Case # 4
54 was paid
EJERCITO v ORIENTAL ASSURANCE CORP
GR No 192099 | July 8, 2015 | 1st Division
Sereno, CJ | Consensuality of Contracts
PETTIONER: PAULINO M. EJERCITO, JESSIE M. EJERCITO and
JOHNNY D. CHANG
RESPONDENT: ORIENTAL ASSURANCE CORPORATION
Nature of the action: Petition for Review on Certiorari
DOCTRINE:
the Deed of Indemnity is a contract of adhesion, the Court has
consistently held that contracts of adhesion are not invalid per se and
that their binding effects have been upheld on numerous occasions.
The pretension that petitioners did not consent to the renewal of the
bond is belied by the fact that the terms of the contract which they
voluntarily entered into contained a clause granting authority to the
Company to grant or consent to the renewal of the bond. Having
entered into the contract with full knowledge of its terms and
conditions, petitioners are estopped from asserting that they did so
under the ignorance of the legal effect of the contract or the
undertaking.
FACTS:
May 10 1999: respondent Oriental Assurance Corporation, through
its Executive Vice President Luz N. Cotoco issued a Surety Bond in
favor of FFV Travel & Tours, Inc. (Company). The bond was
intended to guarantee the Company's payment of airline tickets
purchased on credit from participating members of International Air
Transport Association (IATA) to the extent of P3 million.
On the same day, petitioners and Merissa C. Somes (Somes)
executed a Deed of Indemnity in favor of respondent. The Surety
Bond was effective for one year from its issuance until 10 May 2000.
It was renewed for another year, from 10 May 2000 to 10 May 2001,
as shown in Bond Endorsement No. dated 17 April 2000. The
corresponding renewal premium amounting to P15,024.
by the insured corporation under Official Receipt No. 100262.
FFV Travel & Tours, Inc. has been declared in default for failure to
pay its obligations amounting to P5,484,086.97 and USD 18,760.98
as of 31 July 2000. Consequently, IATA demanded payment of the
bond, and respondent heeded the demand on 28 November 2000 as
evidenced by China Bank Check No. 104949. IATA executed a
Release of Claim on 29 November 2000 acknowledging payment of
the surety bond.
Respondent sent demand letters to petitioners and Somes for
reimbursement of the P3 million pursuant to the indemnity
agreement. For their failure to reimburse respondent, the latter filed a
collection suit.
RTC RULING: dismissed the complaint against petitioners for lack of
merit and pronouncing Somes liable to pay the amount of P3 million
and interest per annum at the rate of 12% of the principal obligation
from the date the complaint was filed up to the date the obligation
would have been fully paid.
The RTC found that there was no written agreement to show the
intention of petitioners to renew the Deed of Indemnity. The absence
thereof was evidenced by the nonappearance of any signature on
the Renewal Notice, which was not signed by Somes. However, she
was held liable to pay the surety value of the cost of tickets as she
had paid the premium for the renewal of the Surety Bond and used
the renewed bond by submitting it to IATA.
CA RULING: reversed the finding of the RTC and ruled that
petitioners could not escape liability, as they had authorized
respondent to grant any renewals or extensions pursuant to the
indemnity agreement. The Deed of Indemnity contained a stipulation
that the signatories (petitioners) were authorizing the Company
(respondent) to grant or consent to the grant of any extension,
continuation, increase, modification, change or alteration, and/or
renewal of the original bond. Petitioners voluntarily signed the
agreement and, are educated persons (Paulino, being a lawyer), so
they could not have misunderstood the legal effects of the
undertaking they had signed.
ISSUE: W/N the Honorable Court of Appeals erred in ruling
that petitioners are liable to indemnify the respondent under the deed
of indemnity considering that petitioners did not give their consent to
be bound thereby beyond the one (1) year effectivity period of the
original surety bond?
RULING:
We find no merit in the Petition.
The contract of indemnity is the law between the parties. It is a
cardinal rule in the interpretation of a contract that if its terms are
clear and leave no doubt on the intention of the contracting parties,
the literal meaning of its stipulation shall control. The CA aptly found
provisions in the contract that could not exonerate petitioners from
their liability.
The Deed of Indemnity contains the following stipulations:
MATURITY OF OUR OBLIGATIONS AS CONTRACTED
HEREWITH: —
The said indemnities will be paid to the COMPANY as soon as
demand is received from the Creditor, or as soon as it becomes
liable to make payment of any sum under the terms of the
abovementioned Bond, its renewals, extension, modifications or
substitutions, whether the said sum or sums or part thereof, have
been actually paid or not. We authorize the COMPANY to accept in
any case and at its entire discretion, from any of us, payment on
account of the pending obligation, and to grant extensions to any of
us, to liquidate said obligations, without necessity of previous
knowledge or consent from the obligors.
xxx xxx xxx
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY:
—
Any payment or disbursement made by the COMPANY on account
of the above-mentioned Bond, its renewals, extensions,
modifications or substitutions either in the belief that the Company
was obligated to make such payment or in the belief that said
payment was necessary in
order to avoid greater losses or obligation for which the company
might be liable by virtue of the terms of the above-mentioned Bond,
its renewals, extensions, modifications or substitutions shall be final
and will not be disputed by the undersigned who jointly and
severally bind themselves to indemnify the COMPANY of any
and all such payments as stated in the preceding clauses.
RENEWALS, ALTERATIONS AND SUBSTITUTIONS: — The
undersigned hereby empower and authorize the Company to
grant or consent to the granting of, any extension, continuation,
increase, modifications, change, alteration and/or renewal of the
original bond herein referred to, and to execute or consent to the
execution of any substitution for said bond with the same or different
conditions and parties, and the undersigned hereby hold themselves
jointly and severally liable to the Company for the original bond
hereinabove mentioned or for any extension, continuation, increase,
modification, change, alteration, renewal or substitution thereof until
the full amount including principal interests, premiums, costs
and other expenses due to the Company thereunder is fully paid
up.
Clearly, as far as respondent is concerned, petitioners have
expressly bound themselves to the contract, which provides for the
terms granting authority to the Company to renew the original bond.
The terms of the contract are clear, explicit and unequivocal.
Therefore, the subsequent acts of the Company, through Somes,
that led to the renewal of the surety bond are binding on petitioners
as well.
The intention of Somes to renew the bond cannot be denied, as she
paid the renewal premium and even submitted the renewed bond to
IATA.

It is true that on some occasions, the Court has struck down such
contract as void when the weaker party is imposed upon in dealing
with the dominant party and is reduced to the alternative of accepting
the contract or leaving it, completely deprived of the opportunity to
bargain on equal footing. This reasoning cannot be used in the
instant case. One of the petitioners, Paulino M. Ejercito, is a lawyer
who cannot feign ignorance of the legal effect of his undertaking.
Petitioners could have easily inserted a remark in the clause granting
authority to the Company to renew the original bond, if the renewal
thereof was not their intention.

The rule that ignorance of the contents of an instrument does not

ordinarily affect the liability of the one who signs it may also be
applied to this Indemnity Agreement. And the mistake of petitioners
as to the legal effect of their obligation is ordinarily no reason for
relieving them of liability.

WHEREFORE, premises considered, the Petition is DENIED. The

Court of Appeals Decision dated 2 October 2009 and Resolution
dated 14 April 2010 in CA-G.R. CV No. 90828 are AFFIRMED.
Case # 13
MBTC v REYNADO
GR No 164538 | Aug. 9, 2010 | 1st Division
Del Castillo, J | Obligatory force of contracts
PETITIONER: METROPOLITAN BANK and TRUST COMPANY
RESPONDENT: ROGELIO REYNADO and JOSE C. ADRANDEA
Nature of the action: Petition for Review on Certiorari under Rule 45
of the Rules of Court
DOCTRINE:
Novation not a mode of extinguishing criminal liability for estafa;
Criminal liability for estafa not affected by compromise or novation of
contract.
FACTS:
January 31, 1997: petitioner MBTC charged respondents before the
Office of the City Prosecutor of Manila with the crime of estafa under
Article 315, paragraph 1 (b) of the Revised Penal Code. In the
affidavit of petitioner's audit officer, Antonio Ivan S. Aguirre, it was
alleged that the special audit conducted on the cash and lending
operations of its Port Area branch uncovered anomalous/fraudulent
transactions perpetrated by respondents in connivance with client
Universal Converter Philippines, Inc. (Universal); that respondents
were the only voting members of the branch's credit committee
authorized to extend credit accommodation to clients up to
P200,000.00; that through the so-called Bills Purchase Transaction,
Universal, which has a paid-up capital of only P125,000.00 and
actual maintaining balance of P5,000.00, was able to make
withdrawals totaling P81,652,000.00 against uncleared regional
checks deposited in its account at petitioner's Port Area branch; that,
consequently, Universal was able to utilize petitioner's funds even
before the seven-day clearing period for regional checks expired;
that Universal's withdrawals against uncleared regional check
deposits were without prior approval of petitioner's head office; that
the uncleared checks were later dishonored by the drawee bank for
the reason "Account Closed"; and, that respondents acted with fraud,
deceit, and abuse of confidence.
In their defense, respondents denied responsibility in the anomalous
transactions with Universal and claimed that they only intended to
help the Port Area branch solicit and increase its deposit accounts
and daily transactions. Meanwhile, on February 26, 1997, petitioner
and Universal entered into a Debt Settlement Agreement whereby
the latter acknowledged its indebtedness to the former in the total
amount of P50,990,976.27 as of February 4, 1997 and undertook to
pay the same in bi-monthly amortizations in the sum of P300,000.00
starting January 15, 1997, covered by postdated checks, "plus
balloon payment of the remaining principal balance and interest and
other charges, if any, on December 31, 2001."
FINDINGS OF THE PROSECUTOR:
Assistant City Prosecutor Winnie M. Edad (Prosecutor Edad) in her
Resolution dated July 10, 1997 found petitioner's evidence
insufficient to hold respondents liable for estafa
The execution of the Debt Settlement Agreement puts
complainant bank in estoppel to argue that the liability is
criminal. Since the agreement was made even before the
filing of this case, the relations between the parties [have]
change[d], novation has set in and prevented the incipience
of any criminal liability on the part of respondents.
Prosecutor Edad recommended the dismissal of the case:
WHEREFORE, for insufficiency of evidence, it is respectfully
recommended that the case be dismissed
Petitioner appealed the Resolution of Prosecutor Edad to the
Department of Justice (DOJ) by means of a Petition for Review
DOJ RULING: Dismissed the petition.
There is no estafa in the instant case as it was not clearly shown how
respondents misappropriated the P53,873,500.00 which Universal
owed your client after its checks deposited with Metrobank were
dishonored.
Moreover, fraud is not present considering that the Executive
Committee and the Credit Committee of Metrobank were duly
notified of these transactions which they approved. Further, no
damage was caused to your client as it agreed [to] the settlement
[with] Universal.
MR was filed by petitioner but was denied. CA filed a petition for
certiorari and mandamus.
CA’s RULING:
CA affirmed the twin resolutions of the Secretary of Justice. While
novation does not extinguish criminal liability, it may prevent the rise
of such liability as long as it occurs prior to the filing of the criminal
information in court. Hence, according to the CA, "[j]ust as Universal
cannot be held responsible under the bills purchase transactions on
account of novation, private respondents, who acted in complicity
with the former, cannot be made liable [for] the same transactions."
The CA added that "[s]ince the dismissal of the complaint is founded
on legal ground, public respondents may not be compelled by
mandamus to file an information in court."
XXXXX
WHEREFORE, the petition is DENIED due course and, accordingly,
DISMISSED. Consequently, the resolutions dated June 22, 1998 and
March 1, 2000 of the Secretary of Justice are AFFIRMED.
Hence, this instant petition before this court.
ISSUE: W/N Novation and undertaking to pay the amount embezzled
do not extinguish criminal liability?
RULING:
We find the petition highly meritorious.
Novation not a mode of extinguishing criminal liability for
estafa; Criminal liability for estafa not affected by compromise
or novation of contract.
In a catena of cases, it was ruled that criminal liability for estafa is not
affected by a compromise or novation of contract. In Firaza v. People
and Recuerdo v. People, this Court ruled that in a crime of estafa,
reimbursement or belated payment to the offended party of the
money swindled by the accused does not extinguish the criminal
liability of the latter. We also held in People v. Moreno and in People
v. Ladera that "criminal liability for estafa is not affected by
compromise or novation of contract, for it is a public offense which
must be prosecuted and punished by the Government on its own
motion even though complete reparation should have been made of
the damage suffered by the offended party." Similarly in the case of
Metropolitan Bank and Trust Company v. Tonda cited by petitioner,
we held that in a crime of estafa, reimbursement of or compromise
as to the amount misappropriated, after the commission of the crime,
affects only the civil liability of the offender, and not his criminal
liability.
Thus, the doctrine that evolved from the aforecited cases is that a
compromise or settlement entered into after the commission of the
crime does not extinguish accused's liability for estafa. Neither will
the same bar the prosecution of said crime. Accordingly, in such a
situation, as in this case, the complaint for estafa against
respondents should not be dismissed just because petitioner entered
into a Debt Settlement Agreement with Universal.
Unfortunately for petitioner, the above observation of the OSG was
wittingly glossed over in the body of the assailed Decision of the CA.
WHEREFORE, the petition is GRANTED. The assailed Decision of
the Court of Appeals in CA-G.R. SP No. 58548 promulgated on
October 21, 2002 affirming the Resolutions dated June 22, 1998 and
March 1, 2000 of the Secretary of Justice, and its Resolution dated
July 12, 2004 denying reconsideration thereon are hereby
REVERSED and SET ASIDE. The public prosecutor is ordered to file
the necessary information for estafa against the respondents.
Case # 22
MARIMPERIO v. CA
GR No L-40234 | Dec. 14, 1987 | 1st Division
Paras, J Relativity of contracts
PETITIONER: MARIMPERIO COMPAÑIA NAVIERA, S.A.
RESPONDENT: COURT OF APPEALS and UNION IMPORT &
EXPORT CORPORATION and PHILIN TRADERS CORPORATION
Nature of the action: Petition for certiorari under Section 1, Rule 65
of the Rules of Court
DOCTRINE:
According to Article 1311 of the Civil Code, a contract takes effect
between the parties who made it, and also their assigns and heirs,
except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. Since a contract may be violated only by the parties,
thereto as against each other, in an action upon that contract, the
real parties in interest, either as plaintiff or as defendant, must be
parties to said contract. Therefore, a party who has not taken part in
it cannot sue or be sued for performance or for cancellation thereof,
unless he shows that he has a real interest affected thereby. It is not
the sub-lessee, but the lessor, who can bring the action. In the
instant case, it is clear that the sub-lessee or the private respondent
as such cannot maintain the suit they filed with the trial court.
FACTS:
Philin Traders Corporation and Union Import and Export Corporation
entered into a joint business venture for the purchase of copra from
Indonesia for sale in Europe. Philin and Union authorized Toeg to
negotiate for its charter but with instructions to keep confidential the
fact that they are the real charterers. Interocean Shipping
Corporation, was made to appear as charterer, although it merely
acted in behalf of the real charterers, private respondents herein
entered into an agreement with the owner, Marimperio for the hire of
vessel “Paxoi” The Charterer was however twice in default in its
payments which were supposed to have been done in advance.
Petitioner withdrew the vessel from Charterer’s service and held
said Charterer responsible for unpaid hirings and all legal claims.
The Charterer again remitted an amount corresponding to the 3rd
15-day hire of the vessel PAXOI, but this time the remittance was
refused. Union and Philin filed a complaint against the Unknown
Owners of the Vessel “SS Paxoi”, which was amended to identify the
defendant as Marimperio Compañia Naviera S.A for specific
performance with prayer for preliminary attachment. Petitioner
alleged that he has no agreement or relationship whatsoever with the
respondents and are unknown to petitioner; that the charter party
entered into by petitioner with the Interocean Shipping Co. over the
vessel "SS PAXOI" does not authorize a sub-charter of said vessel to
other parties; and that at any rate, any such sub-charter was without
the knowledge or consent of the petitioner or its agent, and therefore,
has no effect and/or is not binding upon the petitioner. The CFI of
Manila rendered its decision in favor of Marimperio. Union and Philin
filed a Motion for Reconsideration . Acting on the two motions for
reconsideration, the trial court reversed its stand in its amended
decision and ruled in favor of Union, Philin and Interocean. On
Appeal, the Court of Appeals affirmed the amended decision of the
lower court except the portion granting commission to Interocean,
which it reversed thereby dismissing the complaint-in-intervention.
Marimperio filed with the Supreme Court its petition for review on
certiorari.
ISSUE: W/N respondents have the legal capacity to bring the suit for
specific performance against petitioner based on the charter party?
NO
RULING:
It is undisputed that the charter party, basis of the complaint, was
entered into between petitioner Marimperio Compañia Naviera, S.A.,
through its duly authorized agent in London, the N & J Vlassopulos,
Ltd., and the Interocean Shipping Company of Manila through the
latter's duly authorized broker, the Overseas Steamship Co., Inc.,
represented by Matthews, Wrightson Burbridge Ltd., for the Charter
of the "SS PAXOI". It is also alleged in both the Complaint and the
Amended Complaint that the Interocean Shipping Company sublet
the said vessel to respondent Union Import and Export Corporation
which in turn sublet the same to respondent Philin Traders
Corporation. It is admitted by respondents that the charterer is the
Interocean Shipping Company. Even paragraph 3 of the complaint-
in-intervention alleges that Time Charter . . ." which precisely
provides for the subletting of the vessel by the charterer
Furthermore, Article 652 of the Code of Commerce provides that the
charter party shall contain, among others, the name, surname, and
domicile of the charterer, and if he states that he is acting by
commission, that of the person for whose account he makes the
contract. It is obvious from the disclosure made in the charter party
by the authorized broker, the Overseas Steamship Co., Inc., that the
real charterer is the Interocean Shipping Company (which sublet the
vessel to Union Import and Export Corporation which in turn sublet it
to Philin Traders Corporation).
In a sub-lease, there are two leases and two distinct judicial relations
although intimately connected and related to each other, unlike in a
case of assignment of lease, where the lessee transmits absolutely
his right, and his personality disappears; there only remains in the
juridical relation two persons, the lessor and the assignee who is
converted into a lessee. In other words, in a contract of sub-lease,
the personality of the lessee does not disappear; he does not
transmit absolutely his rights and obligations to the sub-lessee; and
the sublessee generally does not have any direct action against the
owner of the premises as lessor, to require the compliance of the
obligations contracted with the plaintiff as lessee, or vice versa.
However, there are at least two instances in the Civil Code which
allow the lessor to bring an action directly (accion directa) against the
sub-lessee (use and preservation of the premises under Art. 1651,
and rentals under Article 1652).
Art. 1651 reads:
"Without prejudice to his obligation toward the sub-lessor, the
sublessee is bound to the lessor for all acts which refer to the use
and preservation of the thing leased in the manner stipulated
between the lessor and the lessee."
Article 1652 reads:
"The sub-lessee is subsidiarily liable to the lessor for any rent due
from the lessee. However, the sub-lessee shall not be responsible
beyond the amount of rent due from him, in accordance with the
terms of the sub-lease, at the time of the extra-judicial demand by
the lessor.
Payments of rent in advance by the sub-lessee shall be deemed not
to have been made, so far as the lessor's claim is concerned, unless
said payments were effected in virtue of the custom of the place."
It will be noted however that in said two Articles it is not the sub-
lessee, but the lessor, who can bring the action. In the instant case, it
is clear that the sub-lessee as such cannot maintain the suit they
filed with the trial court.
In the law of agency "with an undisclosed principal, the Civil Code in
Article 1883 reads:
"If an agent acts in his own name, the principal has no right of action
against the persons with whom the agent has contracted; neither
have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent."
While in the instant case, the true charterers of the vessel were the
private respondents herein and they chartered the vessel through an
intermediary which upon instructions from them did no t disclose their
names. Article 1883 cannot help the private respondents, because
although they were the actual principals in the charter of the vessel,
the law does not allow them to bring any action against the adverse
party and vice-versa.

PREMISES CONSIDERED, (1) the decision of the Court of Appeals

affirming the amended decision of the Court of First Instance of
Manila, Branch VIII, is hereby REVERSED and SET ASIDE except
for that portion of the decision dismissing the complaint-in-
intervention; and (2) the original decision of the trial court is hereby
REINSTATED.