and a mere allegation cannot take the place of
evidence.17 If the plaintiff, upon whom rests the burden of proving
his cause of action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no obligation to
prove his exception or defense.18
Contrary to petitioner’s claim, the evidence on record shows that
respondent exercised due diligence in performing its obligations
under the contract and followed standard procedure in rendering its
services to petitioner. As correctly observed by the lower court, the
plane ticket19 issued to petitioner clearly reflected the departure
date and time, contrary to petitioner’s contention. The travel
documents, consisting of the tour itinerary, vouchers and
instructions, were likewise delivered to petitioner two days prior to
the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It
arranged petitioner’s hotel accommodation as well as food, land
transfers and sightseeing excursions, in accordance with its avowed
undertaking.
Therefore, it is clear that respondent performed its prestation under
the contract as well as everything else that was essential to book
petitioner for the tour. Had petitioner exercised due diligence in the
conduct of her affairs, there would have been no reason for her to
miss the flight. Needless to say, after the travel papers were
delivered to petitioner, it became incumbent upon her to take
ordinary care of her concerns. This undoubtedly would require that
she at least read the documents in order to assure herself of the
important details regarding the trip.
The negligence of the obligor in the performance of the obligation
renders him liable for damages for the resulting loss suffered by the
obligee. Fault or negligence of the obligor consists in his failure to
exercise due care and prudence in the performance of the obligation
as the nature of the obligation so demands.20 There is no fixed
standard of diligence applicable to each and every contractual
obligation and each case must be determined upon its particular
facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been
negligent is a question of fact that is to be determined after taking
into account the particulars of each case.21 1âwphi1

The lower court declared that respondent’s employee was negligent.
This factual finding, however, is not supported by the evidence on
record. While factual findings below are generally conclusive upon
this court, the rule is subject to certain exceptions, as when the trial
court overlooked, misunderstood, or misapplied some facts or
circumstances of weight and substance which will affect the result
of the case.22
In the case at bar, the evidence on record shows that respondent
company performed its duty diligently and did not commit any
contractual breach. Hence, petitioner cannot recover and must bear
her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit.
The decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent
the amount of P12,901.00 representing the balance of the price of
the British Pageant Package Tour, with legal interest thereon at the
rate of 6% per annum, to be computed from the time the
counterclaim was filed until the finality of this Decision. After this
Decision becomes final and executory, the rate of 12% per annum
shall be imposed until the obligation is fully settled, this interim
period being deemed to be by then an equivalent to a forbearance of
credit.23
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Carpio, and Azcuna, JJ.,
concur.
Footnotes
9 Commentaries and Jurisprudence on the
Commercial Laws of the Philippines, Vol. 4
(1993 Edition), Aguedo F. Agbayani, p. 1, citing
1 Blanco 640.
10 Id. at 4.
11 Civil Code of the Philippines, Article 1755.
12 Article 1173. The fault or negligence of the
obligor consists in the omission of that diligence
which is required by the nature of the obligation
and corresponds with the circumstances of the
persons, of the time and of the place. When
negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a
good father of a family shall be required.
13 Jarco Marketing Corporation v. Court of
Appeals, 378 Phil. 991, 1003 (1999), citing Picart
v. Smith, 37 Phil. 809 (1918).
14 This rule states:
25
SEC. 3. Disputable presumptions. – The
following presumptions are satisfactory
if uncontradicted, but may be
contradicted and overcome by other
evidence:
x x x           x x x          x x x
(e) That evidence willfully suppressed
would be adverse if produced;
x x x           x x x          x x x
15 Supra, note 3 at 10.
16 The Revised Rules of Court in the Philippines,
Vol. VII, Part II (1999 Edition) V. Francisco, p.
92.
17 Pimentel v. Court of Appeals, 307 SCRA 38.
18 Castilex Industrial Corporation v. Vasquez, Jr.,
378 Phil. 1009, 1018 (1999), citing Belen v.
Belen, 13 Phil. 202, 206 (1909), cited in Martin v.
Court of Appeals, G.R. No. 82248, 205 SCRA
591 (1992).
19 Supra, note 2 at 60 & 94.
20 Bayne Adjusters and Surveyors, Inc. v. Court
of Appeals, G.R. No. 116332, 323 SCRA 231
(2000), citing Articles 1170, 1172-73, Civil Code;
Southeastern College, Inc. v. Court of Appeals,
354 Phil 434 (1998).
21 Commentaries and Jurisprudence on the Civil
Code of the Philippines, Vol. IV (1999 Edition),
Arturo M. Tolentino, p. 124.
22 Supra, note 13, citing Borillo v. CA, G.R. No.
55691, 209 SCRA 130 (1992); Mckee v.
Intermediate Appellate Court, G.R. No. 68102,
211 SCRA 517 (1992); and Salvador v. Court of
Appeals, 313 Phil. 36 (1995).
23 Eastern Shipping Lines, Inc. v. Court of
Appeals, G.R. No. 97412, 12 July 1994, 234
SCRA 78, 97.
 26

defendant-appellee, Manila Memorial

Park Cemetery, Inc.

The complaint alleged among others, that

pursuant to a Deed of Sale (Contract No.
6885) dated August 27, 1969 and
Interment Order No. 7106 dated July 21,
1978 executed between plaintiff-
appellant Juan J. Syquia and defendant-

G.R. No. 98695 appellee, the former, father of deceased

Vicente Juan J. Syquia authorized and
instructed defendant-appellee to inter the
16-20 minutes remains of deceased in the Manila
Memorial Park Cemetery in the morning
of July 25, 1978 conformably and in
accordance with defendant-appellant's
(sic) interment procedures; that on
September 4, 1978, preparatory to
Republic of the Philippines transferring the said remains to a newly
purchased family plot also at the Manila
SUPREME COURT Memorial Park Cemetery, the concrete
Manila vault encasing the coffin of the deceased
was removed from its niche underground
SECOND DIVISION with the assistance of certain employees
of defendant-appellant (sic); that as the
concrete vault was being raised to the
G.R. No. 98695 January 27, 1993 surface, plaintiffs-appellants discovered
that the concrete vault had a hole
JUAN J. SYQUIA, CORAZON C. SYQUIA, approximately three (3) inches in
CARLOTA C. SYQUIA, CARLOS C. SYQUIA and diameter near the bottom of one of the
ANTHONY C. SYQUIA, petitioners, walls closing out the width of the vault
on one end and that for a certain length
vs. of time (one hour, more or less), water
THE HONORABLE COURT OF APPEALS, and drained out of the hole; that because of
THE MANILA MEMORIAL PARK CEMETERY, the aforesaid discovery, plaintiffs-
INC., respondents. appellants became agitated and upset
with concern that the water which had
collected inside the vault might have
Pacis & Reyes Law Offices for petitioners. risen as it in fact did rise, to the level of
the coffin and flooded the same as well
Augusto S. San Pedro & Ari-Ben C. Sebastian for as the remains of the deceased with ill
private respondents. effects thereto; that pursuant to an
authority granted by the Municipal Court
of Parañaque, Metro Manila on
CAMPOS, JR., J.: September 14, 1978, plaintiffs-appellants
with the assistance of licensed morticians
Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota and certain personnel of defendant-
C. Syquia, Carlos C. Syquia, and Anthony Syquia, were the parents appellant (sic) caused the opening of the
and siblings, respectively, of the deceased Vicente Juan Syquia. On concrete vault on September 15, 1978;
March 5, 1979, they filed a complaint1 in the then Court of First that upon opening the vault, the
Instance against herein private respondent, Manila Memorial Park following became apparent to the
Cemetery, Inc. for recovery of damages arising from breach of plaintiffs-appellants: (a) the interior
contract and/or quasi-delict. The trial court dismissed the complaint. walls of the concrete vault showed
evidence of total flooding; (b) the coffin
The antecedent facts, as gathered by the respondent Court, are as was entirely damaged by water, filth and
follows: silt causing the wooden parts to warp and
separate and to crack the viewing glass
On March 5, 1979, Juan, Corazon, panel located directly above the head and
Carlota and Anthony all surnamed torso of the deceased; (c) the entire
Syquia, plaintiff-appellants herein, filed lining of the coffin, the clothing of the
a complaint for damages against deceased, and the exposed parts of the

deceased's remains were damaged and
soiled by the action of the water and silt
and were also coated with filth.
Due to the alleged unlawful and
malicious breach by the defendant-
appellee of its obligation to deliver a
defect-free concrete vault designed to
protect the remains of the deceased and
the coffin against the elements which
resulted in the desecration of deceased's
grave and in the alternative, because of
defendant-appellee's gross negligence
conformably to Article 2176 of the New
Civil Code in failing to seal the concrete
vault, the complaint prayed that
judgment be rendered ordering
defendant-appellee to pay plaintiffs-
appellants P30,000.00 for actual
damages, P500,000.00 for moral
damages, exemplary damages in the
amount determined by the court, 20% of
defendant-appellee's total liability as
attorney's fees, and expenses of litigation
and costs of suit.2
In dismissing the complaint, the trial court held that the contract
between the parties did not guarantee that the cement vault would
be waterproof; that there could be no quasi-delict because the
defendant was not guilty of any fault or negligence, and because
there was a pre-existing contractual relation between the Syquias
and defendant Manila Memorial Park Cemetery, Inc.. The trial court
also noted that the father himself, Juan Syquia, chose the gravesite
despite knowing that said area had to be constantly sprinkled with
water to keep the grass green and that water would eventually seep
through the vault. The trial court also accepted the explanation
given by defendant for boring a hole at the bottom side of the vault:
"The hole had to be bored through the concrete vault because if it
has no hole the vault will (sic) float and the grave would be filled
with water and the digging would caved (sic) in the earth, the earth
would caved (sic) in the (sic) fill up the grave."3
From this judgment, the Syquias appealed. They alleged that the
trial court erred in holding that the contract allowed the flooding of
the vault; that there was no desecration; that the boring of the hole
was justifiable; and in not awarding damages.
The Court of Appeals in the Decision4 dated December 7, 1990
however, affirmed the judgment of dismissal. Petitioner's motion for
reconsideration was denied in a Resolution dated April 25, 1991.5
Unsatisfied with the respondent Court's decision, the Syquias filed
the instant petition. They allege herein that the Court of Appeals
committed the following errors when it:
1. held that the contract and the Rules
and Resolutions of private respondent
allowed the flooding of the vault and the
entrance thereto of filth and silt;
27
2. held that the act of boring a hole was
justifiable and corollarily, when it held
that no act of desecration was
committed;
3. overlooked and refused to consider
relevant, undisputed facts, such as those
which have been stipulated upon by the
parties, testified to by private
respondent's witnesses, and admitted in
the answer, which could have justified a
different conclusion;
4. held that there was no tort because of a
pre-existing contract and the absence of
fault/negligence; and
5. did not award the P25,000.00 actual
damages which was agreed upon by the
parties, moral and exemplary damages,
and attorney's fees.
At the bottom of the entire proceedings is the act of boring a hole by
private respondent on the vault of the deceased kin of the bereaved
petitioners. The latter allege that such act was either a breach of
private respondent's contractual obligation to provide a sealed vault,
or, in the alternative, a negligent act which constituted a quasi-
delict. Nonetheless, petitioners claim that whatever kind of
negligence private respondent has committed, the latter is liable for
desecrating the grave of petitioners' dead.
In the instant case, We are called upon to determine whether the
Manila Memorial Park Cemetery, Inc., breached its contract with
petitioners; or, alternatively, whether private respondent was guilty
of a tort.
We understand the feelings of petitioners and empathize with them.
Unfortunately, however, We are more inclined to answer the
foregoing questions in the negative. There is not enough ground,
both in fact and in law, to justify a reversal of the decision of the
respondent Court and to uphold the pleas of the petitioners.
With respect to herein petitioners' averment that private respondent
has committed culpa aquiliana, the Court of Appeals found no
negligent act on the part of private respondent to justify an award of
damages against it. Although a pre-existing contractual relation
between the parties does not preclude the existence of a culpa
aquiliana, We find no reason to disregard the respondent's Court
finding that there was no negligence.
Art. 2176. Whoever by act or omission
causes damage to another, there being
fault or negligence, is obliged to pay for
the damage done. Such fault or
negligence, if there is no pre-existing
contractual relation between the parties,
is called a quasi-delict . . . . (Emphasis
supplied).

In this case, it has been established that the
Syquias and the Manila Memorial Park Cemetery,
Inc., entered into a contract entitled "Deed of Sale
and Certificate of Perpetual Care"6 on August 27,
1969. That agreement governed the relations of
the parties and defined their respective rights and
obligations. Hence, had there been actual
negligence on the part of the Manila Memorial
Park Cemetery, Inc., it would be held liable not
for a quasi-delict or culpa aquiliana, but for
culpa contractual as provided by Article 1170 of
the Civil Code, to wit:
Those who in the performance of their
obligations are guilty of fraud,
negligence, or delay, and those who in
any manner contravene the tenor thereof,
are liable for damages.
The Manila Memorial Park Cemetery, Inc. bound itself to provide
the concrete box to be send in the interment. Rule 17 of the Rules
and Regulations of private respondent provides that:
Rule 17. Every earth interment shall be
made enclosed in a concrete box, or in an
outer wall of stone, brick or concrete, the
actual installment of which shall be made
by the employees of the Association.7
Pursuant to this above-mentioned Rule, a concrete vault was
provided on July 27, 1978, the day before the interment, and was,
on the same day, installed by private respondent's employees in the
grave which was dug earlier. After the burial, the vault was covered
by a cement lid.
Petitioners however claim that private respondent breached its
contract with them as the latter held out in the brochure it
distributed that the . . . lot may hold single or double internment
(sic) underground in sealed concrete vault."8 Petitioners claim that
the vault provided by private respondent was not sealed, that is, not
waterproof. Consequently, water seeped through the cement
enclosure and damaged everything inside it.
We do not agree. There was no stipulation in the Deed of Sale and
Certificate of Perpetual Care and in the Rules and Regulations of
the Manila Memorial Park Cemetery, Inc. that the vault would be
waterproof. Private respondent's witness, Mr. Dexter Heuschkel,
explained that the term "sealed" meant "closed."9 On the other
hand, the word "seal" is defined as . . . any of various closures or
fastenings . . . that cannot be opened without rupture and that serve
as a check against tampering or unauthorized opening." 10 The
meaning that has been given by private respondent to the word
conforms with the cited dictionary definition. Moreover, it is also
quite clear that "sealed" cannot be equated with "waterproof". Well
settled is the rule that when the terms of the contract are clear and
leave no doubt as to the intention of the contracting parties, then the
literal meaning of the stipulation shall control. 11 Contracts should
be interpreted according to their literal meaning and should not be
interpreted beyond their obvious intendment. 12 As ruled by the
respondent Court:
28
When plaintiff-appellant Juan J. Syquia
affixed his signature to the Deed of Sale
(Exhibit "A") and the attached Rules and
Regulations (Exhibit "1"), it can be
assumed that he has accepted defendant-
appellee's undertaking to merely provide
a concrete vault. He can not now claim
that said concrete vault must in addition,
also be waterproofed (sic). It is basic that
the parties are bound by the terms of
their contract, which is the law between
them (Rizal Commercial Banking
Corporation vs. Court of Appeals, et al.
178 SCRA 739). Where there is nothing
in the contract which is contrary to law,
morals, good customs, public order, or
public policy, the validity of the contract
must be sustained (Phil. American
Insurance Co. vs. Judge Pineda, 175
SCRA 416). Consonant with this ruling,
a contracting party cannot incur a
liability more than what is expressly
specified in his undertaking. It cannot be
extended by implication, beyond the
terms of the contract (Rizal Commercial
Banking Corporation vs. Court of
Appeals, supra). And as a rule of
evidence, where the terms of an
agreement are reduced to writing, the
document itself, being constituted by the
parties as the expositor of their
intentions, is the only instrument of
evidence in respect of that agreement
which the law will recognize, so long as
its (sic) exists for the purpose of
evidence (Starkie, Ev., pp. 648, 655,
Kasheenath vs. Chundy, 5 W.R. 68 cited
in Francisco, Revised Rules of Court in
the Phil. p. 153, 1973 Ed.). And if the
terms of the contract are clear and leave
no doubt upon the intention of the
contracting parties, the literal meaning of
its stipulations shall control (Santos vs.
CA, et al., G. R. No. 83664, Nov. 13,
1989; Prudential Bank & Trust Co. vs.
Community Builders Co., Inc., 165
SCRA 285; Balatero vs. IAC, 154 SCRA
530). 13
We hold, therefore, that private respondent did not breach the tenor
of its obligation to the Syquias. While this may be so, can private
respondent be liable for culpa aquiliana for boring the hole on the
vault? It cannot be denied that the hole made possible the entry of
more water and soil than was natural had there been no hole.
The law defines negligence as the "omission of that diligence which
is required by the nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place." 14 In
the absence of stipulation or legal provision providing the contrary,
the diligence to be observed in the performance of the obligation is
that which is expected of a good father of a family.
 29

The circumstances surrounding the commission of the assailed act

— boring of the hole — negate the allegation of negligence. The
reason for the act was explained by Henry Flores, Interment
Foreman, who said that:

Q It has been established in this particular case that a certain

Vicente Juan Syquia was interred on July 25, 1978 at the Parañaque
Cemetery of the Manila Memorial Park Cemetery, Inc., will you
please tell the Hon. Court what or whether you have participation in
connection with said internment (sic)?

A A day before Juan (sic) Syquia was buried our personnel dug a
grave. After digging the next morning a vault was taken and placed
in the grave and when the vault was placed on the grave a hole was
placed on the vault so that water could come into the vault because
it was raining heavily then because the vault has no hole the vault
will float and the grave would be filled with water and the digging
would caved (sic) in and the earth, the earth would (sic) caved in
and fill up the grave. 15 (Emphasis ours)

Except for the foreman's opinion that the concrete vault may float
should there be a heavy rainfall, from the above-mentioned
explanation, private respondent has exercised the diligence of a
good father of a family in preventing the accumulation of water
inside the vault which would have resulted in the caving in of earth
around the grave filling the same with earth.

Thus, finding no evidence of negligence on the part of private

respondent, We find no reason to award damages in favor of
petitioners.

In the light of the foregoing facts, and construed in the language of

the applicable laws and jurisprudence, We are constrained to
AFFIRM in toto the decision of the respondent Court of
Appeals dated December 7, 1990. No costs.

SO ORDERED.

Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.


G.R. No. 126152
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 126152 September 28, 1999
PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS and LILY S. PUJOL,
respondents.
BELLOSILLO, J.:
PHILIPPINE NATIONAL, BANK filed this petition for review on
certiorari under Rule 45 of the Rules of Court assailing the
Decision of the Court of Appeals1 which affirmed the award of
damages by the Regional Trial Court, Branch 154, Pasig City in
favor of private respondent Lily S. Pujol. 2
Sometime prior to 23 October 1990 private respondent Lily S. Pujol
opened with petitioner Philippine National Bank, Mandaluyong
Branch (PNB for brevity), an account denominated as "Combo
Account," a combination of Savings Account and Current Account
in private respondent's business name "Pujol Trading," under which
checks drawn against private respondent's checking account could
be charged against her Savings Account should the funds in her
Current Account be insufficient to cover the value of her checks.
Hence, private respondent was issued by petitioner a passbook on
the front cover of which was typewritten the words "Combo Deposit
Plan."
On 23 October 1990, private respondent issued a check in the
amount of P30,000.00 in favor of her daughter-in-law, Dr. Charisse
M. Pujol. When issued and presented for payment, private
respondent had sufficient funds in her Savings Account. However,
petitioner dishonored her check allegedly for insufficiency of funds
and debited her account with P250.00 as penalty
charge.1âwphi1.nêt
On 24 October 1990 private respondent issued another check in the
amount of P30,000.00 in favor of her daughter, Ms. Venus P. De
Ocampo. When issued and presented for payment petitioner had
sufficient funds in her Savings Account. But, this notwithstanding,
petitioner dishonored her check for insufficiency of funds and
30
debited her account with P250.00 as penalty charge. On 4
November 1990, after realizing its mistake, petitioner accepted and
honored the second check for P30,000.00 and re-credited to private
respondent's account the P250.00 previously debited as penalty.
Private respondent Lily S. Pujol filed with the Regional Trial Court
of Pasig City a complaint for moral and exemplary damages against
petitioner for dishonoring her checks despite sufficiency of her
funds in the bank.
Petitioner admitted in its answer that private respondent Pujol
opened a "Combo Account," a combination of Savings Account and
Current Account with its Mandaluyong branch. It however justified
the dishonor of the two (2) checks by claiming that at the time of
their issuance private respondent Pujol's account was not yet
operational due to lack of documentary requirements, to wit: (a)
Certificate of Business Registration; (b) Permit to Operate Business;
(c) ID Card; and, (d) Combination Agreement. Petitioner further
alleged that despite the non-compliance with such requirements
petitioner placed the sign "Combo Flag" on respondent Pujol's
account out of courtesy and generosity. Petitioner also admitted that
it later honored private respondent's second check, debited the
amount stated therein from her account and re-credited the amount
of P250.00 initially charged as penalty.
On 27 September 1994 the trial court rendered a decision ordering
petitioner to pay private respondent Pujol moral damages of
P100,000.00 and attorney's fees of P20,000.00. It found that private
respondent suffered mental anguish and besmirched reputation as a
result of the dishonor of her checks, and that being a former
member of the judiciary who was expected to be the embodiment of
integrity and good behavior, she was subjected to embarrassment
due to the erroneous dishonor of her checks by petitioner.
The Court of Appeals affirmed in toto the decision of the trial court.
Hence, petitioner comes to this Court alleging that the appellate
court erred (a) in holding that petitioner was estopped from denying
the existence of a "Combo Account" and the fact that it was
operational at the time of the issuance of the checks because
respondent Pujol was issued a Savings Account passbook bearing
the printed words "Combo Deposit Plan;" and, (b) in not holding
that the award by the trial court of moral damages of P100,000.00
and attorney's fees of P20,000.00 was inordinately disproportionate
and unconscionable.
We cannot sustain petitioner. Findings of fact and conclusions of
the lower courts are entitled to great weight on appeal and will not
be disturbed except for strong and cogent reasons, and for that
matter, the findings of the Court of Appeals especially when they
affirm the trial court, and which are supported by substantial
evidence, are almost beyond the power of review by the Supreme
Court. 3
Petitioner does not dispute the fact that private respondent Pujol
maintained a Savings Account as well as a Current Account with its
Mandaluyong Branch and that private respondent applied for a
"Combination Deposit Plan" where checks issued against the
Current Account of the drawer shall be charged automatically
against the latter's Savings Account if her funds in the Current
Account be insufficient to cover her checks. There was also no

question that the Savings Account passbook of respondent Pujol
contained the printed words "Combo Deposit Plan" without
qualification or condition that it would take effect only after
submission of certain requirements. Although petitioner presented
evidence before the trial court to prove that the arrangement was not
yet operational at the time respondent Pujol issued the two (2)
checks, it failed to prove that she had actual knowledge that it was
not yet operational at the time she issued the checks considering that
the passbook in her Savings Account already indicated the words
"Combo Deposit Plan." Hence, respondent Pujol had justifiable
reason to believe, based on the description in her passbook, that her
accounts were effectively covered by the arrangement during the
issuance of the checks. Either by its own deliberate act, or its
negligence in causing the "Combo Deposit Plan" to be placed in the
passbook, petitioner is considered estopped to deny the existence of
and perfection of the combination deposit agreement with
respondent Pujol. Estoppel in pais or equitable estoppel arises when
one, by his acts, representations or admissions, or by his silence
when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief so that he will be
prejudiced if the former is permitted to deny the existence of such
facts. 4
As found by the Court of Appeals, petitioner knew it committed a
mistake in dishonoring the checks of respondent Pujol. This was
based on the testimony of Pedro Lopez, petitioner's employee, that
after the second check was dishonored, petitioner examined
respondent Pujol's account and learned that there was sufficient
funds in the Savings Account, and that only after the second check
was dishonored did petitioner rectify its error. 5 The appellate court
also found that respondent Pujol, who is a retired judge and
community leader, issued the first check dated 23 October 1990 to
her daughter-in-law, Dr. Charisse Pujol, who in turn indorsed the
check to her mother. The latter needed the money to refloat two (2)
of their vessels which sank during a typhoon. When the check was
dishonored for insufficient funds, private respondent's daughter-in-
law confronted the former which subjected her to embarrassment
and humiliation. Petitioner issued the second check dated 24
October 1990 to daughter Venus de Ocampo as payment for the
expenses of her round trip ticket to the United States which were
shouldered by her son-in-law, husband of Venus de Ocampo. When
the second check was initially dishonored for insufficiency of funds,
she again suffered serious anxiety and mental anguish that her son-
in-law would no longer hold her in high esteem. 6
This Court has ruled that a bank is under obligation to treat the
accounts of its depositors with meticulous care whether such
account consists only of a few hundred pesos or of millions of
pesos. Responsibility arising from negligence in the performance of
every kind of obligation is demandable. While petitioner's
negligence in this case may not have been attended with malice and
bad faith, nevertheless, it caused serious anxiety, embarrassment
and humiliation to private respondent Lily S. Pujol for which she is
entitled to recover reasonable moral damages. 7 In the case of
Leopoldo Araneta v. Bank of America 8 we held that it can hardly be
possible that a customer's check can be wrongfully refused payment
without some impeachment of his credit which must in fact be an
actual injury, although he cannot, from the nature of the case,
furnish independent and distinct proof thereof.
31
Damages are not intended to enrich the complainant at the expense
of the defendant, and there is no hard-and-fast rule in the
determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar facts. The
yardstick should be that it is not palpably and scandalously
excessive. In this case, the award of P100,000.00 is reasonable
considering the reputation and social standing of private respondent
Pujol and applying our rulings in similar cases involving banks'
negligence with regard to the accounts of their depositors. 9 The
award of attorney's fees in the amount of P20,000.00 is proper for
respondent Pujol was compelled to litigate to protect her interest. 10
WHEREFORE, the petition is DENIED and the Decision of the
Court of Appeals which affirmed the award by the Regional Trial
Court of Pasig City of moral damages of P100,000.00 and attorney's
fees of P20,000.00 in favor of private respondent Lily S. Pujol is
AFFIRMED. Costs against petitioner.1âwphi1.nêt
SO ORDERED.
Mendoza, Quisumbing and Buena, JJ., concur.
Footnotes
1 Decision penned by Associate Justice Antonio
M. Martinez of the Court of Appeals (later of the
Supreme Court), concurred in by Associate
Justice Ricardo P. Galvez (now Solicitor General)
and Hilarion L. Aquino.
2 Decision penned by Judge Ramon R.
Buenaventura, RTC-Br. 154, Pasig City.
3 Atlantic Gulf and Pacific Company of Manila,
Inc. v. Court of Appeals, G.R. Nos. 114841-42,
23 August 1995, 247 SCRA 606.
4 Panay Electric Co., Inc. v. Court of Appeals,
G.R. No. 81939, 29 June 1989, 174 SCRA 500.
5 Rollo, p. 32.
6 Ibid.
7 Metropolitan Bank and Trust Company v. Court
of Appeals, G.R. No 112576, 26 October 1994,
237 SCRA 761.
8 No. L-25414, 30 July 1971, 40 SCRA 144.
9 Tan v. Court of Appeals, G.R. No.
108555, 20 December 1994, 239 SCRA
310.
10 Ibid.
 32

Nonetheless, private respondent's lease contract was extended until

December 31, 1984.5 Private respondent also continued to occupy
the leased premises beyond the extended term.

On February 5, 1985, private respondent received a letter6 from the

lessor, through its Real Estate Accountant Jane F. Bartolome,
informing him of the increase in rentals, retroactive to January
1985, pending renewal of his contract until the arrival of Ms. Ma.
Rosa Madrigal (one of the owners of Susana Realty).

Four days later or on February 9, 1985, petitioner Manolo Samson

G.R. No. 108245 saw private respondent in the latter's house and offered to buy the
store of Santos & Sons and his right to lease the subject premises.7
Petitioner was advised to return after a week.
Republic of the Philippines
SUPREME COURT On February 15, 1985, petitioner returned to private respondent's
Manila house to confirm his offer. On said occasion, private respondent
presented petitioner with a letter containing his counter proposal,
thus:
SECOND DIVISION
MANOLO SAMSON
G.R. No. 108245 November 25, 1994 Marikina, Metro Manila

MANOLO P. SAMSON, petitioner, Sir:

vs.
COURT OF APPEALS, SANTOS & SONS, INC., In line with our
and ANGEL SANTOS, respondents. negotiation to sell our
rights in the Madrigal
building at Recto,
Clara Dumandan-Singh for petitioner. Rizal Avenue, I
propose the following:
Paterno A. Catacutan for private respondents.
1. The lease contract
between Santos and
PUNO, J.:
Sons, Inc. and
Madrigal was
Petitioner MANOLO P. SAMSON prays for the reversal of the impliedly renewed. It
Decision of the Court of Appeals, dated November 27, 1992,1 will be formally
modifying the decision of the Regional Trial Court of Pasig, Branch renewed this monthly
157, dated November 29, 1990, and absolving private respondent (sic) when Tanya
Angel Santos from liability for the damages sustained by petitioner. Madrigal arrives.

The antecedent facts, as borne by the records, are as follows: 2. To avoid breach of
contract with
The subject matter of this case is a commercial unit at the Madrigal Madrigal, I suggest
Building, located at Claro M. Recto Avenue, Sta. Cruz, Manila. The that you acquire all our
building is owned by Susana Realty Corporation and the subject shares in Santos and
premises was leased to private respondent Angel Santos. The Sons, Inc.
lessee's haberdashery store, Santos & Sons, Inc., occupied the
premises for almost twenty (20) years on a yearly basis.2 Thus, the 3. I will answer and
lease contract in force between the parties in the year 1983 provided pay all obligations of
that the term of the lease shall be one (1) year, starting on August 1, Santos and Sons, Inc.
1983 until July 31, 1984.3 as of February 28,
1985.
On June 28, 1984, the lessor Susana Realty Corporation, through its
representative Mr. Jes Gal R. Sarmiento, Jr., informed respondents Very
that the lease contract which was to expire on July 31, 1984 would
not be renewed.4
Ang
 33

Petitioner affixed his signature on the letter-proposal signifying his involved, with interest
acceptance.8 They agreed that the consideration for the sale of the thereon at the legal rate
store and leasehold right of Santos & Sons, Inc. shall be from the filing of the
P300,000.00. complaint on
November 5, 1985
On February 20, 1985, petitioner paid P150,000.00 to private until the same is fully
respondent representing the value of existing improvements in the paid;
Santos & Sons store. The parties agreed that the balance of
P150,000.00 shall be paid upon the formal renewal of the lease 2. The sum of
contract between private respondent and Susana Realty. It was also P70,000.00
a condition precedent to the transfer of the leasehold right of private representing the cost of
respondent to petitioner.9 additional
improvements of the
In March 1985, petitioner began to occupy the Santos & Sons store. store sold, also with
He utilized the store for the sale of his own goods.10 legal interest from
November 5, 1985
All went well for a few months. In July 1985, however, petitioner until the full payment
received a notice from Susana Realty, addressed to Santos & Sons, thereof;
Inc., directing the latter to vacate the leased premises on or before
July 15, 1985. 11 Private respondent failed to renew his lease over 3. The sum of
the premises and petitioner was forced to vacate the same on July P150,000.00,
16, 1985. representing the loss
that the plaintiff
Petitioner then filed an action for damages against private suffered from the sale
respondent. He imputed fraud and bad faith against private at bargain prices of the
respondent when the latter stated in his letter-proposal that his lease goods taken out of the
contract with Susana Realty has been impliedly renewed. Petitioner store, with legal
claimed that this misrepresentation induced him to purchase the interest thereon from
store of Santos & Sons and the leasehold right of private the (d)ate of this
respondent. decision until the same
is fully paid;
In defense, respondent alleged that their agreement was to the effect
that the consideration for the sale was P300,000.00, broken down as 4. The sum of
follows: P150,000.00 shall be for the improvements in the store, P100,000.00
and the balance of P150,000.00 shall be for the sale of the leasehold representing the profits
right of Santos & Sons over the subject premises. The balance shall which plaintiff failed
be paid only after the formal renewal of the lease contract and its to realize from the sale
actual transfer to petitioner. of the goods referred to
above, with legal
interest thereon from
Trial on the merits ensued. On November 29, 1990, the trial court the date of the decision
rendered a decision 12 in favor of petitioner. The dispositive portion until said amount is
reads: fully paid;

WHEREFORE, AND IN VIEW OF 5. The amounts of

ALL THE FOREGOING, judgment is P100,000.00 and
hereby rendered in favor of plaintiff P50,000.00 as moral
Manolo P. Samson and against and exemplary
defendants Santos and Sons, Inc., and damages, respectively,
Angel C. Santos, ordering the said also with legal interest
defendants to pay jointly and severally thereon, from the date
unto the plaintiff: of this judgment until
fully paid; and
1. The sum of
P150,000.00, 6. The sum of
representing the cash P45,000.00 as and for
advance payment for attorney's fees and
the store and the right expenses of litigation,
to occupy its leased in addition to judicial
premises subject costs.
matter of the sale

On the defendants' counterclaim, the
plaintiff is ordered to return to the
defendants the latter's steel filing cabinet,
adding machine, typewriter and all its
unused sales invoices, receipts and blank
checks, if the plaintiff still has any of the
said papers or documents.
SO ORDERED.13
Private respondent appealed to the Court of Appeals. In a Decision
dated November 27, 1992,14 the appellate court modified the
decision of the trial court after finding that private respondent did
not exercise fraud or bad faith in its dealings with petitioner. The
dispositive portion of the impugned decision reads:
WHEREFORE, the appealed decision is
hereby MODIFIED by reducing the
amounts the trial court awarded to
appellee Manolo P. Samson in that
appellants Santos & Sons, Inc. and Angel
C. Santos are ordered to pay appellee, by
way of reimbursement, the P150,000.00
which the latter gave appellants as
advance payment for their store and lease
right with legal interest to be reckoned
from the promulgation date of this
decision; and AFFIRMED with respect
to the trial court's judgment ordering
appellee to return to appellants the
latter's filing cabinet, adding machine,
typewriter, and all their unused sales
invoices, receipts and blank checks, if
appellee still has any of these documents.
No costs.
SO ORDERED.15
Hence this petition for review with the following assigned errors:
I
WHETHER OR NOT THE COURT OF
APPEALS ERRED IN
DISREGARDING THE FOLLOWING
FACTUAL FINDINGS OF THE TRIAL
COURT:
1. THAT
RESPONDENTS
DELIBERATELY
AND
FRAUDULENTLY
CONCEALED FROM
THE PETITIONER
THE FACT THAT
THE LEASE ON THE
SUBJECT STORE
PREMISES HAD
ALREADY EXPIRED
34
AND WOULD NO
LONGER BE
RENEWED BY THE
LESSOR.
2. THAT SOLELY BY
REASON OF
RESPONDENTS'
FRAUDULENT
CONDUCT AND
BAD FAITH,
PETITIONER
EXERCISING THE
DILIGENCE
REQUIRED UNDER
THE
CIRCUMSTANCES,
THE LATTER
INCURRED
DAMAGES AND
LOSSES.
II
WHETHER OR NOT THE COURT OF
APPEALS ERRED IN HOLDING
RESPONDENTS FREE FROM
LIABILITY TO PETITIONER FOR
THE DAMAGES THE LATTER HAD
INCURRED ON ACCOUNT OF THE
RESPONDENTS' BAD FAITH.
The pivotal issue in the case at bench is whether or not private
respondent Angel Santos committed fraud or bad faith in
representing to petitioner that his contract of lease over the subject
premises has been impliedly renewed by Susana Realty.
Undoubtedly, it was this representation which induced petitioner to
enter into the subject contract with private respondent.
We find the petition devoid of merit.
Bad faith is essentially a state of mind affirmatively operating with
furtive design or with some motive of ill-will.16 It does not simply
connote bad judgment or negligence. It imports a dishonest purpose
or some moral obliquity and conscious doing of wrong.17 Bad faith
is thus synonymous with fraud and involves a design to mislead or
deceive another, not prompted by an honest mistake as to one's
rights or duties, but by some interested or sinister motive.18
In contracts, the kind of fraud that will vitiate consent is one where,
through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.19 This is known as dolo
causante or causal fraud which is basically a deception employed
by one party prior to or simultaneous to the contract in order to
secure the consent of the other.
Petitioner claims that their agreement was that the amount of
P300,000.00 is the consideration for the transfer of private
respondent's leasehold right to him and he paid P150,000.00 as
 35

downpayment therefor. He insists that private respondent acted in and 50/100 square
bad faith in assuring him that his lease contract with Susana Realty meters.
has been impliedly renewed and would be formally renewed upon
the arrival of Tanya Madrigal (representative of Susana Realty). As Please note that we are
evidence of private respondent's bad faith, petitioner stresses that charging the same for
private respondent himself admitted that prior to February 15, 1985, everybody and they all
he was informed by his lawyer that he could not yet sell his lease agreed to pay the new
right to petitioner for his lease over the premises has not been rate.
renewed by Susana Realty Corporation.
We do expect your full
After carefully examining the records, we sustain the finding of cooperation with
public respondent Court of Appeals that private respondent was regards (sic) to this
neither guilty of fraud nor bad faith in claiming that there was matter.
implied renewal of his contract of lease with Susana Realty. The
records will bear that the original contract of lease between the Very truly yours,
lessor Susana Realty and the lessee private respondent was for a
period of one year, commencing on August 1, 1983 until July 31,
1984. Subsequently, however, private respondent's lease was (Sgd.) JANE F.
extended until December 31, 1984. At this point, it was clear that BARTOLOME
the lessor had no intention to renew the lease contract of private Accountant-Real
respondent for another year. However, on February 5, 1985, the Estate
lessor, thru its Real Estate Accountant, sent petitioner a letter20 of
even date, worded as follows: Clearly, this letter led private respondent to believe and conclude
that his lease contract was impliedly renewed and that formal
February 5, 1985 renewal thereof would be made upon the arrival of Tanya
Madrigal. This much was admitted by petitioner himself when he
testified during cross-examination that private respondent initially
Mr. Angel Santos told him of the fact that his lease contract with Susana Realty has
1609-1613 C.M. Recto already expired but he was anticipating its formal renewal upon the
Avenue arrival of Madrigal. 21 Thus, from the start, it was known to both
Sta. Cruz, Manila parties that, insofar as the agreement regarding the transfer of
private respondent's leasehold right to petitioner was concerned, the
Dear Mr. Santos: object thereof relates to a future right.22 It is a conditional contract
recognized in civil law,23 the efficacy of which depends upon an
This is to notify you expectancy — the formal renewal of the lease contract between
that the rentals for the private respondent and Susana Realty.
1609-1613 C.M. Recto
Avenue, Sta. Cruz, The records would also reveal that private respondent's lawyer
Manila, which you are informed him that he could sell the improvements within the store
leasing with (sic) us for he already owned them but the sale of his leasehold right over
has been increased the store could not as yet be made for his lease contract had not
from P77.81 to been actually renewed by Susana Realty. Indeed, it was precisely
P100.00 per square pursuant to this advice that private respondent and petitioner agreed
meter retroactive that the improvements in the store shall be sold to petitioner for
January 1985 (as you P150,000.00 24 while the leasehold right shall be sold for the same
have not vacated the amount of P150,000.00, payable only upon the formal renewal of
place) pending the lease contract and the actual transfer of the leasehold right to
renewal of your petitioner. 25 The efficacy of the contract between the parties was
contract until the thus made dependent upon the happening of this suspensive
arrival of Miss Ma. condition.
Rosa A.S. Madrigal.
Moreover, public respondent Court of Appeals was correct when it
Thus, your new rate faulted petitioner for failing to exercise sufficient diligence in
will be PESOS: verifying first the status of private respondent's lease. We thus quote
FOURTEEN with approval the decision of the Court of Appeals when it ruled,
THOUSAND TWO thus:
HUNDRED FIFTY
ONLY (P14,250.00) When appellant Angel C. Santos said
since you are that the lease contract had expired but
occupying One that it was impliedly renewed, that
Hundred Forty-Two representation should have put appellee
 36

on guard. To protect his interest, appellee
should have checked with the lessor
whether that was so, and this he failed to
do; or he would have simply deferred his
decision on the proposed sale until Miss
Madrigal's arrival, and this appellee also
failed to do. In short, as a buyer of the
store and lease right in question — or as
a buyer of any object of commerce for
that matter — appellee was charged with
the obligation of caution aptly expressed
in the universal maxim caveat emptor.
26
Indeed, petitioner had every opportunity to verify the status of the
lease contract of private respondent with Susana Realty. As held by
this Court in the case of Caram, Jr. v. Laureta, 27 the rule caveat
emptor requires the purchaser to be aware of the supposed title of
the vendor and he who buys without checking the vendor's title
takes all the risks and losses consequent to such failure. In the case
at bench, the means of verifying for himself the status of private
respondent's lease contract with Susana Realty was open to
petitioner. Nonetheless, no effort was exerted by petitioner to
confirm the status of the subject lease right. 28 He cannot now
claim that he has been deceived.
In sum, we hold that under the facts proved, private respondent
cannot be held guilty of fraud or bad faith when he entered into the
subject contract with petitioner. Causal fraud or bad faith on the part
of one of the contracting parties which allegedly induced the other
to enter into a contract must be proved by clear and convincing
evidence. This petitioner failed to do.
IN VIEW WHEREOF, the appealed decision is hereby AFFIRMED
in toto. Costs against petitioner.
All things which are not outside the commerce of men, including
future things, may be the object of a contract. . . .
23 Art. 1461 of the New Civil Codeprovides:
Things having a potential existence may be the object of a contract
of sale.
The efficacy of a sale of a mere hope or expectancy is deemed
subject to the condition that the thing will come into existence.
24 See receipt issued by private respondent to petitioner, dated
February 20, 1985 (Exh. "B-1", Rollo, p. 104), evidencing payment
by the latter of P150,000, representing the "cash advance for the
improvement of Santos & Sons."
25 TSN, March 6, 1989, pp. 8-10.
26 Rollo, at p. 41.
27 No. L-28740, February 24, 1981, 103 SCRA 7.
28 In fact, it clearly appears from the record that there was collusion
between petitioner and private respondent for both were aware at
the time they entered into the contract that there was an existing
stipulation in the original contract of lease prohibiting private
respondent lessee from sub-leasing the property. They nevertheless
entered into the contract and petitioner in fact occupied the store of
the lessee Santos & Sons from March to July 1985 and paid for the
rentals thereof without the knowledge and consent of the lessor-
owner, Susana Realty; see also TSN, November 21, 1988, pp. 36-
39.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.

#Footnotes

1 Penned by Associate Justice Jesus M. Elbinias and concurred in

by Associate Justices Nathanael P. De Pano, Jr. and Angelina S.
Gutierrez.
G.R. No. 109087
11 It appears that on July 2, 1985, the lessor Susana Realty
Incorporation sold its rights over the entire Madrigal Building to THIRD DIVISION
Eduardo Litonjua. The contract of sale between the parties provided
that the building should be cleared of all tenants before delivery
thereof to the new owners. G.R. No. 109087        May 9, 2001

12 Penned by Judge Domingo R. Garcia, presiding judge, Regional RODZSSEN SUPPLY CO. INC., petitioner,
Trial Court, Pasig, Metro Manila, Branch 157; Original Records, vs.
pp. 184-198. FAR EAST BANK & TRUST CO., respondent.
22 This agreement is sanctioned under Art. 1347 of the New Civil PANGANIBAN, J.:
Code which, in part, provides:

When both parties to a transaction are mutually negligent in the
performance of their obligations, the fault of one cancels the
negligence of the other. Thus, their rights and obligations may be
determined equitably. No one shall enrich oneself at the expense of
another.1âwphi1.nêt
The Case
Before us is a Petition for Review on Certiorari1 under Rule 45 of
the Rules of Court, assailing the January 21, 1993 Decision2 of the
Court of Appeals3 (CA) in CA-GR CV No. 26045. The challenged
Decision affirmed with modification the ruling of the Regional Trial
Court of Bacolod City in Civil Case No. 2296. The CA ruled as
follows:
"WHEREFORE, the decision under appeal should
be, as it is hereby affirmed in all its aspects,
except for the deletion of paragraph 2 of its
dispositive portion, which paragraph shall be
replaced by a new paragraph which shall read as
follows:
'2. ordering the defendant to pay the
plaintiff the sum equivalent to 10% of
the total amount due and collectible, as
attorney's fees; and'
"No pronouncement as to costs."4
On the other hand, the trial court had rendered this judgment:
"1. Ordering the defendant to pay the plaintiff the
sum of P76,000.00, representing the principal
amount being claimed in this action, plus interest
thereon at the rate of 12% per annum counted
from October 1979 until fully paid;
"2. Ordering the defendant to pay the plaintiff the
sum equivalent to 25% of the total amount due
and collectible; and
"3. Ordering the defendant to pay the costs of the
suit."5
The Facts
The factual and procedural antecedents of the case are summarized
by the Court of Appeals as follows:
"In the complaint from which the present proceedings originated, it
is alleged that on January 15, 1979, defendant Rodzssen Supply,
Inc. opened with plaintiff Far East Bank and Trust Co. a 30-day
domestic letter of credit, LC No. 52/0428/79-D, in the amount of
P190,000.00 in favor of Ekman and Company, Inc. (Ekman) for the
purchase from the latter of five units of hydraulic loaders, to expire
on February 15, 1979; that subsequent amendments extended the
validity of said LC up to October 16, 1979; that on March 16, 1979,
three units of the hydraulic loaders were delivered to defendant for
which plaintiff on March 26, 1979, paid Ekman the sum of
37
P114,000.00, which amount defendant paid plaintiff before the
expiry date of the LC; that the shipment of the remaining two units
of hydraulic loaders valued at P76,000.00 sent by Ekman was
'readily received by the defendant' before the expiry date [of]
subject LC; that upon Ekman's presentation of the documents for
the P76,000.00 'representing final negotiation' on the LC before the
expiry date, and 'after a series of negotiations', plaintiff paid to
Ekman the amount of P76,000.00; and that upon plaintiff's demand
on defendant to pay for said amount (P76,000.00), defendant'
refused to pay ... without any valid reason'. Plaintiff prays for
judgment ordering defendant to pay the abovementioned
P76,000.00 plus due interest thereon, plus 25% of the amount of the
award as attorney's fees.
"In the Answer, defendant interposed, inter alia,
by way of special and affirmative defenses that
plaintiff ha[d] no cause of action against
defendant; that there was a breach of contract by
plaintiff who in bad faith paid Ekman, knowing
that the two units of hydraulic loaders had been
delivered to defendant after the expiry date of
subject LC; and that in view of the breach of
contract, defendant offered to return to plaintiff
the two units of hydraulic loaders, 'presently still
with the defendant' but plaintiff refused to take
possession thereof.
"The trial court's ruling that plaintiff [was]
entitled to recover from defendant the amount of
P76,000.00 was based on its following
findings/conclusions: (1) under the contract of
sale of the five loaders between Ekman and
defendant, upon Ekman's delivery to, and
acceptance by, defendant of the two remaining
units of the five loaders, defendant became liable
to Ekman for the payment of said two units.
However, as defendant did not pay Ekman, the
latter pressed plaintiff for the payment of said two
loaders in the amount of P76,000.00. In the honest
belief that it was still under obligation to Ekman
for said amount, considering that Ekman had
presented all the necessary documents, plaintiff
voluntarily paid the said amount to Ekman.
Plaintiff's x x x voluntary and lawful act of
payment g[a]ve rise to a quasi-contract between
plaintiff and defendant; and if defendant should
escape liability for said amount, the result would
be to allow defendant to enrich itself at plaintiff's
expense x x x.
"x x x. While defendant, indeed offered to return
the two loaders to plaintiff, x x x this offer was
made 3 years after defendant's receipt of the
goods, when plaintiff pressed for payment. By
said voluntary acceptance of the two loaders,
estoppel works against defendant who should
have refused delivery of, and/or immediately
offered to return, the goods.
"Accordingly, judgment was rendered in favor of
the plaintiff and against the defendant x x x."6

The CA Ruling
The CA rejected petitioner's imputation of bad faith and negligence
to respondent bank for paying for the two hydraulic loaders, which
had been delivered after the expiration of the subject letter of credit.
The appellate court pointed out that petitioner received the
equipment after the letter of credit had expired. "To absolve
defendant from liability for the price of the same," the CA
explained, "is to allow it to get away with its unjust enrichment at
the expense of the plaintiff."
Hence, this Petition.7
Issues
Petitioner presents the following issues for resolution:
"1. Whether or not it is proper for a banking institution to pay a
letter of credit which has long expired or been cancelled.
"2. Whether or not respondent courts were correct in their
conclusion that there was a consummated sale between petitioner
and Ekman Co.
"3. Whether or not Respondent Court of Appeals was correct in
evading the issues raised in the appeal that under the trust receipt,
petitioner was merely the depositary of private respondent with
respect to the goods covered by the trust receipt."8
The Court's Ruling
We affirm the Court of Appeals, but lower the interest rate to only 6
percent and delete the award of attorney's fees.
First Issue:
Efficacy of Letter of Credit
Petitioner asserts that respondent bank was negligent in paying for
the two hydraulic loaders, when it no longer had any obligation to
do so in view of the expiration and cancellation of the Letter of
Credit.
Petitioner Rodzssen Supply Inc. applied for and obtained an
irrevocable 30-day domestic Letter of Credit from Far East Bank
and Trust Company Inc. on January 15, 1979, in favor of Ekman
and Company Inc., in order to finance the purchase of five units of
hydraulic loaders in the amount of P190,000. Originally set to
expire on February 15, 1979, the subject Letter of Credit was
amended several times to extend its validity until October 16, 1979.
The Letter of Credit expressly restricted the negotiation to
respondent bank and specifically instructed Ekman and Company
Inc. to tender the following documents: (1) delivery receipt duly
acknowledged by the buyer, (2) accepted draft, and (3) duly signed
commercial invoices. Likewise, the instrument contained a
provision with regard to its expiration date.8
38
For the first three hydraulic loaders that were delivered, the bank
paid the amount specified in the letter of credit. The present dispute
pertains only to the last two hydraulic loaders.
Clearly, the bank paid Ekman when the former was no longer bound
to do so under the subject Letter of Credit. The records show that
respondent paid the latter P76,000 for the last two hydraulic loaders
on March 14, 1980,10 five months after the expiration of the Letter of
Credit on October 16, 1979.11 In fact, on December 27, 1979, the
bank had informed Rodzssen of the cancellation of the commercial
paper and credited P22,800 to the account of the latter. The amount
represented the marginal deposit, which petitioner had been
required to put up for the unnegotiated portion of the Letter of
Credit -- P76,000 for the two hydraulic loaders.12
The subject Letter of Credit had become invalid upon the lapse of
the period fixed therein.13 Thus, respondent should not have paid
Ekman; it was not obliged to do so. In the same vein, of no moment
was Ekman's presentation, within the prescribed period, of all the
documents necessary for collection, as the Letter of Credit had
already expired and had in fact been cancelled.
Second Issue:
Was Petitioner Liable to Respondent?
Be that as it may, we agree with the CA that petitioner should pay
respondent bank the amount the latter expended for the equipment
belatedly delivered by Ekman and voluntarily received and kept by
petitioner.
Respondent bank's right to seek recovery from petitioner is
anchored, not upon the inefficacious Letter of Credit, but on Article
2142 of the Civil Code which reads as follows:
"Certain lawful, voluntary and unilateral acts give
rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or
benefited at the expense of another."
Indeed, equitable considerations behoove us to allow recovery by
respondent. True, it erred in paying Ekman, but petitioner itself was
not without fault in the transaction. It must be noted that the latter
had voluntarily received and kept the loaders since October 1979.
Petitioner claims that it accepted the late delivery of the equipment,
only because it was bound to accept it under the company's trust
receipt arrangement with respondent bank.
Granting that petitioner was bound under such arrangement to
accept the late delivery of the equipment, we note its unexplained
inaction for almost four years with regard to the status of the
ownership or possession of the loaders. Bewildering was its lack of
action to validate the ownership and possession of the loaders, as
well as its stolidity over the purported failed sales transaction.
Significant too is the fact that it formalized its offer to return the
two pieces of equipment only after respondent's demand for
payment, which came more than three years after it accepted
delivery.
 39

When both parties to a transaction are mutually negligent in the Bank and Trust Co., Inc. P76,000 plus interest
performance of their obligations, the fault of one cancels the thereon at the rate of 6 percent per annum
negligence of the other and, as in this case, their rights and computed from April 7, 1983. After this judgment
obligations may be determined equitably under the law proscribing becomes final, the interest shall be 12 percent per
unjust enrichment. annum.

Payment of Interest 2. The award of attorney's fees in favor of

respondent is DELETED.
We, however, disagree with both the CA and the trial court's
imposition of 12 percent interest on the sum to be paid by petitioner. 3. No pronouncement as to costs.
In Eastern Shipping Lines v. CA,14 the Court laid down the
following guidelines in the imposition of interest: SO ORDERED.

"x x x      x x x      x x x Melo Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.

2. When an obligation, not constituting a loan or forbearance of Footnotes:

money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per Jaime M. Lantin and Fortunato A. Vailoces, both of whom concurred.
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be 7 To eliminate its backlog, the Court on February 27, 2001 resolved to redistribute long-pending cases to justices who
established with reasonable certainty. Accordingly, where the had none, and who were thus tasked to prioritize these old cases. Consequently, this case was raffled to the ponente
demand is established with reasonable certainty, the interest shall for study and report.
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
8 Petitioner's Memorandum, p. 10; rollo, p. 120. Upper case used in the
cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be 14 234 SCRA 88, July 12, 1994, per Vitug, J. See also Keng Hua Paper Products Co.,

deemed to have been reasonably ascertained). The actual base for Inc. v. Court of Appeals, 286 SCRA 257, February 12, 1998; Eastern Assurance and

the computation of legal interest shall, in any case, be on the Surety Corporation v. CA, GR No. 127135, January 18, 2000; Crismina Garments v.

amount finally adjudged. CA, 304 SCRA 356, March 9, 1999.

3. When the judgment of the court awarding a sum of money 15 Art. 2208, Civil Code.

becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
G.R. No. 164349
credit."

Although the sum of money involved in this case was payable to a THIRD DIVISION
bank, the present factual milieu clearly shows that it was not a loan
or forbearance of money. Thus, pursuant to established G.R. No. 164349             January 31, 2006
jurisprudence and Article 2009 of the Civil Code, petitioner is
bound to pay interest at 6 percent per annum, computed from April
7, 1983, the time respondent bank demanded payment from RADIO COMMUNICATIONS OF THE
petitioner. From the finality of the judgment until its satisfaction, PHILIPPINES, INC. (RCPI),Petitioner,
the interest shall be 12 percent per annum.1âwphi1.nêt vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-
Attorney's Fees INFANTE, MARDONIO INFANTE, ZENAIDA
VERCHEZ-CATIBOG, AND FORTUNATO
Considering that negligence is imputable to both parties, both
should bear their respective costs of the suit. We also delete the CATIBOG, Respondents.
award of attorney's fees in favor of respondent bank.15
DECISION
WHEREFORE, the Petition is DENIED and the assailed Decision
of the Court of Appeals AFFIRMED with the following CARPIO MORALES, J.:
MODIFICATIONS:
On January 21, 1991, Editha Hebron Verchez (Editha) was confined
1. Petitioner Rodzssen Supply Co., Inc. is at the Sorsogon Provincial Hospital due to an ailment. On even
ORDERED to reimburse Respondent Far East date, her daughter Grace Verchez-Infante (Grace) immediately hied

to the Sorsogon Branch of the Radio Communications of the
Philippines, Inc. (RCPI) whose services she engaged to send a
telegram to her sister Zenaida Verchez-Catibog (Zenaida) who was
residing at 18 Legal St., GSIS Village, Quezon City1 reading: "Send
check money Mommy hospital." For RCPI’s services, Grace paid
P10.502 for which she was issued a receipt.3
As three days after RCPI was engaged to send the telegram to
Zenaida no response was received from her, Grace sent a letter to
Zenaida, this time thru JRS Delivery Service, reprimanding her for
not sending any financial aid.
Immediately after she received Grace’s letter, Zenaida, along with
her husband Fortunato Catibog, left on January 26, 1991 for
Sorsogon. On her arrival at Sorsogon, she disclaimed having
received any telegram.
In the meantime, Zenaida and her husband, together with her
mother Editha left for Quezon City on January 28, 1991 and
brought Editha to the Veterans Memorial Hospital in Quezon City
where she was confined from January 30, 1991 to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later or on
February 15, 1991.4 On inquiry from RCPI why it took that long to
deliver it, a messenger of RCPI replied that he had nothing to do
with the delivery thereof as it was another messenger who
previously was assigned to deliver the same but the address could
not be located, hence, the telegram was resent on February 2, 1991,
and the second messenger finally found the address on February 15,
1991.
Editha’s husband Alfonso Verchez (Verchez), by letter of March 5,
1991,5 demanded an explanation from the manager of the Service
Quality Control Department of the RCPI, Mrs. Lorna D. Fabian,
who replied, by letter of March 13, 1991,6 as follows:
Our investigation on this matter disclosed that subject telegram was
duly processed in accordance with our standard operating
procedure. However, delivery was not immediately effected due to
the occurrence of circumstances which were beyond the control and
foresight of RCPI. Among others, during the transmission process,
the radio link connecting the points of communication involved
encountered radio noise and interferences such that subject telegram
did not initially registered (sic) in the receiving teleprinter machine.
Our internal message monitoring led to the discovery of the above.
Thus, a repeat transmission was made and subsequent delivery was
effected. (Underscoring supplied)
Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by
letter of July 23, 1991,7 requesting for a conference on a specified
date and time, but no representative of RCPI showed up at said date
and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters Grace
and Zenaida and their respective spouses, filed a complaint against
RCPI before the Regional Trial Court (RTC) of Sorsogon for
40
damages. In their complaint, the plaintiffs alleged that, inter alia,
the delay in delivering the telegram contributed to the early demise
of the late Editha to their damage and prejudice,8 for which they
prayed for the award of moral and exemplary damages9 and
attorney’s fees.10
After its motion to dismiss the complaint for improper venue11 was
denied12 by Branch 5 of the RTC of Sorsogon, RCPI filed its
answer, alleging that except with respect to Grace,13 the other
plaintiffs had no privity of contract with it; any delay in the sending
of the telegram was due to force majeure, "specifically, but not
limited to, radio noise and interferences which adversely affected
the transmission and/or reception of the telegraphic message"; 14 the
clause in the Telegram Transmission Form signed by Grace
absolved it from liability for any damage arising from the
transmission other than the refund of telegram tolls;15 it observed
due diligence in the selection and supervision of its employees; and
at all events, any cause of action had been barred by laches.16
The trial court, observing that "although the delayed delivery of the
questioned telegram was not apparently the proximate cause of the
death of Editha," ruled out the presence of force majeure.
Respecting the clause in the telegram relied upon by RCPI, the trial
court held that it partakes of the nature of a contract of adhesion.
Finding that the nature of RCPI’s business obligated it to dispatch
the telegram to the addressee at the earliest possible time but that it
did not in view of the negligence of its employees to repair its radio
transmitter and the concomitant delay in delivering the telegram on
time, the trial court, upon the following provisions of the Civil
Code, to wit:
Article 2176 – Whoever by act or omission causes damage to
another, there being at fault or negligence, is obliged to pay for the
damage done. Such fault or negligence if there is no pre-existing
contractual relation between the parties, is called quasi-delict and is
governed by the provisions of this Chapter.
Article 1173 defines the fault of (sic) negligence of the obligor as
the "omission of the diligence which is required by the nature of the
obligation and corresponds with the circumstances of the person, of
the time, or the place."
In the instant case, the obligation of the defendant to deliver the
telegram to the addressee is of an urgent nature. Its essence is the
early delivery of the telegram to the concerned person. Yet, due to
the negligence of its employees, the defendant failed to discharge of
its obligation on time making it liable for damages under Article
2176.
The negligence on the part of the employees gives rise to the
presumption of negligence on the part of the employer.17
(Underscoring supplied),
rendered judgment against RCPI. Accordingly, it disposed:
WHEREFORE, in the light of the foregoing premises, judgment is
hereby rendered in favor of the plaintiffs and against the defendant,
to wit:

Ordering the defendant to pay the plaintiffs the following amount:
1. The amount of One Hundred Thousand
(P100,000.00) Pesos as moral damages;
2. The amount of Twenty Thousand (P20,000.00)
Pesos as attorney’s fees; and
3. To pay the costs.
SO ORDERED. 18
On appeal, the Court of Appeals, by Decision of February 27,
2004,19 affirmed the trial court’s decision.
Hence, RCPI’s present petition for review on certiorari, it raising
the following questions: (1) "Is the award of moral damages proper
even if the trial court found that there was no direct connection
between the injury and the alleged negligent acts?"20 and (2) "Are
the stipulations in the ‘Telegram Transmission Form,’ in the nature
"contracts of adhesion" (sic)?21
RCPI insists that respondents failed to prove any causal connection
between its delay in transmitting the telegram and Editha’s death. 22
RCPI’s stand fails. It bears noting that its liability is anchored on
culpa contractual or breach of contract with regard to Grace, and on
tort with regard to her co-plaintiffs-herein-co-respondents.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. (Underscoring
supplied)
Passing on this codal provision, this Court explained:
In culpa contractual x x x the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory
force of contracts, will not permit a party to be set free from liability
for any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to
preserve the interests of the promissee that may include his
"expectation interest," which is his interest in having the benefit
of his bargain by being put in as good a position as he would have
been in had the contract been performed, or his "reliance interest,"
which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have
been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit
that he has conferred on the other party. Indeed, agreements can
accomplish little, either for their makers or for society, unless they
are made the basis for action. The effect of every infraction is to
create a new duty, that is, to make recompense to the one who has
been injured by the failure of another to observe his contractual
41
obligation unless he can show extenuating circumstances, like
proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability.23
(Emphasis and underscoring supplied)
In the case at bar, RCPI bound itself to deliver the telegram within
the shortest possible time. It took 25 days, however, for RCPI to
deliver it.
RCPI invokes force majeure, specifically, the alleged radio noise
and interferences which adversely affected the transmission and/or
reception of the telegraphic message. Additionally, its messenger
claimed he could not locate the address of Zenaida and it was only
on the third attempt that he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. An act of God
cannot be invoked to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a loss. One’s
negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the
effect is found to be partly the result of a person’s participation
– whether by active intervention, neglect or failure to act – the
whole occurrence is humanized and removed from the rules
applicable to acts of God.
xxxx
Article 1174 of the Civil Code states that no person shall be
responsible for a fortuitous event that could not be foreseen or,
though foreseen, was inevitable. In other words, there must be an
exclusion of human intervention from the cause of injury or
loss.24 (Emphasis and underscoring supplied)
Assuming arguendo that fortuitous circumstances prevented RCPI
from delivering the telegram at the soonest possible time, it should
have at least informed Grace of the non-transmission and the non-
delivery so that she could have taken steps to remedy the situation.
But it did not. There lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
Considering the public utility of RCPI’s business and its contractual
obligation to transmit messages, it should exercise due diligence to
ascertain that messages are delivered to the persons at the given
address and should provide a system whereby in cases of
undelivered messages the sender is given notice of non-delivery.
Messages sent by cable or wireless means are usually more
important and urgent than those which can wait for the mail.25
xxxx
People depend on telecommunications companies in times of
deep emotional stress or pressing financial needs. Knowing that
messages about the illnesses or deaths of loved ones, births or

marriages in a family, important business transactions, and notices
of conferences or meetings as in this case, are coursed through the
petitioner and similar corporations, it is incumbent upon them to
exercise a greater amount of care and concern than that shown in
this case. Every reasonable effort to inform senders of the non-
delivery of messages should be undertaken.26
(Emphasis and underscoring supplied)
RCPI argues, however, against the presence of urgency in the
delivery of the telegram, as well as the basis for the award of moral
damages, thus:27
The request to send check as written in the telegraphic text negates
the existence of urgency that private respondents’ allegations that
‘time was of the essence’ imports. A check drawn against a Manila
Bank and transmitted to Sorsogon, Sorsogon will have to be
deposited in a bank in Sorsogon and pass thru a minimum clearing
period of 5 days before it may be encashed or withdrawn. If the
transmittal of the requested check to Sorsogon took 1 day – private
respondents could therefore still wait for 6 days before the same
may be withdrawn. Requesting a check that would take 6 days
before it could be withdrawn therefore contradicts plaintiff’s claim
of urgency or need.28
At any rate, any sense of urgency of the situation was met when
Grace Verchez was able to communicate to Manila via a letter that
she sent to the same addressee in Manila thru JRS.29
xxxx
As far as the respondent court’s award for moral damages is
concerned, the same has no basis whatsoever since private
respondent Alfonso Verchez did not accompany his late wife when
the latter went to Manila by bus. He stayed behind in Sorsogon for
almost 1 week before he proceeded to Manila. 30
When pressed on cross-examination, private respondent Alfonso
Verchez could not give any plausible reason as to the reason why he
did not accompany his ailing wife to Manila.31
xxxx
It is also important to consider in resolving private respondents’
claim for moral damages that private respondent Grace Verchez did
not accompany her ailing mother to Manila.32
xxxx
It is the common reaction of a husband to be at his ailing wife’s side
as much as possible. The fact that private respondent Alfonso
Verchez stayed behind in Sorsogon for almost 1 week convincingly
demonstrates that he himself knew that his wife was not in critical
condition.33
(Emphasis and underscoring supplied)
RCPI’s arguments fail. For it is its breach of contract upon which its
liability is, it bears repeating, anchored. Since RCPI breached its
42
contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption.
For breach of contract then, RCPI is liable to Grace for damages.
And for quasi-delict, RCPI is liable to Grace’s co-respondents
following Article 2176 of the Civil Code which provides:
Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict and is governed by the
provisions of this Chapter. (Underscoring supplied)
RCPI’s liability as an employer could of course be avoided if it
could prove that it observed the diligence of a good father of a
family to prevent damage. Article 2180 of the Civil Code so
provides:
The obligation imposed by Article 2176 is demandable not only for
one’s own acts or omissions, but also for those of persons for whom
one is responsible.
xxxx
The owners and managers of an establishment or enterprise are
likewise responsible for damages caused by their employees in the
service of the branches in which the latter are employed or on the
occasion of their functions.
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
business or industry.
xxxx
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence
of a good father of a family to prevent damage. (Underscoring
supplied)
RCPI failed, however, to prove that it observed all the diligence of a
good father of a family to prevent damage.
Respecting the assailed award of moral damages, a determination of
the presence of the following requisites to justify the award is in
order:
x x x firstly, evidence of besmirched reputation or physical, mental
or psychological suffering sustained by the claimant; secondly, a
culpable act or omission factually established; thirdly, proof that the
wrongful act or omission of the defendant is the proximate cause of
damages sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned by
Article 2219 and Article 2220 of the Civil Code.34

Respecting the first requisite, evidence of suffering by the plaintiffs-
herein respondents was correctly appreciated by the CA in this
wise:
The failure of RCPI to deliver the telegram containing the message
of appellees on time, disturbed their filial tranquillity. Family
members blamed each other for failing to respond swiftly to an
emergency that involved the life of the late Mrs. Verchez, who
suffered from diabetes.35
As reflected in the foregoing discussions, the second and third
requisites are present.
On the fourth requisite, Article 2220 of the Civil Code provides:
Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
(Emphasis and underscoring supplied)
After RCPI’s first attempt to deliver the telegram failed, it did not
inform Grace of the non-delivery thereof and waited for 12 days
before trying to deliver it again, knowing – as it should know – that
time is of the essence in the delivery of telegrams. When its second
long-delayed attempt to deliver the telegram again failed, it, again,
waited for another 12 days before making a third attempt. Such
nonchalance in performing its urgent obligation indicates gross
negligence amounting to bad faith. The fourth requisite is thus also
present.
In applying the above-quoted Article 2220, this Court has awarded
moral damages in cases of breach of contract where the defendant
was guilty of gross negligence amounting to bad faith, or in wanton
disregard of his contractual obligation.36
As for RCPI’s tort-based liability, Article 2219 of the Civil Code
provides:
Moral damages may be recovered in the following and analogous
cases:
xxxx
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,
32, 34, and 35. (Emphasis supplied)
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy and
peace of mind of his neighbors and other persons. The following
and similar acts, though they may not constitute a criminal offense,
shall produce a cause of action for damages, prevention, and other
relief:
xxxx
43
(2) Meddling with or disturbing the private life or family relations
of another. (Emphasis supplied)
RCPI’s negligence in not promptly performing its obligation
undoubtedly disturbed the peace of mind not only of Grace but also
her co-respondents. As observed by the appellate court, it disrupted
the "filial tranquillity" among them as they blamed each other "for
failing to respond swiftly to an emergency." The tortious acts and/or
omissions complained of in this case are, therefore, analogous to
acts mentioned under Article 26 of the Civil Code, which are among
the instances of quasi-delict when courts may award moral damages
under Article 2219 of the Civil Code.
In fine, the award to the plaintiffs-herein respondents of moral
damages is in order, as is the award of attorney’s fees, respondents
having been compelled to litigate to protect their rights.
Clutching at straws, RCPI insists that the limited liability clause in
the "Telegram Transmission Form" is not a contract of adhesion.
Thus it argues:
Neither can the Telegram Transmission Form be considered a
contract of adhesion as held by the respondent court. The said
stipulations were all written in bold letters right in front of the
Telegram Transmission Form. As a matter of fact they were beside
the space where the telegram senders write their telegraphic
messages. It would have been different if the stipulations were
written at the back for surely there is no way the sender will easily
notice them. The fact that the stipulations were located in a
particular space where they can easily be seen, is sufficient notice to
any sender (like Grace Verchez-Infante) where she could manifest
her disapproval, leave the RCPI station and avail of the services of
the other telegram operators.37 (Underscoring supplied)
RCPI misunderstands the nature of a contract of adhesion. Neither
the readability of the stipulations nor their physical location in the
contract determines whether it is one of adhesion.
A contract of adhesion is defined as one in which one of the parties
imposes a ready-made form of contract, which the other party may
accept or reject, but which the latter cannot modify. One party
prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the opportunity to
bargain on equal footing.38 (Emphasis and underscoring supplied)
While a contract of adhesion is not necessarily void and
unenforceable, since it is construed strictly against the party who
drafted it or gave rise to any ambiguity therein, it is stricken down
as void and unenforceable or subversive of public policy when the
weaker party is imposed upon in dealing with the dominant
bargaining party and is reduced to the alternative of taking it or
leaving it, completely deprived of the opportunity to bargain on
equal footing.39
This Court holds that the Court of Appeals’ finding that the parties’
contract is one of adhesion which is void is, given the facts and
circumstances of the case, thus well-taken.
 44
25
WHEREFORE, the petition is DENIED, and the challenged Radio Communications of the Philippines, Inc.
decision of the Court of Appeals is AFFIRMED. v. Rodriguez, G.R. No. 83768, February 28, 1990,
182 SCRA 899, 905 (citations omitted).
Costs against petitioner.
26
Id. at 908 (citations omitted).
SO ORDERED.
34
Philippine Telegraph & Telephone Corporation
CONCHITA CARPIO MORALES v. Court of Appeals, 437 Phil. 76, 84 (2002); see
Associate Justice also Gamboa, Rodriguez, Rivera & Co., Inc. v.
Court of Appeals, G.R. No. 117456, May 6, 2005,
WE CONCUR: 458 SCRA 68 (citations omitted).

35
LEONARDO A. QUISUMBING CA rollo, p. 97 (citations omitted).
Associate Justice
36
See Sarmiento v. Sun-Cabrido, 449 Phil. 108,
Chairperson 116-117 (2003).

37
ANTONIO T. CARPIO Rollo, p. 55.
Associate Justice
38
Philippine Commercial International Bank v.
DANTE O. TINGA Court of Appeals, 325 Phil. 588, 597 (1996).
Associate Justice
39
Saludo, Jr. v. Court of Appeals, G.R. No.
ATTESTATION 95536, March 23, 1992, 207 SCRA 498, 528;
Philippine Commercial International Bank v.
Court of Appeals, supra; Sweet Lines, Inc. v.
I attest that the conclusions in the above Decision were reached in Teves, G.R. No. L-37750, May 19, 1978, 83
consultation before the case was assigned to the writer of the SCRA 361 (citations omitted).
opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the

Division Chairman’s Attestation, it is hereby certified that the
conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the
Court.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
G.R. No. 102970
19 THIRD DIVISION
Penned by Justice Mariano C. Del Castillo, with
the concurrence of Justices Rodrigo V. Cosico
and Vicente Q. Roxas. G.R. No. 102970 May 13, 1993
23
FGU Insurance Corporation v. G.P. Sarmiento LUZAN SIA, petitioner,
Trucking Corporation, 435 Phil. 333, 341-342 vs.
(2002) (citations omitted). COURT OF APPEALS and SECURITY BANK and
24 TRUST COMPANY, respondents.
Mindex Resources Development v. Morillo, 428
Phil. 934, 944-945 (2002) (citations omitted).
Asuncion Law Offices for petitioner.

Cauton, Banares, Carpio & Associates for private
respondent.
DAVIDE, JR., J.:
The Decision of public respondent Court of Appeals in CA-G.R.
CV No. 26737, promulgated on 21 August 1991,1 reversing and
setting aside the Decision, dated 19 February 1990, 2 of Branch 47
of the Regional Trial Court (RTC) of Manila in Civil Case No. 87-
42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST
CO.," is challenged in this petition for review on certiorari under
Rule 45 of the Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the
destruction or loss of the stamp collection of the plaintiff (petitioner
herein) contained in Safety Deposit Box No. 54 which had been
rented from the defendant pursuant to a contract denominated as a
Lease Agreement. 3 Judgment therein was rendered in favor of the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the plaintiff and against the defendant, Security Bank &
Trust Company, ordering the defendant bank to pay the plaintiff the
sum of —
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as
actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine
Currency, as moral damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as
attorney's fees and legal expenses.
The counterclaim set up by the defendant are hereby dismissed for
lack of merit.
No costs.
SO ORDERED.4
The antecedent facts of the present controversy are summarized by
the public respondent in its challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No.
54 of the defendant bank at its Binondo Branch located at the
Fookien Times Building, Soler St., Binondo, Manila wherein he
placed his collection of stamps. The said safety deposit box leased
by the plaintiff was at the bottom or at the lowest level of the safety
deposit boxes of the defendant bank at its aforesaid Binondo
Branch.
During the floods that took place in 1985 and 1986, floodwater
entered into the defendant bank's premises, seeped into the safety
deposit box leased by the plaintiff and caused, according to the
plaintiff, damage to his stamps collection. The defendant bank
rejected the plaintiff's claim for compensation for his damaged
45
stamps collection, so, the plaintiff instituted an action for damages
against the defendant bank.
The defendant bank denied liability for the damaged stamps
collection of the plaintiff on the basis of the "Rules and Regulations
Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"),
particularly paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of
the lease, is limited to the exercise of the
diligence to prevent the opening of the
safe by any person other than the Renter,
his authorized agent or legal
representative;
xxx xxx xxx
"13. The Bank is not a depository of the
contents of the safe and it has neither the
possession nor the control of the same.
The Bank has no interest whatsoever in
said contents, except as herein provided,
and it assumes absolutely no liability in
connection therewith."
The defendant bank also contended that
its contract with the plaintiff over safety
deposit box No. 54 was one of lease and
not of deposit and, therefore, governed
by the lease agreement (Exhs. "A", "L")
which should be the applicable law; that
the destruction of the plaintiff's stamps
collection was due to a calamity beyond
obligation on its part to notify the
plaintiff about the floodwaters that
inundated its premises at Binondo branch
which allegedly seeped into the safety
deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the
contents of the safety deposit box be conducted, which was done on
December 8, 1988 by its clerk of court in the presence of the parties
and their counsels. A report thereon was then submitted on
December 12, 1988 (Records, p. 98-A) and confirmed in open court
by both parties thru counsel during the hearing on the same date
(Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff
Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the
presence of the undersigned, plaintiff's and defendant's counsel.
Said Safety Box when opened contains two albums of different
sizes and thickness, length and width and a tin box with printed
word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs
and character."
Condition of the above-stated Items —
"Both albums are wet, moldy and badly damaged.
 46

1. The first album measures 10 1/8 inches in length, 8 inches in Safe by any person other than the Renter,
width and 3/4 in thick. The leaves of the album are attached to his authorized agent or legal
every page and cannot be lifted without destroying it, hence the representative.
stamps contained therein are no longer visible.
xxx xxx xxx
2. The second album measure 12 1/2 inches in length, 9 3/4 in width
1 inch thick. Some of its pages can still be lifted. The stamps therein 13. The bank is not a depository of the
can still be distinguished but beyond restoration. Others have lost its contents of the Safe and it has neither the
original form. possession nor the control of the same.
The Bank has no interest whatsoever in
3. The tin box is rusty inside. It contains an album with several said contents, except as herein provided,
pieces of papers stuck up to the cover of the box. The condition of and it assumes absolutely no liability in
the album is the second abovementioned album."5 connection therewith.

The SECURITY BANK AND TRUST COMPANY, hereinafter
referred to as SBTC, appealed the trial court's decision to the public
respondent Court of Appeals. The appeal was docketed as CA-G.R.
CV No. 26737.
In urging the public respondent to reverse the decision of the trial
court, SBTC contended that the latter erred in (a) holding that the
lease agreement is a contract of adhesion; (b) finding that the
defendant had failed to exercise the required diligence expected of a
bank in maintaining the safety deposit box; (c) awarding to the
plaintiff actual damages in the amount of P20,000.00, moral
damages in the amount of P100,000.00 and attorney's fees and legal
expenses in the amount of P5,000.00; and (d) dismissing the
counterclaim.
are valid since said stipulations are not contrary to law, morals,
good customs, public order or public policy; and
d) there is no concrete evidence to show that SBTC failed to
exercise the required diligence in maintaining the safety deposit
box; what was proven was that the floods of 1985 and 1986, which
were beyond the control of SBTC, caused the damage to the stamp
collection; said floods were fortuitous events which SBTC should
not be held liable for since it was not shown to have participated in
the aggravation of the damage to the stamp collection; on the
contrary, it offered its services to secure the assistance of an expert
in order to save most of the stamps, but the appellee refused;
appellee must then bear the lose under the principle of "res perit
domino."

On 21 August 1991, the respondent promulgated its decision the Unsuccessful in his bid to have the above decision reconsidered by
dispositive portion of which reads: the public respondent, 7 petitioner filed the instant petition wherein
he contends that:
WHEREFORE, the decision appealed
from is hereby REVERSED and instead I
the appellee's complaint is hereby
DISMISSED. The appellant bank's IT WAS A GRAVE ERROR OR AN
counterclaim is likewise DISMISSED. ABUSE OF DISCRETION ON THE
No costs.6 PART OF THE RESPONDENT
COURT WHEN IT RULED THAT
In reversing the trial court's decision and absolving SBTC from RESPONDENT SBTC DID NOT FAIL
liability, the public respondent found and ruled that: TO EXERCISE THE REQUIRED
DILIGENCE IN MAINTAINING THE
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) SAFETY DEPOSIT BOX OF THE
constitutes the terms and conditions of the contract of lease which PETITIONER CONSIDERING THAT
the appellee (now petitioner) had voluntarily and knowingly SUBSTANTIAL EVIDENCE EXIST
executed with SBTC; (sic) PROVING THE CONTRARY.

b) the contract entered into by the parties regarding Safe Deposit II

Box No. 54 was not a contract of deposit wherein the bank became
a depositary of the subject stamp collection; hence, as contended by THE RESPONDENT COURT
SBTC, the provisions of Book IV, Title XII of the Civil Code on SERIOUSLY ERRED IN
deposits do not apply; EXCULPATING PRIVATE
RESPONDENT FROM ANY
c) The following provisions of the questioned lease agreement of LIABILITY WHATSOEVER BY
the safety deposit box limiting SBTC's liability: REASON OF THE PROVISIONS OF
PARAGRAPHS 9 AND 13 OF THE
9. The liability of the bank by reason of AGREEMENT (EXHS. "A" AND "A-
the lease, is limited to the exercise of the 1").
diligence to prevent the opening of the

III
THE RESPONDENT COURT
SERIOUSLY ERRED IN NOT
UPHOLDING THE AWARDS OF THE
TRIAL COURT FOR ACTUAL AND
MORAL DAMAGES, INCLUDING
ATTORNEY'S FEES AND LEGAL
EXPENSES, IN FAVOR OF THE
PETITIONER.8
We subsequently gave due course the petition and required both
parties to submit their respective memoranda, which they complied
with.9
Petitioner insists that the trial court correctly ruled that SBTC had
failed "to exercise the required diligence expected of a bank
maintaining such safety deposit box . . . in the light of the
environmental circumstance of said safety deposit box after the
floods of 1985 and 1986." He argues that such a conclusion is
supported by the evidence on record, to wit: SBTC was fully
cognizant of the exact location of the safety deposit box in question;
it knew that the premises were inundated by floodwaters in 1985
and 1986 and considering that the bank is guarded twenty-four (24)
hours a day , it is safe to conclude that it was also aware of the
inundation of the premises where the safety deposit box was
located; despite such knowledge, however, it never bothered to
inform the petitioner of the flooding or take any appropriate
measures to insure the safety and good maintenance of the safety
deposit box in question.
SBTC does not squarely dispute these facts; rather, it relies on the
rule that findings of facts of the Court of Appeals, when supported
by substantial exidence, are not reviewable on appeal by certiorari.
10
The foregoing rule is, of course, subject to certain exceptions such
as when there exists a disparity between the factual findings and
conclusions of the Court of Appeals and the trial court. 11 Such a
disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public
respondent, is that the "Lease Agreement " covering Safe Deposit
Box No. 54 (Exhibit "A and "1") is just that — a contract of lease
— and not a contract of deposit, and that paragraphs 9 and 13
thereof, which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of
the lease, is limited to the exercise of the
diligence to prevent the opening of the
Safe by any person other than the Renter,
his autliorized agent or legal
representative;
xxx xxx xxx
13. The bank is not a depository of the
contents of the Safe and it has neither the
possession nor the control of the same.
The Bank has no interest whatsoever said
47
contents, except as herein provided, and
it assumes absolutely no liability in
connection therewith. 12
are valid and binding upon the parties. In the challenged decision,
the public respondent further avers that even without such a
limitation of liability, SBTC should still be absolved from any
responsibility for the damage sustained by the petitioner as it
appears that such damage was occasioned by a fortuitous event and
that the respondent bank was free from any participation in the
aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this
Court finds the petition to be impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court
of Appeals, 13 this Court explicitly rejected the contention that a
contract for the use of a safety deposit box is a contract of lease
governed by Title VII, Book IV of the Civil Code. Nor did We fully
subscribe to the view that it is a contract of deposit to be strictly
governed by the Civil Code provision on deposit; 14 it is, as We
declared, a special kind of deposit. The prevailing rule in American
jurisprudence — that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the
box is that of a bailor and bailee, the bailment for hire and mutual
benefit 15 — has been adopted in this jurisdiction, thus:
In the context of our laws which authorize banking institutions to
rent out safety deposit boxes, it is clear that in this jurisdiction, the
prevailing rule in the United States has been adopted. Section 72 of
the General Banking Act [R.A. 337, as amended] pertinently
provides:
"Sec. 72. In addition to the operations specifically authorized
elsewhere in this Act, banking institutions other than building and
loan associations may perform the following services:
(a) Receive in custody funds, documents, and valuable objects, and
rent safety deposit boxes for the safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections
(a), (b) and (c) of this section as depositories or as
agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of
a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting
out of the safety deposit boxes is not independent from, but related
to or in conjunction with, this principal function. A contract of
deposit may be entered into orally or in writing (Art. 1969, Civil
Code] and, pursuant to Article 1306 of the Civil Code, the parties
thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public
policy. The depositary's responsibility for the safekeeping of the
objects deposited in the case at bar is governed by Title I, Book IV
of the Civil Code. Accordingly, the depositary would be liable if, in
performing its obligation, it is found guilty of fraud, negligence,

delay or contravention of the tenor of the agreement [Art. 1170, id.].
In the absence of any stipulation prescribing the degree of diligence
required, that of a good father of a family is to be observed [Art.
1173, id.]. Hence, any stipulation exempting the depositary from
any liability arising from the loss of the thing deposited on account
of fraud, negligence or delay would be void for being contrary to
law and public policy. In the instant case, petitioner maintains that
conditions 13 and l4 of the questioned contract of lease of the safety
deposit box, which read
"13. The bank is a depositary of the contents of the safe and it has
neither the possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as
herein expressly provided, and it assumes absolutely no liability in
connection therewith."
are void as they are contrary to law and public policy. We find
Ourselves in agreement with this proposition for indeed, said
provisions are inconsistent with the respondent Bank's
responsibility as a depositary under Section 72 (a) of the General
Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to exercise
reasonable diligence only with respect to who shall be admitted to
any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person
shall be admitted to any rented safe and beyond this, the Bank will
not be responsible for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary
to the actual practice of the Bank. It is not correct to assert that the
Bank has neither the possession nor control of the contents of the
box since in fact, the safety deposit box itself is located in its
premises and is under its absolute control; moreover, the respondent
Bank keeps the guard key to the said box. As stated earlier, renters
cannot open their respective boxes unless the Bank cooperates by
presenting and using this guard key. Clearly then, to the extent
above stated, the foregoing conditions in the contract in question are
void and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a
customer of a safe-deposit company, the parties, since the relation is
a contractual one, may by special contract define their respective
duties or provide for increasing or limiting the liability of the
deposit company, provided such contract is not in violation of law
or public policy. It must clearly appear that there actually was such
a special contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability of the
deposit company will not be enlarged or restricted by words of
doubtful meaning. The company, in renting safe-deposit boxes,
cannot exempt itself from liability for loss of the contents by its
own fraud or negligence or that, of its agents or servants, and if a
provision of the contract may be construed as an attempt to do so, it
will be held ineffective for the purpose. Although it has been held
that the lessor of a safe-deposit box cannot limit its liability for loss
of the contents thereof through its own negligence, the view has
been taken that such a lessor may limit its liability to some extent by
agreement or stipulation ."[10 AM JUR 2d., 466]. (citations
omitted) 16
48
It must be noted that conditions No. 13 and No. 14 in the Contract
of Lease of Safety Deposit Box in CA Agro-Industrial Development
Corp. are strikingly similar to condition No. 13 in the instant case.
On the other hand, both condition No. 8 in CA Agro-Industrial
Development Corp. and condition No. 9 in the present case limit the
scope of the exercise of due diligence by the banks involved to
merely seeing to it that only the renter, his authorized agent or his
legal representative should open or have access to the safety deposit
box. In short, in all other situations, it would seem that SBTC is not
bound to exercise diligence of any kind at all. Assayed in the light
of Our aforementioned pronouncements in CA Agro-lndustrial
Development Corp., it is not at all difficult to conclude that both
conditions No. 9 and No. 13 of the "Lease Agreement" covering the
safety deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as they
are meant to exempt SBTC from any liability for damage, loss or
destruction of the contents of the safety deposit box which may
arise from its own or its agents' fraud, negligence or delay.
Accordingly, SBTC cannot take refuge under the said conditions.
Public respondent further postulates that SBTC cannot be held
responsible for the destruction or loss of the stamp collection
because the flooding was a fortuitous event and there was no
showing of SBTC's participation in the aggravation of the loss or
injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia
Jurisdicada Española 17 says: "In a legal sense and, consequently,
also in relation to contracts, a "caso fortuito" prevents (sic) 18 the
following essential characteristics: (1) the cause of the unforeseen
ands unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the human will;
(2) it must be impossible to foresee the event which constitutes the
"caso fortuito," or if it can be foreseen, it must be impossible to
avoid; (3) the occurrence must be such as to render it impossible for
one debtor to fulfill his obligation in a normal manner; and (4) the
obligor must be free from any participation in the aggravation of the
injury resulting to the creditor." (cited in Servando vs. Phil., Steam
Navigation Co., supra). 19
Here, the unforeseen or unexpected
inundating floods were independent of
the will of the appellant bank and the
latter was not shown to have participated
in aggravating damage (sic) to the
stamps collection of the appellee. In fact,
the appellant bank offered its services to
secure the assistance of an expert to save
most of the then good stamps but the
appelle refused and let (sic) these
recoverable stamps inside the safety
deposit box until they were ruined. 20
 49

Both the law and authority cited are clear enough and require no 10 Rollo, 61, citing Gonzales vs. Court of
further elucidation. Unfortunately, however, the public respondent Appeals, 90 SCRA 183 [1979].
failed to consider that in the instant case, as correctly held by the
trial court, SBTC was guilty of negligence. The facts constituting 11 Sacay vs. Sandiganbayan, 142 SCRA
negligence are enumerated in the petition and have been 593 [1986]; Remalante vs. Tibe, 158
summarized in this ponencia. SBTC's negligence aggravated the SCRA 138 [1988]; Medina vs. Asisitio,
injury or damage to the stamp collection. SBTC was aware of the 191 SCRA 218 [1990].
floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In 12 Exhibit "A-1", Original Records,
view thereof, it should have lost no time in notifying the petitioner dorsal side of page 87.
in order that the box could have been opened to retrieve the stamps,
thus saving the same from further deterioration and loss. In this
respect, it failed to exercise the reasonable care and prudence 13 G.R. No. 90027, 3 March 1993.
expected of a good father of a family, thereby becoming a party to
the aggravation of the injury or loss. Accordingly, the 14 Title XII, Book IV, Civil Code.
aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads: 15 10 Am Jur 2d, 440-441.

Those who in the performance of their 16 Entries in brackets appear as

obligation are guilty of fraud, footnotes in the decision.
negligence, or delay, and those who in
any manner contravene the tenor thereof, 17 5 Enciclopedia Juridicada Española.
are liable for damages,
18 Should be presents.
thus comes to the succor of the petitioner. The destruction or loss of
the stamp collection which was, in the language of the trial court,
19 117 SCRA 832 [1982].
the "product of 27 years of patience and diligence" 21 caused the
petitioner pecuniary loss; hence, he must be compensated therefor.
22 Article 2220, Civil Code.
We cannot, however, place Our imprimatur on the trial court's
award of moral damages. Since the relationship between the
petitioner and SBTC is based on a contract, either of them may be

G.R. No. L-24571

held liable for moral damages for breach thereof only if said party
had acted fraudulently or in bad faith. 22 There is here no proof of
fraud or bad faith on the part of SBTC.
EN BANC
WHEREFORE, the instant petition is hereby GRANTED. The
challenged Decision and Resolution of the public respondent Court
of Appeals of 21 August 1991 and 21 November 1991, respectively, G.R. No. L-24571 December 18, 1970
in CA-G.R. CV No. 26737, are hereby SET ASIDE and the
Decision of 19 February 1990 of Branch 47 of the Regional Trial JOSE L. PONCE DE LEON, plaintiff-appellant,
Court of Manila in Civil Case No. 87-42601 is hereby
vs.
REINSTATED in full, except as to the award of moral damages
which is hereby set aside. REHABILITATION FINANCE CORPORATION,
defendant-appellant and third-party defendant-appellant,
Costs against the private respondent. ROSALINA SORIANO, TEOFILA SORIANO and
REV. FR. EUGENIO R. SORIANO, third-party
SO ORDERED. plaintiffs-appellants.

Feliciano, Bidin, Romero and Melo, JJ., concur. CONCEPCION, C.J.:

# Footnotes
1 Rollo, 34-41. Per Associate Justice
Lucio L. Victor, concurred in by
Associate Justices Santiago M. Kapunan
and Segundino G. Chua.
Records of Civil Case No. 87-42601, 87.
Appeal from a decision of the Court of First Instance of Rizal, the
dispositive part of which reads:
IN VIEW OF THE FOREGOING, the
Court hereby renders judgment
dismissing plaintiff's complaint with
costs against plaintiff; ordering plaintiff
Jose Ponce de Leon to pay the defendant

RFC the amount of FIVE HUNDRED
TWENTY-NINE THOUSAND TWO
HUNDRED SIXTY FIVE PESOS AND
FIFTY FOUR (P529,265.54)
CENTAVOS, with interest at six percent
per annum from November 24, 1954
until fully paid, the further sum of ONE
HUNDRED EIGHTY (P180.00) pesos
per month from May 20, 1955 until
plaintiff vacates the house and lot at Taft
Avenue, Pasay City, and FIVE
THOUSAND (P5,000.00) PESOS as
damages for the injunction and costs.
The Court declares the mortgage of one-
half of the lot covered by Original
transfer certificate of title No. 8094 of
the lands records of Rizal Province
belonging to the third-party plaintiffs,
namely Rosalina Soriano, Rev. Fr.
Eugenio Soriano and Teofila Soriano del
Rosario null and void and the sheriff's
sale in favor of the RFC of said one-half
share likewise null and void.1
As correctly set forth in said decision, the main facts are:
On August 14, 1945, herein plaintiff Jose
L. Ponce de Leon and Francisco Soriano,
father of third-party plaintiffs Teofila
Soriano del Rosario, Rosalina Soriano
and Rev. Fr. Eugenio Soriano, obtained a
loan for P10,000.00 from the Philippine
National Bank (PNB), Manila,
mortgaging a parcel of land situated at
Barrio Ibayo, Municipality of Parañaque,
Rizal, covered by original certificate of
title No. 8094 of the land records of
Rizal Province in the name of Francisco
Soriano, married to Tomasa Rodriguez,
as security for the loan (Exhibit 15-
Soriano). On August 16, 1945, Ponce de
Leon gave P2,000.00 to Soriano from the
proceeds of the loan (Exhibit "N"). The
loan was subsequently increased to
P17,500.00 and an amendment to the real
estate mortgage, Exhibit "15-Soriano,"
was executed by Jose L. Ponce de Leon
and Francisco Soriano on March 13,
1946 (Exhibit "16-Soriano").
On May 4, 1951, Jose L. Ponce de Leon
filed with the Rehabilitation Finance
Corporation (RFC for short) Manila, his
loan application, Exhibit "1-RFC," for an
industrial loan, for putting up a sawmill,
in the amount of P800,000.00 offering as
security certain parcels of land, among
which, was the parcel which Ponce de
Leon and Soriano mortgaged to the PNB.
The application stated that the properties
50
offered for security for the RFC loan are
encumbered to the PNB, Bacolod, and to
Cu Unjieng Bros. The properties offered
for security to the RFC were inspected
by the appraisers of the latter, who
submitted the following appraisals:
1. Land .............................................
P480,228.00
2. Building ........................................ P
12,000.00
3. Machinery & equiptment .......... P
67,101.00
4. Transportation equipment ......... P
14,000.00
Total ..............................................
P573,329.00
(Exh. "6-a RFC")
The application was approved for
P495,000.00 and the mortgage contract
(Exhibit "A," also "16-RFC & "33-
Soriano") was executed on October 8,
1951 by Jose L. Ponce de Leon, his wife
Carmelina Russel, and Francisco
Soriano. The same parties signed a
promissory note (Exhibit "A") for
P495,000.00, with interest at 6% per
annum, payable on installments every
month for P28,831.64 in connection with
the mortgage deed. Before the mortgage
deed was signed, the Notary Public,
Felipe Cuaderno, Jr. before whom it was
acknowledged, translated it in Tagalog to
Francisco Soriano, who thereafter
affixed his signature to the document. At
the time that Francisco Soriano signed
the mortgage deed, Exhibit "A," his
spouse Tomasa Rodriguez was already
dead leaving as her heirs, her children
namely, Rosalina, Teofila and Rev. Fr.
Eugenio Soriano, none of whom signed
the said mortgage deed or the promissory
note.
The mortgage deed specifically
stipulated that the proceeds thereof shall
be used exclusively for the purchase of
machinery and equipment, construction
of buildings and the payment of
obligations and that the release of the
amounts loaned shall be at the discretion
of the RFC. In view of these conditions,
the RFC paid Ponce de Leon's
obligations of P100,000.00 to the PNB;
P30,000.00 to Cu Unjieng Bros; and

P5,000.00 to Arturo Colmenares. From
the balance of P360,000.00, the sum of
P352,000.00 was released to Jose L.
Ponce de Leon at various amounts during
the period from December, 1951 to July
1952. The checks covering these releases
were issued to Jose L. Ponce de Leon in
view of the authority given to him in
writing by Francisco Soriano and
Carmelina Russel (Exhibit "33-A-
Soriano," Exhibit "A" and Exhibit "16-
RFC").
On March 12, 1952, Jose L. Ponce de
Leon and his wife Carmelina Russel
executed an addendum to the chattel
mortgage for machineries and
equipments (Exhibit "F").
None of the amortization and interests
which had become due was paid and, for
this reason, the RFC took steps for the
extra-judicial foreclosure of the
mortgaged properties consisting of real
estates and the sawmill and its
equipments of Ponce de Leon situated in
two places in Samar. The RFC was the
purchaser of all the mortgaged properties
in the ensuing sheriff's sales, with the
exception of two parcels of land situated
in Bacolod City which were purchased
by private individuals. Many items of the
mortgaged machineries and equipments
could not be found. The parcels of land
mortgaged were sold as follows:
1) Nine parcels at Bacolod
City
................................................P78,800.00
2) Two parcels acquired by private
individuals .................... P5,790.00
3) Two parcels at Pasay City with
improvements ................. P15,000.00
4) The land of Soriano at Parañaque,
Rizal ............................ P10,000.00
5) The Machineries & equipments that
were left ............................. P6,000.00
The Sheriff sold the land covered by
original certificate of Title No. 8094 in
the name of Francisco Soriano, married
to Tomasa Rodriguez, on June 15, 1954
and the deed of sale, dated April 19,
1955 was executed by the sheriff in favor
of the purchaser thereof, the RFC,
51
including all the other properties sold
(Exhibit "15-RFC," also "54-Soriano").
Previous to the expiration of the one-year
period of redemption, Francisco Soriano,
through Teofila Soriano del Rosario
offered to repurchase the Soriano lot for
P14,000.00 and on June 14, 1955, the
last day for the redemption of the lot,
Francisco Soriano, in company with his
daughter, Rosalina and Teofila, went to
see Mr. Bernardo, Chief of the assets
department of the RFC, and offered to
redeem said lot for P14,000.00 but the
offer was rejected and they were told to
participate in the public sale of the land
to be conducted by the RFC. Jose L.
Ponce de Leon did not offer to redeem
the mortgaged properties sold at anytime
before the expiration of the period of
redemption.
The RFC scheduled a public sale of the
lot registered in the name of Francisco
Soriano and of the other lots which the
RFC acquired in the Sheriff's sale for
February 20, 1956 in view of the
inability of Ponce de Leon or Soriano to
legally redeem the properties sold by the
Sheriff within the one year period after
the sale.
On February 18, 1956, Jose L. Ponce de
Leon instituted the present action
alleging that there was delay in the
releases of the amount of the loan; that
the RFC withheld the amount of
P19,000.00 from the loan until it had
verified whether Ponce de Leon had still
an unpaid indebtedness to the defunct
Agricultural and Industrial Bank, the
RFC's predecessor, and this was paid
only after one year had passed; that the
typhoon in October and November, 1952
had caused destructions to his sawmills
and hampered his operations for which
reason, he asks, in his complaint, that the
amortizations on his obligations which
became due since October, 1952 be
declared extinguished; that the sheriff's
sales be declared null and void because
the properties were sold at grossly
inadequate prices and that said sales
were not conducted in accordance with
law; that the RFC be compelled to
account for his machineries and
equipments at his lumber mill in
Calbayog and to reimburse him for the
value of the unaccounted machineries
and equipments; that the RFC be ordered
to pay him actual and moral damages for

P105,000.00 and costs. De Leon asked
for the issuance of a writ of preliminary
injunction to restrain the RFC from
carrying out its contemplated public sale.
The Court set the petition for injunction
for hearing but no one appeared for the
RFC at the hearing thereof so that the
Court had to issue the preliminary
injunction prayed for. De Leon caused
notice of lis pendens to be recorded in
relation with this case.
The RFC filed its answer sustaining the
legality of the mortgage and Sheriff's
sales and counter-claimed that Ponce de
Leon be ordered to pay the deficiency
claim representing the balance of the
latter's indebtedness, rental of the lot and
house at Taft Avenue, Pasay City
occupied by Ponce de Leon and
damages.
Subsequent to the filing of Ponce de
Leon's complaint against the RFC,
Francisco Soriano wrote a letter, dated
February 20, 1956, to the President
asking the latter's intervention so that the
projected sale on the same date to be
conducted by the RFC may be suspended
insofar as the lot in his name is
concerned and that he be allowed to
redeem it (Exhibit "27-Soriano"). This
letter was referred by the Executive
Office to the RFC, which sent a letter,
Exhibit "29-Soriano," to Francisco
Soriano informing the latter that he could
redeem his former property for not less
than its appraised value of P59,647.05,
payable 20% down and the balance in
ten years, with 6% interest. Soriano did
not redeem the lot under the conditions
of the RFC. He then filed a third-party
complaint in this case with the RFC and
Jose L. Ponce de Leon as the third-party
defendants. Due to the death of
Francisco Soriano, he was substituted as
third-party plaintiff by his children,
namely, Teofila Soriano del Rosario,
Rosalina Soriano and Rev. Fr. Eugenio
Soriano.
The Sorianos contend that the mortgage
in favor of the RFC and promissory note
signed by Francisco Soriano lacked the
latter's consent and was without
consideration insofar as Francisco
Soriano is concerned and hence null and
void as to him and his children; that the
lot covered by original certificate of title
No. 8094 in the name of Francisco
Soriano belonged to the conjugal
52
partnership of the latter and his wife,
Tomasa Rodriguez, now deceased, and
since the latter was already dead when
the mortgage was executed and her
children who have thus inherited her
share have not signed the mortgage
contract and promissory note, at least,
the one-half share of the lot belonging
now to the Soriano sisters and brothers,
the third-party plaintiffs, have not been
legally included in the mortgage to the
RFC so that the latter had not acquired
said one-half share in the sheriff's sale.
The Sorianos further ask that they be
allowed to redeem the remaining one-
half share, that which belonged to their
father, for one-half of P10,000.00 which
was the amount for which the RFC
acquired the whole lot in the sheriff's
sale. The third party-plaintiffs also ask
that Ponce de Leon be ordered to
reimburse them for whatever amount
they may use in redeeming the lot and
expenses incident thereto and that Ponce
de Leon and the RFC be made to pay
them moral damages which their father
suffered and attorney's fees.
Answering the third-party complaint, the
RFC and Ponce de Leon affirm the
legality of the mortgage deed insofar as
Soriano is concerned. The RFC further
contends that the mortgage was binding
on the whole Soriano lot and that there
was no valid redemption of this lot.
Ponce de Leon interposed a counterclaim
for various sums of money allegedly
received from him by Francisco Soriano
and the present third-party plaintiffs.2
In due course, the lower court rendered judgment the dispositive
part of which is quoted at the beginning of this decision. Said court
held that the typhoons in October and November 1952 did not
relieve the plaintiff from his obligations under the promissory note
and the deed of mortgage in favor of the RFC; that the sheriff's sale
of the mortgaged properties is valid; that the RFC need not account
for the machineries and equipment of the sawmill in Samar or
reimburse the value of such machinery and equipment as may be
unaccounted for, they having become property of the RFC, owing to
plaintiff's failure to exercise the right of redemption in accordance
with law; that neither may he recover damages from the RFC for the
alleged delay in the releases made by the same, since their contract
stipulates that the proceeds of the loan shall be released at the
discretion of the Mortgagee and plaintiff's offer of redemption came
long after the expiration of the period therefor, and was not for the
full amount of plaintiff's liability, which he, moreover, asked to be
reduced and wanted to pay in installments; and that, accordingly,
plaintiff has no right to recover any damages.

Upon the other hand, the court found that plaintiff should pay: (1)
rentals for the use of the mortgaged property (house and lot) at
Pasay City, after the title thereto had passed to the RFC, and (2) the
sum of P529,265.54, representing the balance of plaintiff's
obligation in favor of the RFC — which, as of November 24, 1954,
amounted to P583,270.49, plus 10% thereof, as stipulated penalty,
or the aggregate sum of P641,597.54 -after deducting therefrom the
sum of P112,332.00 for which the mortgaged properties had been
sold, (3) apart from the sum of P5,000.00, as damages for the
injunction issued, at his behest, and the costs.
As regards the third party complaint of the Sorianos, the lower
court: (1) overruled their claim to the effect that Francisco Soriano
had signed the promissory note and the deed of mortgage in favor of
the RFC without knowledge of the contents thereof and without any
consideration therefor; but (b) held that, being registered in the
name of "Francisco Soriano, married to Tomasa Rodriguez," the
property covered by original certificate of title No. 8094 —
hereinafter referred to as the Parañaque property — is presumed to
belong to the conjugal partnership of said spouses, and that, the
RFC having failed to offset this presumption, the mortgage on and
the sale of the property by the sheriff are null and void as to one-
half (½) thereof.
Moreover, the court declared: (a) that the RFC was justified in
rejecting the offer, made by the Sorianos, to redeem said property
for, pursuant to section 78 of Republic Act No. 337, redemption
could be effected "only by paying the amount fixed in the order of
execution;" (b) that plaintiff's counterclaim against the Sorianos is
barred by the statute of limitations; (c) that neither may he recover
damages from the Sorianos, their alleged bad faith not bound to pay
damages to the RFC, the action of the former against the latter not
being altogether unjustified.
All of the parties — namely, plaintiff, Jose Ponce de Leon,
defendant, Rehabilitation Finance Corporation, hereinafter referred
to as RFC (now Development Bank of the Philippines), and
Rosalina Soriano, Fr. Eugenio Soriano and Teofila Soriano del
Rosario, hereinafter referred to as the Sorianos — have appealed
from said decision.
Appeal of the Sorianos
The Sorianos maintain that the lower court erred: (1) in holding that
the promissory note and the deed of mortgage executed by
Francisco Soriano in favor of the RFC are valid as regards one-half
of the Parañaque property; (2) in ruling that the extrajudicial sale
thereof to the RFC is valid as to the aforementioned one-half of said
property; (3) in not sentencing the RFC to allow the redemption of
such half of said property by the Sorianos, as heirs of the deceased
Francisco Soriano, for one-half of the sum of P10,000 for which the
whole lot was sold to the RFC, or, at least, for the whole sum of
P10,000; (4) in not declaring that section 78 of Rep. Act No. 337 is
unconstitutional and in holding that the same, instead of Act No.
3135, as amended by Act No. 4118, is the law applicable to the
case; (5) in considering that the case of Villar v. de Paderanga3 is
authoritative or controlling in the case at bar; (6) in not sentencing
the plaintiff and the RFC to pay damages to the Sorianos; (7) in not
ordering the RFC to return OCT No. 8094, covering the Parañaque
53
property, to the Sorianos, free from any lien or encumbrance; and
(8) in denying the motion for reconsideration of the Sorianos.
The latter's first assignment of error is predicated upon theory that,
when the promissory note and the deed of mortgage in question
were executed by Francisco Soriano, he was somewhat absent-
minded, owing to senility, he being then a septuagenarian, apart
from illiterate, for he could write only his name; that he was
persuaded to sign said promissory note and deed of mortrage thru
fraud, deceit and undue influence, and did not know the true nature
of these instruments when he affixed his signatures thereon; and
that said instruments are also null and void for lack of cause and
consideration. In this connection, the appealed decision has the
following to say:
The third-party plaintiffs ask that the
mortgage deed and promissory note be
declared null and void with respect to
Francisco Soriano for lack of consent
and consideration. It is claimed that
Francisco Soriano was made to believe
by Ponce de Leon when he signed the
mortgage deed and the promissory note
that these were documents releasing his
land from the previous mortgage in favor
of the PNB and that Francisco Soriano
did not receive a single centavo out of
the RFC loan.
The principal witness on the above
allegation of the third-party plaintiffs is
Rosalina Soriano, who testified that her
father, Francisco was an old man who
was absent-minded; that in 1945, Ponce
de Leon merely borrowed her father's
certificate of title on the pretext that he
would see if it were valid; that she gave
it to Ponce de Leon who never returned
the certificate and it turned out that the
latter mortgaged it to the PNB by
deceiving her father in signing the
mortgage contract; that in 1951, her
father received a sheriff's notice that the
land would be foreclosed; that her father
went to see Ponce de Leon in Negros but
the latter assured him that nothing would
happen to his land; that in October, 1951,
she and her father went to see Ponce de
Leon; that when the latter told her father
that the property was mortgaged to the
RFC, her father got angry at Ponce de
Leon saying that the latter fooled him but
Ponce de Leon assured him that he
would redeem the land but he failed to
do so.
Ponce de Leon denied having deceived
Francisco Soriano into signing the
mortgage deed covering his land, saying
that the transaction was with the full and
complete knowledge and understanding

of Francisco Soriano. He was supported
by Felipe Cuaderno, Jr., the Notary
Public, who notarized the mortgage
deed, who said that he explained and
translated into Tagalog, a language
known and spoken by Francisco Soriano,
the mortgage deed.
The fact that Francisco Soriano may
have been absent-minded could not be
said to have the effect of vitiating his
consent to the mortgage deed because the
execution and signing of a contract is not
a matter that concerns past events in
which absent-mindedness may be taken
into account. Besides, the testimony of
Rosalina Soriano to the effect that her
father told Ponce de Leon that the latter
fooled him shows that the old man
Soriano could remember past events, for
if truly absent-minded, Francisco would
not recollect what he claims to be what
really took place at the RFC office as
testified to by Rosalina.
Neither could Francisco Soriano be
considered feeble-minded if we believe
the testimony of Rosalina which shows
Soriano's determination to see to it that
the wrong done him was righted and that
his property may not be taken away from
him, for according to Rosalina, he even
went to Negros alone to see Ponce de
Leon he received the Sheriff's notice of
foreclosure and as shown by his alleged
going to see Ponce de Leon a number of
times about his land and of his enlisting
the aid of Ramon Lacson.
The Sorianos stress that, according to
Felipe Cuaderno, Jr., the Notary Public,
when the latter asked Francisco Soriano,
after he had translated the mortgage deed
into Tagalog if he (Francisco)
understood it, it was Ponce de Leon who
said that the old man already (k)new it.
But, granting that this was what
happened, yet, Francisco Soriano would
certainly have protested against the
statement of Ponce de Leon if Francisco
did not really know what the transaction
was about or he would have told
Cuaderno that the document was not in
accordance with the agreement between
him and Ponce de Leon considering that
the document was already translated to
the old man by Cuaderno in the Tagalog
language which Soriano understood.
Besides, if Ponce de Leon really
deceived Francisco Soriano into signing
54
the mortgage deed and promissory note
so much so that in October, 1951, the old
man Soriano was so angry at Ponce de
Leon that he told the latter that he fooled
him as testified to by Rosalina Soriano,
then why was it that Ponce de Leon was
made one of the sponsors of the
thanksgiving mass of the Neo-Prysbeter
Rev. Fr. Eugenio Soriano, the old man's
son and one of the present third-party
plaintiffs? The conduct of the Sorianos in
making Ponce de Leon one of the
sponsors in the thanksgiving mass of
Rev. Fr. Eugenio Soriano in which
Ponce de Leon spent a considerable
amount for the big feast that followed
the mass is inconsistent with the
Sorianos' claim that Ponce de Leon had
hoodwinked Francisco Soriano into
signing the mortgage instrument and the
promissory note.
Moreover, the mere oral unsupported
testimony of Rosalina Soriano, an
interested party and one of the plaintiffs
herein, is not sufficient to overcome the
legal presumption of the regularity of the
mortgage deed, a contract celebrated
with all the legal requisites under the
safeguard of a notarial certificate (Naval,
et al. v. Enriquez, 3 Phil. 670-72). Such
unsupported testimony of the interested
party Rosalina Soriano is not that clear,
strong and convincing evidence beyond
mere preponderance of evidence,
required to show the falsity or nullity of
a notarial document (Sigue, et al. v.
Escaro CA, 53 Q.C. 1161; Jocson v.
Ratacion, G.R. No. 41687; Palanca v.
Chillanchin v. Coquinco, G.R. No. L-
1355; Robinson v. Villafuerte, 18 Phil.
171).
With reference to the contention that
there was no consideration received by
Francisco Soriano out of the mortgage
contract and the promissory note
executed in connection therewith, this is
a matter which concerned merely
Francisco Soriano and Jose L. Ponce de
Leon for Francisco Soriano had
expressly in writing (Exhibit '33-a-
Soriano') authorized Jose L. Ponce de
Leon to have the check or checks
covering the amount of the mortgage
issued in the name of said Jose L. Ponce
de Leon. Whatever arrangements the
latter and Francisco Soriano may have
had with respect to the amounts thus
given by the RFC on account of the
mortgage is not the concern of the RFC

if Ponce de Leon did not in fact give any
portion of the amount to Francisco
Soriano. At any rate, there is ample
evidence to show that Francisco Soriano
received part of the consideration of the
loan from the RFC. It will be recalled
that part of this loan was paid for the
obligation of Francisco Soriano and
Ponce de Leon to the Philippine
National Bank secured by a mortgage of
the lot in the name of Francisco Soriano.
That Francisco Soriano received portions
of this PNB loan from Ponce de Leon is
shown by the fact that on August 16,
1945, Francisco Soriano received the
amount of P2,000.00 from Ponce de
Leon, evidenced by the receipt exhibit
"N", and this amount must have been
part of the P10,000.00 consideration of
the PNB mortgage because this
mortgage was executed on August 11,
1945 or two days before Soriano
received from Ponce de Leon the amount
of P2,000.00 on August 16, 1945. And
two days thereafter, on August 18, 1945,
Francisco Soriano again received from
Ponce de Leon the amount of P350.00 as
shown by the receipt exhibit '0-3' and, on
April 27, 1945, the amount of P1,000.00
was received by Francisco Soriano from
Ponce de Leon as shown by his receipt
exhibit "0-1" to pay the mortgage on his
lot to Apolonio Pascual. On March 12,
1952, Francisco Soriano received the
amount of P3,000.00 from de Leon as
shown by the check exhibit 'X-2" and on
June 3, 1952, the amount of P50.00 as
shown by the check exhibit "X-6" and
P200.00 on October 22, 1952 as shown
by the check exhibit "X-7". Rosalina
Soriano herself received P50.00 on
March 30, 1952 from Ponce de Leon as
shown by the check marked Exhibit "X-
3" and third-party plaintiff Rev. Eugenio
Soriano received P100.00 on March 3,
1952 as shown by the check exhibit "X-
1" and P50.00 on March 13, 1952 as
shown by exhibit "X-4." There is
therefore no ground for declaring the
mortgage contract and promissory note
invalid for lack of consideration insofar
as Francisco Soriano and his children are
concerned.4
The facts thus relied upon by His Honor, the Trial Judge, are borne
out by the record, and We are fully in accord with the conclusions
drawn therefrom.
In support of their second assignment of error, the Sorianos
maintain that the sum of P10,000, for which the Parañaque property
was sold to the RFC, is ridiculously inadequate, considering that
55
said property had been assessed at P59,647.05. This pretense is
devoid of merit, for said property was subject to redemption and:
... where there is the right to redeem ...
— inadequacy of price should not be
material, because the judgment debtor
may re-acquire the property or else sell
his right to redeem and thus recover any
loss he claims to have suffered by reason
of the price obtained at the execution
sale.5
Then, again, as the trial court had correctly of served:
But, mere inadequacy of the price
obtained at the sheriff's sale unless
shocking to the conscience will not be
sufficient to set aside the sale if there is
no showing that, in the event of a
regular sale, a better price can be
obtained. The reason is that, generally,
and, in forced sales, low prices are
usually offered (1 Moran's Rules of
Court, pp. 834-835). Considering that in
Gov't of P.I. v. Sorna, G.R. No. 32196,
wherein property worth P120,000.00 was
sold for only P15,000.00, in Philippine
National Bank v. Gonzales, 45 Phil. 693,
wherein property valued at P45,000.00
was sold for P15,000.00 and in Cu
Unjieng & Sons v. Mabalacat Sugar Co.,
58 Phil. 439, property worth
P300,000.00 to P400,000.00 was sold for
P177,000.00, the Court cannot consider
the sale of the Bacolod properties, the
Taft Avenue house and lot and the
Parañaque property of the Sorianos null
and void for having been sold at
inadequate prices shocking to the
conscience and there being no showing
that in the event of a resale, better prices
can be obtained. 6
The third, fourth and fifth assignments of error of the Sorianos refer
to the amount for which they feel entitled to redeem the
aforementioned property.
It will be recalled that, before the expiration of the redemption
period, Teofila Soriano del Rosario offered to repurchase said
property for P14,000; that she and her sister Rosalina reiterated the
offer on the last day of said period; and that the offer was rejected
by the RFC, whose action was upheld by the lower court, inasmuch
as sec. 78 of Rep. Act 337 provides that, "(i)n the event of
foreclosure ... the mortgagor or debtor whose real property has been
sold at public auction ... for the ... payment of an obligation to any
bank, banking, or credit institution, ... shall have the right ... to
redeem the property by paying the amount fixed by the court in the
order of execution, ...," not the amount for which it had been
purchased by the buyer at public auction. We have already declared
that" ... (o)nly foreclosure of mortgages to banking institutions

(including the Rehabilitation Finance Corporation) and those made
extrajudicially are subject to legal redemption, by express provision
of statute, ..." 7 and, although neither an ordinary bank nor the RFC
was involved in the case in which this pronouncement had been
made, the same was relevant to the subject-matter of said case and
to the issue raised therein. At any rate, We reiterate the
aforementioned pronouncement, it being in accordance with law,
for, pursuant to Rep. Act No. 337:
... The terms "banking institution" and
"bank," as used in this Act, are
synonymous and interchangeable and
specifically include banks, banking
institutions, commercial banks, savings
banks, mortgage banks, trust companies,
building and loan associations, branches
and agencies in the Philippines of foreign
banks, hereinafter called Philippine
branches, and all other corporations,
companies, partnerships, and
associations performing banking
functions in the Philippines. 8
The Sorianos insist that the present case is governed, not by Rep.
Act No. 337, but by Act No. 3135, as amended by Act No. 4118 —
pursuant to which, in relation to section 465 of Act No. 190, the
redemption may be made by "paying the purchaser the amount of
his purchase," with interest and taxes — the deed of real estate
mortgage in favor of the RFC having allegedly been executed and
the aforementioned property having been sold pursuant to said Acts
Nos. 3135 and 4118.
The conclusion drawn by the Sorianos from these facts is untenable.
As set forth in its title, Act No. 3135 was promulgated "to regulate
the sale of property under special powers inserted in or annexed to
real estate mortgages," Section 6 thereof provides that in all cases of
"extrajudicial sale ... made under the special power hereinbefore
referred to," the property sold may be redeemed within "one year
from and after the date of the sale ...." Act No. 4118 amended Act
No. 3135 by merely adding thereto three (3) new sections. Upon the
other hand, Rep. Act No. 337, otherwise known as "The General
Banking Act," is entitled "An Act Regulating Banks and Banking
Institutions and for other purposes." Section 78 thereof limits the
amount of the loans that may be given by banks and banking or
credit institutions on the basis of the appraised value of the property
given as security, as well as provides that, in the event of
foreclosure of a real estate mortgage to said banks or institutions,
the property sold may be redeemed "by paying the amount fixed by
the court in the order of execution," or the amount judicially
adjudicated to the creditor bank. This provision had the effect of
ammending section 6 of Act No. 3135, insofar as the redemption
price is concerned, when the mortgagee is a bank or a banking or
credit institution, said section 6 of Act No. 3135 being, in this
respect, inconsistent with the above-quoted portion of section 78 of
Rep. Act No. 337. In short, the Parañaque property was sold
pursuant to said Act No. 3135, but the sum for which it is
redeemable shall be governed by Rep. Act No. 337, which partakes
of the nature of an amendment to Act No. 3135, insofar as
mortgages to banks are banking or credit institutions are concerned,
to which class the RFC belongs. At any rate, the conflict between
56
the two (2) laws must be resolved in favor of Rep. Act No. 337,
both as a special and as the subsequent legislation. 9
The sixth, seventh and eighth assignments of error made by the
Sorianos are mere consequences of those already disposed of.
Hence, no further discussion thereof is necessary.
Plaintiff's Appeal
Plaintiff Ponce de Leon alleges that the lower court has erred: (1)
"in not setting aside the foreclosure sales on the mortgage contract
dated October 8, 1951"; (2) "in stating that the proceeds of the
foreclosure sales were conscionable"; (3) in not granting Ponce de
Leon's claim for adjustment and not "giving him a reasonable time
to pay whatever obligations he may have"; (4) in not granting him
damages nor directing the return of his properties; (5) "in not
ordering a new trial for the purpose of adjusting" his "obligations
and determining the terms and conditions of his obligation"; and (6)
in not granting his claim against the Sorianos.
With respect to his first assignment of error, plaintiff maintains that
his promissory note Exhibit A was not yet overdue when the
mortgage was foreclosed, because the installments stipulated in said
promissory note have "no fixed or determined dates of payment," so
that the note is unenforceable and "the RFC should have first asked
the court to determine the terms, conditions and period of maturity
thereof."
In this connection, it should be noted that, pursuant to Exhibit A,
the total sum of P495,000 involved therein shall be satisfied in
quarterly installments of P28,831.64 each — representing interest
and amortization — and that, although the date of maturity of the
first installment was left blank, the promissory note states that the
"date of maturity (was) to be fixed as of the date of the last release,"
completing the delivery to the plaintiff of the sum of P495,000 lent
to him by the RFC. He now says that this sum of P495,000 has not,
as yet, been fully released by the RFC. But this is contrary to the
facts of record, for, during the trial, his counsel, Atty. Jose Orozco,
made the following admission:
Out of the loan of P495,000.00, the
following were paid to the creditors of
Jose Ponce de Leon: P100,000.00 to the
PNB, P30,000.00 to Cu Unijeng Bros.
P5,000.00 to Arturo Colmenares,
P1,000.00 to Lorenzo Balagtas. The total
amount paid to the creditors is
P136,000.00 which were taken out of the
proceeds of P495,000.00. The rest were
all paid in the name of Jose Ponce de
Leon. 10
In short, part of the sum of P495,000 had been delivered by the
RFC to the creditors of the plaintiff and Francisco Soriano, as
agreed upon by them, in payment of their outstanding obligations,
and the balance of said sum of P495,000 was turned over to the
plaintiff, with the written authorization and conformity of Francisco
Soriano. This is borne out by the fact that, prior to the institution of
this case, plaintiff had not complained of failure of the RFC to fully
release the aforementioned sum of P495,000. Indeed, in his own

complaint herein, he merely alleged a "delay in the release." Even
so, he impliedly admitted that the first installment was due in
October 1952 — or, more specifically, on October 24, 1952, this
being the date given therefor in the letter-demands of the RFC, the
accuracy of which were not questioned by the plaintiff — so that
the last release made by the RFC to complete the sum of P495,000
must have taken place on July 24, 1952, although, in answer to a
question propounded to him, by his own counsel, as regards the date
he "received the total amount granted by the RFC," plaintiff said —
on the witness stand — he "believed that it was in the last part or
quarter of 1953." At this juncture, it is noteworthy that plaintiff
claims the right to a suspension of payment or an extension of the
period to pay the RFC owing to the typhoons that had lashed his
sawmill in October and November 1952, thus indicating clearly that
the amount of the loan extended to him and Francisco Soriano had
then been fully released by the RFC three (3) months before
October 1952 and that the first installment under the promissory
note Exhibit A was due that month, as claimed by the RFC.
At any rate, Annex A, in effect, authorized the RFC to fix the date
of maturity of the installments therein stipulated, which is allowed
by the Negotiable Instruments Law 11 and when a promissory note
expresses "no time for payment," it is deemed "payable on
demand." 12
Under his second assignment of error, plaintiff maintains that the
aggregate price of P112,332.00, for which the mortgaged properties
had been sold at public auction, is unconscionable, said properties
being allegedly worth P1,202,976. This premise is inaccurate.
It should be noted that plaintiff and Francisco Soriano were granted
a P495,000 loan on the security, not only, of the existing properties
offered as guarantee, but, also, on that of assets — appraised at
P570,000 — yet to be acquired only plaintiff, partly with money
thus received from the RFC and partly with his own funds. After
obtaining said loan and receiving the amount thereof, less the sum
of P136,000 applied to the payment of outstanding obligations,
plaintiff failed to purchase the machinery and equiptment he had
promised to get, or to set up the constructions he had undertaken to
make. Moreover, the RFC found that the mortgaged lots in the cities
of Pasay and Bacolod, which were originally appraised at
P492,288.00, were actually worth P172,530,00 only. Again, a good
part of the machinery and equipment existing in one of the
mortgaged lands, when it was inspected before the granting of the
loan, were subsequently lost or missing, and those that remained
were, at the time of the sale to the RFC, in bad shape, so that the
appraised value thereof was then estimated at P10,000 only. Under
these circumstances, it is clear that the lower court did not err in
approving the sale of the mortgaged properties for the aggregate
sum of P112,332.
As regards his third assignment of error, it is urged by the plaintiff
that he is entitled to a "suspension of payment," or a postponement
of the date of maturity of obligation to pay, in view of the typhoons
that had "practically wiped out" his sawmill in Samar during the
months of October and November 1952. This claim is predicated
upon Article 1174 of our Civil Code, reading:
... Except in cases expressly specified by
the law, or when it is otherwise declared
57
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.
Plaintiff cannot avail of the benefits of this provision since he was
not bound to deliver the aforementioned sawmill, or any other
specific thing damaged or destroyed by typhoons, to the RFC. His
obligation was merely generic, namely, to pay certain sums of
money to the RFC, at stated intervals. As His Honor, the Trial
Judge had aptly put it:
... in the instant case, there was an
obligation on the part of the debtor to
pay his loan, independently of the
purpose for which the money loaned was
intended to be used and this obligation to
pay continues to subsist notwithstanding
the fact that it may have become
impossible for the debtor to use the
money loaned for the particular purpose
that was intended (Milan v. Rio y
Glabarrieta, 45 Phil. 718). There is hence
no ground for declaring the
amortizations due on the principal loan
since October, 1952 as extinguished due
to fortuitous event or to grant plaintiff a
reasonable time to pay the due
amortizations as asked for by Ponce de
Leon in his complaint. 13
Being mere corollaries to his first three assignments of error, which
cannot be sustained, plaintiff's fourth, fifth and sixth assignments of
error must have the same fate.
Defendant's Appeals
The RFC contends that the lower court erred: (1) in holding that the
Parañaque property is presumed to belong to the conjugal
partnership of Mr. and Mrs. Francisco Soriano; (2) in failing to give
due weight to the testimony of Gregorio Soriano, and in holding
that the same is insufficient to overcome the presumption in favor of
the conjugal nature of said property; (3) in failing to consider that
the Sorianos are now estopped from questioning the validity of the
mortgage on and the foreclosure sale of said property; (4) in
annulling the mortgage insofar as one-half of said property is
concerned, despite the finding that part of the proceeds of the RFC
loan was paid to settle the PNB loan secured by the same property;
and (5) in holding that the mortgage thereon and the sheriff's sale
thereof to the RFC are null and void as regards, one-half of said
property. These assignments of error may be reduced to one,
namely that the lower court erred in avoiding the sale to the RFC of
the Parañaque property, upon the ground that the same formed part
of the conjugal partnership of Mr. and Mrs. Francisco Soriano.
In this connection, it appears that the property was registered in the
name of "Francisco Soriano, married to Tomasa Rodriguez," and
that based upon this fact alone — without any proof establishing

satisfactorily that the property had been acquired during coverture
— the lower court presumed that it belongs to the conjugal
partnership of said spouses. We agree with the RFC that the lower
court has erred in applying said presumption.
We should not overlook the fact that the title to said property was
not a transfer certificate of title, but an original one, issued in
accordance with a decree which, pursuant to law, merely confirms a
pre-existing title. 14 Said original certificate of title does not
establish, therefore, the time of acquisition of the Parañaque
property by the registered owner thereof.
Then, again, the lower court applied said presumption, having in
mind, presumably, Article 160 of our Civil Code, which reads:
... All property of the marriage is
presumed to belong to the conjugal
partnership, unless it be proved that it
pertains exclusively to the husband or to
the wife.
This provision must be construed in relation to Articles 153 to 159
of the same Code, enumerating the properties "acquired ... during
the marriage" that constitute the conjugal partnership. Consistently
therewith, We have held that "the party who invokes this
presumption must first prove that the property in controversy was
acquired during the marriage. In other words, proof of acquisition
during coverture is a condition sine qua non for the operation of
the presumption in favor of conjugal partnership." 15 It had, earlier,
been declared, 16 that "(t)he presumption under Article 160 of the
Civil Code refers to property acquired during the marriage ...." We
even added that, there being "no showing as to when the property in
question was acquired ... the fact that the title is in the wife's name
alone is determinative." This is borne out by the fact that, in the
previous cases applying said presumption, 17 it was duly
established that the property in question therein had been acquired
during coverture. Such was, also, the situation obtaining in
Servidad v. Alejandrino 18 cited in the decision appealed from.
The case at bar is differently situated. The Sorianos have not
succeeded in proving that the Parañaque property was acquired
"during the marriage" of their parents. What is more, there is
substantial evidence to the contrary.
Gregorio Soriano testified that his first cousin, Francisco Soriano,
had acquired said property from his parents, long before he got
married. In this connection, the lower court, however, said that:
... the credibility of this witness is subject
to doubt for it was shown that he had an
improper motive in testifying against the
third-party plaintiffs because he had a
niece who was prosecuted by the third-
party plaintiffs for estafa, .... 19
This observation is, to our mind, hardly justifiable. To begin with,
when counsel for the Sorianos asked the witness whether or not his
grandchild or grandniece Flordeliza Clemente had been accused of
"estafa" by the Sorianos, counsel for the RFC objected thereto, and
the court sustained the objection, upon the ground that the question
58
was "irrelevant." As a consequence, there is no evidence of the
prosecution of Flordeliza Clemente by the Sorianos. What is more,
the ruling of the court declaring the matter "irrelevant" to the
present case rendered it unnecessary for the RFC to prove that said
prosecution — if it were a fact — had nothing to do with the
testimony of Gregorio Soriano. It would, therefore, be less than fair
to the RFC to draw an inference adverse thereto resulting from the
absence of evidence to this effect. At any rate, said prosecution does
not necessarily warrant the conclusion that Gregorio Soriano was
impelled by an "improper motive" in testifying as he did. After all,
the Sorianos are, likewise, nieces of Gregorio Soriano and he was
not the party allegedly accused by them.
Again, this witness testified in a straightforward manner, and
disclosed a good number of details bearing the ear-marks of
veracity. What is more, his testimony was corroborated, not only by
Felipe Cuaderno, Jr. and OCT No. 8094, but, also, by the testimony
of third-party plaintiff Rosalina Soriano. Indeed, Felipe Cuaderno,
Jr. — an assistant attorney and notary public of the RFC, before
whom the deed of mortgage was acknowledged — testified that, in
a conference he had before the execution of the promissory note and
the deed of mortgage in favor of said institution, Francisco Soriano
assured him that the Parañaque property was "his own separate
property, having acquired it from his deceased father by inheritance
and that his children have nothing to do with the property." This
was, in effect, confirmed by no less than Rosalina Soriano, for she
stated, on cross-examination, that her father, Francisco Soriano,
"was born and ... raised" in said property, so that — contrary to her
testimony in chief — he could not have told her that he and his wife
had bought it, as the Sorianos would have Us believe.
Needless to say, had the property been acquired by them during
coverture, it would have been registered, in the name not of
"Francisco Soriano, married to Tomasa Rodriguez," but of the
spouses "Francisco Soriano and Tomasa Rodriguez." In Litam v.
Espiritu, 20 We quoted with approval the following observation
made in the decision under review therein:
Further strong proofs that the properties
in question are the paraphernal properties
of Marcosa Rivera, are the very Torrens
Titles covering said properties. All the
said properties are registered in the name
of "Marcosa Rivera, married to Rafael
Litam." This circumstance indicates that
the properties in question belong to the
registered owner, Marcosa Rivera, as her
paraphernal properties, for if they were
conjugal, the titles coveting the same
should have been issued in the names of
Rafael Litam and Marcosa Rivera. The
words 'married to Rafael Litam'written
after the name of Marcosa Rivera, in
each of the above mentioned titles are
merely descriptive of the civil status of
Marcosa Rivera, the registered owner of
the properties covered by said titles.
The records further show that on August 16, 1945 — or two (2)
days after the execution of the deed of mortgage for P10,000 in
favor of the PNB — Francisco Soriano received P2,000 from
 59

plaintiff herein; that, early in 1951, Francisco Soriano received a The fact that Mallorca failed to exercise
letter informing him that the PNB mortgage on the Parañaque her right of redemption, which she
property would be foreclosed, unless the debt guaranteed therewith sought to enforce in a judicial court, ends
were settled; that, accordingly, his children came to know of the her interest to the land she claims, and,
mortgage in favor of the PNB; that on October 8, 1951, said doubtless, estops her from denying
mortgage was transferred to the RFC; that, thereafter, or from PNB's mortgage lien thereon. 23
March to October 1952, Francisco Soriano and his children,
Rosalina Soriano and Eugenio Soriano, received several sums of It is thus clear that the lower court erred in annulling the RFC
money, aggregating P3,450, from plaintiff herein; that the latter, mortgage on the Parañaque property and its sale to the RFC as
moreover, spent over P6,000 on the occasion of the ordination of regards one-half of said property, and that the decision appealed
third-party plaintiff, Eugenio Soriano, as a priest, on April 20, 1952; from should, accordingly, be modified, by eliminating therefrom the
that plaintiff, also, paid the bills of Francisco Soriano in the Singian second paragraph of its dispositive part, quoted earlier in this
Clinic when he fell sick in 1953; and that the former had, likewise, decision.
paid the real estate tax on the Parañaque property from 1947 to
1952. With this modification and that of other pertinent parts of the
decision appealed from, the same is hereby affirmed in all other
Under these circumstances, it is difficult to believe that Sorianos did respects, with the costs of this instance against plaintiff, Jose L.
not know then of the mortgage constituted by Francisco Soriano, on Ponce de Leon and third-party plaintiffs, Rosalina Soriano, Teofila
October 8, 1951, in favor of the RFC. In fact, Rosalina Soriano Soriano del Rosario and Father Eugenio Soriano. It is so ordered.
testified that when, that month, Francisco Soriano and she conferred
with the plaintiff, he stated that the Parañaque property was Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,
mortgaged to the RFC, whereupon her father got angry at the Barredo and Villamor, JJ., concur.
plaintiff and said that he had fooled him (Francisco Soriano). Being
thus aware of said mortgage since October 1951, the Sorianos did
not question its validity — until January 12, 1957, when they filed Dizon and Makasiar, JJ., are on leave.
in this cage their third-party complaint in intervention — as regards,
at least, one-half of the Parañaque property, which they now claim Footnotes
to be their mother's share in the conjugal partnership. Worse still,
after the foreclosure sale in favor of the RFC, they tried to redeem 1 Record on Appeal, p. 133.
the property for P14,000, and, when the RFC did not agree thereto,
they even sought the help of the Office of the President to effect 2 Record on Appeal, pp. 103-112.
said redemption.
3 97 Phil. 604, 609.
Their aforementioned failure to contest the legality of the mortgage
for over five (5) years and these attempts to redeem the property
4 Record on Appeal, pp. 120-127.
constitute further indicia that the same belonged exclusively to
Emphasis ours.
Francisco Soriano, not to the conjugal partnership with his deceased
wife, Tomasa Rodriguez. Apart from the fact that said attempts to
redeem the property constitute an implied admission of the validity 5 Barrozo v. Macaraeg, 83 Phil. 378,
of its sale — and, hence, of its mortgage to the RFC — there are 381. Emphasis ours.
authorities to the effect that they bar the Sorianos from assailing the
same. 6 Record on Appeal, pp. 115-116.
Emphasis ours.
... defendants, by their repeated requests
for time to redeem had impliedly 7 Villar v. de Paderanga, 97 Phil. 64,
admitted — and were estopped to 609.
question — the validity and regularity of
the Sheriff's sale. 21 8 Rep. Act No. 337, Sec. 2. Emphasis
ours.
The petitioner himself believed that the
company had a right to cancel, because 9 Nepomuceno v. RFC (DBP), L-14897,
in March, 1932, i.e., after the November 23, 1960.
cancellation, he proposed the repurchase
of the property, and the company agreed 10 T.s.n. pp. 4-5, hearing of Jan. 3, 1957.
to resell it to him .... Unluckily he could Emphasis ours.
make no down payment and the
repurchase fell through. Wherefore, it is
11 SEC. 13. When date may be inserted.
now too late for him to question the
— Where an instrument expressed to be
cancellation, inasmuch as he practically
payable at a fixed period after date is
ratified it, .... 22
issued undated, or where the acceptance
 60

of an instrument payable at fixed period 15 Cobb-Perez v. Lantin, L-22320, May

after sight is undated, any holder may
insert therein the true date of issue or
acceptance, and the instrument shall be
payable accordingly. The insertion of a
wrong date does not avoid the instrument
in the hands of a subsequent holder in
due course; but as to him the date so
inserted is to be regarded as the true date.
SEC. 14. Blanks, when may be filled. —
Where the instrument is wanting in any
material particular, the person in
possession thereof has a prima facie
authority to complete it by filling up the
blanks therein. And a signature on a
blank paper delivered by the person
making the signature in order that the
paper may be converted into a negotiable
instrument operates as a prima facie
authority to fill it up as such for any
amount. In order, however, that any such
instrument, when completed, may be
enforced against any person who became
a party thereto prior to its completion, it
must be filled up strictly in accordance
with the authority given and within a
reasonable time. But if any such
instrument after completion, is
negotiated to a holder in due course, it is
valid and effectual for all purposes in his
hands, and he may enforce it as if it had
been filled up strictly in accordance with
the authority given and within a
reasonable time.
22, 1968.
16 Maramba v. Lozano, L-21533, June
29, 1967.
17 Flores v. Flores, 48 Phil. 288, 289-
290; Pratts v. Menzi, 53 Phil. 51, 53;
Espiritu v. Bernardino, 58 Phil. 902;
Benavides v. Tordilla, 59 Phil. 918;
Reyes v. Ilano, 63 Phil. 629, 639,
Commonwealth v. Sandiko, 72 Phil. 258,
259; Guinoo v. Court of Appeals, 97
Phil. 235, 238.
21 Tiaoqui v. Chaves, L-10086, May 20,
1957, quoting from 59 C.J.S. p. 1372:
"By claiming a right to redeem, or
availing himself of a statutory stay, or by
seeking to impress a trust on the property
in the hands of the purchaser, one affirms
the validity of the sale and may not assail
it; ...." Emphasis ours.
22 Tolentino v. Philippine Land
Improvement Co., Inc., L-2469,
September 30, 1950 (Unreported)
Emphasis ours.
23 Philippine National Bank v. Mallorca,
L-22538, October 31, 1967. Emphasis
ours.

12 SEC. 7. When payable on demand.-

An instrument is payable on demand —

(a) Where it is expressed to be payable

on demand, or at sight or on
presentation; or .

(b) In which no time for payment is

expressed.

Where an instrument is issued, accepted,

or indorsed when overdue, it is, as
regards the person so issuing, accepting,
or indorsing it, payable on demand.

13 Record on Appeals, p. 114. Emphasis

ours.

14 Section 38, Act 496; Maloles v.

Director of Lands, 25 Phil. 548; Verzosa
v. Nicolas, 29 Phil. 425; Government v.
Trino, 50 Phil. 708; Misamis Lumber
Co. v. Director of Lands, 57 Phil. 881.