FIRST DIVISION
the property, since the action for partition was lodged before the RTC
[G.R. No. 202578. September 27, 2017.]
HEIRS OF GILBERTO ROLDAN, petitioners, vs. HEIRS OF
SILVELA ROLDAN, respondents.
DECISION
SERENO, C.J p:
Before this Court is a Petition for Review on Certiorari 1 assailing the
Court of Appeals (CA) Decision 2 and Resolution, 3 which affirmed the
Decision 4 of the Regional Trial Court (RTC). The RTC ruled that
petitioner heirs of Gilberto Roldan, respondent heirs of Silvela
Roldan, 5 and respondent heirs of Leopoldo Magtulis are co-owners of
Lot No. 4696. HTcADC
FACTS OF THE CASE
Natalia Magtulis 6 owned Lot No. 4696, an agricultural land in Kalibo,
Aklan, which had an area of 21,739 square meters, and was covered
by Original Certificate of Title No. P-7711. 7 Her heirs included Gilberto
Roldan and Silvela Roldan, her two children by her first marriage; and,
allegedly, Leopoldo Magtulis — her child with another man named
Juan Aguirre. 8 After her death in 1961, Natalia left the lot to her
children. However, Gilberto and his heirs took possession of the
property to the exclusion of respondents.
On 19 May 2003, respondents filed before the RTC a Complaint for
Partition and Damages against petitioners. 9 The latter refused to yield
the property on these grounds: (1) respondent heirs of Silvela had
already sold her share to Gilberto; and (2) respondent heirs of
Leopoldo had no cause of action, given that he was not a child of
Natalia.
During trial, petitioners failed to show any document evidencing the
sale of Silvela's share to Gilberto. Thus, in its Decision dated 14
December 2007, the RTC ruled that the heirs of Silvela remained co-
owners of the property they had inherited from Natalia. As regards
Leopoldo Magtulis, the trial court concluded that he was a son of
Natalia based on his Certificate of Baptism 10 and Marriage
Contract. 11
Considering that Gilberto, Silvela, and Leopoldo were all descendants
of Natalia, the RTC declared each set of their respective heirs entitled
to one-third share of the property. Consequently, it ordered petitioners
to account and deliver to respondents their equal share to the produce
of the land.
Petitioners appealed to the CA. They reiterated that Silvela had sold
her share of the property to her brother Gilberto. They asserted that
the RTC could not have considered Leopoldo the son of Natalia on the
mere basis of his Certificate of Baptism. Emphasizing that filiation
required a high standard of proof, petitioners argued that the baptismal
certificate of Leopoldo served only as evidence of the administration of
the sacrament.
In its Decision dated 20 December 2011, the CA affirmed the ruling of
the RTC that Gilberto, Silvela, and Leopoldo remained co-owners of
Lot No. 4696. The appellate court refused to conclude that Silvela had
sold her shares to Gilberto without any document evidencing a sales
transaction. It also held that Leopoldo was the son of Natalia, since his
Certificate of Baptism and Marriage Contract indicated her as his
mother.
Petitioner heirs of Gilberto moved for reconsideration, 12 but to no
avail. Before this Court, they reiterate that Silvela sold her shares to
Gilberto, and that Leopoldo was not the son of Natalia. They
emphasize that the certificates of baptism and marriage do not prove
Natalia to be the mother of Leopoldo since these documents were
executed without her participation. CAIHTE
Petitioners additionally contend that respondents lost their rights over
only in 2003, or 42 years since Gilberto occupied the property in 1961.
For the heirs of Gilberto, prescription and laches already preclude the
heirs of Silvela and the heirs of Leopoldo from claiming co-ownership
over Lot No. 4696.
In their Comment, 13 respondents assert that the arguments raised by
petitioners involve questions of fact not cognizable by this Court. As
regards the issue of prescription and laches, they insist that petitioners
cannot invoke a new theory for the first time on appeal.
ISSUES OF THE CASE
The following issues are presented to this Court for resolution:
1. Whether the CA erred in affirming the RTC's finding that Silvela did
not sell her share of the property to Gilberto
2. Whether the courts a quo correctly appreciated Leopoldo to be the
son of Natalia based on his baptismal and marriage certificates
3. Whether prescription and laches bar respondents from claiming co-
ownership over Lot No. 4696
RULING OF THE COURT
Sale of the Shares of Silvela to
Gilberto
Petitioners argue before us that Silvela had a perfected contract of sale
with Gilberto over her shares of Lot No. 4696. That argument is
obviously a question of fact, 14 as it delves into the truth of whether
she conveyed her rights in favor of her brother.
The assessment of the existence of the sale requires the calibration of
the evidence on record and the probative weight thereof. The RTC, as
affirmed by the CA, already performed its function and found that the
heirs of Gilberto had not presented any document or witness to prove
the fact of sale.
The factual determination of courts, when adopted and confirmed by
the CA, is final and conclusive on this Court except if unsupported by
the evidence on record. 15 In this case, the exception does not apply,
as petitioners merely alleged that Silvela "sold, transferred and
conveyed her share in the land in question to Gilberto Roldan for a
valuable consideration" without particularizing the details or referring to
any proof of the transaction. 16 Therefore, we sustain the conclusion
that she remains co-owner of Lot No. 4696.
Filiation of Leopoldo to Natalia
In resolving the issue of filiation, the RTC and the CA referred to
Articles 172 and 175 of the Family Code, viz.:
Art. 172. The filiation of legitimate children is established by any of the
following:
(1) The record of birth appearing in the civil register or a final judgment;
or
(2) An admission of legitimate filiation in a public document or a private
handwritten instrument and signed by the parent concerned.
In the absence of the foregoing evidence, the legitimate filiation shall
be proved by:
(1) The open and continuous possession of the status of a legitimate
child; or
(2) Any other means allowed by the Rules of Court and special laws.
Art. 175. Illegitimate children may establish their illegitimate filiation in
the same way and on the same evidence as legitimate children.
1
The action must be brought within the same period specified in Article
173, except when the action is based on the second paragraph of
Article 172, in which case the action may be brought during the lifetime
of the alleged parent.
The parties concede that there is no record of Leopoldo's birth in either
the National Statistics Office 17 or in the Office of the Municipal
Registrar of Kalibo, Aklan. 18 The RTC and the CA then referred to
other means to prove the status of Leopoldo: his Certificate of Baptism
and his Marriage Contract. Since both documents indicate Natalia as
the mother of Leopoldo, the courts a quo concluded that respondent
heirs of Leopoldo had sufficiently proven the filiation of their ancestor
to the original owner of Lot No. 4696. For this reason, the RTC and the
CA maintained that the heirs of Leopoldo are entitled to an equal share
of the property, together with the heirs of Gilberto and heirs of Silvela.
We disagree.
Jurisprudence has already assessed the probative value of baptismal
certificates. In Fernandez v. Court of Appeals, 19 which referred to our
earlier rulings in Berciles v. Government Service Insurance
System 20 and Macadangdang v. Court of Appeals, 21 the Court
explained that because the putative parent has no hand in the
preparation of a baptismal certificate, that document has scant
evidentiary value. The canonical certificate is simply a proof of the act
to which the priest may certify, i.e., the administration of the
sacrament. In other words, a baptismal certificate is "no proof of the
declarations in the record with respect to the parentage of the child
baptized, or of prior and distinct facts which require separate and
concrete evidence." 22
In cases that followed Fernandez, we reiterated that a baptismal
certificate is insufficient to prove filiation. 23 But in Makati Shangri-La
Hotel and Resort, Inc. v. Harper, 24 this Court clarified that a baptismal
certificate has evidentiary value to prove kinship "if considered
alongside other evidence of filiation." 25 Therefore, to resolve one's
lineage, courts must peruse other pieces of evidence instead of relying
only on a canonical record. By way of example, we have considered
the combination of testimonial evidence, 26 family pictures, 27 as well
as family books or charts, 28 alongside the baptismal certificates of the
claimants, in proving kinship.
In this case, the courts below did not appreciate any other material
proof related to the baptismal certificate of Leopoldo that would
establish his filiation with Natalia, whether as a legitimate or as an
illegitimate son. DETACa
The only other document considered by the RTC and the CA was the
Marriage Contract of Leopoldo. But, like his baptismal certificate, his
Marriage Contract also lacks probative value as the latter was
prepared without the participation of Natalia. In Reyes v. Court of
Appeals, 29 we held that even if the marriage contract therein stated
that the alleged father of the bride was the bride's father, that
document could not be taken as evidence of filiation, because it was
not signed by the alleged father of the bride.
The instant case is similar to an issue raised in Paa v. Chan. 30 The
claimant in that case relied upon baptismal and marriage certificates to
argue filiation. The Court said:
As regards the baptismal and marriage certificates of Leoncio Chan,
the same are not competent evidence to prove that he was the
illegitimate child of Bartola Maglaya by a Chinese father. While these
certificates may be considered public documents, they are evidence
only to prove the administration of the sacraments on the dates therein
specified — which in this case were the baptism and marriage,
respectively, of Leoncio Chan — but not the veracity of the statements
or declarations made therein with respect to his kinsfolk and/or
citizenship.
All told, the Baptismal Certificate and the Marriage Contract of
Leopoldo, which merely stated that Natalia is his mother, are
inadequate to prove his filiation with the property owner. Moreover, by
virtue of these documents alone, the RTC and the CA could not have
justly concluded that Leopoldo and his successors-in-interest were
entitled to a one-third share of the property left by Natalia, equal to that
of each of her undisputed legitimate children — Gilberto and Silvela.
As held in Board of Commissioners v. Dela Rosa, 31 a baptismal
certificate is certainly not proof of the status of legitimacy or illegitimacy
of the claimant. Therefore, the CA erred in presuming the hereditary
rights of Leopoldo to be equal to those of the legitimate heirs of
Natalia.
Prescription and Laches
According to petitioners, prescription and laches have clearly set in
given their continued occupation of the property in the last 42 years.
Prescription cannot be appreciated against the co-owners of a
property, absent any conclusive act of repudiation made clearly known
to the other co-owners. 32
Here, petitioners merely allege that the purported co-ownership "was
already repudiated by one of the parties" without supporting evidence.
Aside from the mere passage of time, there was failure on the part of
petitioners to substantiate their allegation of laches by proving that
respondents slept on their rights. 33 Nevertheless, had they done so,
two grounds deter them from successfully claiming the existence of
prescription and laches.
First, as demanded by the repudiation requisite for prescription to be
appreciated, there is a need to determine the veracity of factual
matters such as the date when the period to bring the action
commenced to run. In Macababbad, Jr. v. Masirag, 34 we considered
that determination as factual in nature. The same is true in relation to
finding the existence of laches. We held in Crisostomo v. Garcia,
Jr. 35 that matters like estoppel, laches, and fraud require the
presentation of evidence and the determination of facts. Since petitions
for review on certiorari under Rule 45 of the Rules of Court, as in this
case, entertain questions of law, 36 petitioners claim of prescription
and laches fail.
Second, petitioners have alleged prescription and laches only before
this Court. Raising a new ground for the first time on appeal
contravenes due process, as that act deprives the adverse party of the
opportunity to contest the assertion of the claimant. 37 Since
respondents were not able to refute the issue of prescription and
laches, this Court denies the newly raised contention of petitioners.
WHEREFORE, the Petition for Review on Certiorari filed by petitioner
heirs of Gilberto Roldan is PARTIALLY GRANTED. The Court of
Appeals Decision and Resolution in CA-G.R. CEB-CV No. 02327 are
hereby MODIFIED to read as follows:
1. Only the heirs of Gilberto Roldan and Silvela Roldan are declared
co-owners of the land covered by Original Certificate of Title No. P-
7711, which should be partitioned among them in the following
proportions:
a. One-half share to the heirs of Gilberto Roldan; and
b. One-half share to the heirs of Silvela Roldan.
2. Petitioners are ordered to account for and deliver to the heirs of
Silvela Roldan their one-half share on the produce of the land.
SO ORDERED.
Leonardo-de Castro, Del Castillo and Tijam, JJ., concur.
Jardeleza, * J., is on official leave.
2
SECOND DIVISION
[G.R. No. 183204. January 13, 2014.]
THE METROPOLITAN BANK AND TRUST
COMPANY, petitioner,vs.ANA GRACE ROSALES AND YO YUK
TO, respondents.
DECISION
DEL CASTILLO, J p:
Bank deposits, which are in the nature of a simple loan or
mutuum, 1 must be paid upon demand by the depositor. 2
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of
Court assails the April 2, 2008 Decision 4 and the May 30, 2008
Resolution 5 of the Court of Appeals (CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic
banking corporation duly organized and existing under the laws of the
Philippines. 6 Respondent Ana Grace Rosales (Rosales) is the owner
of China Golden Bridge Travel Services, 7 a travel
agency. 8 Respondent Yo Yuk To is the mother of respondent
Rosales. 9
In 2000, respondents opened a Joint Peso Account 10 with petitioner's
Pritil-Tondo Branch. 11 As of August 4, 2004, respondents' Joint Peso
Account showed a balance of P2,515,693.52. 12
In May 2002, respondent Rosales accompanied her client Liu Chiu
Fang, a Taiwanese National applying for a retiree's visa from the
Philippine Leisure and Retirement Authority (PLRA), to petitioner's
branch in Escolta to open a savings account, as required by the
PLRA. 13 Since Liu Chiu Fang could speak only in Mandarin,
respondent Rosales acted as an interpreter for her. 14 TICaEc
On March 3, 2003, respondents opened with petitioner's Pritil-Tondo
Branch a Joint Dollar Account 15 with an initial deposit of
US$14,000.00. 16
On July 31, 2003, petitioner issued a "Hold Out" order against
respondents' accounts. 17
On September 3, 2003, petitioner, through its Special Audit
Department Head Antonio Ivan Aguirre, filed before the Office of the
Prosecutor of Manila a criminal case for Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified Documents,
docketed as I.S. No. 03I-25014, 18 against respondent
Rosales. 19 Petitioner accused respondent Rosales and an
unidentified woman as the ones responsible for the unauthorized and
fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang's dollar
account with petitioner's Escolta Branch. 20 Petitioner alleged that on
February 5, 2003, its branch in Escolta received from the PLRA a
Withdrawal Clearance for the dollar account of Liu Chiu Fang; 21 that
in the afternoon of the same day, respondent Rosales went to
petitioner's Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her
dollar deposits in cash; 22 that Gutierrez told respondent Rosales to
come back the following day because the bank did not have enough
dollars; 23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the
bank; 24 that the impostor was able to withdraw Liu Chiu Fang's dollar
deposit in the amount of US$75,000.00; 25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that the bank
later discovered that the serial numbers of the dollar notes deposited
by respondents in the amount of US$11,800.00 were the same as
those withdrawn by the impostor. 26
Respondent Rosales, however, denied taking part in the fraudulent
and unauthorized withdrawal from the dollar account of Liu Chiu
Fang. 27 Respondent Rosales claimed that she did not go to the bank
on February 5, 2003. 28 Neither did she inform Gutierrez that Liu Chiu
Fang was going to close her account. 29 Respondent Rosales further
claimed that after Liu Chiu Fang opened an account with petitioner,
she lost track of her. 30 Respondent Rosales' version of the events
that transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing her
that Liu Chiu Fang was at the bank to close her account. 31 At noon of
the same day, respondent Rosales went to the bank to make a
transaction. 32 While she was transacting with the teller, she caught a
glimpse of a woman seated at the desk of the Branch Operating
Officer, Melinda Perez (Perez). 33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu Chiu
Fang had closed her account and had already left. 34 Perez then gave
a copy of the Withdrawal Clearance issued by the PLRA to respondent
Rosales. 35 On June 16, 2003, respondent Rosales received a call
from Liu Chiu Fang inquiring about the extension of her PLRA Visa and
her dollar account. 36 It was only then that Liu Chiu Fang found out
that her account had been closed without her
knowledge. 37 Respondent Rosales then went to the bank to inform
Gutierrez and Perez of the unauthorized withdrawal. 38 On June 23,
2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office,
where they were informed that the Withdrawal Clearance was issued
on the basis of a Special Power of Attorney (SPA) executed by Liu
Chiu Fang in favor of a certain Richard So. 39 Liu Chiu Fang, however,
denied executing the SPA. 40 The following day, respondent Rosales,
Liu Chiu Fang, Gutierrez, and Perez met at the PLRA Office to discuss
the unauthorized withdrawal. 41 During the conference, the bank
officers assured Liu Chiu Fang that the money would be returned to
her. 42
On December 15, 2003, the Office of the City Prosecutor of Manila
issued a Resolution dismissing the criminal case for lack of probable
cause. 43 Unfazed, petitioner moved for reconsideration. DEacIT
On September 10, 2004, respondents filed before the Regional Trial
Court (RTC) of Manila a Complaint 44 for Breach of Obligation and
Contract with Damages, docketed as Civil Case No. 04110895 and
raffled to Branch 21, against petitioner. Respondents alleged that they
attempted several times to withdraw their deposits but were unable to
because petitioner had placed their accounts under "Hold Out"
status. 45 No explanation, however, was given by petitioner as to why
it issued the "Hold Out" order. 46 Thus, they prayed that the "Hold Out"
order be lifted and that they be allowed to withdraw their
deposits. 47 They likewise prayed for actual, moral, and exemplary
damages, as well as attorney's fees. 48
Petitioner alleged that respondents have no cause of action because it
has a valid reason for issuing the "Hold Out" order. 49 It averred that
due to the fraudulent scheme of respondent Rosales, it was compelled
to reimburse Liu Chiu Fang the amount of US$75,000.00 50 and to file
a criminal complaint for Estafa against respondent Rosales. 51
While the case for breach of contract was being tried, the City
Prosecutor of Manila issued a Resolution dated February 18, 2005,
reversing the dismissal of the criminal complaint. 52 An Information,
docketed as Criminal Case No. 05-236103, 53 was then filed charging
respondent Rosales with Estafa before Branch 14 of the RTC of
Manila. 54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision 55 finding
petitioner liable for damages for breach of contract. 56 The RTC ruled
that it is the duty of petitioner to release the deposit to respondents as
the act of withdrawal of a bank deposit is an act of demand by the
creditor. 57 The RTC also said that the recourse of petitioner is against
its negligent employees and not against respondents. 58 The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering [petitioner] METROPOLITAN BANK & TRUST COMPANY to
allow [respondents] ANA GRACE ROSALES and YO YUK TO to
3
withdraw their Savings and Time Deposits with the agreed interest,
actual damages of P50,000.00, moral damages of P50,000.00,
exemplary damages of P30,000.00 and 10% of the amount due
[respondents] as and for attorney's fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED. 59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the
award of actual damages because "the basis for [respondents'] claim
for such damages is the professional fee that they paid to their legal
counsel for [respondent] Rosales' defense against the criminal
complaint of [petitioner] for estafa before the Office of the City
Prosecutor of Manila and not this case." 60 Thus, the CA disposed of
the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15,
2007 of the RTC, Branch 21, Manila in Civil Case No. 04-110895 is
AFFIRMED with MODIFICATION that the award of actual damages to
[respondents] Rosales and Yo Yuk To is hereby DELETED.
SO ORDERED. 61
Petitioner sought reconsideration but the same was denied by the CA
in its May 30, 2008 Resolution. 62
Issues
Hence, this recourse by petitioner raising the following issues:
A.THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION
IN THE APPLICATION AND AGREEMENT FOR DEPOSIT ACCOUNT
DOES NOT APPLY IN THIS CASE.
B.THE [CA] ERRED WHEN IT RULED THAT PETITIONER'S
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANG'S
FUNDS. DSacAE
C.THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY'S FEES. 63
Petitioner's Arguments
Petitioner contends that the CA erred in not applying the "Hold Out"
clause stipulated in the Application and Agreement for Deposit
Account. 64 It posits that the said clause applies to any and all kinds of
obligation as it does not distinguish between obligations arising ex
contractu or ex delictu. 65 Petitioner also contends that the fraud
committed by respondent Rosales was clearly established by
evidence; 66 thus, it was justified in issuing the "Hold-Out" order. 67
Petitioner likewise denies that its employees were negligent in
releasing the dollars. 68 It claims that it was the deception employed
by respondent Rosales that caused petitioner's employees to release
Liu Chiu Fang's funds to the impostor. 69
Lastly, petitioner puts in issue the award of moral and exemplary
damages and attorney's fees. It insists that respondents failed to prove
that it acted in bad faith or in a wanton, fraudulent, oppressive or
malevolent manner. 70
Respondents' Arguments
Respondents, on the other hand, argue that there is no legal basis for
petitioner to withhold their deposits because they have no monetary
obligation to petitioner. 71 They insist that petitioner miserably failed to
prove its accusations against respondent Rosales. 72 In fact, no
documentary evidence was presented to show that respondent
Rosales participated in the unauthorized withdrawal. 73 They also
question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or
acknowledged by the alleged impostor. 74 Respondents likewise
maintain that what was established during the trial was the negligence
of petitioner's employees as they allowed the withdrawal of the funds
without properly verifying the identity of the depositor. 75 Furthermore,
respondents contend that their deposits are in the nature of a loan;
thus, petitioner had the obligation to return the deposits to them upon
demand. 76 Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorney's fees. 77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner
breached its contract with respondents, and (2) if so, whether it is liable
for damages. The issue of whether petitioner's employees were
negligent in allowing the withdrawal of Liu Chiu Fang's dollar deposits
has no bearing in the resolution of this case. Thus, we find no need to
discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents
because it has a valid reason for issuing the "Hold Out" order.
Petitioner anchors its right to withhold respondents' deposits on the
Application and Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all
obligations with the Bank, all monies, properties or securities of the
Depositor now in or which may hereafter come into the possession or
under the control of the Bank, whether left with the Bank for
safekeeping or otherwise, or coming into the hands of the Bank in any
way, for so much thereof as will be sufficient to pay any or all
obligations incurred by Depositor under the Account or by reason of
any other transactions between the same parties now existing or
hereafter contracted, to sell in any public or private sale any of such
properties or securities of Depositor, and to apply the proceeds to the
payment of any Depositor's obligations heretofore mentioned.
xxx xxx xxx
JOINT ACCOUNT
xxx xxx xxx
The Bank may, at any time in its discretion and with or without notice to
all of the Depositors, assert a lien on any balance of the Account and
apply all or any part thereof against any indebtedness, matured or
unmatured, that may then be owing to the Bank by any or all of the
Depositors. It is understood that if said indebtedness is only owing
from any of the Depositors, then this provision constitutes the consent
by all of the depositors to have the Account answer for the said
indebtedness to the extent of the equal share of the debtor in the
amount credited to the Account. 78 aETDIc
Petitioner's reliance on the "Hold Out" clause in the Application and
Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated in
Article 1157 79 of the Civil Code, to wit: law, contracts, quasi-contracts,
delict, and quasi-delict. In this case, petitioner failed to show that
respondents have an obligation to it under any law, contract, quasi-
contract, delict, or quasi-delict. And although a criminal case was filed
by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and
no final judgment of conviction has been rendered against respondent
Rosales. In fact, it is significant to note that at the time petitioner issued
the "Hold Out" order, the criminal complaint had not yet been filed.
Thus, considering that respondent Rosales is not liable under any of
4
the five sources of obligation, there was no legal basis for petitioner to
issue the "Hold Out" order. Accordingly, we agree with the findings of
the RTC and the CA that the "Hold Out" clause does not apply in the
instant case.
In view of the foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents' deposit
despite demand. Having breached its contract with respondents,
petitioner is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorney's fees.
In cases of breach of contract, moral damages may be recovered only
if the defendant acted fraudulently or in bad faith, 80 or is "guilty of
gross negligence amounting to bad faith, or in wanton disregard of his
contractual obligations." 81
In this case, a review of the circumstances surrounding the issuance of
the "Hold Out" order reveals that petitioner issued the "Hold Out" order
in bad faith. First of all, the order was issued without any legal basis.
Second, petitioner did not inform respondents of the reason for the
"Hold Out." 82 Third, the order was issued prior to the filing of the
criminal complaint. Records show that the "Hold Out" order was issued
on July 31, 2003, 83 while the criminal complaint was filed only on
September 3, 2003. 84 All these taken together lead us to conclude
that petitioner acted in bad faith when it breached its contract with
respondents. As we see it then, respondents are entitled to moral
damages.
As to the award of exemplary damages, Article 2229 85 of the Civil
Code provides that exemplary damages may be imposed "by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages." They are awarded
only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 86
In this case, we find that petitioner indeed acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner when it refused
to release the deposits of respondents without any legal basis. We
need not belabor the fact that the banking industry is impressed with
public interest. 87 As such, "the highest degree of diligence is
expected, and high standards of integrity and performance are even
required of it." 88 It must therefore "treat the accounts of its depositors
with meticulous care and always to have in mind the fiduciary nature of
its relationship with them." 89 For failing to do this, an award of
exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph
1, Article 2208 90 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner
has the right to protect itself from fraud or suspicions of fraud, the
exercise of this right should be done within the bounds of the law and
in accordance with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents. CTDHSE
WHEREFORE,the Petition is hereby DENIED.The assailed April 2,
2008 Decision and the May 30, 2008 Resolution of the Court of
Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED.
SO ORDERED.
Carpio, Brion, Perez and Perlas-Bernabe, JJ., concur.
FIRST DIVISION
[G.R. Nos. 198729-30. January 15, 2014.]
CBK POWER COMPANY LIMITED, petitioner, vs. COMMISSIONER
OF INTERNAL REVENUE, respondent.
DECISION
SERENO, C.J p:
This is a Petition for Review on Certiorari 1 under Rule 45 of the 1997
Rules of Civil Procedure filed by CBK Power Company Limited
(petitioner). The Petition assails the Decision 2 dated 27 June 2011
and Resolution 3 dated 16 September 2011 of the Court of Tax
Appeals En Banc (CTA En Banc) in C.T.A. EB Nos. 658 and 659. The
assailed Decision and Resolution reversed and set aside the
Decision 4 dated 3 March 2010 and Resolution 5 dated 6 July 2010
rendered by the CTA Special Second Division in C.T.A. Case No.
7621, which partly granted the claim of petitioner for the issuance of a
tax credit certificate representing the latter's alleged unutilized input
taxes on local purchases of goods and services attributable to
effectively zero-rated sales to National Power Corporation (NPC) for
the second and third quarters of 2005.
THE FACTS
Petitioner is engaged, among others, in the operation, maintenance,
and management of the Kalayaan II pumped-storage hydroelectric
power plant, the new Caliraya Spillway, Caliraya, Botocan; and the
Kalayaan I hydroelectric power plants and their related facilities located
in the Province of Laguna. 6
On 29 December 2004, petitioner filed an Application for VAT Zero-
Rate with the Bureau of Internal Revenue (BIR) in accordance with
Section 108 (B) (3) of the National Internal Revenue Code (NIRC) of
1997, as amended. The application was duly approved by the BIR.
Thus, petitioner's sale of electricity to the NPC from 1 January 2005 to
31 October 2005 was declared to be entitled to the benefit of
effectively zero-rated value added tax (VAT). 7 CAHTIS
Petitioner filed its administrative claims for the issuance of tax credit
certificates for its alleged unutilized input taxes on its purchase of
capital goods and alleged unutilized input taxes on its local purchases
and/or importation of goods and services, other than capital goods,
pursuant to Section 112 (A) and (B) of the NIRC of 1997, as amended,
with BIR Revenue District Office (RDO) No. 55 of Laguna, as follows: 8
Period Covered Date of Filing
1st quarter of 2005 30-Jun-05
   
2nd quarter of 2005 15-Sep-05
3rd quarter of 2005 28-Oct-05
Alleging inaction of the Commissioner of Internal Revenue (CIR),
petitioner filed a Petition for Review with the CTA on 18 April 2007.
THE CTA SPECIAL SECOND DIVISION RULING
After trial on the merits, the CTA Special Second Division rendered a
Decision on 3 March 2010.
Applying Commissioner of Internal Revenue v. Mirant Pagbilao
Corporation (Mirant), 9 the court a quo ruled that petitioner had until
the following dates within which to file both administrative and judicial
claims:
Taxable Quarter Last Day to
2005 Close of the quarter File Claim for
5

    Refund
     
1st quarter 31-Mar-05 31-Mar-07
2nd quarter 30-Jun-05 30-Jun-07
     
3rd quarter 30-Sep-05 30-Sep-07
Accordingly, petitioner timely filed its administrative claims for the three
quarters of 2005. However, considering that the judicial claim was filed
on 18 April 2007, the CTA Division denied the claim for the first quarter
of 2005 for having been filed out of time. cCTaSH
After an evaluation of petitioner's claim for the second and third
quarters of 2005, the court a quo partly granted the claim and ordered
the issuance of a tax credit certificate in favor of petitioner in the
reduced amount of P27,170,123.36.
The parties filed their respective Motions for Partial Reconsideration,
which were both denied by the CTA Division.
THE CTA EN BANC RULING
On appeal, relying on Commissioner of Internal Revenue v. Aichi
Forging Company of Asia, Inc. (Aichi), 10 the CTA En Banc ruled that
petitioner's judicial claim for the first, second, and third quarters of
2005 were belatedly filed.
The CTA Special Second Division Decision and Resolution were
reversed and set aside, and the Petition for Review filed in CTA Case
No. 7621 was dismissed. Petitioner's Motion for Reconsideration was
likewise denied for lack of merit.
Hence, this Petition. ScEaAD
ISSUE
Petitioner's assigned errors boil down to the principal issue of the
applicable prescriptive period on its claim for refund of unutilized input
VAT for the first to third quarters of 2005. 11
THE COURT'S RULING
The pertinent provision of the NIRC at the time when petitioner filed its
claim for refund provides:
SEC. 112.  Refunds or Tax Credits of Input Tax. —
(A)  Zero-rated or Effectively Zero-rated Sales. — Any VAT-registered
person, whose sales are zero-rated or effectively zero-rated may,
within two (2) years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales,
except transitional input tax, to the extent that such input tax has not
been applied against output tax: Provided, however, That in the case
of zero-rated sales under Section 106(A)(2)(a)(1),(2) and (B) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods
or properties or services, and the amount of creditable input tax due or
paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the
volume of sales.
xxx xxx xxx
(D)  Period within which Refund or Tax Credit of Input Taxes shall be
Made. — In proper cases, the Commissioner shall grant a refund or
issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with
Subsections (A) and (B) hereof.
In case of full or partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to act on the application
within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or
after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.
Petitioner's sales to NPC are
effectively zero-rated
As aptly ruled by the CTA Special Second Division, petitioner's sales to
NPC are effectively subject to zero percent (0%) VAT. The NPC is an
entity with a special charter, which categorically exempts it from the
payment of any tax, whether direct or indirect, including VAT. Thus,
services rendered to NPC by a VAT-registered entity are effectively
zero-rated. In fact, the BIR itself approved the application for zero-
rating on 29 December 2004, filed by petitioner for its sales to NPC
covering January to October 2005. 12 As a consequence, petitioner
claims for the refund of the alleged excess input tax attributable to its
effectively zero-rated sales to NPC.
In Panasonic Communications Imaging Corporation of the Philippines
v. Commissioner of Internal Revenue, 13 this Court ruled:
Under the 1997 NIRC, if at the end of a taxable quarter the seller
charges output taxes equal to the input taxes that his suppliers passed
on to him, no payment is required of him. It is when his output taxes
exceed his input taxes that he has to pay the excess to the BIR. If the
input taxes exceed the output taxes, however, the excess payment
shall be carried over to the succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively zero-rated transactions
or from the acquisition of capital goods, any excess over the output
taxes shall instead be refunded to the taxpayer.
The crux of the controversy arose from the proper application of the
prescriptive periods set forth in Section 112 of the NIRC of 1997, as
amended, and the interpretation of the applicable jurisprudence.
Although the ponentein this case expressed a different view on the
mandatory application of the 120+30 day period as prescribed in
Section 112, with the finality of the Court's pronouncement on the
consolidated tax cases Commissioner of Internal Revenue v. San
Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue 14 (hereby collectively referred
as San Roque), we are constrained to apply the dispositions therein to
the facts herein which are similar.
Administrative Claim
Section 112 (A) provides that after the close of the taxable quarter
when the sales were made, there is a two-year prescriptive period
within which a VAT-registered person whose sales are zero-rated or
effectively zero-rated may apply for the issuance of a tax credit
certificate or refund of creditable input tax.
Our VAT Law provides for a mechanism that would allow VAT-
registered persons to recover the excess input taxes over the output
taxes they had paid in relation to their sales. For the refund or credit of
excess or unutilized input tax, Section 112 is the governing law. Given
the distinctive nature of creditable input tax, the law under Section 112
(A) provides for a different reckoning point for the two-year prescriptive
period, specifically for the refund or credit of that tax only.
6
We agree with petitioner that Mirant was not yet in existence when
their administrative claim was filed in 2005; thus, it should not
retroactively be applied to the instant case.
However, the fact remains that Section 112 is the controlling provision
for the refund or credit of input tax during the time that petitioner filed
its claim with which they ought to comply. It must be emphasized that
the Court merely clarified in Mirant that Sections 204 and 229, which
prescribed a different starting point for the two-year prescriptive limit
for filing a claim for a refund or credit of excess input tax, were not
applicable. Input tax is neither an erroneously paid nor an illegally
collected internal revenue tax. 15 ISAaTH
Section 112 (A) is clear that for VAT-registered persons whose sales
are zero-rated or effectively zero-rated, a claim for the refund or credit
of creditable input tax that is due or paid, and that is attributable to
zero-rated or effectively zero-rated sales, must be filed within two
years after the close of the taxable quarter when such sales were
made. The reckoning frame would always be the end of the quarter
when the pertinent sale or transactions were made, regardless of when
the input VAT was paid. 16
Pursuant to Section 112 (A), petitioner's administrative claims were
filed well within the two-year period from the close of the taxable
quarter when the effectively zero-rated sales were made, to wit:
  Close of the Last day to File  
Period Covered Taxable Administrative Date of Filing
  Quarter Claim  
       
1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05
       
2nd quarter 200530-Jun-05 30-Jun-07 15-Sep-05
       
3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05
Judicial Claim
Section 112 (D) further provides that the CIR has to decide on an
administrative claim within one hundred twenty (120) days from the
date of submission of complete documents in support thereof.
Bearing in mind that the burden to prove entitlement to a tax refund is
on the taxpayer, it is presumed that in order to discharge its burden,
petitioner had attached complete supporting documents necessary to
prove its entitlement to a refund in its application, absent any evidence
to the contrary.
Thereafter, the taxpayer affected by the CIR's decision or inaction may
appeal to the CTA within 30 days from the receipt of the decision or
from the expiration of the 120-day period within which the claim has
not been acted upon.
Considering further that the 30-day period to appeal to the CTA is
dependent on the 120-day period, compliance with both periods is
jurisdictional. The period of 120 days is a prerequisite for the
commencement of the 30-day period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II
Geothermal Partnership v. Commissioner of Internal Revenue and
Mindanao I Geothermal Partnership v. Commissioner of Internal
Revenue, 17 this Court has ruled thus:
Notwithstanding a strict construction of any claim for tax exemption or
refund, the Court in San Roque recognized that BIR Ruling No.
DA-489-03 constitutes equitable estoppel in favor of
taxpayers. BIR Ruling No. DA-489-03 expressly states that the
"taxpayer-claimant need not wait for the lapse of the 120-day
period before it could seek judicial relief with the CTA by way of
Petition for Review." This Court discussed BIR Ruling No. DA-489-
03 and its effect on taxpayers, thus:
Taxpayers should not be prejudiced by an erroneous interpretation by
the Commissioner, particularly on a difficult question of law. The
abandonment of the Atlas doctrine by Mirant and Aichi is proof that the
reckoning of the prescriptive periods for input VAT tax refund or credit
is a difficult question of law. The abandonment of the Atlas doctrine did
not result in Atlas, or other taxpayers similarly situated, being made to
return the tax refund or credit they received or could have received
under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith or
misrepresentation, the reversal by this Court of a general interpretative
rule issued by the Commissioner, like the reversal of a specific BIR
ruling under Section 246, should also apply prospectively. . . . .
xxx xxx xxx
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling
applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a
general interpretative rule because it was a response to a query made,
not by a particular taxpayer, but by a government agency asked with
processing tax refunds and credits, that is, the One Stop Shop Inter-
Agency Tax Credit and Drawback Center of the Department of
Finance. This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this
government agency mentions in its query to the Commissioner the
administrative claim of Lazi Bay Resources Development, Inc., the
agency was in fact asking the Commissioner what to do in cases like
the tax claim of Lazi Bay Resources Development, Inc., where the
taxpayer did not wait for the lapse of the 120-day period. IDTcHa
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.
Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this
Court in Aichi on 6 October 2010, where this Court held that the
120+30 day periods are mandatory and jurisdictional. (Emphasis
supplied)
In applying the foregoing to the instant case, we consider the following
pertinent dates:
Period Last day to
Administrative Expiration of Judicial
Covered file
Judicial
  Claim Filed 120-days Claim Filed
Claim
         
1st quarter
30-Jun-05 28-Oct-05 27-Nov-05  
2005
2nd quarter
15-Sep-05 13-Jan-06 13-Feb-06 18-Apr-07
2005
         
3rd quarter
28-Oct-05 26-Feb-06 28-Mar-06  
2005
It must be emphasized that this is not a case of premature filing of a
judicial claim. Although petitioner did not file its judicial claim with the
CTA prior to the expiration of the 120-day waiting period, it failed to
observe the 30-day prescriptive period to appeal to the CTA counted
from the lapse of the 120-day period.
Petitioner is similarly situated as Philex in the same case, San
Roque, 18 in which this Court ruled:
7
Unlike San Roque and Taganito, Philex's case is not one of premature (2)  Payment is made through mistake, and not through liberality or
filing but of late filing. Philex did not file any petition with the CTA within some other cause. 23
the 120-day period. Philex did not also file any petition with the CTA
within 30 days after the expiration of the 120-day period. Philex filed its Though the principle of solutio indebiti may be applicable to some
judicial claim long after the expiration of the 120-day period, in fact instances of claims for a refund, the elements thereof are wanting in
426 days after the lapse of the 120-day period. In any event, whether this case.
governed by jurisprudence before, during, or after
the Atlas case, Philex's judicial claim will have to be rejected First, there exists a binding relation between petitioner and the CIR,
because of late filing. Whether the two-year prescriptive period is the former being a taxpayer obligated to pay VAT.
counted from the date of payment of the output VAT following
Second, the payment of input tax was not made through mistake, since
the Atlas doctrine, or from the close of the taxable quarter when the
petitioner was legally obligated to pay for that liability. The entitlement
sales attributable to the input VAT were made following
to a refund or credit of excess input tax is solely based on the
the Mirant and Aichi doctrines, Philex's judicial claim was indisputably
distinctive nature of the VAT system. At the time of payment of the
filed late.
input VAT, the amount paid was correct and proper. 24
The Atlas doctrine cannot save Philex from the late filing of its judicial
Finally, equity, which has been aptly described as "a justice outside
claim. The inaction of the Commissioner on Philex's claim during the
legality," is applied only in the absence of, and never against, statutory
120-day period is, by express provision of law, "deemed a denial"
law or judicial rules of procedure. 25 Section 112 is a positive rule that
of Philex's claim. Philex had 30 days from the expiration of the 120-day
should preempt and prevail over all abstract arguments based only on
period to file its judicial claim with the CTA. Philex's failure to do so
equity. DTIACH
rendered the "deemed a denial" decision of the Commissioner final
and inappealable. The right to appeal to the CTA from a decision or Well-settled is the rule that tax refunds or credits, just like tax
"deemed a denial" decision of the Commissioner is merely a statutory exemptions, are strictly construed against the taxpayer. 26 The burden
privilege, not a constitutional right. The exercise of such statutory is on the taxpayer to show strict compliance with the conditions for the
privilege requires strict compliance with the conditions attached by the grant of the tax refund or credit. 27
statute for its exercise. Philex failed to comply with the statutory
conditions and must thus bear the consequences. (Emphases in the WHEREFORE, premises considered, the instant Petition is DENIED.
original)
SO ORDERED.
Likewise, while petitioner filed its administrative and judicial claims
during the period of applicability of BIR Ruling No. DA-489-03, it Leonardo-de Castro, Bersamin, Villarama, Jr. and Reyes, JJ., concur.
cannot claim the benefit of the exception period as it did not file its
judicial claim prematurely, but did so long after the lapse of the 30-day
period following the expiration of the 120-day period. Again, BIR Ruling
No. DA-489-03 allowed premature filing of a judicial claim, which
means non-exhaustion of the 120-day period for the Commissioner to
act on an administrative claim, 19 but not its late filing. DEHaTC

As this Court enunciated in San Roque, petitioner cannot rely

on Atlas either, since the latter case was promulgated only on 8 June
2007. Moreover, the doctrine in Atlas which reckons the two-year
period from the date of filing of the return and payment of the tax, does
not interpret — expressly or impliedly — the 120+30 day
periods. 20 Simply stated, Atlas referred only to the reckoning of the
prescriptive period for filing an administrative claim.

For failure of petitioner to comply with the 120+30 day mandatory and

jurisdictional period, petitioner lost its right to claim a refund or credit of
its alleged excess input VAT.

With regard to petitioner's argument that Aichi should not be applied

retroactively, we reiterate that even without that ruling, the law is
explicit on the mandatory and jurisdictional nature of the 120+30 day
period.

Also devoid of merit is the applicability of the principle of solutio

indebiti to the present case. According to this principle, if something is
received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In that
situation, a creditor-debtor relationship is created under a quasi-
contract, whereby the payor becomes the creditor who then has the
right to demand the return of payment made by mistake, and the
person who has no right to receive the payment becomes obligated to
return it. 21 The quasi-contract of solutio indebiti is based on the
ancient principle that no one shall enrich oneself unjustly at the
expense of another. 22

There is solutio indebiti when:

(1)  Payment is made when there exists no binding relation between

the payor, who has no duty to pay, and the person who received the
payment; and

8
FIRST DIVISION
[G.R. No. 204866. January 21, 2015.]
RUKS KONSULT AND CONSTRUCTION, petitioner, vs. ADWORLD
SIGN AND ADVERTISING CORPORATION * and TRANSWORLD
MEDIA ADS, INC., respondents.
DECISION
PERLAS-BERNABE, J p:
Assailed in this petition for review on certiorari 1 are the
Decision 2 dated November 16, 2011 and the Resolution 3 dated
December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
94693 which affirmed the Decision 4 dated August 25, 2009 of the
Regional Trial Court of Makati City, Branch 142 (RTC) in Civil Case
No. 03-1452 holding, inter alia, petitioner Ruks Konsult and
Construction (Ruks) and respondent Transworld Media Ads, Inc.
(Transworld) jointly and severally liable to respondent Adworld Sign
and Advertising Corporation (Adworld) for damages.
The Facts
The instant case arose from a complaint for damages filed by Adworld
against Transworld and Comark International Corporation (Comark)
before the RTC. 5 In the complaint, Adworld alleged that it is the owner
of a 75 ft. x 60 ft. billboard structure located at EDSA Tulay,
Guadalupe, Barangka Mandaluyong, which was misaligned and its
foundation impaired when, on August 11, 2003, the adjacent billboard
structure owned by Transworld and used by Comark collapsed and
crashed against it. Resultantly, on August 19, 2003, Adworld sent
Transworld and Comark a letter demanding payment for the repairs of
its billboard as well as loss of rental income. On August 29, 2003,
Transworld sent its reply, admitting the damage caused by its billboard
structure on Adworld's billboard, but nevertheless, refused and failed to
pay the amounts demanded by Adworld. As Adworld's final demand
letter also went unheeded, it was constrained to file the instant
complaint, praying for damages in the aggregate amount of
P474,204.00, comprised of P281,204.00 for materials, P72,000.00 for
labor, and P121,000.00 for indemnity for loss of income. 6
In its Answer with Counterclaim, Transworld averred that the collapse
of its billboard structure was due to extraordinarily strong winds that
occurred instantly and unexpectedly, and maintained that the damage
caused to Adworld's billboard structure was hardly noticeable.
Transworld likewise filed a Third-Party Complaint against Ruks, the
company which built the collapsed billboard structure in the former's
favor. It was alleged therein that the structure constructed by Ruks had
a weak and poor foundation not suited for billboards, thus, prone to
collapse, and as such, Ruks should ultimately be held liable for the
damages caused to Adworld's billboard structure. 7 ScAHTI
For its part, Comark denied liability for the damages caused to
Adworld's billboard structure, maintaining that it does not have any
interest on Transworld's collapsed billboard structure as it only
contracted the use of the same. In this relation, Comark prayed for
exemplary damages from Transworld for unreasonably including it as a
party-defendant in the complaint. 8
Lastly, Ruks admitted that it entered into a contract with Transworld for
the construction of the latter's billboard structure, but denied liability for
the damages caused by its collapse. It contended that when
Transworld hired its services, there was already an existing foundation
for the billboard and that it merely finished the structure according to
the terms and conditions of its contract with the latter. 9
The RTC Ruling
In a Decision 10 dated August 25, 2009, the RTC ultimately ruled in
Adworld's favor, and accordingly, declared, inter alia, Transworld and
Ruks jointly and severally liable to Adworld in the amount of
P474,204.00 as actual damages, with legal interest from the date of
the filing of the complaint until full payment thereof, plus attorney's fees
in the amount of P50,000.00. 11
The RTC found both Transworld and Ruks negligent in the
construction of the collapsed billboard as they knew that the foundation
supporting the same was weak and would pose danger to the safety of
the motorists and the other adjacent properties, such as Adworld's
billboard, and yet, they did not do anything to remedy the
situation. 12 In particular, the RTC explained that Transworld was
made aware by Ruks that the initial construction of the lower structure
of its billboard did not have the proper foundation and would require
additional columns and pedestals to support the structure.
Notwithstanding, however, Ruks proceeded with the construction of the
billboard's upper structure and merely assumed that Transworld would
reinforce its lower structure. 13 The RTC then concluded that these
negligent acts were the direct and proximate cause of the damages
suffered by Adworld's billboard. 14
Aggrieved, both Transworld and Ruks appealed to the CA. In a
Resolution dated February 3, 2011, the CA dismissed Transworld's
appeal for its failure to file an appellant's brief on time. 15 Transworld
elevated its case before the Court, docketed as G.R. No.
197601. 16 However, in a Resolution 17 dated November 23, 2011,
the Court declared the case closed and terminated for failure of
Transworld to file the intended petition for review on certiorari within
the extended reglementary period. Subsequently, the Court issued an
Entry of Judgment 18 dated February 22, 2012 in G.R. No. 197601
declaring the Court's November 23, 2011 Resolution final and
executory. ATSIED
The CA Ruling
In a Decision 19 dated November 16, 2011, the CA denied Ruks's
appeal and affirmed the ruling of the RTC. It adhered to the RTC's
finding of negligence on the part of Transworld and Ruks which
brought about the damage to Adworld's billboard. It found that
Transworld failed to ensure that Ruks will comply with the approved
plans and specifications of the structure, and that Ruks continued to
install and finish the billboard structure despite the knowledge that
there were no adequate columns to support the same. 20
Dissatisfied, Ruks moved for reconsideration, 21 which was, however,
denied in a Resolution 22 dated December 10, 2012, hence, this
petition.
On the other hand, Transworld filed another appeal before the Court,
docketed as G.R. No. 205120. 23 However, the Court denied outright
Transworld's petition in a Resolution 24 dated April 15, 2013, holding
that the same was already bound by the dismissal of its petition filed in
G.R. No. 197601.
The Issue Before the Court
The primordial issue for the Court's resolution is whether or not the CA
correctly affirmed the ruling of the RTC declaring Ruks jointly and
severally liable with Transworld for damages sustained by Adworld.
The Court's Ruling
The petition is without merit.
At the outset, it must be stressed that factual findings of the RTC,
when affirmed by the CA, are entitled to great weight by the Court and
are deemed final and conclusive when supported by the evidence on
record. 25 Absent any exceptions to this rule — such as when it is
established that the trial court ignored, overlooked, misconstrued, or
misinterpreted cogent facts and circumstances that, if considered,
would change the outcome of the case 26 — such findings must stand.
After a judicious perusal of the records, the Court sees no cogent
reason to deviate from the findings of the RTC and the CA and their
uniform conclusion that both Transworld and Ruks committed acts
9
resulting in the collapse of the former's billboard, which in turn, caused
damage to the adjacent billboard of Adworld. SECOND DIVISION
[G.R. No. 194121. July 11, 2016.]
TORRES-MADRID BROKERAGE, INC., petitioner, vs. FEB MITSUI
MARINE INSURANCE CO., INC. and BENJAMIN P. MANALASTAS,
doing business under the name of BMT TRUCKING
SERVICES, respondents.
DECISION
BRION, J p:
We resolve the petition for review on certiorari challenging the Court of
Appeals' (CA) October 14, 2010 decision in CA-G.R. CV No. 91829. 1
The CA affirmed the Regional Trial Court's (RTC) decision in Civil
Case No. 01-1596, and found petitioner Torres-Madrid Brokerage,
Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and
solidarily liable to respondent FEB Mitsui Marine Insurance Co.,
Inc. (Mitsui) for damages from the loss of transported cargo.
Antecedents
On October 7, 2000, a shipment of various electronic goods from
Thailand and Malaysia arrived at the Port of Manila for Sony
Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the
services of TMBI to facilitate, process, withdraw, and deliver the
shipment from the port to its warehouse in Biñan, Laguna. 2
TMBI — who did not own any delivery trucks — subcontracted the
services of Benjamin Manalastas' company, BMT Trucking
Services (BMT), to transport the shipment from the port to the Biñan
warehouse. 3 Incidentally, TMBI notified Sony who had no objections
to the arrangement. 4
Four BMT trucks picked up the shipment from the port at about 11:00
a.m. of October 7, 2000. However, BMT could not immediately
undertake the delivery because of the truck ban and because the
following day was a Sunday. Thus, BMT scheduled the delivery on
October 9, 2000.
In the early morning of October 9, 2000, the four trucks left BMT's
garage for Laguna. 5 However, only three trucks arrived at Sony's
Biñan warehouse.
At around 12:00 noon, the truck driven by Rufo Reynaldo
Lapesura (NSF-391) was found abandoned along the Diversion Road
in Filinvest, Alabang, Muntinlupa City. 6 Both the driver and the
shipment were missing.
Later that evening, BMT's Operations Manager Melchor Manalastas
informed Victor Torres, TMBI's General Manager, of the
development. 7 They went to Muntinlupa together to inspect the truck
and to report the matter to the police. 8
Victor Torres also filed a complaint with the National Bureau of
Investigation (NBI) against Lapesura for "hijacking." 9 The complaint
resulted in a recommendation by the NBI to the Manila City
Prosecutor's Office to prosecute Lapesura for qualified theft. 10
TMBI notified Sony of the loss through a letter dated October 10,
2000. 11 It also sent BMT a letter dated March 29, 2001, demanding
payment for the lost shipment. BMT refused to pay, insisting that the
goods were "hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the
insurer of the goods. After evaluating the merits of the claim, Mitsui
paid Sony PHP7,293,386.23 corresponding to the value of the lost
goods. 12 acEHCD
After being subrogated to Sony's rights, Mitsui sent TMBI a demand
letter dated August 30, 2001 for payment of the lost goods. TMBI
refused to pay Mitsui's claim. As a result, Mitsui filed a complaint
against TMBI on November 6, 2001.
TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT,
as a third-party defendant. TMBI alleged that BMT's driver, Lapesura,
was responsible for the theft/hijacking of the lost cargo and claimed
BMT's negligence as the proximate cause of the loss. TMBI prayed
that in the event it is held liable to Mitsui for the loss, it should be
reimbursed by BMT.
At the trial, it was revealed that BMT and TMBI have been doing
business with each other since the early 80's. It also came out that
there had been a previous hijacking incident involving Sony's cargo in
1997, but neither Sony nor its insurer filed a complaint against BMT or
TMBI. 13
On August 5, 2008, the RTC found TMBI and Benjamin Manalastas
jointly and solidarily liable to pay Mitsui PHP7,293,386.23 as actual
damages, attorney's fees equivalent to 25% of the amount claimed,
and the costs of the suit. 14 The RTC held that TMBI and Manalastas
were common carriers and had acted negligently.
Both TMBI and BMT appealed the RTC's verdict.
TMBI denied that it was a common carrier required to
exercise extraordinary diligence. It maintains that it exercised the
diligence of a good father of a family and should be absolved of liability
because the truck was "hijacked" and this was a fortuitous event.
BMT claimed that it had exercised extraordinary diligence over the lost
shipment, and argued as well that the loss resulted from a fortuitous
event.
On October 14, 2010, the CA affirmed the RTC's decision but reduced
the award of attorney's fees to PHP200,000.
The CA held: (1) that "hijacking" is not necessarily a fortuitous event
because the term refers to the general stealing of cargo during
transit; 15 (2) that TMBI is a common carrier engaged in the business
of transporting goods for the general public for a fee; 16 (3) even if
the "hijacking" were a fortuitous event, TMBI's failure to observe
extraordinary diligence in overseeing the cargo and adopting security
measures rendered it liable for the loss; 17 and (4) even if TMBI had
not been negligent in the handling, transport and the delivery of the
shipment, TMBI still breached its contractual obligation to Sony when it
failed to deliver the shipment. 18
TMBI disagreed with the CA's ruling and filed the present petition on
December 3, 2010.
The Arguments
TMBI's Petition
TMBI insists that the hacking of the truck was a fortuitous event. It
contests the CA's finding that neither force nor intimidation was used in
the taking of the cargo. Considering Lapesura was never found, the
Court should not discount the possibility that he was a victim rather
than a perpetrator. 19
TMBI denies being a common carrier because it does not own a single
truck to transport its shipment and it does not offer transport services
to the public for compensation. 20 It emphasizes that Sony knew TMBI
did not have its own vehicles and would subcontract the delivery to a
third-party.
Further, TMBI now insists that the service it offered was limited to the
processing of paperwork attendant to the entry of Sony's goods. It
denies that delivery of the shipment was a part of its obligation. 21
TMBI solely blames BMT as it had full control and custody of the cargo
when it was lost. 22 BMT, as a common carrier, is presumed negligent
and should be responsible for the loss. SDHTEC
10
BMT's Comment
BMT insists that it observed the required standard of care. 23 Like the
petitioner, BMT maintains that the hijacking was a fortuitous event —
a force majeure — that exonerates it from liability. 24 It points out that
Lapesura has never been seen again and his fate remains a mystery.
BMT likewise argues that the loss of the cargo necessarily showed that
the taking was with the use of force or intimidation. 25
If there was any attendant negligence, BMT points the finger on TMBI
who failed to send a representative to accompany the
shipment. 26 BMT further blamed TMBI for the latter's failure to adopt
security measures to protect Sony's cargo. 27
Mitsui's Comment
Mitsui counters that neither TMBI nor BMT alleged or proved during
the trial that the taking of the cargo was accompanied with grave or
irresistible threat, violence, or force. 28 Hence, the incident cannot be
considered "force majeure" and TMBI remains liable for breach of
contract.
Mitsui emphasizes that TMBI's theory — that force or intimidation must
have been used because Lapesura was never found — was only
raised for the first time before this Court. 29 It also discredits the theory
as a mere conjecture for lack of supporting evidence.
Mitsui adopts the CA's reasons to conclude that TMBI is a common
carrier. It also points out Victor Torres' admission during the trial that
TMBI's brokerage service includes the eventual delivery of the cargo to
the consignee. 30
Mitsui invokes as well the legal presumption of negligence against
TMBI, pointing out that TMBI simply entrusted the cargo to BMT
without adopting any security measures despite: (1) a previous
hijacking incident when TMBI lost Sony's cargo; and (2) TMBI's
knowledge that the cargo was worth more than 10 million pesos. 31
Mitsui affirms that TMBI breached the contract of carriage through its
negligent handling of the cargo, resulting in its loss.
The Court's Ruling
A brokerage may be considered a
common carrier if it also undertakes to
deliver the goods for its customers
Common carriers are persons, corporations, firms or associations
engaged in the business of transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the
public. 32 By the nature of their business and for reasons of public
policy, they are bound to observe extraordinary diligence in the
vigilance over the goods and in the safety of their passengers. 33
In A.F. Sanchez Brokerage, Inc. v. Court of Appeals, 34 we held that a
customs broker — whose principal business is the preparation of the
correct customs declaration and the proper shipping documents — is
still considered a common carrier if it also undertakes to deliver the
goods for its customers. The law does not distinguish between one
whose principal business activity is the carrying of goods and one who
undertakes this task only as an ancillary activity. 35 This ruling has
been reiterated in Schmitz Transport & Brokerage Corp. v. Transport
Venture, Inc., 36 Loadmasters Customs Services, Inc. v. Glodel
Brokerage Corporation, 37 and Westwind Shipping Corporation v.
UCPB General Insurance Co., Inc. 38 AScHCD
Despite TMBI's present denials, we find that the delivery of the goods
is an integral, albeit ancillary, part of its brokerage services. TMBI
admitted that it was contracted to facilitate, process, and clear the
shipments from the customs authorities, withdraw them from the pier,
then transport and deliver them to Sony's warehouse in Laguna. 39
Further, TMBI's General Manager Victor Torres described the nature of
its services as follows:
ATTY. VIRTUDAZO: Could you please tell the court what is the nature
of the business of [TMBI]?
Witness MR. Victor Torres of Torres Madrid: We are engaged in
customs brokerage business. We acquire the release documents from
the Bureau of Customs and eventually deliver the cargoes to the
consignee's warehouse and we are engaged in that kind of business,
sir. 40
That TMBI does not own trucks and has to subcontract the delivery of
its clients' goods, is immaterial. As long as an entity holds itself to the
public for the transport of goods as a business, it is considered a
common carrier regardless of whether it owns the vehicle used or has
to actually hire one. 41
Lastly, TMBI's customs brokerage services — including the
transport/delivery of the cargo — are available to anyone willing to pay
its fees. Given these circumstances, we find it undeniable that TMBI is
a common carrier.
Consequently, TMBI should be held responsible for the loss,
destruction, or deterioration of the goods it transports unless it results
from:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act of omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority. 42
For all other cases — such as theft or robbery — a common carrier is
presumed to have been at fault or to have acted negligently, unless it
can prove that it observed extraordinary diligence. 43
Simply put, the theft or the robbery of the goods is not considered a
fortuitous event or a force majeure. Nevertheless, a common carrier
may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the
goods; 44 or (2) if it stipulated with the shipper/owner of the goods to
limit its liability for the loss, destruction, or deterioration of the goods to
a degree less than extraordinary diligence. 45 AcICHD
However, a stipulation diminishing or dispensing with the common
carrier's liability for acts committed by thieves or robbers who do not
act with grave or irresistible threat, violence, or force is void under
Article 1745 of the Civil Code for being contrary to public
policy. 46 Jurisprudence, too, has expanded Article 1734's five
exemptions. De Guzman v. Court of Appeals 47 interpreted Article
1745 to mean that a robbery attended by "grave or irresistible threat,
violence or force" is a fortuitous event that absolves the common
carrier from liability.
In the present case, the shipper, Sony, engaged the services of TMBI,
a common carrier, to facilitate the release of its shipment and deliver
the goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation — the delivery of the cargo — to another common carrier,
BMT.
Despite the subcontract, TMBI remained responsible for the cargo.
Under Article 1736, a common carrier's extraordinary responsibility
over the shipper's goods lasts from the time these goods are
unconditionally placed in the possession of, and received by, the
carrier for transportation, until they are delivered, actually or
constructively, by the carrier to the consignee. 48
That the cargo disappeared during transit while under the custody of
BMT — TMBI's subcontractor — did not diminish nor terminate TMBI's
11
responsibility over the cargo. Article 1735 of the Civil Code presumes
that it was at fault.
Instead of showing that it had acted with extraordinary diligence, TMBI
simply argued that it was not a common carrier bound to observe
extraordinary diligence. Its failure to successfully establish this premise
carries with it the presumption of fault or negligence, thus rendering it
liable to Sony/Mitsui for breach of contract.
Specifically, TMBI's current theory — that the hijacking was attended
by force or intimidation — is untenable.
First, TMBI alleged in its Third Party Complaint against BMT that
Lapesura was responsible for hijacking the shipment. 49 Further,
Victor Torres filed a criminal complaint against Lapesura with the
NBI. 50 These actions constitute direct and binding admissions that
Lapesura stole the cargo. Justice and fair play dictate that TMBI should
not be allowed to change its legal theory on appeal.
Second, neither TMBI nor BMT succeeded in substantiating this theory
through evidence. Thus, the theory remained an unsupported
allegation no better than speculations and conjectures. The CA
therefore correctly disregarded the defense of force majeure.
TMBI and BMT are not solidarily liable
to Mitsui
We disagree with the lower courts' ruling that TMBI and BMT are
solidarily liable to Mitsui for the loss as joint tortfeasors. The ruling was
based on Article 2194 of the Civil Code: TAIaHE
Art. 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary.
Notably, TMBI's liability to Mitsui does not stem from a quasi-
delict (culpa aquiliana) but from its breach of contract (culpa
contractual). The tie that binds TMBI with Mitsui is contractual, albeit
one that passed on to Mitsui as a result of TMBI's contract of carriage
with Sony to which Mitsui had been subrogated as an insurer who had
paid Sony's insurance claim. The legal reality that results from this
contractual tie precludes the application of quasi-delict based Article
2194.
A third party may recover from a
common carrier for quasi-delict but must
prove actual negligence
We likewise disagree with the finding that BMT is directly liable to
Sony/Mitsui for the loss of the cargo. While it is undisputed that the
cargo was lost under the actual custody of BMT (whose employee is
the primary suspect in the hijacking or robbery of the shipment), no
direct contractual relationship existed between Sony/Mitsui and BMT. If
at all, Sony/Mitsui's cause of action against BMT could only arise from
quasi-delict, as a third party suffering damage from the action of
another due to the latter's fault or negligence, pursuant to Article 2176
of the Civil Code.51
We have repeatedly distinguished between an action for breach of
contract (culpa contractual) and an action for quasi-delict (culpa
aquiliana).
In culpa contractual, the plaintiff only needs to establish the existence
of the contract and the obligor's failure to perform his obligation. It is
not necessary for the plaintiff to prove or even allege that the obligor's
non-compliance was due to fault or negligence because Article 1735
already presumes that the common carrier is negligent. The common
carrier can only free itself from liability by proving that it
observed extraordinary diligence. It cannot discharge this liability by
shifting the blame on its agents or servants. 52
On the other hand, the plaintiff in culpa aquiliana must clearly establish
the defendant's fault or negligence because this is the very basis of the
action. 53 Moreover, if the injury to the plaintiff resulted from the act or
omission of the defendant's employee or servant, the defendant may
absolve himself by proving that he observed the diligence of a good
father of a family to prevent the damage. 54
In the present case, Mitsui's action is solely premised on TMBI's
breach of contract. Mitsui did not even sue BMT, much less prove any
negligence on its part. If BMT has entered the picture at all, it is
because TMBI sued it for reimbursement for the liability that TMBI
might incur from its contract of carriage with Sony/Mitsui. Accordingly,
there is no basis to directly hold BMT liable to Mitsui for quasi-delict.
BMT is liable to TMBI for breach of their
contract of carriage
We do not hereby say that TMBI must absorb the loss. By
subcontracting the cargo delivery to BMT, TMBI entered into its own
contract of carriage with a fellow common carrier.
The cargo was lost after its transfer to BMT's custody based on its
contract of carriage with TMBI. Following Article 1735, BMT is
presumed to be at fault. Since BMT failed to prove that it
observed extraordinary diligence in the performance of its obligation to
TMBI, it is liable to TMBI for breach of their contract of carriage.
In these lights, TMBI is liable to Sony (subrogated by Mitsui) for
breaching the contract of carriage. In turn, TMBI is entitled to
reimbursement from BMT due to the latter's own breach of its contract
of carriage with TMBI. The proverbial buck stops with BMT who may
either: (a) absorb the loss, or (b) proceed after its missing driver, the
suspected culprit, pursuant to Article 2181. 55
WHEREFORE, the Court hereby ORDERS petitioner Torres-Madrid
Brokerage, Inc. to pay the respondent FEB Mitsui Marine Insurance
Co., Inc. the following:
a. Actual damages in the amount of PHP7,293,386.23 plus legal
interest from the time the complaint was filed until it is fully paid;
b. Attorney's fees in the amount of PHP200,000.00; and
c. Costs of suit. 
Respondent Benjamin P. Manalastas is in
turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of the
above-mentioned amounts.
SO ORDERED.
Carpio, Del Castillo and Leonen, JJ., concur.
Mendoza, * J., is on official leave.
Jurisprudence defines negligence as the omission to do something
which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do, or the doing
of something which a prudent and reasonable man would not do. 27 It
is the failure to observe for the protection of the interest of another
person that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers
injury. 28 HDacIT
In this case, the CA correctly affirmed the RTC's finding that
Transworld's initial construction of its billboard's lower structure without
the proper foundation, and that of Ruks's finishing its upper structure
and just merely assuming that Transworld would reinforce the weak
foundation are the two (2) successive acts which were the direct and
proximate cause of the damages sustained by Adworld. Worse, both
Transworld and Ruks were fully aware that the foundation for the
former's billboard was weak; yet, neither of them took any positive step
to reinforce the same. They merely relied on each other's word that
repairs would be done to such foundation, but none was done at all.
Clearly, the foregoing circumstances show that both Transworld and
Ruks are guilty of negligence in the construction of the former's
billboard, and perforce, should be held liable for its collapse and the
resulting damage to Adworld's billboard structure. As joint tortfeasors,
12
therefore, they are solidarily liable to Adworld. Verily, "[j]oint tortfeasors
are those who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a tort, or
approve of it after it is done, if done for their benefit. They are also
referred to as those who act together in committing wrong or whose
acts, if independent of each other, unite in causing a single injury.
Under Article 2194 29 of the Civil Code, joint tortfeasors are solidarily
liable for the resulting damage. In other words, joint tortfeasors are
each liable as principals, to the same extent and in the same manner
as if they had performed the wrongful act themselves." 30 The Court's
pronouncement in People v. Velasco 31 is instructive on this matter, to
wit: 32
Where several causes producing an injury are concurrent and
each is an efficient cause without which the injury would not have
happened, the injury may be attributed to all or any of the causes
and recovery may be had against any or all of the responsible
persons although under the circumstances of the case, it may appear
that one of them was more culpable, and that the duty owed by them to
the injured person was not same. No actor's negligence ceases to be a
proximate cause merely because it does not exceed the negligence of
other actors. Each wrongdoer is responsible for the entire result and is
liable as though his acts were the sole cause of the injury.
There is no contribution between joint [tortfeasors] whose liability is
solidary since both of them are liable for the total damage. Where the
concurrent or successive negligent acts or omissions of two or
more persons, although acting independently, are in combination
the direct and proximate cause of a single injury to a third person,
it is impossible to determine in what proportion each contributed
to the injury and either of them is responsible for the whole injury.
. . . . (Emphases and underscoring supplied)
In conclusion, the CA correctly affirmed the ruling of the RTC declaring
Ruks jointly and severally liable with Transworld for damages
sustained by Adworld. TaISEH
WHEREFORE, the petition is DENIED. The Decision dated November
16, 2011 and the Resolution dated December 10, 2012 of the Court of
Appeals in CA-G.R. CV No. 94693 are hereby AFFIRMED.
SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, JJ., concur.
THIRD DIVISION
[G.R. No. 196118. July 30, 2014.]
LEONARDO C. CASTILLO, represented by LENNARD V.
CASTILLO, petitioner, vs. SECURITY BANK CORPORATION, JRC
POULTRY FARMS or SPOUSES LEON C. CASTILLO, JR., and
TERESITA FLORES-CASTILLO, respondents.
DECISION
PERALTA, J p:
This is a Petition for Review questioning the Decision 1 of the Court of
Appeals (CA) dated November 26, 2010, as well as its
Resolution 2 dated March 17, 2011 in CA-G.R. CV No. 88914. The CA
reversed and set aside the Decision 3 of the Regional Trial
Court (RTC) of San Pablo City, Laguna, Branch 32, dated October 16,
2006 in Civil Case No. SP-5882 (02), and consequently, upheld the
validity of the real estate mortgage entered into by respondents
spouses Leon C. Castillo, Jr. and Teresita Flores-Castillo, and Security
Bank Corporation (SBC).
The facts, as culled from the records, are as follows:
Petitioner Leonardo C. Castillo and respondent Leon C. Castillo, Jr.
are siblings. Leon and Teresita Flores-Castillo (the Spouses
Castillo) were doing business under the name of JRC Poultry Farms.
Sometime in 1994, the Spouses Castillo obtained a loan from
respondent SBC in the amount of P45,000,000.00. To secure said
loan, they executed a real estate mortgage on August 5, 1994 over
eleven (11) parcels of land belonging to different members of the
Castillo family and which are all located in San Pablo City. 4 They also
procured a second loan 5 amounting to P2,500,000.00, which was
covered by a mortgage on a land in Pasay City. Subsequently, the
Spouses Castillo failed to settle the loan, prompting SBC to proceed
with the foreclosure of the properties. SBC was then adjudged as the
winning bidder in the foreclosure sale held on July 29, 1999.
Thereafter, they were able to redeem the foreclosed properties, with
the exception of the lots covered by Torrens Certificate of Title (TCT)
Nos. 28302 and 28297. SAHEIc
On January 30, 2002, Leonardo filed a complaint for the partial
annulment of the real estate mortgage. He alleged that he owns the
property covered by TCT No. 28297 and that the Spouses Castillo
used it as one of the collaterals for a loan without his consent. He
contested his supposed Special Power of Attorney (SPA) in Leon's
favor, claiming that it is falsified. According to him, the date of issuance
of his Community Tax Certificate (CTC) as indicated on the
notarization of said SPA is January 11, 1993, when he only secured
the same on May 17, 1993. He also assailed the foreclosure of the lots
under TCT Nos. 20030 and 10073 which were still registered in the
name of their deceased father. Lastly, Leonardo attacked SBC's
imposition of penalty and interest on the loans as being arbitrary and
unconscionable.
On the other hand, the Spouses Castillo insisted on the validity of
Leonardo's SPA. They alleged that they incurred the loan not only for
themselves, but also for the other members of the Castillo family who
needed money at that time. Upon receipt of the proceeds of the loan,
they distributed the same to their family members, as agreed upon.
However, when the loan became due, their relatives failed to pay their
respective shares such that Leon was forced to use his own money
until SBC had to finally foreclose the mortgage over the lots. 6
In a Decision dated October 16, 2006, the RTC of San Pablo City ruled
in Leonardo's favor, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
Leonardo C. Castillo and against the defendants SECURITY BANK
CORPORATION, and JRC POULTRY FARMS or SPS. LEON C.
CASTILLO, JR. and TERESITA FLORES-CASTILLO declaring as null
and void the Real Estate Mortgage dated August 5, 1994, the
13
Memorandum of Agreement dated October 28, 1997 and the
Certificate of Sale dated August 27, 1999 insofar as plaintiff's property
with Transfer Certificate of Title No. T-28297 is concerned. The
Security Bank Corporation is likewise ordered to return the ownership
of the Transfer Certificate of Title No. T-28297 to plaintiff Leonardo
Castillo. Likewise, defendants spouses Leon C. Castillo, Jr. and
Teresita Flores-Castillo are hereby ordered to pay plaintiff moral
damages in the total amount of P500,000.00 and exemplary damages
of P20,000.00. All other claims for damages and attorney's fees are
DENIED for insufficiency of evidence.
SO ORDERED. 7  that the form of a contract that transmits or extinguishes real rights
Both parties elevated the case to the CA. On November 26, 2010, the
CA denied Leonardo's appeal and granted that of the Spouses Castillo
and SBC. It reversed and set aside the RTC Decision, essentially
ruling that the August 5, 1994 real estate mortgage is valid. Leonardo
filed a Motion for Reconsideration, but the same was denied for lack of
merit.
Hence, Leonardo brought the case to the Court and filed the instant
Petition for Review. The main issue sought to be resolved here is
whether or not the real estate mortgage constituted over the property
under TCT No. T-28297 is valid and binding.
The Court finds the petition to be without merit.
As a rule, the jurisdiction of the Court over appealed cases from the
CA is limited to the review and revision of errors of law it allegedly
committed, as its findings of fact are deemed conclusive. Thus, the
Court is not duty-bound to evaluate and weigh the evidence all over
again which were already considered in the proceedings below, except
when, as in this case, the findings of fact of the CA are contrary to the
findings and conclusions of the trial court. 8
The following are the legal requisites for a mortgage to be valid:
(1) It must be constituted to secure the fulfillment of a principal
obligation;
(2) The mortgagor must be the absolute owner of the thing mortgaged;
(3) The persons constituting the mortgage must have the free disposal
of their property, and in the absence thereof, they should be legally
authorized for the purpose. 9 HSDaTC
Leonardo asserts that his signature in the SPA authorizing his brother,
Leon, to mortgage his property covered by TCT No. T-28297 was
falsified. He claims that he was in America at the time of its execution.
As proof of the forgery, he focuses on his alleged CTC used for the
notarization 10 of the SPA on May 5, 1993 and points out that it
appears to have been issued on January 11, 1993 when, in fact, he
only obtained it on May 17, 1993. But it is a settled rule that allegations
of forgery, like all other allegations, must be proved by clear, positive,
and convincing evidence by the party alleging it. It should not be
presumed, but must be established by comparing the alleged forged
signature with the genuine signatures. 11 Here, Leonardo simply relied
on his self-serving declarations and refused to present further
corroborative evidence, saying that the falsified document itself is the
best evidence. 12 He did not even bother comparing the alleged forged
signature on the SPA with samples of his real and actual signature.
What he consistently utilized as lone support for his allegation was the
supposed discrepancy on the date of issuance of his CTC as reflected
on the subject SPA's notarial acknowledgment. On the contrary, in
view of the great ease with which CTCs are obtained these
days, 13 there is reasonable ground to believe that, as the CA correctly
observed, the CTC could have been issued with the space for the date
left blank and Leonardo merely filled it up to accommodate his
assertions. Also, upon careful examination, the handwriting appearing
on the space for the date of issuance is different from that on the
computation of fees, which in turn was consistent with the rest of the
writings on the document. 14 He did not likewise attempt to show any
evidence that would back up his claim that at the time of the execution
of the SPA on May 5, 1993, he was actually in America and therefore
could not have possibly appeared and signed the document before the
notary.
And even if the Court were to assume, simply for the sake of
argument, that Leonardo indeed secured his CTC only on May 17,
1993, this does not automatically render the SPA invalid. The appellate
court aptly held that defective notarization will simply strip the
document of its public character and reduce it to a private instrument,
but nonetheless, binding, provided its validity is established by
preponderance of evidence. 15 Article 1358 of the Civil Code requires
over immovable property should be in a public document, yet the
failure to observe the proper form does not render the transaction
invalid. 16 The necessity of a public document for said contracts is only
for convenience; it is not essential for validity or enforceability. 17 Even
a sale of real property, though not contained in a public instrument or
formal writing, is nevertheless valid and binding, for even a verbal
contract of sale or real estate produces legal effects between the
parties. 18 Consequently, when there is a defect in the notarization of
a document, the clear and convincing evidentiary standard originally
attached to a duly-notarized document is dispensed with, and the
measure to test the validity of such document is preponderance of
evidence. 19 DTEScI
Here, the preponderance of evidence indubitably tilts in favor of the
respondents, still making the SPA binding between the parties even
with the aforementioned assumed irregularity. There are several telling
circumstances that would clearly demonstrate that Leonardo was
aware of the mortgage and he indeed executed the SPA to entrust
Leon with the mortgage of his property. Leon had in his possession all
the titles covering the eleven (11) properties mortgaged, including that
of Leonardo. 20 Leonardo and the rest of their relatives could not have
just blindly ceded their respective TCTs to Leon. 21 It is likewise
ridiculous how Leonardo seemed to have been totally oblivious to the
status of his property for eight (8) long years, and would only find out
about the mortgage and foreclosure from a nephew who himself had
consented to the mortgage of his own lot. 22 Considering the lapse of
time from the alleged forgery on May 5, 1993 and the mortgage on
August 5, 1994, to the foreclosure on July 29, 1999, and to the
supposed discovery in 2001, it appears that the suit is a mere
afterthought or a last-ditch effort on Leonardo's part to extend his hold
over his property and to prevent SBC from consolidating ownership
over the same. More importantly, Leonardo himself admitted on cross-
examination that he granted Leon authority to mortgage, only that,
according to him, he thought it was going to be with China Bank, and
not SBC. 23 But as the CA noted, there is no mention of a certain bank
in the subject SPA with which Leon must specifically deal. Leon,
therefore, was simply acting within the bounds of the SPA's authority
when he mortgaged the lot to SBC.
True, banks and other financing institutions, in entering into mortgage
contracts, are expected to exercise due diligence. 24 The
ascertainment of the status or condition of a property offered to it as
security for a loan must be a standard and indispensable part of its
operations. 25 In this case, however, no evidence was presented to
show that SBC was remiss in the exercise of the standard care and
prudence required of it or that it was negligent in accepting the
mortgage. 26 SBC could not likewise be faulted for relying on the
presumption of regularity of the notarized SPA when it entered into the
subject mortgage agreement.
Finally, the Court finds that the interest and penalty charges imposed
by SBC are just, and not excessive or unconscionable. DCcTHa
Section 47 of The General Banking Law of 2000 27 thus provides:
Section 47. Foreclosure of Real Estate Mortgage. — In the event of
foreclosure, whether judicially or extra-judicially, of any mortgage on
real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real property
has been sold for the full or partial payment of his obligation shall have
14
the right within one year after the sale of the real estate, to redeem
the property by paying the amount due under the mortgage deed,
with interest thereon at the rate specified in the mortgage, and all
the costs and expenses incurred by the bank or institution from
the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned
whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the
date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the
conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or the restraint of
the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being
sold pursuant to an extrajudicial foreclosure, shall have the right to
redeem the property in accordance with this provision until, but not
after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than
three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity
of this Act shall retain their redemption rights until their expiration. 28
Verily, the redemption price comprises not only the total amount due
under the mortgage deed, but also with interest at the rate specified in
the mortgage, and all the foreclosure expenses incurred by the
mortgagee bank. To sustain Leonardo's claim that their payment of
P45,000,000.00 had already extinguished their entire obligation with
SBC would mean that no interest ever accrued from 1994, when the
loan was availed, up to the time the payment of P45,000,000.00 was
made in 2000-2001. caIEAD
SBC's 16% rate of interest is not computed per month, but rather per
annum or only 1.33% per month. In Spouses Bacolor v. Banco Filipino
Savings and Mortgage Bank, Dagupan City Branch, 29 the Court held
that the interest rate of 24% per annum on a loan of P244,000.00 is not
considered as unconscionable and excessive. As such, the Court ruled
that the debtors cannot renege on their obligation to comply with what
is incumbent upon them under the contract of loan as they are bound
by its stipulations. Also, the 24% per annum rate or 2% per month for
the penalty charges imposed on account of default, cannot be
considered as skyrocketing. The enforcement of penalty can be
demanded by the creditor in case of non-performance due to the
debtor's fault or fraud. The non-performance gives rise to the
presumption of fault and in order to avoid the penalty, the debtor has
the burden of proving that the failure of the performance was due to
either force majeure or the creditor's own acts. 30 In the instant case,
petitioner failed to discharge said burden and thus cannot avoid the
payment of the penalty charge agreed upon.
WHEREFORE, premises considered, the petition is DENIED. The
Decision of the Court of Appeals, dated November 26, 2010, as well as
its Resolution dated March 17, 2011 in CA-G.R. CV No. 88914, are
hereby AFFIRMED.
SO ORDERED. 
FIRST DIVISION
[G.R. No. 183794. June 13, 2016.]
SPOUSES JAIME and MATILDE POON, petitioners, vs. PRIME
SAVINGS BANK represented by the PHILIPPINE DEPOSIT
INSURANCE CORPORATION as Statutory Liquidator, respondent.
DECISION
SERENO, C.J p:
Before this Court is a Petition for Review on Certiorari 1 assailing the
Court of Appeals (CA) Decision 2 which affirmed the Decision 3 issued
by Branch 21, Regional Trial Court (RTC) of Naga City.
The RTC ordered the partial rescission of the penal clause in the lease
contract over the commercial building of Spouses Jaime and Matilde
Poon (petitioners). It directed petitioners to return to Prime Savings
Bank (respondent) the sum of P1,740,000, representing one-half of the
unused portion of its advance rentals, in view of the closure of
respondent's business upon order by the Bangko Sentral ng
Pilipinas (BSP).
ANTECEDENT FACTS
The facts are undisputed.
Petitioners owned a commercial building in Naga City, which they used
for their bakery business. On 3 November 2006, Matilde Poon and
respondent executed a 10-year Contract of Lease 4 (Contract) over the
building for the latter's use as its branch office in Naga City. They
agreed to a fixed monthly rental of P60,000, with an advance payment
of the rentals for the first 100 months in the amount of P6,000,000. As
agreed, the advance payment was to be applied immediately, while the
rentals for the remaining period of the Contract were to be paid on a
monthly basis. 5
In addition, paragraph 24 of the Contract provides:
24. Should the lease[d] premises be closed, deserted or vacated by
the LESSEE, the LESSOR shall have the right to terminate the lease
without the necessity of serving a court order and to immediately
repossess the leased premises. Thereafter the LESSOR shall open
and enter the leased premises in the presence of a representative of
the LESSEE (or of the proper authorities) for the purpose of taking a
complete inventory of all furniture, fixtures, equipment and/or other
materials or property found within the leased premises.
The LESSOR shall thereupon have the right to enter into a new
contract with another party. All advanced rentals shall be forfeited in
favor of the LESSOR. 6
Barely three years later, however, the BSP placed respondent under
the receivership of the Philippine Deposit Insurance Corporation
(PDIC) by virtue of BSP Monetary Board Resolution No. 22, 7 which
reads:
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift
Banks and Non-Bank Financial Institutions (DTBNBFI), in his
memorandum dated January 3, 2000, which report showed that the
Prime Savings Bank, Inc. (a) is unable to pay its liabilities as they
became due in the ordinary course of business; (b) has insufficient
realizable assets as determined by the Bangko Sentral ng Pilipinas to
meet its liabilities; (c) cannot continue in business without involving
probable losses to its depositors and creditors; and (d) has wilfully
violated cease and desist orders under Section 37 that has
become final, involving acts or transactions which amount to
fraud or a dissipation of the assets of the
institution; . . . . 8 (Emphasis supplied)
The BSP eventually ordered respondent's liquidation under Monetary
Board Resolution No. 664. 9
On 12 May 2000, respondent vacated the leased premises and
surrendered them to petitioners. 10 Subsequently, the PDIC issued
15
petitioners a demand letter 11 asking for the return of the unused
advance rental amounting to P3,480,000 on the ground that paragraph
24 of the lease agreement had become inoperative, because
respondent's closure constituted force majeure. The PDIC likewise
invoked the principle of rebus sic stantibus under Article 1267
of Republic Act No. 386 (Civil Code) as alternative legal basis for
demanding the refund.
Petitioners, however, refused the PDIC's demand. 12 They maintained
that they were entitled to retain the remainder of the advance rentals
following paragraph 24 of their Contract. CAIHTE
Consequently, respondent sued petitioners before the RTC of Naga
City for a partial rescission of contract and/or recovery of a sum of
money.
THE RTC RULING
After trial, the RTC ordered the partial rescission of the lease
agreement, disposing as follows:
WHEREFORE, judgment is hereby entered ordering the partial
rescission of the Contract of Lease dated November 3, 1996
particularly the second paragraph of Par. 24 thereof and directing the
defendant-spouses Jaime and Matilde Poon to return or refund to the
Plaintiff the sum of One Million Seven Hundred Forty Thousand Pesos
(P1,740,000) representing one-half of the unused portion of the
advance rentals.
Parties' respective claims for damages and attorney's fees are
dismissed.
No costs. 13
The trial court ruled that the second clause in paragraph 24 of the
Contract was penal in nature, and that the clause was a valid
contractual agreement. 14 Citing Provident Savings Bank v. CA 15 as
legal precedent, it ruled that the premature termination of the lease due
to the BSP's closure of respondent's business was actually involuntary.
Consequently, it would be iniquitous for petitioners to forfeit the entire
amount of P3,480,000. 16 Invoking its equity jurisdiction under Article
1229 of the Civil Code, 17 the trial court limited the forfeiture to only
one-half of that amount to answer for respondent's unpaid utility bills
and E-VAT, as well as petitioner's lost business opportunity from its
former bakery business. 18
THE CA RULING
On appeal, the CA affirmed the RTC Decision, 19 but had a different
rationale for applying Article 1229. The appellate court ruled that the
closure of respondent's business was not a fortuitous event.
Unlike Provident Savings Bank, 20 the instant case was one in which
respondent was found to have committed fraudulent acts and
transactions. Lacking, therefore, was the first requisite of a fortuitous
event, i.e. that the cause of the breach of obligation must be
independent of the will of the debtor. 21
Still, the CA sustained the trial court's interpretation of the proviso on
the forfeiture of advance rentals as a penal clause and the consequent
application of Article 1229. The appellate court found that the forfeiture
clause in the Contract was intended to prevent respondent from
defaulting on the latter's obligation to finish the term of the lease. It
further found that respondent had partially performed that obligation
and, therefore, the reduction of the penalty was only proper. Similarly,
it ruled that the RTC had properly denied petitioners' claims for actual
and moral damages for lack of basis. 22
On 10 July 2008, 23 the CA denied petitioners' Motion for
Reconsideration. Hence, this Petition.
ISSUES
The issues to be resolved are whether (1) respondent may be released
from its contractual obligations to petitioners on grounds of fortuitous
event under Article 1174 of the Civil Code and unforeseen event under
Article 1267 of the Civil Code; (2) the proviso in the parties' Contract
allowing the forfeiture of advance rentals was a penal clause; and (3)
the penalty agreed upon by the parties may be equitably reduced
under Article 1229 of the Civil Code.
COURT RULING
We DENY the Petition.
Preliminarily, we address petitioners' claim that respondent had no
cause of action for rescission, because this case does not fall under
any of the circumstances enumerated in Articles 1381 24 and
1382 25 of the Civil Code.
The legal remedy of rescission, however, is by no means limited to the
situations covered by the above provisions. The Civil Code uses
rescission in two different contexts, namely: (1) rescission on account
of breach of contract under Article 1191; and (2) rescission by reason
of lesion or economic prejudice under Article 1381. 26 While the term
"rescission" is used in Article 1191, "resolution" was the original term
used in the old Civil Code, on which the article was based. Resolution
is a principal action based on a breach by a party, while rescission
under Article 1383 is a subsidiary action limited to cases of rescission
for lesion under Article 1381 of the New Civil Code. 27
It is clear from the allegations in paragraphs 12 and 13 of the
Complaint 28 that respondent's right of action rested on the alleged
abuse by petitioners of their right under paragraph 24 of the Contract.
Respondent's theory before the trial court was that the tenacious
enforcement by petitioners of their right to forfeit the advance rentals
was tainted with bad faith, because they knew that respondent was
already insolvent. In other words, the action instituted by respondent
was for the rescission of reciprocal obligations under Article 1191. The
lower courts, therefore, correctly ruled that Articles 1381 and 1382
were inapposite.
We now resolve the main issues.
The closure of respondent's business
was neither a fortuitous nor an
unforeseen event that rendered the
lease agreement functus officio.
Respondent posits that it should be released from its contract with
petitioners, because the closure of its business upon the BSP's order
constituted a fortuitous event as the Court held in Provident Savings
Bank. 29 DETACa
The cited case, however, must always be read in the context of the
earlier Decision in Central Bank v. Court of Appeals. 30 The Court
ruled in that case that the Monetary Board had acted arbitrarily and in
bad faith in ordering the closure of Provident Savings Bank.
Accordingly, in the subsequent case of Provident Savings Bank it was
held that fuerza mayor had interrupted the prescriptive period to file an
action for the foreclosure of the subject mortgage. 31
In contrast, there is no indication or allegation that the BSP's action in
this case was tainted with arbitrariness or bad faith. Instead, its
decision to place respondent under receivership and liquidation
proceedings was pursuant to Section 30 of Republic Act No.
7653. 32 Moreover, respondent was partly accountable for the closure
of its banking business. It cannot be said, then, that the closure of its
business was independent of its will as in the case of Provident
Savings Bank. The legal effect is analogous to that created by
contributory negligence in quasi-delict actions.
The period during which the bank cannot do business due to
insolvency is not a fortuitous event, 33 unless it is shown that the
government's action to place a bank under receivership or liquidation
proceedings is tainted with arbitrariness, or that the regulatory body
has acted without jurisdiction. 34
16
As an alternative justification for its premature termination of the
Contract, respondent lessee invokes the doctrine of unforeseen event
under Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be
released therefrom, in whole or in part.
The theory of rebus sic stantibus in public international law is often
cited as the basis of the above article. Under this theory, the parties
stipulate in light of certain prevailing conditions, and the theory can be
made to apply when these conditions cease to exist. 35 The Court,
however, has once cautioned that Article 1267 is not an absolute
application of the principle of rebus sic stantibus, otherwise, it would
endanger the security of contractual relations. After all, parties to a
contract are presumed to have assumed the risks of unfavorable
developments. It is only in absolutely exceptional changes of
circumstance, therefore, that equity demands assistance for the
debtor. 36
Tagaytay Realty Co., Inc. v. Gacutan 37 lays down the requisites for
the application of Article 1267, as follows:
1. The event or change in circumstance could not have been foreseen
at the time of the execution of the contract.
2. It makes the performance of the contract extremely difficult but not
impossible.
3. It must not be due to the act of any of the parties.
4. The contract is for a future prestation. 38
The difficulty of performance should be such that the party seeking to
be released from a contractual obligation would be placed at a
disadvantage by the unforeseen event. Mere inconvenience,
unexpected impediments, increased expenses, 39 or even pecuniary
inability to fulfil an engagement, 40 will not relieve the obligor from an
undertaking that it has knowingly and freely contracted.
The law speaks of "service." This term should be understood as
referring to the performance of an obligation or a prestation. 41 A
prestation is the object of the contract; i.e., it is the conduct (to give, to
do or not to do) required of the parties. 42 In a reciprocal contract such
as the lease in this case, one obligation of respondent as the lessee
was to pay the agreed rents for the whole contract period. 43 It would
be hard-pressed to complete the lease term since it was already out of
business only three and a half years into the 10-year contract period.
Without a doubt, the second and the fourth requisites mentioned above
are present in this case.
The first and the third requisites, however, are lacking. It must be noted
that the lease agreement was for 10 years. As shown by the
unrebutted testimony of Jaime Poon during trial, the parties had
actually considered the possibility of a deterioration or loss of
respondent's business within that period:
ATTY. SALES
Q. Now to the offer of that real estate broker for possible lease of your
property at No. 38 General Luna Street, Naga City which was then the
Madam Poon Bakery, wait did you tell your real estate broker?
WITNESS (JAIME POON)
A. When Mrs. Lauang approached me, she told me that she has a
client who wants to lease a property in Naga City.
Q. Did she disclose to you the identity of her client?
A. Yes, Sir.
Q. What was the name of her client?
A. That is the Prime Savings Bank.
Q. After you have known that it was the Prime Savings Bank that
[wanted] to lease your property located at No. 38 General Luna St.,
Naga City, what did you tell Mrs. Lauang[?]
A. I told her that if the price is good, I am willing to give up the place
where this bakery of mine is situated.
Q. So, did Mrs. Lauang give you the quotation as to the price?
A. Yes, Sir.
Q. What was the amount?
A. She asked first if how much I demand for the price.
Q. What did you tell her? aDSIHc
A. I told her, if they can give me P100,000.00 for the rental. I will give
up the place.
Q. What do you mean P100,000.00 rental?
A. That is only for the establishment [concerned].
Q. What was the period to be covered by the P100,000.00 rental?
A. That is monthly basis.
Q. So after telling Mrs. Lauang that you can be amenable to lease the
place for P100,000.00 monthly, what if any, did Mrs. Lauang tell you?
A. She told me it is very high. And then she asked me if it is still
negotiable, I answered, yes.
Q. So, what happened after your clarified to her that [it is] still
negotiable?
A. She asked me if there is other condition, and I answered her, yes, if
your client can give me advances I can lease my property.
xxx xxx xxx
Q. So what is your answer when you were asked for the amount of the
advances?
A. I told her I need 7 million pesos because I need to pay my debts.
xxx xxx xxx
Q. Who was with her when she came over?
A. A certain guy name Ricci and said that he is the assistant manager
of the Prime Savings Bank.
Q. What did you and Mr. Ricci talk about?
A. I told him the same story as I talked with Mrs. Lauang.
Q. Was the agreement finally reached between you and Mr. Ricci?
A. Not yet, Sir.
Q. What happened after that?
A. He said that he [will discuss] the matter with his higher officer, the
branch manager in the person of Henry Lee.
Q. Were you able to meet this Henry Lee?
A. After a week later.
Q. Who was with Henry Lee?
A. Mrs. Lauang. ATICcS
17
Q. Was there a final agreement on the day when you and Henry Lee
met?
A. Not yet, he offered to reduce the rental and also the advances.
Finally I gave way after 2 or 3 negotiations.
Q. What happened after 2 or 3 negotiations?
A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00
advances for 100 months.
Q. Was the agreement between you and the representative of the
Prime Savings Bank reduced into writing?
A. Yes Sir.
xxx xxx xxx
Q. Now, Mr. Poon, I would like to direct your attention to paragraphs 4
and 5 of the contract of lease which I read: Inasmuch as the leased
property is presently mortgaged with the PCI Bank, the Lessor and the
Lessee hereby agree that another property with a clean title shall serve
as security for herein Lessee: Provided that the mortgaged property
with PCI Bank is cancelled, the Lessee agrees that the above-
mentioned property shall be released to herein Lessor; paragraph 5
says: It is hereby stipulated that should the leased property be
foreclosed by the PCI Bank or any other banking or financial institution,
all unused rentals shall be returned by the Lessor to the Lessee. Now,
my question is: Who asked or requested that paragraphs 4 and 5 be
incorporated in the contract of lease?
A. Mr. Lee himself.
Q. The representative of the plaintiff?
A. Yes, Sir.
Q. For what purpose did Mr. Lee ask these matters to be incorporated?
A. Because they are worried that my building might be foreclosed
because it is under [mortgage] with the PCI Bank, that is why I
gave them protection of a clean title. But I also asked them, what
will happen to me, in case your bank will be closed?
Q. When you asked that question, what did Mr. Lee tell you?
A. He told me that I don't have to worry I will have P6,000,000
advances.
Q. What was your protection as to the 6 million payment made by the
plaintiff?
A. That is the protection for me because during that time I have my
bakery and I myself [spent] 2 million for the improvement of that bakery
and I have sacrificed that for the sake of the offer of lease.
Q. In what manner that you are being protected for that 6 million
pesos?
A. They said that if in case the bank will be closed that advance of
6 million pesos will be forfeited in my favor.
Q. And that is what is found in paragraph 24 of the Contract of
Lease which I asked you to read?
A. That is true. 44
Clearly, the closure of respondent's business was not an unforeseen
event. As the lease was long-term, it was not lost on the parties that
such an eventuality might occur, as it was in fact covered by the terms
of their Contract. Besides, as We have previously discussed, the event
was not independent of respondent's will.
The forfeiture clause in the Contract
is penal in nature.
Petitioners claim that paragraph 24 was not intended as a penal
clause. They add that respondent has not even presented any proof of
that intent. It was, therefore, a reversible error on the part of the CA to
construe its forfeiture provision of the Contract as penal in nature.
It is settled that a provision is a penal clause if it calls for the forfeiture
of any remaining deposit still in the possession of the lessor, without
prejudice to any other obligation still owing, in the event of the
termination or cancellation of the agreement by reason of the lessee's
violation of any of the terms and conditions thereof. This kind of
agreement may be validly entered into by the parties. The clause is an
accessory obligation meant to ensure the performance of the principal
obligation by imposing on the debtor a special prestation in case of
nonperformance or inadequate performance of the principal
obligation. 45
It is evident from the above-quoted testimony of Jaime Poon that the
stipulation on the forfeiture of advance rentals under paragraph 24 is a
penal clause in the sense that it provides for liquidated damages.
Notably, paragraph 5 of the Contract also provides:
5. It is hereby stipulated that should the leased property be foreclosed
by PCI Bank or any other banking or financial institution, all unused
rentals shall be returned by the LESSOR to the LESSEE; . . . . 46
In effect, the penalty for the premature termination of the Contract
works both ways. As the CA correctly found, the penalty was to compel
respondent to complete the 10-year term of the lease. Petitioners, too,
were similarly obliged to ensure the peaceful use of their building by
respondent for the entire duration of the lease under pain of losing the
remaining advance rentals paid by the latter. TIADCc
The forfeiture clauses of the Contract, therefore, served the two
functions of a penal clause, i.e., (1) to provide for liquidated damages
and (2) to strengthen the coercive force of the obligation by the threat
of greater responsibility in case of breach. 47 As the CA correctly
found, the prestation secured by those clauses was the parties' mutual
obligation to observe the fixed term of the lease. For this reason, We
sustain the lower courts' finding that the forfeiture clause in paragraph
24 is a penal clause, even if it is not expressly labelled as such.
A reduction of the penalty agreed
upon by the parties is warranted
under Article 1129 of the Civil Code.
We have no reason to doubt that the forfeiture provisions of the
Contract were deliberately and intelligently crafted. Under Article 1196
of the Civil Code, 48 the period of the lease contract is deemed to have
been set for the benefit of both parties. Its continuance, effectivity or
fulfillment cannot be made to depend exclusively upon the free and
uncontrolled choice of just one party. 49 Petitioners and respondent
freely and knowingly committed themselves to respecting the lease
period, such that a breach by either party would result in the forfeiture
of the remaining advance rentals in favor of the aggrieved party.
If this were an ordinary contest of rights of private contracting parties,
respondent lessee would be obligated to abide by its commitment to
petitioners. The general rule is that courts have no power to ease the
burden of obligations voluntarily assumed by parties, just because
things did not turn out as expected at the inception of the contract. 50
It must be noted, however, that this case was initiated by the PDIC in
furtherance of its statutory role as the fiduciary of Prime Savings
Bank. 51 As the state-appointed receiver and liquidator, the PDIC is
mandated to recover and conserve the assets of the foreclosed bank
on behalf of the latter's depositors and creditors. 52 In other words, at
stake in this case are not just the rights of petitioners and the
correlative liabilities of respondent lessee. Over and above those rights
and liabilities is the interest of innocent debtors and creditors of a
delinquent bank establishment. These overriding considerations justify
the 50% reduction of the penalty agreed upon by petitioners and
18
respondent lessee in keeping with Article 1229 of the Civil Code, which
provides:

Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also
be reduced by the courts if it is iniquitous or unconscionable.

The reasonableness of a penalty depends on the circumstances in

each case, because what is iniquitous and unconscionable in one may
be totally just and equitable in another. 53 In resolving this issue,
courts may consider factors including but not limited to the type, extent
and purpose of the penalty; the nature of the obligation; the mode of
the breach and its consequences; the supervening realities; and the
standing and relationship of the parties. 54

Under the circumstances, it is neither fair nor reasonable to deprive

depositors and creditors of what could be their last chance to recoup
whatever bank assets or receivables the PDIC can still legally recover.
Besides, nothing has prevented petitioners from putting their building
to other profitable uses, since respondent surrendered the premises
immediately after the closure of its business. Strict adherence to the
doctrine of freedom of contracts, at the expense of the rights of
innocent creditors and investors, will only work injustice rather than
promote justice in this case. 55 Such adherence may even be
misconstrued as condoning profligate bank operations. We cannot
allow this to happen. We are a Court of both law and equity; We
cannot sanction grossly unfair results without doing violence to Our
solemn obligation to administer justice fairly and equally to all who
might be affected by our decisions. 56

Neither do We find any error in the trial court's denial of the damages
and attorney's fees claimed by petitioners. No proof of the supposed
expenses they have incurred for the improvement of the leased
premises and the payment of respondent's unpaid utility bills can be
found in the records. Actual and compensatory damages must be duly
proven with a reasonable degree of certainty. 57

To recover moral and exemplary damages where there is a breach of

contract, the breach must be palpably wanton, reckless, malicious, in
bad faith, oppressive, or abusive. Attorney's fees are not awarded even
if a claimant is compelled to litigate or to incur expenses where no
sufficient showing of bad faith exists. 58 None of these circumstances
have been shown in this case.

Finally, in line with prevailing jurisprudence, 59 legal interest at the rate

of 6% per annum is imposed on the monetary award computed from
the finality of this Decision until full payment.

WHEREFORE, premises considered, the Petition for Review

on Certiorari is DENIED. The Court of Appeals Decision dated 29
November 2007 and its Resolution dated 10 July 2008 in CA-G.R. CV
No. 75349 are hereby MODIFIED in that legal interest at the rate of 6%
per annum is imposed on the monetary award computed from the
finality of this Decision until full payment.

No costs. AIDSTE

SO ORDERED.

Leonardo-de Castro, Bersamin, Perlas-Bernabe and Caguioa,

JJ., concur.

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