G.R. No. 169467
February 25, 2010

FACTS: petitioners filed with the trial court a civil case for damages against respondent Morales.

Petitioners are the parents of Alfred Pacis, a 17-year old student who died in a shooting incident inside the Top Gun Firearms and Ammunitions Store in Baguio City. Morales is the owner of the gun store.

On the fateful day, Alfred was in the gun store, with Matibag and Herbolario as sales agents and caretakers of the store while owner Morales was in Manila. The gun which killed Alfred is a gun owned by a store customer which was left with Morales for repairs, which he placed inside a drawer. Since Morales would be going to Manila, he left the keys to the store with the caretakers. It appears that the caretakers took the gun from the drawer and placed it on top of a table. Attracted by the sight of the gun, the young Alfred got hold of the same. Matibag asked Alfred to return the gun. The latter followed and handed the gun to Matibag. It went off, the bullet hitting the young Alfred in the head.

A criminal case for homicide was filed against Matibag. Matibag, however, was acquitted of the charge against him because of the exempting circumstance of “accident” under Art. 12, par. 4 of the RPC.

By agreement of the parties, the evidence adduced in the criminal case for homicide against Matibag was reproduced and adopted by them as part of their evidence in the instant case.

The trial court rendered its decision in favor of petitioners, ordering the defendant to pay plaintiffs indemnity for the death of Alfred, actual damages for the hospitalization and burial, expenses incurred by the plaintiffs, compensatory damages, MD and AF.
Respondent appealed to the CA, which reversed the trial court’s Decision and absolved respondent from civil liability under Article 2180 of the Civil Code. MR denied, hence this petition.

ISSUE: Was Morales negligent?

HELD: Petition granted. The CA decision is set aside and the trial court’s Decision reinstated.


This case for damages arose out of the accidental shooting of petitioners’ son. Under Article 1161 of the Civil Code, petitioners may enforce their claim for damages based on the civil liability arising from the crime under Article 100 of the RPC or they may opt to file an independent civil action for damages under the Civil Code. In this case, instead of enforcing their claim for damages in the homicide case filed against Matibag, petitioners opted to file an independent civil action for damages against respondent whom they alleged was Matibag’s employer. Petitioners based their claim for damages under Articles 2176 and 2180 of the Civil Code.

Unlike the subsidiary liability of the employer under Article 103 of the RPC, the liability of the employer, or any person for that matter, under Article 2176 of the Civil Code is primary and direct, based on a person’s own negligence. Article 2176 states:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed by the provisions of this Chapter.

This case involves the accidental discharge of a firearm inside a gun store. Under PNP Circular No. 9, entitled the “Policy on Firearms and Ammunition Dealership/Repair,” a person who is in the business of purchasing and selling of firearms and ammunition must maintain basic security and safety requirements of a gun dealer, otherwise his License to Operate Dealership will be suspended or canceled.

Indeed, a higher degree of care is required of someone who has in his possession or under his control an instrumentality extremely dangerous in character, such as dangerous weapons or substances. Such person in possession or control of dangerous instrumentalities has the duty to take exceptional precautions to prevent any injury being done thereby. Unlike the ordinary affairs of life or business which involve little or no risk, a business dealing with dangerous weapons requires the exercise of a higher degree of care.

As a gun store owner, respondent is presumed to be knowledgeable about firearms safety and should have known never to keep a loaded weapon in his store to avoid unreasonable risk of harm or injury to others. Respondent has the duty to ensure that all the guns in his store are not loaded. Firearms should be stored unloaded and separate from ammunition when the firearms are not needed for ready-access defensive use. With more reason, guns accepted by the store for repair should not be loaded precisely because they are defective and may cause an accidental discharge such as what happened in this case. Respondent was clearly negligent when he accepted the gun for repair and placed it inside the drawer without ensuring first that it was not loaded. In the first place, the defective gun should have been stored in a vault. Before accepting the defective gun for repair, respondent should have made sure that it was not loaded to prevent any untoward accident. Indeed, respondent should never accept a firearm from another person, until the cylinder or action is open and he has personally checked that the weapon is completely unloaded. For failing to insure that the gun was not loaded, respondent himself was negligent. Furthermore, it was not shown in this case whether respondent had a License to Repair which authorizes him to repair defective firearms to restore its original composition or enhance or upgrade firearms.

Clearly, respondent did not exercise the degree of care and diligence required of a good father of a family, much less the degree of care required of someone dealing with dangerous weapons, as would exempt him from liability in this case.


G.R. No. 159617, August 8, 2007

FACTS: On different dates, Lulu Jorge pawned several pieces of jewelry with Agencia de R. C. Sicam located in Parañaque to secure a loan.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault.
On the same date, Sicam sent Lulu a letter informing her of the loss of her jewelry due to the robbery incident in the pawnshop. Respondent Lulu then wroteback expressing disbelief, then requested Sicam to prepare the pawned jewelry for withdrawal on November 6, but Sicam failed to return the jewelry.

Lulu, joined by her husband Cesar, filed a complaint against Sicam with the RTC of Makati seeking indemnification for the loss of pawned jewelry and payment of AD, MD and ED as well as AF.

The RTC rendered its Decision dismissing respondents’ complaint as well as petitioners’ counterclaim. Respondents appealed the RTC Decision to the CA which reversed the RTC, ordering the appellees to pay appellants the actual value of the lost jewelry and AF. Petitioners MR denied, hence the instant petition for review on Certiorari.

ISSUE: are the petitioners liable for the loss of the pawned articles in their possession? (Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.)

HELD: The Decision of the CA is AFFIRMED.


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

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

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it. And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss.
Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated. Sicam’s testimony, in effect, contradicts petitioners’ defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners.

Petitioners merely presented the police report of the Parañaque Police Station on the robbery committed based on the report of petitioners’ employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required.

We expounded in Cruz v. Gangan that negligence is 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. It is want of care required by the circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Sicam’s testimony revealed that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees. Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam’s claim; not one of petitioners’ employees who were present during the robbery incident testified in court.

Furthermore, petitioner Sicam’s admission that the vault was open at the time of robbery is clearly a proof of petitioners’ failure to observe the care, precaution and vigilance that the circumstances justly demanded.

The robbery in this case happened in petitioners’ pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop.


We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner.
However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns – The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code.


G.R. No. 82562 April 11, 1997

G.R. No. 82592 April 11, 1997

FACTS: This case originated from a libel suit filed by then Assemblyman Antonio V. Raquiza against then Manila Mayor Antonio J. Villegas, who allegedly publicly imputed to him acts constituting violations of the Anti-Graft and Corrupt Practices Act. He did this on several occasions in August 1968 xxx

An Information for libel was filed against Villegas who denied the charge. After losing in the 1971 elections, Villegas left for the United States where he stayed until his death. Nevertheless, trial proceeded on absentia. Two months after the prosecution rested its case, the court issued an order dismissing the criminal aspect of the case but reserving the right to resolve its civil aspect.
Subsequently the Court awarded Raquiza actual, moral, exemplary damages and cost of suit. On appeal, the CA affirmed but reduced the amount of damages. Hence, this petition.

ISSUE: (related to the subject matter) did the death of the accused before final judgment extinguish his civil liability?

HELD: NO (Guys, take note of Article 33 of the Civil Code. Raquiza’s right to recover damages arose from this article not from delict)
Fortunately, this Court has already settled this issue with the promulgation of the case of People v. Bayotas (G.R. No. 102007) on September 2, 1994, 4 viz.:

1 Death of the accused pending appeal of his conviction extinguishes his criminal liability as well as the civil liability xxx
2 Corollarily the claim for civil liability survives notwithstanding the death of (the) accused, if the same may also be predicated on a source of obligation other than delict. Article 1157 of the Civil Code enumerates these other sources of obligation from which the civil liability may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
d) x x x x x x x x x
e) Quasi-delicts

3. Where the civil liability survives, as explained in Number 2 above, an action for recovery therefor may be pursued but only by way of filing a separate civil action and subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure as amended. 8 This separate civil action may be enforced either against the executor/administrator o(f) the estate of the accused, depending on the source of obligation upon which the same is based as explained above.

4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil action by prescription, in cases where during the prosecution of the criminal action and prior to its extinction, the private offended party instituted together therewith the civil action. In such case, the statute of limitations on the civil liability is deemed interrupted during the pendency of the criminal case (Art. 1155)

The source of Villegas’ civil liability in the present case is the felonious act of libel he allegedly committed. Yet, this act could also be deemed a quasi-delict within the purview of Article 33 9 in relation to Article 1157 of the Civil Code.
The Bayotas ruling, however, makes the enforcement of a deceased accused’s civil liability dependent on two factors, namely, that it be pursued by filing a separate civil action and that it be made subject to Section 1, Rule 111 of the 1985 Rules on Criminal Procedure, as amended.

Obviously, in the case at bar, the civil action was deemed instituted with the criminal. There was no waiver of the civil action and no reservation of the right to institute the same, nor was it instituted prior to the criminal action. What then is the recourse of the private offended party in a criminal case such as this which must be dismissed in accordance with the Bayotas doctrine.
Now, where the civil action was impliedly instituted with it?

The answer is likewise provided in Bayatas, thus:
Assuming that for lack of express reservation, Belamala’s civil civil for damages was to be considered instituted together with the criminal action still, since both proceedings were terminated without finals adjudication, the civil action of the offended party under Article 33 may yet be enforced separately

The resolution of the civil aspect of the case after the dismissal of the main criminal action by the trial court was technically defective. There was no proper substitution of parties, as correctly pointed out by the Heirs and repeatedly put in issue by Atty. Quisumbing. What should have been followed by the court a quo was the procedure laid down in the Rules of Court, specifically, Section 17, Rule 3, in connection with Section 1, Rule 87.

WHEREFORE, the petition in G.R. No. 82562 is GRANTED and the petition in G.R. No. 82592 is DENIED xxx without prejudice to the right of the private offended party Antonio V. Raquiza, to file the appropriate civil action for damages against the executor or administrator of the estate or the heirs of the late Antonto J. Villegas in accordance with the foregoing procedure.



G.R. No. 119033, July 9, 2008

FACTS: Ek Lee Steel Works Corporation (petitioner) is engaged in the construction business while Manila Castor Oil Corporation (respondent) claims to be a pioneer in the castor oil industry with Romy Lim (Lim) as its President.

respondent contracted petitioner for the construction of respondent’s castor oil plant and office complex in Sasa, Davao City. Petitioner agreed to undertake the construction.

petitioner alleged that respondent verbally agreed to have another building (Building II-Warehouse) constructed on the project site worth P349,249.25. Respondent denied the existence of this contract because it never approved such contract. Therefore, petitioner discontinued its construction of Building II-Warehouse after finishing its foundation and two side walls.
petitioner submitted a Statement of Account to respondent showing respondent’s accumulated payables totaling P764,466.5 Respondent paid P500,000 as shown in a letter of even date. In the same letter, respondent promised to pay certain amounts thereafter upon the completion of specific portions of the project.

On 5 July 1988, respondent paid petitioner P70,000.

petitioner allegedly demanded payment of respondent’s remaining balance, but to no avail. Hence, petitioner stopped its construction in the project site.

petitioner filed a collection suit against respondent and Lim, with an application for a writ of preliminary attachment.

Respondent’s Defense: petitioner was already in delay. They claimed that petitioner abandoned the project on 16 July 1988. Respondents further alleged that certain portions of the construction work did not conform to the specifications agreed upon by the parties.
The trial court ruled in favor of petitioner. The trial court held that petitioner was justified in abandoning its construction of the project. The Court of Appeals reversed the decision of the trial court. The appellate court ruled that the 16 May 1988 letter novated all the earlier agreements between the parties; that petitioner was not entitled to further payments from respondent because petitioner failed to comply with its obligation of finishing all the contracted work, except the office building, on 15 June 1988 as clearly stipulated in the 16 May 1988 letter.

However, the Court of Appeals faulted respondent for the trial court’s failure to correspondingly reduce the amount recoverable by petitioner. Hence, this petition.

ISSUE: Whether petitioner can validly collect from respondent the remaining balance of the total contract price


Petitioner, on the other hand, was behind schedule in its construction work because the project should be fully operational by April 1988.

To remedy the situation, the 16 May 1988 letter fixed a period for the completion of the other structures of the project, except the office building. Petitioner was given a month to finish this portion of the project and the records show that it was aware of this deadline. At the same time, the 16 May 1988 letter specified the amounts still payable to petitioner conditioned upon the accomplishment of certain portions of the project.

There is no doubt that petitioner failed to comply with its undertaking to complete the project, except the office building, on 15 June 1988. Consequently, respondent’s obligation to pay the P200,000 did not arise. Respondent could not be considered in delay when it failed to pay petitioner at that time. According to the last paragraph of Article 1169 of the Civil Code, “[i]n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.”

WHEREFORE, we DENY the petition.



G.R. No. 138569, Sep 11, 2003.

Petitioner Solidbank is a domestic banking corporation organized and existing under Philippine laws. Private respondent L.C. Diaz and Company, CPA’s, is a professional partnership engaged in the practice of accounting.

In March 1976, L.C. Diaz opened a savings account with Solidbank. On 14 August 1991, L.C. Diaz through its cashier, Mercedes Macaraya, filled up a savings (cash) deposit slip for P990 and a savings (checks) deposit slip for P50. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. The teller acknowledged the receipt of the deposit by returning to Calapre the duplicate copies of the two deposit slips. Teller No. 6 stamped the deposit slips with the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE.” Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that “somebody got the passbook.” Calapre went back to L.C. Diaz and reported the incident to Macaraya.

Macaraya immediately prepared a deposit slip in duplicate copies with a check of P200,000. Macaraya and Calapre went to Solidbank and presented to Teller No. 6 the deposit slip and check. The teller stamped the words “DUPLICATE” and “SAVING TELLER 6 SOLIDBANK HEAD OFFICE” on the duplicate copy of the deposit slip. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook. Calapre was then standing beside Macaraya.

The following day L.C. Diaz learned of the unauthorized withdrawal the day before (14 August 1991) of P300,000 from its
savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz, namely Diaz and Rustico L. Murillo. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.

L.C. Diaz demanded from Solidbank the return of its money. Solidbank refused. L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank. The trial court absolved Solidbank. L.C. Diaz appealed to the CA. CA reversed the ecision of the trial court. CA denied the motion for reconsideration of Solidbank. But it modified its decision by deleting the award of exemplary damages and attorney’s fees. Hence this petition.

WON petitioner Solidbank is liable.

Yes. Solidbank is liable for breach of contract due to negligence, or culpa contractual.

The contract between the bank and its depositor is governed by the provisions of the Civil Code on simple loan. Article 1980 of the Civil Code expressly provides that “x x x savings x x x deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.” There is a debtor-creditor relationship between the bank and its depositor. The bank is the debtor and the depositor is the creditor. The depositor lends the bank money and the bank agrees to pay the depositor on demand. The savings deposit agreement between the bank and the depositor is the contract that determines the rights and obligations of the parties.

The law imposes on banks high standards in view of the fiduciary nature of banking. The bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship.

This fiduciary relationship means that the bank’s obligation to observe “high standards of integrity and performance” is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family. Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that prescribed by law or contract, and absent such stipulation then the diligence of a good father of a family. Section 2 of RA 8791 prescribes the statutory diligence required from banks – that banks must observe “high standards of integrity and performance” in servicing their depositors.

However, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.

The fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do not accept deposits to enrich depositors but to earn money for themselves.

Solidbank’s Breach of its Contractual Obligation
Article 1172 of the Civil Code provides that “responsibility arising from negligence in the performance of every kind of obligation is demandable.” For breach of the savings deposit agreement due to negligence, or culpa contractual, the bank is liable to its depositor.

Calapre left the passbook with Solidbank because the “transaction took time” and he had to go to Allied Bank for another transaction. The passbook was still in the hands of the employees of Solidbank for the processing of the deposit when Calapre left Solidbank. When the passbook is in the possession of Solidbank’s tellers during withdrawals, the law imposes on Solidbank and its tellers an even higher degree of diligence in safeguarding the passbook.

Solidbank’s tellers must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. For failing to return the passbook to Calapre, the authorized representative of L.C. Diaz, Solidbank and Teller No. 6 presumptively failed to observe such high degree of diligence in safeguarding the passbook, and in insuring its return to the party authorized to receive the same.

In culpa contractual, once the plaintiff proves a breach of contract, there is a presumption that the defendant was at fault or negligent. The burden is on the defendant to prove that he was not at fault or negligent. In contrast, in culpa aquiliana the plaintiff has the burden of proving that the defendant was negligent. In the present case, L.C. Diaz has established that Solidbank breached its contractual obligation to return the passbook only to the authorized representative of L.C. Diaz. There is thus a presumption that Solidbank was at fault and its teller was negligent in not returning the passbook to Calapre. The burden was on Solidbank to prove that there was no negligence on its part or its employees. But Solidbank failed to discharge its burden. Solidbank did not present to the trial court Teller No. 6, the teller with whom Calapre left the passbook and who was supposed to return the passbook to him. Solidbank also failed to adduce in evidence its standard procedure in verifying the identity of the person retrieving the passbook, if there is such a procedure, and that Teller No. 6 implemented this procedure in the present case.

Solidbank is bound by the negligence of its employees under the principle of respondeat superior or command responsibility. The defense of exercising the required diligence in the selection and supervision of employees is not a complete defense in culpa contractual, unlike in culpa aquiliana. The bank must not only exercise “high standards of integrity and performance,” it must also insure that its employees do likewise because this is the only way to insure that the bank will comply with its fiduciary duty

Proximate Cause of the Unauthorized Withdrawal
Proximate cause is that cause which, in natural and continuous sequence, unbroken by any efficient intervening cause, produces the injury and without which the result would not have occurred. Proximate cause is determined by the facts of each case upon mixed considerations of logic, common sense, policy and precedent.

L.C. Diaz was not at fault that the passbook landed in the hands of the impostor. Solidbank was in possession of the passbook while it was processing the deposit. After completion of the transaction, Solidbank had the contractual obligation to return the passbook only to Calapre, the authorized representative of L.C. Diaz. Solidbank failed to fulfill its contractual obligation because it gave the passbook to another person.

Had the passbook not fallen into the hands of the impostor, the loss of P300,000 would not have happened. Thus, the proximate cause of the unauthorized withdrawal was Solidbank’s negligence in not returning the passbook to Calapre.

Doctrine of Last Clear Chance
The doctrine of last clear chance states that where both parties are negligent but the negligent act of one is appreciably later than that of the other, or where it is impossible to determine whose fault or negligence caused the loss, the one who had the last clear opportunity to avoid the loss but failed to do so, is chargeable with the loss. The antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence.

We do not apply the doctrine of last clear chance to the present case. This is a case of culpa contractual, where neither the contributory negligence of the plaintiff nor his last clear chance to avoid the loss, would exonerate the defendant from liability. Such contributory negligence or last clear chance by the plaintiff merely serves to reduce the recovery of damages by the plaintiff but does not exculpate the defendant from his breach of contract

Mitigated Damages
Under Article 1172, “liability (for culpa contractual) may be regulated by the courts, according to the circumstances.” This means that if the defendant exercised the proper diligence in the selection and supervision of its employee, or if the plaintiff was guilty of contributory negligence, then the courts may reduce the award of damages. In this case, L.C. Diaz was guilty of contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor. Thus, the liability of Solidbank should be reduced.

In PBC v. CA where the Court held the depositor guilty of contributory negligence, we allocated the damages between the depositor and the bank on a 40-60 ratio. Applying the same ruling to this case, we hold that L.C. Diaz must shoulder 40% of the actual damages awarded by the appellate court. Solidbank must pay the other 60% of the actual damages.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION.



G.R. No. 160545; March 9, 2010

December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA, obtained a P1M loan from the respondent, with monthly interest of P40,000.00 payable for 6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To secure the payment of the loan, Pantaleon issued a promissory. Pantaleon signed the promissory note in his personal capacity and as duly authorized by the Board of Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-month period.

As of January 4, 1997, respondent found that the petitioners still had an outstanding balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the unpaid balance, plus 4% monthly interest. In their Answer, the petitioners admitted the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest, arguing that the interest was not provided in the promissory note. Pantaleon also denied that he made himself personally liable and that he made representations that the loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a loan that would earn an interest of 4% or P40,000.00 per month, or a total of P240,000.00 for a 6-month period. RTC ordered the petitioners to jointly and severally pay the respondent the amount of P3,526,117.00 plus 4% per month interest from February 11, 1999 until fully paid.

Petitioners appealed to CA insisting that there was no express stipulation on the 4% monthly interest. CA favored respondent but noted that the interest of 4% per month, or 48% per annum, was unreasonable and should be reduced to 12% per annum. MR denied hence this petition.

Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate of interest apply to the 6-month payment period only or until full payment of the loan?

Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12% per annum

Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. When the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations governs. Courts have no authority to alter the contract by construction or to make a new contract for the parties; a court’s duty is confined to the interpretation of the contract the parties made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words the contract does not contain. It is only when the contract is vague and ambiguous that courts are permitted to resort to the interpretation of its terms to determine the parties’ intent.

In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his personal capacity and as authorized by the Board, executed the promissory note. Thus, the P1M loan shall be payable within 6 months. The loan shall earn an interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month period. We note that this agreed sum can be computed at 4% interest per month, but no such rate of interest was stipulated in the promissory note; rather a fixed sum equivalent to this rate was agreed upon.

Article 1956 of the Civil Code specifically mandates that “no interest shall be due unless it has been expressly stipulated in writing.” The payment of interest in loans or forbearance of money is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of interest at a stipulated rate. The collection of interest without any stipulation in writing is prohibited by law.

The interest of P40,000.00 per month corresponds only to the six-month period of the loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory note. Thereafter, the interest on the loan should be at the legal interest rate of 12% per annum.

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

The facts show that the parties agreed to the payment of a specific sum of money of P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-month period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month was ever put in issue by the petitioners; they only assailed the application of a 4% interest rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses, terms and conditions are not contrary to law, morals, public order or public policy. The payment of the specific sum of money of P40,000.00 per month was voluntarily agreed upon by the petitioners and the respondent. There is nothing from the records and, in fact, there is no allegation showing that petitioners were victims of fraud when they entered into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month for a period of 6 months, for a total principal and interest amount of P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply. The amounts already paid by the petitioners during the pendency of the suit, amounting toP1,228,772.00 as of February 12, 1999, should be deducted from the total amount due, computed as indicated above. We remand the case to the trial court for the actual computation of the total amount due.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE the Decision CA



OPTIMUM MOTOR CENTER CORPORATION vs. ANNIE TAN, doing business under the name & style “AJ & T Trading,” Respondent.


RESPONDENT’S VERSION OF THE FACTS: On 14 January 1994, she brought the subject truck to Optimum for body repair and painting. Peña introduced himself as the owner and manager of Optimum. Respondent verbally contracted with Peña for the repair of the damaged portions of the truck, repainting and upholstery replacement. It was then agreed that the work would take thirty (30) days to complete and would thus be finished on 15 February 1994. To bring down the repair costs, the parties agreed that respondent would supply the necessari materials such as windshield glasses for the front and back of the truck, rubber strip and quartered glass panel.

On 15 February 1994, respondent went to Optimum but was told to come back in March as the repair was not yet finished. On several occasions, respondent tried to claim her truck from Optimum to no avail. On 4 March 1994, she again went to Optimum’s repair shop and was surprised to see that the trade name “AJ & T Trading” painted in the middle and side doors of the truck had been scraped off. She also noticed that the 100-meter skyline rope, oil stick gauge and right side mirror were missing. On 22 April 1994, she found her truck abandoned and unrepaired at Optimum’s compound. On 16 May 1994, she discovered that Optimum had already vacated its shop in Del Monte and that her truck was nowhere to be found. Later, she learned that Optimum had transferred to a new location but her still unrepaired truck was found in Valenzuela City.

PETITIONER’S VERSION OF THE FACTS: It denied guaranteeing that the repair work would be completed within 30 days from 15 January 1994. It claimed that the repairs were completed only on 8 May 1994 due to delay in the respondent’s delivery of the parts. It claims mechanic’s lien to justify its retention of the truck. It advances the view that by virtue of the repairs it has actually performed on respondent’s truck, it has the right under Article 1731 of the Civil Code to enforce the mechanic’s lien. It maintains that the lien applies and can be availed of whether or not the repair work was completely executed.

TRIAL COURT: It accepted the version of respondent that the repairs on her truck had not been accomplished. Furthermore, the trial court held Optimum liable for damages for its failure to execute its part of the contract on time, pursuant to Article 1170 of the Civil Code.

COURT OF APPEALS: Affirmed with modifactions only as to the amount of damages. It said that the trial court rightly concluded that appellant Optimum was already remiss in the performance of its part of the contract for repair from the time of such demand. Hence, its liability accrues by virtue of Article 1170 of the Civil Code that states: Those who in the performance of their obligation are guilty of fraud, negligence or delay and those who in any manner contravene the tenor thereof are liable for damages. Thus, appellant Optimum may be compelled to deliver the cargo truck to appellee/appellant Tan despite that the agreed repair was not totally made or to reimburse the value thereof

ISSUE: WON Petitioner is liable for the delay in the repair of the truck.

HELD: YES (Trial court and CA findings are affirmed)

The mechanic’s lien is akin to a contractor’s or warehouseman’s lien in that by way of pledge, the repairman has the right to retain possession of the movable until he is paid. However, the right of retention is conditioned upon the execution of work upon the movable. The creation of a mechanic’s lien does not depend upon the owner’s nonpayment. Rather, the contractor “creates” his or her own lien by performing the work or furnishing the materials.



SOLEDAD SOCO vs. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of the CFI of Cebu, Branch XII, Cebu City and REGINO FRANCISCO, JR.

FACTS: Soco and Francisco entered into a contract of lease on January 17, 1973, whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to Francisco for a monthly rental of P 800.00 for a period of 10 years renewable for another 10 years at the option of the lessee. It can readily be discerned from Exhibit “A” (from SOCO) that paragraphs 10 and 11 appear to have been cancelled while in Exhibit “2” (from FRANCISCO) only paragraph 10 has been cancelled. Claiming that paragraph 11 of the Contract of Lease was in fact not part of the contract because it was cancelled, Soco filed Civil Case No. R-16261 in the Court of First Instance of Cebu seeking the annulment and/or reformation of the Contract of Lease.

Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did not anymore send her collector for the payment of rentals and at times there were payments made but no receipts were issued. This situation prompted Francisco to write Soco the letter dated February 7, 1975 which the latter received. After writing this letter, Francisco sent his payment for rentals by checks issued by the Commercial Bank and Trust Company.

The factual background setting of this case clearly indicates that soon after Soco learned that Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so she tried to look for ways and means to terminate the contract.

In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco through her lawyer sent a letter dated November 23, 1978 to Francisco serving notice to the latter ‘to vacate the premises leased.’ In answer to this letter, Francisco through his lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu. Despite this explanation, Soco filed this instant case of Illegal Detainer.

MTC and RTC have conflicting findings. The former found that the consignation was valid. RTC reversed and ordered the eviction of the Francisco.

ISSUE: WON there was a valid consignation of payment of the rentals.

HELD: In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made because the creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation had been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is enough ground to render a consignation ineffective. (parang wala naman tong mga to sa 1176, 1177 and 1178?)

We hold that the respondent lessee has utterly failed to prove the following requisites of a valid consignation: First, tender of payment of the monthly rentals to the lessor. Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation,

Evidently, from this arrangement, it was the lessee’s duty to send someone to get the cashier’s check from the bank and logically, the lessee has the obligation to make and tender the check to the lessor. This the lessee failed to do, which is fatal to his defense.
Third, respondent lessee likewise failed to prove the second notice, that is after consignation has been made, to the lessor. And the fourth requisite that respondent lessee failed to prove is the actual deposit or consignation of the monthly rentals except the two cashier’s checks referred to in Exhibit 12. As indicated earlier, not a single copy of the official receipts issued by the Clerk of Court was presented at the trial of the case to prove the actual deposit or consignation.

We, therefore, find and rule that the lessee has failed to prove tender of payment except that in Exh. 10; he has failed to prove the first notice to the lessor prior to consignation except that given in Exh. 10; he has failed to prove the second notice after consignation except the two made in Exh. 12; and he has failed to pay the rentals for the months of July and August, 1977 as of the time the complaint was filed for the eviction of the lessee. We hold that the evidence is clear, competent and convincing showing that the lessee has violated the terms of the lease contract and he may, therefore, be judicially ejected.



Eliseo Fajardo Jr., vs Freedom to Build Inc.
G. R. No. 134692 August 1, 2000

Facts: Freedom to Build Inc., an owner-developer and seller of low-cost housing sold to petitioner-spouses a house and lot in the De La Costa Homes, in Barangka, Marikina, Metro Manila. The Contract to sell executed between the parties, contained a Restrictive Covenant providing certain prohibitions, to wit:

“Easements. For the good of the entire community, the homeowner must observe a two-meter easement in front. No structure of any kind (store, garage, bodega, etc.) may be built on the front easement.

“Upward expansion. A second storey is not prohibited. But the second storey expansion must be placed above the back portion of the house and should not extend forward beyond the apex of the original building.

“Front expansion: 2nd Storey: No unit may be extended in the front beyond the line as designed and implemented by the developer in the 60 sq. m. unit. In other words, the 2nd floor expansion, in front, is 6 meters back from the front property line and 4 meters back from the front wall of the house, just as provided in the 60 sq. m. units.”

The above restrictions were also contained in Transfer Certificate of Title No. N-115384 covering the lot issued in the name of petitioner-spouses.

The controversy arose when the petitioners despite repeated demand from the respondent, extended the roof of their house to the property line and expanded the second floor of their house to a point directly above the original front wall. Respondent filed before the RTC an action to demolish the unauthorized structures.

The RTC rendered a judgment against the petitioner ordering them to immediately demolish and remove the extension of their expanded housing unit that exceeds the limitations imposed by the Restrictive Covenant, otherwise the Branch Sheriff of this Court will execute the this decision at the expense of the defendants.

On appeal, the CA affirmed the decision of the RTC. Hence, this petition for review.

Issue: Whether or not the for the lack of a specific provision, prescribing the penalty of the demolition in the “Restrictive Covenant” in the event of the breach thereof, the prayer of the respondent to demolish the structure should fail.


The Court held that the argument of the petitioner-spouses has no merit; Article 1168 of the New Civil Code states that: “When the obligation consists in not doing and the obligor does what has been forbidden him, it shall be undone at his expense.”

This Court is not unaware of its ruling in Ayala Corporation vs. Ray Burton Development Corporation, which has merely adjudged the payment of damages in lieu of demolition. In the aforementioned case, however, the elaborate mathematical formula for the determination of compensatory damages which takes into account the current construction cost index during the immediately preceding 5 years based on the weighted average of wholesale price and wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics is explicitly provided for in the Deed of Restrictions entered into by the parties. This unique and peculiar circumstance, among other strong justifications therein mentioned, is not extant in the case at bar.

In sum, the Court holds that since the extension constructed exceeds the floor area limits of the Restrictive Covenant, petitioner spouses can be required to demolish the structure to the extent that it exceeds the prescribed floor area limits.
Wherefore, the assailed decision of the Court of Appeals is AFFIRMED. No costs.