THIRD DIVISION

THE OFFICE OF THE SOLICITOR GENERAL,

Petitioner,
- versus -

G.R. No. 177056

Promulgated:
AYALA LAND INCORPORATED, ROBINSONS
September 18, 2009
LAND CORPORATION, SHANGRI-LA PLAZA
CORPORATION and SM PRIME HOLDINGS,
INC.,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari,[1] under Rule 45 of the Revised Rules of
Court, filed by petitioner Office of the Solicitor General (OSG), seeking the reversal and setting aside of
the Decision[2] dated 25 January 2007 of the Court of Appeals in CA-G.R. CV No. 76298, which
affirmed in toto the Joint Decision[3] dated 29 May 2002 of the Regional Trial Court (RTC) of Makati City,
Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the Resolution [4] dated 14 March 2007
of the appellate court in the same case which denied the Motion for Reconsideration of the OSG. The
RTC adjudged that respondents Ayala Land Incorporated (Ayala Land), Robinsons Land Corporation
(Robinsons), Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could
not be obliged to provide free parking spaces in their malls to their patrons and the general public.
Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in
various locations in Metro Manila. Respondent SM Prime constructs, operates, and leases out
commercial buildings and other structures, among which, are SM City, Manila; SM Centerpoint, Sta.
Mesa, Manila; SM City, North Avenue, Quezon City; and SM Southmall, Las Pias.
The shopping malls operated or leased out by respondents have parking facilities for all kinds
of motor vehicles, either by way of parking spaces inside the mall buildings or in separate buildings
and/or adjacent lots that are solely devoted for use as parking spaces. Respondents Ayala Land,
Robinsons, and SM Prime spent for the construction of their own parking facilities. Respondent Shangrila is renting its parking facilities, consisting of land and building specifically used as parking spaces,
which were constructed for the lessors account.
Respondents expend for the maintenance and administration of their respective parking
facilities. They provide security personnel to protect the vehicles parked in their parking facilities and
maintain order within the area. In turn, they collect the following parking fees from the persons making
use of their parking facilities, regardless of whether said persons are mall patrons or not:
Respondent

Parking Fees

Ayala Land

On weekdays, P25.00 for the first four hours

and P10.00 for every succeeding hour; on weekends,
flat rate of P25.00 per day

Robinsons

P20.00 for the first three hours and P10.00 for every
succeeding hour

Shangri-la
SM Prime

Flat rate of P30.00 per day

P10.00 to P20.00 (depending on whether the parking
space is outdoors or indoors) for the first three hours
and 59 minutes, and P10.00 for every succeeding
hour or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that
respondents shall not be responsible for any loss or damage to the vehicles parked in respondents
parking facilities.
In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights
conducted a joint investigation for the following purposes: (1) to inquire into the legality of the
prevalent practice of shopping malls of charging parking fees; (2) assuming arguendo that the
collection of parking fees was legally authorized, to find out the basis and reasonableness of the
parking rates charged by shopping malls; and (3) to determine the legality of the policy of shopping
malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver clause at the
back of the parking tickets. Said Senate Committees invited the top executives of respondents, who
operate the major malls in the country; the officials from the Department of Trade and Industry (DTI),
Department of Public Works and Highways (DPWH), Metro Manila Development Authority (MMDA), and
other local government officials; and the Philippine Motorists Association (PMA) as representative of
the consumers group.

After three public hearings held on 30 September, 3 November, and 1 December 1999, the
afore-mentioned Senate Committees jointly issued Senate Committee Report No. 225 [5] on 2 May 2000,
in which they concluded:
In view of the foregoing, the Committees find that the collection of parking fees
by shopping malls is contrary to the National Building Code and is therefor [sic]
illegal. While it is true that the Code merely requires malls to provide parking spaces,
without specifying whether it is free or not, both Committees believe that the
reasonable and logical interpretation of the Code is that the parking spaces are for
free. This interpretation is not only reasonable and logical but finds support in the
actual practice in other countries like the United States of America where parking
spaces owned and operated by mall owners are free of charge.
Figuratively speaking, the Code has expropriated the land for parking
something similar to the subdivision law which require developers to devote so much
of the land area for parks.
Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines) provides
that it is the policy of the State to protect the interest of the consumers, promote the
general welfare and establish standards of conduct for business and
industry. Obviously, a contrary interpretation (i.e., justifying the collection of parking
fees) would be going against the declared policy of R.A. 7394.
Section 201 of the National Building Code gives the responsibility for the
administration and enforcement of the provisions of the Code, including the imposition
of penalties for administrative violations thereof to the Secretary of Public Works. This
set up, however, is not being carried out in reality.
In the position paper submitted by the Metropolitan Manila Development
Authority (MMDA), its chairman, Jejomar C. Binay, accurately pointed out that the
Secretary of the DPWH is responsible for the implementation/enforcement of the
National Building Code. After the enactment of the Local Government Code of 1991,
the local government units (LGUs) were tasked to discharge the regulatory powers of
the DPWH. Hence, in the local level, the Building Officials enforce all rules/ regulations
formulated by the DPWH relative to all building plans, specifications and designs
including parking space requirements. There is, however, no single national
department or agency directly tasked to supervise the enforcement of the provisions of
the Code on parking, notwithstanding the national character of the law. [6]
Senate Committee Report No. 225, thus, contained the following recommendations:
In light of the foregoing, the Committees on Trade and Commerce and Justice
and Human Rights hereby recommend the following:
1. The Office of the Solicitor General should institute the necessary action to enjoin the
collection of parking fees as well as to enforce the penal sanction provisions of
the National Building Code. The Office of the Solicitor General should likewise
study how refund can be exacted from mall owners who continue to collect
parking fees.
2. The Department of Trade and Industry pursuant to the provisions of R.A. No. 7394,
otherwise known as the Consumer Act of the Philippines should enforce the
provisions of the Code relative to parking. Towards this end, the DTI should
formulate the necessary implementing rules and regulations on parking in
shopping malls, with prior consultations with the local government units where
these are located. Furthermore, the DTI, in coordination with the DPWH, should
be empowered to regulate and supervise the construction and maintenance of
parking establishments.
3. Finally, Congress should amend and update the National Building Code to expressly
prohibit shopping malls from collecting parking fees by at the same time,
prohibit them from invoking the waiver of liability.[7]
Respondent SM Prime thereafter received information that, pursuant to Senate Committee
Report No. 225, the DPWH Secretary and the local building officials of Manila, Quezon City, and Las
Pias intended to institute, through the OSG, an action to enjoin respondent SM Prime and similar
establishments from collecting parking fees, and to impose upon said establishments penal sanctions
under Presidential Decree No. 1096, otherwise known as the National Building Code of the Philippines
(National Building Code), and its Implementing Rules and Regulations (IRR). With the threatened action
against it, respondent SM Prime filed, on 3 October 2000, a Petition for Declaratory Relief [8] under Rule
63 of the Revised Rules of Court, against the DPWH Secretary and local building officials of Manila,
Quezon City, and Las Pias. Said Petition was docketed as Civil Case No. 00-1208 and assigned to the

RTC of Makati City, Branch 138, presided over by Judge Sixto Marella, Jr. (Judge Marella). In its Petition,
respondent SM Prime prayed for judgment:
a) Declaring Rule XIX of the Implementing Rules and Regulations of the
National Building Code as ultra vires, hence, unconstitutional and void;
b) Declaring [herein respondent SM Prime]s clear legal right to lease parking
spaces appurtenant to its department stores, malls, shopping centers and other
commercial establishments; and
c) Declaring the National Building Code of the Philippines Implementing Rules
and Regulations as ineffective, not having been published once a week for three (3)
consecutive weeks in a newspaper of general circulation, as prescribed by Section 211
of Presidential Decree No. 1096.
[Respondent SM Prime] further prays for such other reliefs as may be deemed
just and equitable under the premises.[9]
The very next day, 4 October 2000, the OSG filed a Petition for Declaratory
Relief and Injunction (with Prayer for Temporary Restraining Order and Writ of
Preliminary Injunction)[10] against respondents. This Petition was docketed as Civil Case
No. 00-1210 and raffled to the RTC of Makati, Branch 135, presided over by Judge
Francisco B. Ibay (Judge Ibay). Petitioner prayed that the RTC:
1. After summary hearing, a temporary restraining order and a writ of
preliminary injunction be issued restraining respondents from collecting parking fees
from their customers; and
2. After hearing, judgment be rendered declaring that the practice of
respondents in charging parking fees is violative of the National Building Code and its
Implementing Rules and Regulations and is therefore invalid, and making permanent
any injunctive writ issued in this case.
Other reliefs just and equitable under the premises are likewise prayed for. [11]
On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order
consolidating Civil Case No. 00-1210 with Civil Case No. 00-1208 pending before Judge Marella of RTC
of Makati, Branch 138.
As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a
Pre-Trial Order[12] of even date which limited the issues to be resolved in Civil Cases No. 00-1208 and
No. 00-1210 to the following:
1. Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute the
present proceedings and relative thereto whether the controversy in the collection of
parking fees by mall owners is a matter of public welfare.
2.

Whether declaratory relief is proper.

3.
Whether respondent Ayala Land, Robinsons, Shangri-La and SM
Prime are obligated to provide parking spaces in their malls for the use of their patrons
or the public in general, free of charge.
4.

Entitlement of the parties of [sic] award of damages.[13]

On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 001210.
The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case
No. 00-1210 under Presidential Decree No. 478 and the Administrative Code of 1987. [14] It also found
that all the requisites for an action for declaratory relief were present, to wit:
The requisites for an action for declaratory relief are: (a) there is a justiciable
controversy; (b) the controversy is between persons whose interests are adverse; (c)
the party seeking the relief has a legal interest in the controversy; and (d) the issue
involved is ripe for judicial determination.
SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who
stands to be affected directly by the position taken by the government officials sued
namely the Secretary of Public Highways and the Building Officials of the local
government units where it operates shopping malls. The OSG on the other hand acts
on a matter of public interest and has taken a position adverse to that of the mall
owners whom it sued. The construction of new and bigger malls has been announced,
a matter which the Court can take judicial notice and the unsettled issue of whether
mall operators should provide parking facilities, free of charge needs to be resolved. [15]

As to the third and most contentious issue, the RTC pronounced that:
The Building Code, which is the enabling law and the Implementing Rules and
Regulations do not impose that parking spaces shall be provided by the mall owners
free of charge.Absent such directive[,] Ayala Land, Robinsons, Shangri-la and SM
[Prime] are under no obligation to provide them for free. Article 1158 of the Civil Code
is clear:
Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable
and shall be regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the provisions of this
Book (1090).[]
xxxx
The provision on ratios of parking slots to several variables, like shopping floor
area or customer area found in Rule XIX of the Implementing Rules and Regulations
cannot be construed as a directive to provide free parking spaces, because the
enabling law, the Building Code does not so provide. x x x.
To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide
parking spaces for free can be considered as an unlawful taking of property right
without just compensation.
Parking spaces in shopping malls are privately owned and for their use, the
mall operators collect fees. The legal relationship could be either lease or deposit. In
either case[,] the mall owners have the right to collect money which translates into
income. Should parking spaces be made free, this right of mall owners shall be
gone. This, without just compensation. Further, loss of effective control over their
property will ensue which is frowned upon by law.
The presence of parking spaces can be viewed in another light. They can be
looked at as necessary facilities to entice the public to increase patronage of their
malls because without parking spaces, going to their malls will be inconvenient. These
are[,] however[,] business considerations which mall operators will have to decide for
themselves. They are not sufficient to justify a legal conclusion, as the OSG would like
the Court to adopt that it is the obligation of the mall owners to provide parking spaces
for free.[16]
The RTC then held that there was no sufficient evidence to justify any award for damages.
The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-1210
that:
FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc., Robinsons
Land Corporation, Shangri-la Plaza Corporation and SM Prime Holdings[,] Inc. are not
obligated to provide parking spaces in their malls for the use of their patrons or public
in general, free of charge.
All counterclaims in Civil Case No. 00-1210 are dismissed.
No pronouncement as to costs.[17]
CA-G.R. CV No. 76298 involved the separate appeals of the OSG [18] and respondent SM Prime[19] filed
with the Court of Appeals. The sole assignment of error of the OSG in its Appellants Brief was:
THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID NOT
INTEND MALL PARKING SPACES TO BE FREE OF CHARGE[;][20]
while the four errors assigned by respondent SM Prime in its Appellants Brief were:
I
THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING
RULES AS HAVING BEEN ENACTED ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND
VOID.
II
THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES
INEFFECTIVE FOR NOT HAVING BEEN PUBLISHED AS REQUIRED BY LAW.

III
THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSGS PETITION FOR
DECLARATORY RELIEF AND INJUNCTION FOR FAILURE TO EXHAUST ADMINISTRATIVE
REMEDIES.
IV
THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL
CAPACITY TO SUE AND/OR THAT IT IS NOT A REAL PARTY-IN-INTEREST IN THE INSTANT
CASE.[21]
Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone issue
raised therein involved a pure question of law, not reviewable by the Court of Appeals.
The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The
appellate court agreed with respondent Robinsons that the appeal of the OSG should suffer the fate of
dismissal, since the issue on whether or not the National Building Code and its implementing rules
require shopping mall operators to provide parking facilities to the public for free was evidently a
question of law. Even so, since CA-G.R. CV No. 76298 also included the appeal of respondent SM Prime,
which raised issues worthy of consideration, and in order to satisfy the demands of substantial justice,
the Court of Appeals proceeded to rule on the merits of the case.
In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-1210
before the RTC as the legal representative of the government, [22] and as the one deputized by the
Senate of the Republic of the Philippines through Senate Committee Report No. 225.
The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to
exhaust administrative remedies. The appellate court explained that an administrative review is not a
condition precedent to judicial relief where the question in dispute is purely a legal one, and nothing of
an administrative nature is to be or can be done.
The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building
Code, as such issue was not among those the parties had agreed to be resolved by the RTC during the
pre-trial conference for Civil Cases No. 00-1208 and No. 00-1210. Issues cannot be raised for the first
time on appeal. Furthermore, the appellate court found that the controversy could be settled on other
grounds, without touching on the issue of the validity of the IRR. It referred to the settled rule that
courts should refrain from passing upon the constitutionality of a law or implementing rules, because
of the principle that bars judicial inquiry into a constitutional question, unless the resolution thereof is
indispensable to the determination of the case.
Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule
XIX of the IRR were clear and needed no further construction. Said provisions were only intended to
control the occupancy or congestion of areas and structures. In the absence of any express and clear
provision of law, respondents could not be obliged and expected to provide parking slots free of
charge.
The fallo of the 25 January 2007 Decision of the Court of Appeals reads:
WHEREFORE,
premises
considered,
the
instant
are DENIED. Accordingly, appealed Decision is hereby AFFIRMED in toto.[23]

appeals

In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for Reconsideration
of the OSG, finding that the grounds relied upon by the latter had already been carefully considered,
evaluated, and passed upon by the appellate court, and there was no strong and cogent reason to
modify much less reverse the assailed judgment.
The OSG now comes before this Court, via the instant Petition for Review, with a single
assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF THE LOWER
COURT THAT RESPONDENTS ARE NOT OBLIGED TO PROVIDE FREE PARKING SPACES TO
THEIR CUSTOMERS OR THE PUBLIC.[24]
The OSG argues that respondents are mandated to provide free parking by Section 803 of the
National Building Code and Rule XIX of the IRR.
According to Section 803 of the National Building Code:
SECTION 803. Percentage of Site Occupancy

(a) Maximum site occupancy shall be governed by the use, type of

construction, and height of the building and the use, area, nature, and location of the
site; and subject to the provisions of the local zoning requirements and in accordance
with the rules and regulations promulgated by the Secretary.
In connection therewith, Rule XIX of the old IRR,[25] provides:
RULE XIX PARKING AND LOADING SPACE REQUIREMENTS
Pursuant to Section 803 of the National Building Code (PD 1096) providing for
maximum site occupancy, the following provisions on parking and loading space
requirements shall be observed:
1. The parking space ratings listed below are minimum off-street requirements
for specific uses/occupancies for buildings/structures:
1.1 The size of an average automobile parking slot shall be computed
as 2.4 meters by 5.00 meters for perpendicular or diagonal
parking, 2.00 meters by 6.00 meters for parallel parking. A
truck or bus parking/loading slot shall be computed at a
minimum of 3.60 meters by 12.00 meters. The parking slot
shall be drawn to scale and the total number of which shall be
indicated on the plans and specified whether or not parking
accommodations, are attendant-managed. (See Section 2 for
computation of parking requirements).
xxxx
1.7 Neighborhood shopping center 1 slot/100 sq. m. of shopping floor
area
The OSG avers that the aforequoted provisions should be read together with Section 102 of
the National Building Code, which declares:

SECTION 102. Declaration of Policy

It is hereby declared to be the policy of the State to safeguard life, health,
property, and public welfare, consistent with the principles of sound environmental
management and control; and to this end, make it the purpose of this Code to provide
for all buildings and structures, a framework of minimum standards and requirements
to regulate and control their location, site, design, quality of materials, construction,
use, occupancy, and maintenance.
The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of
safeguarding life, health, property, and public welfare, consistent with the principles of sound
environmental management and control. Adequate parking spaces would contribute greatly to
alleviating traffic congestion when complemented by quick and easy access thereto because of freecharge parking. Moreover, the power to regulate and control the use, occupancy, and maintenance of
buildings and structures carries with it the power to impose fees and, conversely, to control -- partially
or, as in this case, absolutely -- the imposition of such fees.
The Court finds no merit in the present Petition.
The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a
plain reading thereof, is that respondents, as operators/lessors of neighborhood shopping centers,
should provide parking and loading spaces, in accordance with the minimum ratio of one slot per 100
square meters of shopping floor area. There is nothing therein pertaining to the collection (or noncollection) of parking fees by respondents. In fact, the term parking fees cannot even be found at all in
the entire National Building Code and its IRR.
Statutory construction has it that if a statute is clear and unequivocal, it must be given its
literal meaning and applied without any attempt at interpretation. [26] Since Section 803 of the National
Building Code and Rule XIX of its IRR do not mention parking fees, then simply, said provisions do not
regulate the collection of the same. The RTC and the Court of Appeals correctly applied Article 1158 of
the New Civil Code, which states:
Art. 1158. Obligations derived from law are not presumed. Only
those expressly determined in this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which establishes them; and as to what
has not been foreseen, by the provisions of this Book. (Emphasis ours.)

Hence, in order to bring the matter of parking fees within the ambit of the National Building
Code and its IRR, the OSG had to resort to specious and feeble argumentation, in which the Court
cannot concur.
The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of
Section 803 of the same Code and Rule XIX of the IRR, so as to include the regulation of parking
fees. The OSG limits its citation to the first part of Section 102 of the National Building Code declaring
the policy of the State to safeguard life, health, property, and public welfare, consistent with the
principles of sound environmental management and control; but totally ignores the second part of said
provision, which reads, and to this end, make it the purpose of this Code to provide for all buildings
and structures, a framework of minimum standards and requirements to regulate and control
their location, site, design, quality of materials, construction, use, occupancy, and maintenance. While
the first part of Section 102 of the National Building Code lays down the State policy, it is the second
part thereof that explains how said policy shall be carried out in the Code. Section 102 of the National
Building Code is not an all-encompassing grant of regulatory power to the DPWH Secretary and local
building officials in the name of life, health, property, and public welfare. On the contrary, it limits the
regulatory power of said officials to ensuring that the minimum standards and requirements for all
buildings and structures, as set forth in the National Building Code, are complied with.
Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for
parking spaces for buildings, Rule XIX of the IRR also mandates that such parking spaces be provided
by building owners free of charge. If Rule XIX is not covered by the enabling law, then it cannot be
added to or included in the implementing rules.The rule-making power of administrative agencies must
be confined to details for regulating the mode or proceedings to carry into effect the law as it has been
enacted, and it cannot be extended to amend or expand the statutory requirements or to embrace
matters not covered by the statute. Administrative regulations must always be in harmony with the
provisions of the law because any resulting discrepancy between the two will always be resolved in
favor of the basic law.[27]
From the RTC all the way to this Court, the OSG repeatedly referred to Republic v.
Gonzales[28] and City of Ozamis v. Lumapas[29] to support its position that the State has the power to
regulate parking spaces to promote the health, safety, and welfare of the public; and it is by virtue of
said power that respondents may be required to provide free parking facilities. The OSG, though, failed
to consider the substantial differences in the factual and legal backgrounds of these two cases from
those of the Petition at bar.
In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of
the public domain to give way to a road-widening project. It was in this context that the Court
pronounced:
Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was
prevalent; this, of course, caused the build up of traffic in the surrounding area to the
great discomfort and inconvenience of the public who use the streets. Traffic
congestion constitutes a threat to the health, welfare, safety and convenience of the
people and it can only be substantially relieved by widening streets and providing
adequate parking areas.
The Court, in City of Ozamis, declared that the City had been clothed with full power to control
and regulate its streets for the purpose of promoting public health, safety and welfare. The City can
regulate the time, place, and manner of parking in the streets and public places; and charge minimal
fees for the street parking to cover the expenses for supervision, inspection and control, to ensure the
smooth flow of traffic in the environs of the public market, and for the safety and convenience of the
public.
Republic and City of Ozamis involved parking in the local streets; in contrast, the present case
deals
with
privately
owned
parking
facilities
available
for
use
by
the
general
public. In Republic and City of Ozamis, the concerned local governments regulated parking pursuant to
their power to control and regulate their streets; in the instant case, the DPWH Secretary and local
building officials regulate parking pursuant to their authority to ensure compliance with the minimum
standards and requirements under the National Building Code and its IRR. With the difference in
subject matters and the bases for the regulatory powers being invoked, Republic and City of Ozamis do
not constitute precedents for this case.
Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of
the OSG in the case at bar. In Republic, the Court, instead of placing the burden on private persons to
provide parking facilities to the general public, mentioned the trend in other jurisdictions wherein the
municipal governments themselves took the initiative to make more parking spaces available so as to
alleviate the traffic problems, thus:
Under the Land Transportation and Traffic Code, parking in designated areas
along public streets or highways is allowed which clearly indicates that provision for
parking spaces serves a useful purpose. In other jurisdictions where traffic is at least as
voluminous as here, the provision by municipal governments of parking space is not
limited to parking along public streets or highways. There has been a marked trend to

build off-street parking facilities with the view to removing parked cars from the
streets. While the provision of off-street parking facilities or carparks has been
commonly undertaken by private enterprise, municipal governments have been
constrained to put up carparks in response to public necessity where private enterprise
had failed to keep up with the growing public demand. American courts have upheld
the right of municipal governments to construct off-street parking facilities as clearly
redounding to the public benefit.[30]
In City of Ozamis, the Court authorized the collection by the City of minimal fees for the
parking of vehicles along the streets: so why then should the Court now preclude respondents from
collecting from the public a fee for the use of the mall parking facilities? Undoubtedly, respondents
also incur expenses in the maintenance and operation of the mall parking facilities, such as electric
consumption, compensation for parking attendants and security, and upkeep of the physical
structures.
It is not sufficient for the OSG to claim that the power to regulate and control the use,
occupancy, and maintenance of buildings and structures carries with it the power to impose fees and,
conversely, to control, partially or, as in this case, absolutely, the imposition of such fees. Firstly, the
fees within the power of regulatory agencies to impose are regulatory fees. It has been settled law in
this jurisdiction that this broad and all-compassing governmental competence to restrict rights of
liberty and property carries with it the undeniable power to collect a regulatory fee. It looks to the
enactment of specific measures that govern the relations not only as between individuals but also as
between private parties and the political society. [31] True, if the regulatory agencies have the power to
impose regulatory fees, then conversely, they also have the power to remove the same.Even so, it is
worthy to note that the present case does not involve the imposition by the DPWH Secretary and local
building officials of regulatory fees upon respondents; but the collection by respondents of parking
fees from persons who use the mall parking facilities. Secondly, assuming arguendo that the DPWH
Secretary and local building officials do have regulatory powers over the collection of parking fees for
the use of privately owned parking facilities, they cannot allow or prohibit such collection arbitrarily or
whimsically. Whether allowing or prohibiting the collection of such parking fees, the action of the DPWH
Secretary and local building officials must pass the test of classic reasonableness and propriety of the
measures or means in the promotion of the ends sought to be accomplished. [32]
Keeping in mind the aforementioned test of reasonableness and propriety of measures or
means, the Court notes that Section 803 of the National Building Code falls under Chapter 8 on Light
and Ventilation. Evidently, the Code deems it necessary to regulate site occupancy to ensure that
there is proper lighting and ventilation in every building.Pursuant thereto, Rule XIX of the IRR requires
that a building, depending on its specific use and/or floor area, should provide a minimum number of
parking spaces. The Court, however, fails to see the connection between regulating site occupancy to
ensure proper light and ventilation in every building vis--vis regulating the collection by building
owners of fees for the use of their parking spaces. Contrary to the averment of the OSG, the former
does not necessarily include or imply the latter. It totally escapes this Court how lighting and
ventilation conditions at the malls could be affected by the fact that parking facilities thereat are free
or paid for.
The OSG attempts to provide the missing link by arguing that:
Under Section 803 of the National Building Code, complimentary parking
spaces are required to enhance light and ventilation, that is, to avoid traffic congestion
in areas surrounding the building, which certainly affects the ventilation within the
building itself, which otherwise, the annexed parking spaces would have served. Freeof-charge parking avoids traffic congestion by ensuring quick and easy access of
legitimate shoppers to off-street parking spaces annexed to the malls, and thereby
removing the vehicles of these legitimate shoppers off the busy streets near the
commercial establishments.[33]
The Court is unconvinced. The National Building Code regulates buildings, by setting the
minimum specifications and requirements for the same. It does not concern itself with traffic
congestion in areas surrounding the building. It is already a stretch to say that the National Building
Code and its IRR also intend to solve the problem of traffic congestion around the buildings so as to
ensure that the said buildings shall have adequate lighting and ventilation. Moreover, the Court cannot
simply assume, as the OSG has apparently done, that the traffic congestion in areas around the malls
is due to the fact that respondents charge for their parking facilities, thus, forcing vehicle owners to
just park in the streets. The Court notes that despite the fees charged by respondents, vehicle owners
still use the mall parking facilities, which are even fully occupied on some days.Vehicle owners may be
parking in the streets only because there are not enough parking spaces in the malls, and not because
they are deterred by the parking fees charged by respondents. Free parking spaces at the malls may
even have the opposite effect from what the OSG envisioned: more people may be encouraged by the
free parking to bring their own vehicles, instead of taking public transport, to the malls; as a result, the
parking facilities would become full sooner, leaving more vehicles without parking spaces in the malls
and parked in the streets instead, causing even more traffic congestion.

Without using the term outright, the OSG is actually invoking police power to justify the
regulation by the State, through the DPWH Secretary and local building officials, of privately owned
parking facilities, including the collection by the owners/operators of such facilities of parking fees from
the public for the use thereof. The Court finds, however, that in totally prohibiting respondents from
collecting parking fees from the public for the use of the mall parking facilities, the State would be
acting beyond the bounds of police power.
Police power is the power of promoting the public welfare by restraining and regulating the use
of liberty and property. It is usually exerted in order to merely regulate the use and enjoyment of the
property of the owner. The power to regulate, however, does not include the power to
prohibit. A fortiori, the power to regulate does not include the power to confiscate. Police power does
not involve the taking or confiscation of property, with the exception of a few cases where there is a
necessity to confiscate private property in order to destroy it for the purpose of protecting peace and
order and of promoting the general welfare; for instance, the confiscation of an illegally possessed
article, such as opium and firearms. [34]
When there is a taking or confiscation of private property for public use, the State is no longer
exercising police power, but another of its inherent powers, namely, eminent domain. Eminent domain
enables the State to forcibly acquire private lands intended for public use upon payment of just
compensation to the owner.[35]
Normally, of course, the power of eminent domain results in the taking or appropriation of title
to, and possession of, the expropriated property; but no cogent reason appears why the said power
may not be availed of only to impose a burden upon the owner of condemned property, without loss of
title and possession.[36] It is a settled rule that neither acquisition of title nor total destruction of value
is essential to taking. It is usually in cases where title remains with the private owner that inquiry
should be made to determine whether the impairment of a property is merely regulated or amounts to
a compensable taking. A regulation that deprives any person of the profitable use of his property
constitutes a taking and entitles him to compensation, unless the invasion of rights is so slight as to
permit the regulation to be justified under the police power. Similarly, a police regulation that
unreasonably restricts the right to use business property for business purposes amounts to a taking of
private property, and the owner may recover therefor.[37]
Although in the present case, title to and/or possession of the parking facilities remain/s with
respondents, the prohibition against their collection of parking fees from the public, for the use of said
facilities, is already tantamount to a taking or confiscation of their properties. The State is not only
requiring that respondents devote a portion of the latters properties for use as parking spaces, but is
also mandating that they give the public access to said parking spaces for free. Such is already an
excessive intrusion into the property rights of respondents. Not only are they being deprived of the
right to use a portion of their properties as they wish, they are further prohibited from profiting from its
use or even just recovering therefrom the expenses for the maintenance and operation of the required
parking facilities.
The ruling of this Court in City Government of Quezon City v. Judge Ericta [38] is
edifying. Therein, the City Government of Quezon City passed an ordinance obliging private cemeteries
within its jurisdiction to set aside at least six percent of their total area for charity, that is, for burial
grounds of deceased paupers. According to the Court, the ordinance in question was null and void, for
it authorized the taking of private property without just compensation:
There is no reasonable relation between the setting aside of at least six (6)
percent of the total area of all private cemeteries for charity burial grounds of
deceased paupers and the promotion of' health, morals, good order, safety, or the
general welfare of the people. The ordinance is actually a taking without compensation
of a certain area from a private cemetery to benefit paupers who are charges of the
municipal corporation. Instead of' building or maintaining a public cemetery for this
purpose, the city passes the burden to private cemeteries.
'The expropriation without compensation of a portion of private cemeteries is
not covered by Section 12(t) of Republic Act 537, the Revised Charter of Quezon City
which empowers the city council to prohibit the burial of the dead within the center of
population of the city and to provide for their burial in a proper place subject to the
provisions of general law regulating burial grounds and cemeteries. When the Local
Government Code, Batas Pambansa Blg. 337 provides in Section 177(q) that a
sangguniang panlungsod may "provide for the burial of the dead in such place and in
such manner as prescribed by law or ordinance" it simply authorizes the city to provide
its own city owned land or to buy or expropriate private properties to construct public
cemeteries. This has been the law, and practise in the past. It continues to the present.
Expropriation, however, requires payment of just compensation. The questioned
ordinance is different from laws and regulations requiring owners of subdivisions to set
aside certain areas for streets, parks, playgrounds, and other public facilities from the
land they sell to buyers of subdivision lots. The necessities of public safety, health, and
convenience are very clear from said requirements which are intended to insure the
development of communities with salubrious and wholesome environments. The
beneficiaries of the regulation, in turn, are made to pay by the subdivision developer
when individual lots are sold to homeowners.

In conclusion, the total prohibition against the collection by respondents of parking fees from persons
who use the mall parking facilities has no basis in the National Building Code or its IRR. The State also
cannot impose the same prohibition by generally invoking police power, since said prohibition amounts
to a taking of respondents property without payment of just compensation.
Given the foregoing, the Court finds no more need to address the issue persistently raised by
respondent SM Prime concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said
issue was not among those that the parties, during the pre-trial conference for Civil Cases No. 12-08
and No. 00-1210, agreed to submit for resolution of the RTC. It is likewise axiomatic that the
constitutionality of a law, a regulation, an ordinance or an act will not be resolved by courts if the
controversy can be, as in this case it has been, settled on other grounds. [39]
WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision
dated 25 January 2007 and Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No.
76298, affirming in toto the Joint Decision dated 29 May 2002 of the Regional Trial Court of Makati City,
Branch 138, in Civil Cases No. 00-1208 and No. 00-1210 are hereby AFFIRMED. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 187930
2015

February 23,

NEW WORLD DEVELOPERS AND

MANAGEMENT, INC., Petitioner,
vs.
AMA COMPUTER LEARNING CENTER,
INC., Respondent.

G.R. No. 188250

AMA COMPUTER LEARNING CENTER,
INC., Petitioner.
vs.
NEW WORLD DEVELOPERS AND
MANAGEMENT, INC., Respondent,

DECISION
SERENO, CJ:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision1 dated 22 January 2009 and Resolution2 dated 18 May
2009 in CA-G.R. CV No. 89483.
The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World Developers and
Management, Inc. (New World) unpaid rentals for 2 months, as well asliquidated damages equivalent
to 4 months rent. The CA Resolution denied the separate motions for reconsideration filed by the
parties.
FACTS
New World is the owner of a commercial building located at No. 1104-1118 Espaa corner Paredes
Streets, Sampaloc, Manila.3 In 1998, AMA agreed to lease the entire second floor of the building for its
computer learning center, and the parties entered into a Contract of Lease 4 covering the eight-year
period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at P181,500, with an annual escalation rate equivalent to
15% for the succeeding years.5 It was also provided that AMA may preterminate the contract by
sending notice in writing to New World at least six months before the intended date. 6 In case of
pretermination, AMA shall be liable for liquidated damages in an amount equivalent to six months of
the prevailing rent.
In compliance with the contract, AMA paid New World the amount of P450,000 as advance rental and
another P450,000 as security deposit.7
For the first three years, AMA paid the monthly rent as stipulated in the contract, with the required
adjustment in accordance with the escalation rate for the second and the third years. 8
In a letter dated 18 March 2002, AMA requested the deferment of the annual increase in the monthly
rent by citing financial constraints brought about by a decrease in its enrollment. New World agreed to
reduce the escalation rate by 50% for the next six months. The following year, AMA again requested
the adjustment of the monthly rent and New World obliged by granting a 45% reduction of the monthly
rent and a 5% reduction of the escalation rate for the remaining term of the lease. For this purpose,
the parties entered into an Addendum to the Contract of Lease.9
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased
premises. The following day, New World received a letter from AMA dated 6 July 2004 10 stating that the
former had decided to preterminate the contract effective immediately on the ground of business
losses due to a drastic decline in enrollment. AMA also demanded the refund of its advance rental and
security deposit.
New World replied in a letter dated 12 July 2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be paid by AMA: 1) unpaid two months rent in the
amount of P466,620; 2) 3% monthly interest for the unpaid rent in the amount of P67,426.59; 3)
liquidated damages equivalent to six months of the prevailing rent in the amount of P1,399,860; and
4) damage to the leased premises amounting to P15,580. The deduction of the advance rental and
security deposit paid by AMA still left an unpaid balance in the amount of P1,049,486.59.
Despite the meetings between the parties, they failed to arrive at a settlement regarding the payment
of the foregoing amounts.13
On 27 October 2004, New World filed a complaint for a sum of money and damages against AMA
before the Regional Trial Court of Marikina City, Branch 156 (RTC). 14

RULING OF THE RTC

In a Decision15 dated 31 January 2007, the RTC ordered AMA to pay New World P466,620 as unpaid
rentals plus 3% monthly penalty interest until payment; P1,399,860 as liquidated damages equivalent
to six months rent, with the advance rental and security deposit paid by AMA to be deducted
therefrom; P15,580 for the damage to the leased premises; P100,000 as attorneys fees; and costs of
the suit.

According to the RTC, AMA never denied that it had arrearages equivalent to two months rent. Other
than its allegation that it did not participate in the preparation of the Statement of Account, AMA did
not proffer any evidence disputing the unpaid rent. For its part, New World clearly explained the
existence of the arrears.
While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not shirk
from its contractual obligations, which provided that it had to pay liquidated damages equivalent to six
months rent in case of a pretermination of the lease.
The RTC provided no bases for awarding P15,580 for the damage to the leased premises and P100,000
for attorneys fees, while denying the prayer for exemplary and moral damages.
Upon the denial of its motion for reconsideration, AMA filed an appeal before the CA. 16
RULING OF THE CA
In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World P466,620 for
unpaid rentals and P933,240 for liquidated damages equivalent to four months rent, with the advance
rental and security deposit paid by AMA to be deducted therefrom. 17
The appellate court ruled that the RTC erred in imposing a 3% monthly penalty interest on the unpaid
rent, because there was no stipulation either in the Contract of Lease or in the Addendum to the
Contract of Lease concerning the imposition of interest in the event of a delay in the payment of the
rent.18 Thus, the CA ruled that the rent in arrears should earn interest at the rate of 6% per annum
only, reckoned from the date of the extrajudicial demand on 12 July 2004 until the finality of the
Decision. Thereafter, interest at the rate of12% per annum shall be imposed until full payment.
The CA also ruled that the RTCs imposition of liquidated damages equivalent to six months rent was
iniquitous.19While conceding that AMA was liable for liquidated damages for preterminating the lease,
the CA also recognized that stipulated penalties may be equitably reduced by the courts based on its
sound discretion. Considering that the unexpired portion of the term of lease was already less than two
years, and that AMA had suffered business losses rendering it incapable of paying for its expenses, the
CA deemed that liquidated damages equivalent to four months rent was reasonable. 20
The appellate court deleted the award for the damage to the leased premises, because no proof other
than the Statement of Account was presented by New World.21 Furthermore, noting that the latter was
already entitled to liquidated damages, and that the trial court did not give any justification for
attorneys fees, the CA disallowed the award thereof.22
Both parties filed their respective motions for reconsideration, which were denied in the assailed
Resolution dated 10 May 2009.
Hence, the present petitions for review on certiorari. On 3 August 2009, the Court resolved to
consolidate the petitions, considering that they involve the same parties and assail the same CA
Decision and Resolution.23
PARTIES POSITIONS
According to New World, when parties freely stipulate on the manner by which one may preterminate
the lease, that stipulation has the force of law between them and should be complied with in good
faith.24 Since AMA preterminated the lease, it became liable to liquidated damages equivalent to six
months rent. Furthermore, its failure to give notice to New World six months prior to the intended
pretermination of the contract and its leaving the leased premises in the middle of the night, with all
its office equipment and furniture, smacked of gross bad faith that renders it undeserving of sympathy
from the courts.25 Thus, the CA erred in reducing the liquidated damages from an amount equivalent to
six months rent to only four months.
New World also challenges the CA Decision and Resolution for disallowing the imposition of the 3%
monthly interest on the unpaid rentals. It is argued that AMA never disputed the imposition of the 3%
monthly interest; rather, it only requested that the interest rate be reduced. 26
On the other hand, AMA assails the CA ruling for not recognizing the fact that compensation took place
between the unpaid rentals and the advance rental paid by AMA. 27 Considering that the obligation of
AMA as to the arrears has been extinguished by operation of law, there would be no occasion for the
imposition of interest.28
AMA also prays for the further reduction of the liquidated damages to an amount equivalent to one
months rent up to one and a half months, arguing that four months worth of rent is still iniquitous on
account of the severe financial losses it suffered. 29

ISSUES
1. Whether AMA is liable to pay six months worth of rent as liquidated damages.
2. Whether AMA remained liable for the rental arrears.
OUR RULING
I.
AMA is liable for six months worth of rent as liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six (6)
months before the intended date of pretermination, provided, however, that in such case, [AMA] shall
be liable to [New World] for an amount equivalent to six (6) months current rental as liquidated
damages;30
Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in
view of its pretermination of the lease contract with New World. What it claims, however, is that it is
entitled to the reduction of the amount due to the serious business losses it suffered as a result of a
drastic decrease in its enrollment.
This Court is, first and foremost, one of law. While we are also a court of equity, we do not employ
equitable principles when well-established doctrines and positive provisions of the law clearly apply. 31
The law does not relieve a party from the consequences of a contract it entered into with all the
required formalities.32 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. 33 It must also
be emphasized that AMA is an entity that has had significant business experience, and is not a mere
babe in the woods.
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith.
xxxx
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.
The fundamental rule is that a contract is the law between the parties. Unless it has been shown that
its provisions are wholly or in part contrary to law, morals, good customs, public order, or public policy,
the contract will be strictly enforced by the courts. 34
In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable, or
iniquitous or unconscionable would depend on 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. 35 The appreciation of these
factors is essentially addressed to the sound discretion of the court. 36
It is quite easy to understand the reason why a lessor would impose liquidated damages in the event
of the pretermination of a lease contract. Pretermination is effectively the breach of a contract, that
was originally intended to cover an agreed upon period of time. A definite period assures the lessor a
steady income for the duration. A pretermination would suddenly cut short what would otherwise have
been a longer profitable relationship. Along the way, the lessor is bound to incur losses until it is able
to find a new lessee, and it is this loss of income that is sought to be compensated by the payment of
liquidated damages.
There might have been other ways to work around its difficult financial situation and lessen the impact
of the pretermination to both parties. However, AMA opted to do the following:

1. It preterminated the lease without notifying New World at least six months before the
intended date.
2. It removed all its office equipment and left the premises in the middle of the night.
3. Only after it had cleared the premises did it send New World a notice of pretermination
effective immediately.
4. It had the gall to demand a full refund of the advance rental and security deposit, albeit
without prejudice to their removal of the improvements introduced in the premises.
We cannot understand the inability of AMA to be forthright with New World, considering that the former
had been transparent about its business losses in its previous requests for the reduction of the monthly
rental. The drastic decrease in AMAs enrollment had been unfolding since 2002. Thus, it cannot be
said that the business losses had taken it by surprise. It is also highly unlikely that the decision to
preterminate the lease contract was made at the last minute. The cancellation of classes, the transfer
of students, and administrative preparations for the closure of the computer learning center and the
removal of office equipment therefrom should take at least weeks, if not months, of logistic planning.
Had AMA come clean about the impending pretermination, measures beneficial to both parties could
have been arrived at, and the instant cases would not have reached this Court. Instead, AMA forced
New World to share in the formers losses, causing the latter to scramble for new lessees while the
premises remained untenanted and unproductive.
In the sphere of personal and contractual relations governed by laws, rules and regulations created to
promote justice and fairness, equity is deserved, not demanded. The application of equity necessitates
a balancing of the equities involved in a case,37 for "[h]e who seeks equity must do equity, and he who
comes into equity must come with clean hands."38 Persons in dire straits are never justified in
trampling on other persons rights. Litigants shall be denied relief if their conduct has been inequitable,
unfair and dishonest as to the controversy in issue. 39 The actions of AMA smack of bad faith.
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that, in
view of the surrounding circumstances, the CA even erred in reducing the liquidated damages to four
months worth of rent. Under the terms of the contract, and in light of the failure of AMA to show that it
is deserving of this Courts indulgence, the payment of liquidated damages in an amount equivalent to
six months rent is proper.
Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show
that he is entitled to moral, temperate or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded. In case liquidated damages have
been agreed upon, although no proof of loss is necessary in order that such liquidated damages may
be recovered, nevertheless, before the court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated damages. (Emphasis
supplied)
In this case, it is quite clear that New World sustained losses as a result of the unwarranted acts of
AMA. Further, were it not for the stipulation in the contract regarding the payment of liquidated
damages, we would be awarding compensatory damages to New World.
"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against such
behaviour."40 As such, they may be awarded even when not pleaded or prayed for. 41 In order to prevent
the commission of a similar act in the future, AMA shall pay New World exemplary damages in the
amount of P100,000.
II.
AMAs liability for the rental arrears has already been extinguished.
AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears. AMA argues
that the advance rental has extinguished its obligation as to the arrears. Thus, it says, there is no more
basis for the imposition of interest at the rate of 6% per annum from the date of extrajudicial demand
on 12 July 2004 until the finality of the Decision, plus interest at the rate of 12% per annum from
finality until full payment.
At this juncture, it is necessary to look into the contract to determine the purpose of the advance
rental and security deposit.

Item Nos. 2, 3 and 4 of the Contract of Lease provide:

xxxx
2. That [AMA] shall pay to [New World] in advance within the first 5 days of each calendar
month a monthly rental in accordance with the following schedule for the entire term of this
Contract of Lease;

Year
Year
Year
Year
Year
Year
Year
Year

1
2
3
4
5
6
7
8

PERIOD
June 15, 1998 Mar 14, 1999
Mar 15, 1999 Mar 14, 2000
Mar 15, 2000 Mar 14, 2001
Mar 15, 2001 Mar 14, 2002
Mar 15, 2002 Mar 14, 2003
Mar 15, 2003 Mar 14, 2004
Mar 15, 2004 Mar 14, 2005
Mar 15, 2005 Mar 14, 2006

MONTHLY RENTAL RATES

181,500.00
P208,725.00
P240,033.75
P276,038.81
P317,444.63
P365,061.33
P419,820.53
P482,793.61
(P482,793.61 37,500 =
P445,293.61)
The monthly rentals referred to above were computed at an escalation rate of Fifteen Percent
(15%) every year for the entire duration of this lease contract.
3. Upon signing of this Contract, [AMA] shall pay advance rental in the amount of FOUR
HUNDRED FIFTY THOUSAND PESOS (P450,000.00); Said advance rental shall be applied as part
of the rental for the last year of the Contract with a remaining balance of Four Hundred Forty
Five Thousand Two Hundred Ninety Three and 61/100 Pesos (P445,293.61) as monthly rental
for the tenth [sic] and last year of the lease term;
4. Upon signing of the Contract, [AMA] shall pay [New World] a Security Deposit in the amount
of FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00) which shall be applied for any
unpaid rental balance and damages on the leased premises, and the balance of which shall be
refunded by [New World] to [AMA] within sixty (60) days after the termination of the Contract,
it being understood that such balance is being held by [New World] in trust for [AMA]. 42

Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that may be
incurred by AMA while the contract was in force. The security deposit was held in trust by New World,
and whatever may have been left of it after the termination of the lease shall be refunded to AMA.
Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of P450,000 by 12
months. They came up with P37,500, which they intended to deduct from the monthly rental to be paid
by AMA for the last year of the lease term. Thus, unlike the security deposit, no part of the advance
rental was ever meant to be refunded to AMA. Instead, the parties intended to apply the advance
rental, on a staggered basis, to a portion of the monthly rental in the last year of the lease term.
Considering the pretermination of the lease contract in the present case, this intent of the parties as
regards the advance rental failed to take effect. The advance rental, however, retains its purpose of
answering for the outstanding amounts that AMA may owe New World.
We now delve into the actual application of the security deposit and the advance rental.
At the time of the pretermination of the contract of lease, the monthly rent stood at P233,310,
inclusive of taxes;43hence, the two-month rental arrears in the amount of P466,620.
Applying the security deposit of P450,000 to the arrears will leave a balance of P16,620 in New Worlds
favor.1wphi1Given that we have found AMA liable for liquidated damages equivalent to six months
rent in the amount of P1,399,860 (monthly rent of P233,310 multiplied by 6 months), its total liability
to New World is P1,416,480.
We then apply the advance rental of P450,000 to this amount to arrive at a total extinguishment of the
liability for the unpaid rentals and a partial extinguishment of the liability for liquidated damages. This
shall leave AMA still liable to New World in the amount of P966,480 (P1,416,480 total liability
less P450,000 advance rental).
Not constituting a forbearance of money,44 this amount shall earn interest pursuant to Item II(2)45 of
our pronouncement in Eastern Shipping Lines v. CA.46 This item remained unchanged by the
modification made in Nacar v. Gallery Frames.47 Interest at the rate of 6% per annum is hereby
imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July 2004 until the
finality of this Decision.

Thereafter this time pursuant to the modification in Nacar the amount due shall earn interest at the
rate of 6% per annum until satisfaction, this interim period being deemed to be by then equivalent to a
forbearance of credit.48
Considering the foregoing, there was no occasion for the unpaid two months rental to earn interest.
Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon. We quote with
approval the ruling of the CA on this issue:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest
agreed upon and in the absence of stipulation, the legal interest, which is six per cent per annum.
In the instant case, the Contract of Lease and the Addendum to the Contract of Lease do not specify
any interest in the event of delay of payment of rentals. Accordingly, there being no stipulation
concerning interest, the trial court erred in imposing 3% interest per month on the two-month unpaid
rentals.
[New World] argues that the said3% interest per month on the unpaid rentals was agreed upon by the
parties as allegedly shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".
We are not persuaded.
[New Worlds] letter dated 12 July 2004 to [AMA], Statement of Account dated 07 July 2004; and
another Statement of Account dated 27 October 2004 were all prepared by [New World], with no
participation or any indication of agreement on [AMAs] part. The alleged proposal of [AMA] as
contained in the Schedule of Receivable/Payable is just a computer print-out and does not contain any
signature showing [AMAs] conformity to the same.49
Having relied on the Contract of Lease for its demand for payment of liquidated damages, New World
should have also referred to the contract to determine the proper application of the advance rental and
security deposit. Had it done so in the first instance, it would have known that there is no occasion for
the imposition of interest, 3% or otherwise, on the unpaid rentals. WHEREFORE, the Court of Appeals
Decision dated 22 January 2009 and Resolution dated 10 May 2009 in CA-G.R. CV No. 89483 is
AFFIRMED with MODIFICATION.
AMA Computer Learning Center, Inc. is ordered to pay New World Developers and Management, Inc.
the amount of P966,480, with interest at the rate of 6% per annum from 12 July 2004 until full
payment.
In addition, AMA shall pay New World exemplary damages in the amount of P100,000, which shall earn
interest at the rate of 6% per annum from the finality of this Decision until full payment.
SO ORDERED.

SECOND DIVISION
G.R. No. 192105, December 09, 2013
ANTONIO LOCSIN II, Petitioners, v. MEKENI FOOD CORPORATION, Respondent.
DECISION
DEL CASTILLO, J.:
In the absence of specific terms and conditions governing a car plan agreement between the employer
and employee, the former may not retain the installment payments made by the latter on the car plan
and treat them as rents for the use of the service vehicle, in the event that the employee ceases his
employment and is unable to complete the installment payments on the vehicle. The underlying
reason is that the service vehicle was precisely used in the formers business; any personal benefit
obtained by the employee from its use is merely incidental.
This Petition for Review on Certiorari1 assails the January 27, 2010 Decision2 of the Court of Appeals
(CA) in CA-G.R. SP No. 109550, as well as its April 23, 2010 Resolution 3 denying petitioners Motion for
Partial Reconsideration.4ChanRoblesVirtualawlibrary
Factual Antecedents
In February 2004, respondent Mekeni Food Corporation (Mekeni) a Philippine company engaged in
food manufacturing and meat processing offered petitioner Antonio Locsin II the position of Regional
Sales Manager to oversee Mekenis National Capital Region Supermarket/Food Service and South Luzon
operations. In addition to a compensation and benefit package, Mekeni offered petitioner a car plan,
under which one-half of the cost of the vehicle is to be paid by the company and the other half to be
deducted from petitioners salary. Mekenis offer was contained in an Offer Sheet 5 which was presented
to petitioner.
Petitioner began his stint as Mekeni Regional Sales Manager on March 17, 2004. To be able to
effectively cover his appointed sales territory, Mekeni furnished petitioner with a used Honda Civic car
valued at P280,000.00, which used to be the service vehicle of petitioners immediate supervisor.
Petitioner paid for his 50% share through salary deductions of P5,000.00 each month.
Subsequently, Locsin resigned effective February 25, 2006. By then, a total of P112,500.00 had been
deducted from his monthly salary and applied as part of the employees share in the car plan. Mekeni
supposedly put in an equivalent amount as its share under the car plan. In his resignation letter,
petitioner made an offer to purchase his service vehicle by paying the outstanding balance thereon.
The parties negotiated, but could not agree on the terms of the proposed purchase. Petitioner thus
returned the vehicle to Mekeni on May 2, 2006.
Petitioner made personal and written follow-ups regarding his unpaid salaries, commissions, benefits,
and offer to purchase his service vehicle. Mekeni replied that the company car plan benefit applied
only to employees who have been with the company for five years; for this reason, the balance that
petitioner should pay on his service vehicle stood at P116,380.00 if he opts to purchase the same.
On May 3, 2007, petitioner filed against Mekeni and/or its President, Prudencio S. Garcia, a
Complaint6 for the recovery of monetary claims consisting of unpaid salaries, commissions,
sick/vacation leave benefits, and recovery of monthly salary deductions which were earmarked for his
cost-sharing in the car plan. The case was docketed in the National Labor Relations Commission
(NLRC), National Capital Region (NCR), Quezon City as NLRC NCR CASE NO. 00-05-04139-07.
On October 30, 2007, Labor Arbiter Cresencio G. Ramos rendered a Decision, 7 decreeing as follows:
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered directing
respondents to turn-over to complainant x x x the subject vehicle upon the said complainants
payment to them of the sum of P100,435.84.
SO ORDERED.8
Ruling of the National Labor Relations Commission
On appeal,9 the Labor Arbiters Decision was reversed in a February 27, 2009 Decision 10 of the NLRC,
thus:
WHEREFORE, premises considered, the appeal is hereby Granted. The assailed Decision dated October
30, 2007 is hereby REVERSED and SET ASIDE and a new one entered ordering respondent-appellee
Mekeni Food Corporation to pay complainant-appellee the following:
1. Unpaid Salary in the amount of P12,511.45;
2. Unpaid sick leave/vacation leave pay in the amount of P14,789.15;
3. Unpaid commission in the amount of P9,780.00; and

4. Reimbursement of complainants payment under the car plan agreement in the amount of
P112,500.00; and
5. The equivalent share of the company as part of the complainants benefit under the car plan 50/50
sharing amounting to P112,500.00.
Respondent-Appellee Mekeni Food Corporation is hereby authorized to deduct the sum of P4,736.50
representing complainant-appellants cash advance from his total monetary award.
All other claims are dismissed for lack of merit.
SO ORDERED.11
The NLRC held that petitioners amortization payments on his service vehicle amounting to
P112,500.00 should be reimbursed; if not, unjust enrichment would result, as the vehicle remained in
the possession and ownership of Mekeni. In addition, the employers share in the monthly car plan
payments should likewise be awarded to petitioner because it forms part of the latters benefits under
the car plan. It held further that Mekenis claim that the company car plan benefit applied only to
employees who have been with the company for five years has not been substantiated by its evidence,
in which case the car plan agreement should be construed in petitioners favor.
Mekeni moved to reconsider, but in an April 30, 2009 Resolution, 12 the NLRC sustained its original
findings.
Ruling of the Court of Appeals
Mekeni filed a Petition for Certiorari13 with the CA assailing the NLRCs February 27, 2009 Decision,
saying that the NLRC committed grave abuse of discretion in holding it liable to petitioner as it had no
jurisdiction to resolve petitioners claims, which are civil in nature.
On January 27, 2010, the CA issued the assailed Decision, decreeing as follows:
WHEREFORE, the petition for certiorari is GRANTED. The Decision of the National Labor Relations
Commission dated 27 February 2009, in NLRC NCR Case No. 00-05-04139-07, and its Resolution dated
30 April 2009 denying reconsideration thereof, are MODIFIEDin that the reimbursement of Locsins
payment under the car plan in the amount of P112,500.00, and the payment to him of Mekenis 50%
share in the amount of P112,500.00 are DELETED. The rest of the decision is AFFIRMED.
SO ORDERED.14
In arriving at the above conclusion, the CA held that the NLRC possessed jurisdiction over petitioners
claims, including the amounts he paid under the car plan, since his Complaint against Mekeni is one for
the payment of salaries and employee benefits. With regard to the car plan arrangement, the CA
applied the ruling in Elisco Tool Manufacturing Corporation v. Court of Appeals,15 where it was held that

First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question
under a car plan for executives of the Elizalde group of companies. Under a typical car plan, the
company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have been
fully paid for. However, retention of registration of the car in the companys name is only a form of a
lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There
are also stipulations in car plan agreements to the effect that should the employment of the employee
concerned be terminated before all installments are fully paid, the vehicle will be taken by the
employer and all installments paid shall be considered rentals per agreement. 16
In the absence of evidence as to the stipulations of the car plan arrangement between Mekeni and
petitioner, the CA treated petitioners monthly contributions in the total amount of P112,500.00 as
rentals for the use of his service vehicle for the duration of his employment with Mekeni. The appellate
court applied Articles 1484-1486 of the Civil Code, 17 and added that the installments paid by petitioner
should not be returned to him inasmuch as the amounts are not unconscionable. It made the following
pronouncement:
Having used the car in question for the duration of his employment, it is but fair that all of Locsins
payments be considered as rentals therefor which may be forfeited by Mekeni. Therefore, Mekeni has
no obligation to return these payments to Locsin. Conversely, Mekeni has no right to demand the
payment of the balance of the purchase price from Locsin since the latter has already surrendered
possession of the vehicle.18
Moreover, the CA held that petitioner cannot recover Mekenis corresponding share in the purchase
price of the service vehicle, as this would constitute unjust enrichment on the part of petitioner at
Mekenis expense.
The CA affirmed the NLRC judgment in all other respects. Petitioner filed his Motion for Partial
Reconsideration,19 but the CA denied the same in its April 23, 2010 Resolution.
Thus, petitioner filed the instant Petition; Mekeni, on the other hand, took no further action.
Issue
Petitioner raises the following solitary issue:

WITH ALL DUE RESPECT, THE HONORABLE COURT OF APPEALS ERRED IN NOT CONSIDERING
THE CAR PLAN PRIVILEGE AS PART OF THE COMPENSATION PACKAGE OFFERED TO
PETITIONER AT THE INCEPTION OF HIS EMPLOYMENT AND INSTEAD LIKENED IT TO A CAR
LOAN ON INSTALLMENT, IN SPITE OF THE ABSENCE OF EVIDENCE ON RECORD. 20
Petitioners Arguments
In his Petition and Reply,21 petitioner mainly argues that the CA erred in treating his monthly
contributions to the car plan, totaling P112,500.00, as rentals for the use of his service vehicle during
his employment; the car plan which he availed of was a benefit and it formed part of the package of
economic benefits granted to him when he was hired as Regional Sales Manager. Petitioner submits
that this is shown by the Offer Sheet which was shown to him and which became the basis for his
decision to accept the offer and work for Mekeni.
Petitioner adds that the absence of documentary or other evidence showing the terms and conditions
of the Mekeni company car plan cannot justify a reliance on Mekenis self-serving claims that the full
terms thereof applied only to employees who have been with the company for at least five years; in
the absence of evidence, doubts should be resolved in his favor pursuant to the policy of the law that
affords protection to labor, as well as the principle that all doubts should be construed to its benefit.
Finally, petitioner submits that the ruling in the Elisco Tool case cannot apply to his case because the
car plan subject of the said case involved a car loan, which his car plan benefit was not; it was part of
his compensation package, and the vehicle was an important component of his work which required
constant and uninterrupted mobility. Petitioner claims that the car plan was in fact more beneficial to
Mekeni than to him; besides, he did not choose to avail of it, as it was simply imposed upon him. He
concludes that it is only just that his payments should be refunded and returned to him.
Petitioner thus prays for the reversal of the assailed CA Decision and Resolution, and that the Court
reinstate the NLRCs February 27, 2009 Decision.
Respondents Arguments
In its Comment,22 Mekeni argues that the Petition does not raise questions of law, but merely of fact,
which thus requires the Court to review anew issues already passed upon by the CA an unauthorized
exercise given that the Supreme Court is not a trier of facts, nor is it its function to analyze or weigh
the evidence of the parties all over again.23 It adds that the issue regarding the car plan and the
conclusions of the CA drawn from the evidence on record are questions of fact.
Mekeni asserts further that the service vehicle was merely a loan which had to be paid through the
monthly salary deductions. If it is not allowed to recover on the loan, this would constitute unjust
enrichment on the part of petitioner.
Our Ruling
The Petition is partially granted.
To begin with, the Court notes that Mekeni did not file a similar petition questioning the CA Decision;
thus, it is deemed to have accepted what was decreed. The only issue that must be resolved in this
Petition, then, is whether petitioner is entitled to a refund of all the amounts applied to the cost of the
service vehicle under the car plan.
When the conclusions of the CA are grounded entirely on speculation, surmises and conjectures, or
when the inferences made by it are manifestly mistaken or absurd, its findings are subject to review by
this Court.24
From the evidence on record, it is seen that the Mekeni car plan offered to petitioner was subject to no
other term or condition than that Mekeni shall cover one-half of its value, and petitioner shall in turn
pay the other half through deductions from his monthly salary. Mekeni has not shown, by documentary
evidence or otherwise, that there are other terms and conditions governing its car plan agreement with
petitioner. There is no evidence to suggest that if petitioner failed to completely cover one-half of the
cost of the vehicle, then all the deductions from his salary going to the cost of the vehicle will be
treated as rentals for his use thereof while working with Mekeni, and shall not be refunded. Indeed,
there is no such stipulation or arrangement between them. Thus, the CAs reliance on Elisco Tool is
without basis, and its conclusions arrived at in the questioned decision are manifestly mistaken. To
repeat what was said in Elisco Tool
First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question
under a car plan for executives of the Elizalde group of companies. Under a typical car plan, the
company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have been
fully paid for. However, retention of registration of the car in the companys name is only a form of a
lien on the vehicle in the event that the employee would abscond before he has fully paid for it. There
are also stipulations in car plan agreements to the effect that should the employment of
the employee concerned be terminated before all installments are fully paid, the vehicle
will be taken by the employer and all installments paid shall be considered rentals per
agreement.25 (Emphasis supplied)

It was made clear in the above pronouncement that installments made on the car plan may be treated
as rentals only when there is an express stipulation in the car plan agreement to such effect. It was
therefore patent error for the appellate court to assume that, even in the absence of express
stipulation, petitioners payments on the car plan may be considered as rentals which need not be
returned.
Indeed, the Court cannot allow that payments made on the car plan should be forfeited by Mekeni and
treated simply as rentals for petitioners use of the company service vehicle. Nor may they be retained
by it as purported loan payments, as it would have this Court believe. In the first place, there is
precisely no stipulation to such effect in their agreement. Secondly, it may not be said that the car
plan arrangement between the parties was a benefit that the petitioner enjoyed; on the contrary, it
was an absolute necessity in Mekenis business operations, which benefited it to the fullest extent:
without the service vehicle, petitioner would have been unable to rapidly cover the vast sales territory
assigned to him, and sales or marketing of Mekenis products could not have been booked or made
fast enough to move Mekenis inventory. Poor sales, inability to market Mekenis products, a high rate
of product spoilage resulting from stagnant inventory, and poor monitoring of the sales territory are
the necessary consequences of lack of mobility. Without a service vehicle, petitioner would have been
placed at the mercy of inefficient and unreliable public transportation; his official schedule would have
been dependent on the arrival and departure times of buses or jeeps, not to mention the availability of
seats in them. Clearly, without a service vehicle, Mekenis business could only prosper at a snails
pace, if not completely paralyzed. Its cost of doing business would be higher as well. The Court
expressed just such a view in the past. Thus
In the case at bar, the disallowance of the subject car plan benefits would hamper the officials
in the performance of their functions to promote and develop trade which requires mobility in
the performance of official business. Indeed, the car plan benefits are supportive of the
implementation of the objectives and mission of the agency relative to the nature of its
operation and responsive to the exigencies of the service.26 (Emphasis supplied)
Any benefit or privilege enjoyed by petitioner from using the service vehicle was merely incidental and
insignificant, because for the most part the vehicle was under Mekenis control and supervision. Free
and complete disposal is given to the petitioner only after the vehicles cost is covered or paid in full.
Until then, the vehicle remains at the beck and call of Mekeni. Given the vast territory petitioner had to
cover to be able to perform his work effectively and generate business for his employer, the service
vehicle was an absolute necessity, or else Mekenis business would suffer adversely. Thus, it is clear
that while petitioner was paying for half of the vehicles value, Mekeni was reaping the full benefits
from the use thereof.
In light of the foregoing, it is unfair to deny petitioner a refund of all his contributions to the car plan.
Under Article 22 of the Civil Code, [e]very person who through an act of performance by another, or
any other means, acquires or comes into possession of something at the expense of the latter without
just or legal ground, shall return the same to him. Article 2142 27 of the same Code likewise clarifies
that there are certain lawful, voluntary and unilateral acts which give rise to the juridical relation of
quasi-contract, to the end that no one shall be unjustly enriched or benefited at the expense of
another. In the absence of specific terms and conditions governing the car plan arrangement between
the petitioner and Mekeni, a quasi-contractual relation was created between them. Consequently,
Mekeni may not enrich itself by charging petitioner for the use of its vehicle which is otherwise
absolutely necessary to the full and effective promotion of its business. It may not, under the claim
that petitioners payments constitute rents for the use of the company vehicle, refuse to refund what
petitioner had paid, for the reasons that the car plan did not carry such a condition; the subject vehicle
is an old car that is substantially, if not fully, depreciated; the car plan arrangement benefited Mekeni
for the most part; and any personal benefit obtained by petitioner from using the vehicle was merely
incidental.
Conversely, petitioner cannot recover the monetary value of Mekenis counterpart contribution to the
cost of the vehicle; that is not property or money that belongs to him, nor was it intended to be given
to him in lieu of the car plan. In other words, Mekenis share of the vehicles cost was not part of
petitioners compensation package. To start with, the vehicle is an asset that belonged to Mekeni. Just
as Mekeni is unjustly enriched by failing to refund petitioners payments, so should petitioner not be
awarded the value of Mekenis counterpart contribution to the car plan, as this would unjustly enrich
him at Mekenis expense.
There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or when a
person retains money or property of another against the fundamental principles of justice, equity and
good conscience. The principle of unjust enrichment requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that such benefit is derived at the expense of
another.
The main objective of the principle against unjust enrichment is to prevent one from enriching himself
at the expense of another without just cause or consideration. x x x 28
WHEREFORE, the Petition is GRANTED IN PART. The assailed January 27, 2010 Decision and April
23, 2010 Resolution of the Court of Appeals in CA-G.R. SP No. 109550 are MODIFIED, in that
respondent Mekeni Food Corporation is hereby ordered to REFUND petitioner Antonio Locsin IIs
payments under the car plan agreement in the total amount of P112,500.00.
Thus, except for the counterpart or equivalent share of Mekeni Food Corporation in the car plan
agreement amounting to P112,500.00, which is DELETED, the February 27, 2009 Decision of the
National Labor Relations Commission is affirmed in all respects.chanRoblesvirtualLawlibrary

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 178031

August 28, 2013

VIRGINIA M. VENZON, Petitioner,

vs.
RURAL BANK OF BUENAVISTA (AGUSAN DEL NORTE), INC., represented by LOURDESITA E.
PARAJES,Respondent.
DECISION
DEL CASTILLO, J.:
Before us is a Petition for Review on Certiorari 1 questioning the December 14, 2006 Resolution2 of the
Court of Appeals (CA) in CA-G.R. SP No. 01341-MIN which dismissed the Petition in said case, as well as
its May 7, 2007 Resolution3 denying reconsideration thereof.
Factual Antecedents
On January 28, 2005, petitioner Virginia M. Venzon filed a Petition 4 to nullify foreclosure proceedings
and Tax Declaration Nos. 96-GR-06-003-7002-R and 96-GR-06-7003-R issued in the name of
respondent Rural Bank of Buenavista (Agusan del Norte), Inc. The case5 was docketed as Civil Case No.
5535 and raffled to Branch 5 of the Regional Trial Court (RTC) of Butuan City. Petitioner alleged that in
1983 she and her late spouse, George F. Venzon, Sr., obtained a P5,000.00 loan from respondent
against a mortgage on their house and lot in Libertad, Butuan City, covered by Tax Declaration Nos.
28289 and 42710 issued in their names, which were later on replaced with Tax Declaration Nos. 96 GR06-003-2884-R and 96 GR-06-003-2885-R; that she was able to pay P2,300.00, thus leaving an
outstanding balance of only P2,370.00; that sometime in March 1987, she offered to pay the said
balance in full, but the latter refused to accept payment, and instead shoved petitioner away from the
bank premises; that in March 1987, respondent foreclosed on the mortgage, and the property was sold
at auction for P6,472.76 to respondent, being the highest bidder; that the foreclosure proceedings are
null and void for lack of notice and publication of the sale, lack of sheriffs final deed of sale and notice
of redemption period; and that she paid respondent P6,000.00 on October 9, 1995, as evidenced by
respondents Official Receipt No. 4108486issued on October 9, 1995.
In its Answer with Counterclaims,7 respondent claimed that petitioner did not make any payment on
the loan; that petitioner never went to the bank in March 1987 to settle her obligations in full; that
petitioner was not shoved and driven away from its premises; that the foreclosure proceedings were
regularly done and all requirements were complied with; that a certificate of sale was issued by the
sheriff and duly recorded in the Registry of Deeds; that petitioners claim that she paid P6,000.00 on
October 9, 1995 is utterly false; that petitioners cause of action has long prescribed as the case was
filed only in 2005 or 18 years after the foreclosure sale; and that petitioner is guilty of laches.
Respondent interposed its counterclaim for damages and attorneys fees as well.
In her Reply,8 petitioner insisted that the foreclosure proceedings were irregular and that prescription
and laches do not apply as the foreclosure proceedings are null and void to begin with.
Ruling of the Regional Trial Court
On July 13, 2006, the trial court issued a Resolution 9 dismissing Civil Case No. 5535. It held that
The plaintiff, however, may have erroneously relied the [sic] mandatorily [sic] requirement of the
aforestated provision of law upon failure to consider that the other party is a Rural Bank. Under the
R.A. No. 720 as amended, (Rural Bank Act) property worth exceeding P100,000.00 [sic] is exempt from
the requirement of publication. This may have been the reason why the foreclosure prosper [sic]
without the observance of the required publication. Moreover, neither in the said applicable laws
provide [sic] for the impairment of the extrajudicial foreclosure and the subsequent sale to the public.
The Court ruled in Bonnevie, et al. vs. CA, et al. that Act No. 3135 as amended does not require

personal notice to the mortgagor. In the same view, lack of final demand or notice of redemption are
[sic] not considered indispensable requirements and failure to observe the same does not render the
extrajudicial foreclosure sale a nullity.10
In other words, the trial court meant that under the Rural Banks Act, the foreclosure of mortgages
covering loans granted by rural banks and executions of judgments thereon involving real properties
levied upon by a sheriff shall be exempt from publication where the total amount of the loan, including
interests due and unpaid, does not exceed P10,000.00.11 Since petitioners outstanding obligation
amounted to just over P6,000.00 publication was not necessary.
Petitioner moved for reconsideration,12 but in the September 6, 2006 Resolution,13 the trial court
denied the same.

Ruling of the Court of Appeals

Petitioner went up to the CA via an original Petition for Certiorari. 14 On December 14, 2006, the CA
issued the first assailed Resolution 15 dismissing the Petition. It held that petitioners remedy should
have been an appeal under Rule 41 of the Rules of Court since the July 13, 2006 Resolution is a final
order of dismissal. Petitioner received the Resolution denying her Motion for Reconsideration on
September 18, 2006;16 but she filed the Petition for Certiorari on October 25, 2006 when she should
have interposed an appeal on or before October 3, 2006. Having done so, her Petition may not even be
treated as an appeal for the same was belatedly filed.
The CA added that the Petition does not provide a sufficient factual background of the case as it
merely alleges a chronology of the legal remedies she took before the trial court which does not
comply with the requirement under Section 3 of Rule 46. 17
Petitioner moved for reconsideration18 by submitting a rewritten Petition. However, in a Resolution
dated May 7, 2007, the CA denied the same, hence the present Petition.
Issues
Petitioner submits the following assignment of errors:
I
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN DISMISSING THE
PETITION FOR CERTIORARI THEREBY PREVENTING THE COURT FROM FINDING OUT THAT ACTUALLY NO
EXTRAJUDICIAL FORECLOSURE WAS CONDUCTED BY THE OFFICE OF THE PROVINCIAL SHERIFF ON
PETITIONERS PROPERTY AT THE INSTANCE OF THE PRIVATE RESPONDENT.
II
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS REVERSIBLY ERRED IN NOT DISREGARDING
TECHNICALITIES IN ORDER TO ADMINISTER SUBSTANTIAL JUSTICE TO THE PETITIONER. 19
Petitioners Arguments
Petitioner claims that no extrajudicial foreclosure proceedings ever took place, citing a February 2,
2005 Certification issued by the Office of the Clerk of Court of Butuan City stating that the record
pertaining to the foreclosure proceedings covering her property "could not be found in spite of diligent
efforts to find the same."20And because no foreclosure proceedings took place, there could not have
been notice and publication of the sale, and no sheriffs certificate of sale. For this reason, she claims
that the CA erred in dismissing her case.
Petitioner adds that, technicalities aside, a Petition for Certiorari is available to her in order to prevent
the denial of her substantial rights. She also argues that her payment to respondent of the amount
of P6,000.00 in 1995 should be considered as a valid redemption of her property.
Respondents Arguments

For its part, respondent merely validates the pronouncements of the CA by citing and echoing the
same, and holding petitioner to a strict observance of the rules for perfecting an appeal within the
reglementary period, as it claims they are necessary for the orderly administration of justice, 21 as well
as that which requires that only questions of law may be raised in a Petition for Review on Certiorari.
Our Ruling
The Court denies the Petition.
The Court finds no error in the CAs treatment of the Petition for Certiorari. The trial courts July 13,
2006 Resolution dismissing the case was indeed to be treated as a final order, disposing of the issue of
publication and notice of the foreclosure sale which is the very core of petitioners cause of action in
Civil Case No. 5535 and declaring the same to be unnecessary pursuant to the Rural Banks Act, as
petitioners outstanding obligation did not exceed P10,000.00, and thus leaving petitioner without
basis to maintain her case. This constitutes a dismissal with the character of finality. As such, petitioner
should have availed of the remedy under Rule 41, and not Rule 65.
The Court is not prepared to be lenient in petitioners case, either. Civil Case No. 5535 was instituted
only in 2005, while the questioned foreclosure proceedings took place way back in 1987. Petitioners
long inaction and commission of a procedural faux pas certainly cannot earn the sympathy of the
Court.
Nor can the Court grant the Petition on the mere allegation that no foreclosure proceedings ever took
place. The February 2, 2005 Certification issued by the Office of the Clerk of Court of Butuan City to the
effect that the record of the foreclosure proceedings could not be found is not sufficient ground to
invalidate the proceedings taken. Petitioner herself attached the Sheriffs Certificate of Sale 22 as Annex
"A" of her Petition in Civil Case No. 5535; this should belie the claim that no record exists covering the
foreclosure proceedings. Besides, if petitioner insists that no foreclosure proceedings took place, then
she should not have filed an action to annul the same since there was no foreclosure to begin with. She
should have filed a different action.
However, petitioner is entitled to a return of the P6,000.00 she paid to respondent in 1995. While this
may not be validly considered as a redemption of her property as the payment was made long after
the redemption period expired, respondent had no right to receive the amount. In its Answer with
Counterclaims in Civil Case No. 5535, respondent simply alleged therein that
10. Defendant DENIES the allegations under paragraph 10 of the petition for being utterly false, highly
self-serving and patently speculative, the truth being -- Assumption cannot be had that there was an alleged foreclosure of the then property of the
petitioner for the truth of the matter is that a foreclosure proceeding was duly conducted, which fact
remains undisputable for so many years now.
Without necessarily admitting that payment of P6,000.00 was made, the same however could hardly
and could never be considered as redemption price for the following reasons --The redemption period had long lapsed when the payment of P6,000.00 was allegedly made. Thus,
there is no point talking about redemption price when the redemption period had long been gone at
the time the alleged payment was made.
Even x x x granting, without conceding, that the amount of P6,000.00 was a redemption price, said
amount, however, could not constitute as a legal redemption price since the same was not enough to
cover the entire redemption price as mandated by the rules and laws. 23 (Emphases supplied)
Interestingly, respondent did not deny being the issuer of Official Receipt No. 410848. Instead, it
averred that petitioners payment to it of P6,000.00 was false and self-serving, but in the same breath
argued that, without necessarily admitting that payment of P6,000.00 was made, the same cannot be
considered as redemption price.
By making such an ambiguous allegation in its Answer with Counterclaims, respondent is deemed to
have admitted receiving the amount of P6,000.00 from petitioner as evidenced by Official Receipt No.
410848, which amount under the circumstances it had no right to receive. "If an allegation is not
specifically denied or the denial is a negative pregnant, the allegation is deemed admitted." 24 "Where a

fact is alleged with some qualifying or modifying language, and the denial is conjunctive, a negative
pregnant exists, and only the qualification or modification is denied, while the fact itself is
admitted."25 "A denial in the form of a negative pregnant is an ambiguous pleading, since it cannot be
ascertained whether it is the fact or only the qualification that is intended to be denied." 26 "Profession
of ignorance about a fact which is patently and necessarily within the pleader's knowledge, or means
of knowing as ineffectual, is no denial at all." 27 In fine, respondent failed to refute petitioners claim of
having paid the amount of P6,000.00.
Since respondent was not entitled to receive the said amount, as it is deemed fully paid from the
foreclosure of petitioners property since its bid price at the auction sale covered all that petitioner
owed it by way of principal, interest, attorneys fees and charges, 28 it must return the same to
petitioner. "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." 29Moreover, pursuant to Circular No. 799, series of
2013 of the Bangko Sentral ng Pilipinas which took effect July 1, 2013, the amount of P6,000.00 shall
earn interest at the rate of 6% per annum computed from the filing of the Petition in Civil Case No.
5535 up to its full satisfaction.
WHEREFORE, premises considered, the Petition is DENIED. The December 14, 2006 and May 7, 2007
Resolutions of the Court of Appeals in CA-G.R. SP No. 01341-MIN are AFFIRMED.
However, respondent Rural Bank of Buenavista (Agusan del Norte), Inc. is ORDERED to return to
petitioner Virginia M. Venzon or her assigns the amount of P6,000.00, with interest at the rate of 6%
per annum computed from the filing of the Petition in Civil Case No. 5535 up to its full satisfaction.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. 102007 September 2, 1994

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
ROGELIO BAYOTAS y CORDOVA, accused-appellant.
The Solicitor General for plaintiff-appellee.
Public Attorney's Office for accused-appellant.
ROMERO, J.:
In Criminal Case No. C-3217 filed before Branch 16, RTC Roxas City, Rogelio Bayotas y Cordova was
charged with Rape and eventually convicted thereof on June 19, 1991 in a decision penned by Judge
Manuel E. Autajay. Pending appeal of his conviction, Bayotas died on February 4, 1992 at
the National Bilibid Hospital due to cardio respiratory arrest secondary to hepatic encephalopathy
secondary to hipato carcinoma gastric malingering. Consequently, the Supreme Court in its Resolution
of May 20, 1992 dismissed the criminal aspect of the appeal. However, it required the Solicitor General
to file its comment with regard to Bayotas' civil liability arising from his commission of the offense
charged.
In his comment, the Solicitor General expressed his view that the death of accused-appellant did not
extinguish his civil liability as a result of his commission of the offense charged. The Solicitor General,
relying on the case of People v. Sendaydiego 1 insists that the appeal should still be resolved for the
purpose of reviewing his conviction by the lower court on which the civil liability is based.
Counsel for the accused-appellant, on the other hand, opposed the view of the Solicitor General
arguing that the death of the accused while judgment of conviction is pending appeal extinguishes
both his criminal and civil penalties. In support of his position, said counsel invoked the ruling of the
Court of Appeals in People v. Castillo and Ocfemia 2 which held that the civil obligation in a criminal
case takes root in the criminal liability and, therefore, civil liability is extinguished if accused should die
before final judgment is rendered.
We are thus confronted with a single issue: Does death of the accused pending appeal of his conviction
extinguish his civil liability?
In the aforementioned case of People v. Castillo, this issue was settled in the affirmative. This same
issue posed therein was phrased thus: Does the death of Alfredo Castillo affect both his criminal
responsibility and his civil liability as a consequence of the alleged crime?
It resolved this issue thru the following disquisition:
Article 89 of the Revised Penal Code is the controlling statute. It reads, in part:
Art. 89. How criminal liability is totally extinguished. Criminal liability
is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to
the pecuniary penalties liability therefor is extinguished only when the
death of the offender occurs before final judgment;
With reference to Castillo's criminal liability, there is no question. The law is plain.
Statutory construction is unnecessary. Said liability is extinguished.

The civil liability, however, poses a problem. Such liability is extinguished only when
the death of the offender occurs before final judgment. Saddled upon us is the task of
ascertaining the legal import of the term "final judgment." Is it final judgment as
contradistinguished from an interlocutory order? Or, is it a judgment which is final and
executory?
We go to the genesis of the law. The legal precept contained in Article 89 of the
Revised Penal Code heretofore transcribed is lifted from Article 132 of the Spanish El
Codigo Penal de 1870 which, in part, recites:
La responsabilidad penal se extingue.
1. Por la muerte del reo en cuanto a las penas personales siempre, y
respecto a las pecuniarias, solo cuando a su fallecimiento no hubiere
recaido sentencia firme.
xxx xxx xxx
The code of 1870 . . . it will be observed employs the term "sentencia firme." What is
"sentencia firme" under the old statute?
XXVIII Enciclopedia Juridica Espaola, p. 473, furnishes the ready answer: It says:
SENTENCIA FIRME. La sentencia que adquiere la fuerza de las
definitivas por no haberse utilizado por las partes litigantes recurso
alguno contra ella dentro de los terminos y plazos legales concedidos
al efecto.
"Sentencia firme" really should be understood as one which is definite. Because, it is
only when judgment is such that, as Medina y Maranon puts it, the crime is confirmed
"en condena determinada;" or, in the words of Groizard, the guilt of the accused
becomes "una verdad legal." Prior thereto, should the accused die, according to
Viada, "no hay legalmente, en tal caso, ni reo, ni delito, ni responsabilidad criminal de
ninguna clase." And, as Judge Kapunan well explained, when a defendant dies before
judgment becomes executory, "there cannot be any determination by final judgment
whether or not the felony upon which the civil action might arise exists," for the simple
reason that "there is no party defendant." (I Kapunan, Revised Penal Code, Annotated,
p. 421. Senator Francisco holds the same view. Francisco, Revised Penal Code, Book
One, 2nd ed., pp. 859-860)
The legal import of the term "final judgment" is similarly reflected in the Revised Penal
Code. Articles 72 and 78 of that legal body mention the term "final judgment" in the
sense that it is already enforceable. This also brings to mind Section 7, Rule 116 of the
Rules of Court which states that a judgment in a criminal case becomes final "after the
lapse of the period for perfecting an appeal or when the sentence has been partially or
totally satisfied or served, or the defendant has expressly waived in writing his right to
appeal."
By fair intendment, the legal precepts and opinions here collected funnel down to one
positive conclusion: The term final judgment employed in the Revised Penal Code
means judgment beyond recall. Really, as long as a judgment has not become
executory, it cannot be truthfully said that defendant is definitely guilty of the felony
charged against him.
Not that the meaning thus given to final judgment is without reason. For where, as in
this case, the right to institute a separate civil action is not reserved, the decision to be
rendered must, of necessity, cover "both the criminal and the civil aspects of the
case." People vs. Yusico (November 9, 1942), 2 O.G., No. 100, p. 964. See also: People
vs. Moll, 68 Phil., 626, 634; Francisco, Criminal Procedure, 1958 ed., Vol. I, pp. 234,
236. Correctly, Judge Kapunan observed that as "the civil action is based solely on the
felony committed and of which the offender might be found guilty, the death of the
offender extinguishes the civil liability." I Kapunan, Revised Penal Code,
Annotated, supra.

Here is the situation obtaining in the present case: Castillo's criminal liability is out. His
civil liability is sought to be enforced by reason of that criminal liability. But then, if we
dismiss, as we must, the criminal action and let the civil aspect remain, we will be
faced with the anomalous situation whereby we will be called upon to clamp civil
liability in a case where the source thereof criminal liability does not exist. And, as
was well stated in Bautista, et al. vs. Estrella, et al., CA-G.R.
No. 19226-R, September 1, 1958, "no party can be found and held criminally liable in a
civil suit," which solely would remain if we are to divorce it from the criminal
proceeding."
This ruling of the Court of Appeals in the Castillo case 3 was adopted by the Supreme Court in the
cases of People of the Philippines v. Bonifacio Alison, et al., 4 People of the Philippines v. Jaime Jose, et
al. 5 and People of the Philippines v. Satorre 6 by dismissing the appeal in view of the death of the
accused pending appeal of said cases.
As held by then Supreme Court Justice Fernando in the Alison case:
The death of accused-appellant Bonifacio Alison having been established, and
considering that there is as yet no final judgment in view of the pendency of the
appeal, the criminal and civil liability of the said accused-appellant Alison was
extinguished by his death (Art. 89, Revised Penal Code; Reyes' Criminal Law, 1971 Rev.
Ed., p. 717, citing People v. Castillo and Ofemia C.A., 56 O.G. 4045); consequently, the
case against him should be dismissed.
On the other hand, this Court in the subsequent cases of Buenaventura Belamala v. Marcelino
Polinar 7 and Lamberto Torrijos v. The Honorable Court of Appeals 8 ruled differently. In the former, the
issue decided by this court was: Whether the civil liability of one accused of physical injuries who died
before final judgment is extinguished by his demise to the extent of barring any claim therefore
against his estate. It was the contention of the administrator-appellant therein that the death of the
accused prior to final judgment extinguished all criminal and civil liabilities resulting from the offense,
in view of Article 89, paragraph 1 of the Revised Penal Code. However, this court ruled therein:
We see no merit in the plea that the civil liability has been extinguished, in view of the
provisions of the Civil Code of the Philippines of 1950 (Rep. Act No. 386) that became
operative eighteen years after the revised Penal Code. As pointed out by the Court
below, Article 33 of the Civil Code establishes a civil action for damages on account of
physical injuries, entirely separate and distinct from the criminal action.
Art. 33. In cases of defamation, fraud, and physical injuries, a civil
action for damages, entirely separate and distinct from the criminal
action, may be brought by the injured party. Such civil action shall
proceed independently of the criminal prosecution, and shall require
only a preponderance of evidence.
Assuming that for lack of express reservation, Belamala's civil action for damages was
to be considered instituted together with the criminal action still, since both
proceedings were terminated without final adjudication, the civil action of the offended
party under Article 33 may yet be enforced separately.
In Torrijos, the Supreme Court held that:
xxx xxx xxx
It should be stressed that the extinction of civil liability follows the extinction of the
criminal liability under Article 89, only when the civil liability arises from the criminal
act as its only basis. Stated differently, where the civil liability does not exist
independently of the criminal responsibility, the extinction of the latter by death, ipso
facto extinguishes the former, provided, of course, that death supervenes before final
judgment. The said principle does not apply in instant case wherein the civil liability
springs neither solely nor originally from the crime itself but from a civil contract of
purchase and sale. (Emphasis ours)
xxx xxx xxx

In the above case, the court was convinced that the civil liability of the accused who was
charged with estafa could likewise trace its genesis to Articles 19, 20 and 21 of the Civil Code
since said accused had swindled the first and second vendees of the property subject matter of
the contract of sale. It therefore concluded: "Consequently, while the death of the accused
herein extinguished his criminal liability including fine, his civil liability based on the laws of
human relations remains."
Thus it allowed the appeal to proceed with respect to the civil liability of the accused, notwithstanding
the extinction of his criminal liability due to his death pending appeal of his conviction.
To further justify its decision to allow the civil liability to survive, the court relied on the following
ratiocination: Since Section 21, Rule 3 of the Rules of Court 9 requires the dismissal of all money claims
against the defendant whose death occurred prior to the final judgment of the Court of First Instance
(CFI), then it can be inferred that actions for recovery of money may continue to be heard on appeal,
when the death of the defendant supervenes after the CFI had rendered its judgment. In such case,
explained this tribunal, "the name of the offended party shall be included in the title of the case as
plaintiff-appellee and the legal representative or the heirs of the deceased-accused should be
substituted as defendants-appellants."
It is, thus, evident that as jurisprudence evolved from Castillo to Torrijos, the rule established was that
the survival of the civil liability depends on whether the same can be predicated on sources of
obligations other than delict. Stated differently, the claim for civil liability is also extinguished together
with the criminal action if it were solely based thereon, i.e., civil liability ex delicto.
However, the Supreme Court in People v. Sendaydiego, et al. 10 departed from this long-established
principle of law. In this case, accused Sendaydiego was charged with and convicted by the lower court
of malversation thru falsification of public documents. Sendaydiego's death supervened during the
pendency of the appeal of his conviction.
This court in an unprecedented move resolved to dismiss Sendaydiego's appeal but only to the extent
of his criminal liability. His civil liability was allowed to survive although it was clear that such claim
thereon was exclusively dependent on the criminal action already extinguished. The legal import of
such decision was for the court to continue exercising appellate jurisdiction over the entire appeal,
passing upon the correctness of Sendaydiego's conviction despite dismissal of the criminal action, for
the purpose of determining if he is civilly liable. In doing so, this Court issued a Resolution of July 8,
1977 stating thus:
The claim of complainant Province of Pangasinan for the civil liability survived
Sendaydiego because his death occurred after final judgment was rendered by the
Court of First Instance of Pangasinan, which convicted him of three complex crimes of
malversation through falsification and ordered him to indemnify the Province in the
total sum of P61,048.23 (should be P57,048.23).
The civil action for the civil liability is deemed impliedly instituted with the criminal
action in the absence of express waiver or its reservation in a separate action (Sec. 1,
Rule 111 of the Rules of Court). The civil action for the civil liability is separate and
distinct from the criminal action (People and Manuel vs. Coloma, 105 Phil. 1287; Roa
vs. De la Cruz, 107 Phil. 8).
When the action is for the recovery of money and the defendant dies before final
judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the
manner especially provided in Rule 87 of the Rules of Court (Sec. 21, Rule 3 of the
Rules of Court).
The implication is that, if the defendant dies after a money judgment had been
rendered against him by the Court of First Instance, the action survives him. It may be
continued on appeal (Torrijos vs. Court of Appeals, L-40336, October 24, 1975; 67 SCRA
394).
The accountable public officer may still be civilly liable for the funds improperly
disbursed although he has no criminal liability (U.S. vs. Elvina, 24 Phil. 230; Philippine
National Bank vs. Tugab, 66 Phil. 583).

In view of the foregoing, notwithstanding the dismissal of the appeal of the deceased
Sendaydiego insofar as his criminal liability is concerned, the Court Resolved to
continue exercising appellate jurisdiction over his possible civil liability for the money
claims of the Province of Pangasinan arising from the alleged criminal acts complained
of, as if no criminal case had been instituted against him, thus making applicable, in
determining his civil liability, Article 30 of the Civil Code . . . and, for that purpose, his
counsel is directed to inform this Court within ten (10) days of the names and
addresses of the decedent's heirs or whether or not his estate is under administration
and has a duly appointed judicial administrator. Said heirs or administrator will be
substituted for the deceased insofar as the civil action for the civil liability is concerned
(Secs. 16 and 17, Rule 3, Rules of Court).
Succeeding cases 11 raising the identical issue have maintained adherence to our ruling
in Sendaydiego; in other words, they were a reaffirmance of our abandonment of the settled rule that a
civil liability solely anchored on the criminal (civil liability ex delicto) is extinguished upon dismissal of
the entire appeal due to the demise of the accused.
But was it judicious to have abandoned this old ruling? A re-examination of our decision
in Sendaydiego impels us to revert to the old ruling.
To restate our resolution of July 8, 1977 in Sendaydiego: The resolution of the civil action impliedly
instituted in the criminal action can proceed irrespective of the latter's extinction due to death of the
accused pending appeal of his conviction, pursuant to Article 30 of the Civil Code and Section 21, Rule
3 of the Revised Rules of Court.
Article 30 of the Civil Code provides:
When a separate civil action is brought to demand civil liability arising from a criminal
offense, and no criminal proceedings are instituted during the pendency of the civil
case, a preponderance of evidence shall likewise be sufficient to prove the act
complained of.
Clearly, the text of Article 30 could not possibly lend support to the ruling in Sendaydiego. Nowhere in
its text is there a grant of authority to continue exercising appellate jurisdiction over the accused's civil
liability ex delictowhen his death supervenes during appeal. What Article 30 recognizes is an
alternative and separate civil action which may be brought to demand civil liability arising from a
criminal offense independently of any criminal action. In the event that no criminal proceedings are
instituted during the pendency of said civil case, the quantum of evidence needed to prove the
criminal act will have to be that which is compatible with civil liability and that is, preponderance of
evidence and not proof of guilt beyond reasonable doubt. Citing or invoking Article 30 to justify the
survival of the civil action despite extinction of the criminal would in effect merely beg the question of
whether civil liability ex delicto survives upon extinction of the criminal action due to death of the
accused during appeal of his conviction. This is because whether asserted in
the criminal action or in a separate civil action, civil liability ex delicto is extinguished by the death of
the accused while his conviction is on appeal. Article 89 of the Revised Penal Code is clear on this
matter:
Art. 89. How criminal liability is totally extinguished. Criminal liability is totally
extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary
penalties, liability therefor is extinguished only when the death of the offender occurs
before final judgment;
xxx xxx xxx
However, the ruling in Sendaydiego deviated from the expressed intent of Article 89. It allowed claims
for civil liability ex delicto to survive by ipso facto treating the civil action impliedly instituted with the
criminal, as one filed under Article 30, as though no criminal proceedings had been filed but merely a
separate civil action. This had the effect of converting such claims from one which is dependent on the
outcome of the criminal action to an entirely new and separate one, the prosecution of which does not
even necessitate the filing of criminal proceedings. 12One would be hard put to pinpoint the statutory
authority for such a transformation. It is to be borne in mind that in recovering civil liability ex delicto,
the same has perforce to be determined in the criminal action, rooted as it is in the court's

pronouncement of the guilt or innocence of the accused. This is but to render fealty to the intendment
of Article 100 of the Revised Penal Code which provides that "every person criminally liable for a felony
is also civilly liable." In such cases, extinction of the criminal action due to death of the accused
pending appeal inevitably signifies the concomitant extinction of the civil liability. Mors Omnia Solvi.
Death dissolves all things.
In sum, in pursuing recovery of civil liability arising from crime, the final determination of the criminal
liability is a condition precedent to the prosecution of the civil action, such that when the criminal
action is extinguished by the demise of accused-appellant pending appeal thereof, said civil action
cannot survive. The claim for civil liability springs out of and is dependent upon facts which, if true,
would constitute a crime. Such civil liability is an inevitable consequence of the criminal liability and is
to be declared and enforced in the criminal proceeding. This is to be distinguished from that which is
contemplated under Article 30 of the Civil Code which refers to the institution of a separate civil action
that does not draw its life from a criminal proceeding. The Sendaydiego resolution of July 8, 1977,
however, failed to take note of this fundamental distinction when it allowed the survival of the civil
action for the recovery of civil liability ex delicto by treating the same as a separate civil action
referred to under Article 30. Surely, it will take more than just a summary judicial pronouncement to
authorize the conversion of said civil action to an independent one such as that contemplated under
Article 30.
Ironically however, the main decision in Sendaydiego did not apply Article 30, the resolution of July 8,
1977 notwithstanding. Thus, it was held in the main decision:
Sendaydiego's appeal will be resolved only for the purpose of showing his criminal
liability which is the basis of the civil liability for which his estate would be liable. 13
In other words, the Court, in resolving the issue of his civil liability, concomitantly made a
determination on whether Sendaydiego, on the basis of evidenced adduced, was indeed guilty beyond
reasonable doubt of committing the offense charged. Thus, it upheld Sendaydiego's conviction and
pronounced the same as the source of his civil liability. Consequently, although Article 30 was not
applied in the final determination of Sendaydiego's civil liability, there was a reopening of the criminal
action already extinguished which served as basis for Sendaydiego's civil liability. We reiterate: Upon
death of the accused pending appeal of his conviction, the criminal action is extinguished inasmuch as
there is no longer a defendant to stand as the accused; the civil action instituted therein for recovery
of civil liability ex delicto is ipso facto extinguished, grounded as it is on the criminal.
Section 21, Rule 3 of the Rules of Court was also invoked to serve as another basis for
the Sendaydiegoresolution of July 8, 1977. In citing Sec. 21, Rule 3 of the Rules of Court, the Court
made the inference that civil actions of the type involved in Sendaydiego consist of money claims, the
recovery of which may be continued on appeal if defendant dies pending appeal of his conviction by
holding his estate liable therefor. Hence, the Court's conclusion:
"When the action is for the recovery of money" "and the defendant dies before final
judgment in the court of First Instance, it shall be dismissed to be prosecuted in the
manner especially provided" in Rule 87 of the Rules of Court (Sec. 21, Rule 3 of the
Rules of Court).
The implication is that, if the defendant dies after a money judgment had been
rendered against him by the Court of First Instance, the action survives him. It may be
continued on appeal.
Sadly, reliance on this provision of law is misplaced. From the standpoint of procedural law, this course
taken in Sendaydiego cannot be sanctioned. As correctly observed by Justice Regalado:
xxx xxx xxx
I do not, however, agree with the justification advanced in
both Torrijos and Sendaydiego which, relying on the provisions of Section 21, Rule 3 of
the Rules of Court, drew the strained implication therefrom that where the civil liability
instituted together with the criminal liabilities had already passed beyond the
judgment of the then Court of First Instance (now the Regional Trial Court), the Court of
Appeals can continue to exercise appellate jurisdiction thereover despite the
extinguishment of the component criminal liability of the deceased. This
pronouncement, which has been followed in the Court's judgments subsequent and

consonant to Torrijos and Sendaydiego, should be set aside and abandoned as being
clearly erroneous and unjustifiable.
Said Section 21 of Rule 3 is a rule of civil procedure in ordinary civil actions. There is
neither authority nor justification for its application in criminal procedure to civil
actions instituted together with and as part of criminal actions. Nor is there any
authority in law for the summary conversion from the latter category of an ordinary
civil action upon the death of the offender. . . .
Moreover, the civil action impliedly instituted in a criminal proceeding for recovery of civil liability ex
delicto can hardly be categorized as an ordinary money claim such as that referred to in Sec. 21, Rule
3 enforceable before the estate of the deceased accused.
Ordinary money claims referred to in Section 21, Rule 3 must be viewed in light of the provisions of
Section 5, Rule 86 involving claims against the estate, which in Sendaydiego was held liable for
Sendaydiego's civil liability. "What are contemplated in Section 21 of Rule 3, in relation to Section 5 of
Rule 86, 14 are contractual money claims while the claims involved in civil liability ex delicto may
include even the restitution of personal or real property." 15 Section 5, Rule 86 provides an exclusive
enumeration of what claims may be filed against the estate. These are: funeral expenses, expenses for
the last illness, judgments for money and claim arising from contracts, expressed or implied. It is clear
that money claims arising from delict do not form part of this exclusive enumeration. Hence, there
could be no legal basis in (1) treating a civil action ex delicto as an ordinary contractual money claim
referred to in Section 21, Rule 3 of the Rules of Court and (2) allowing it to survive by filing a claim
therefor before the estate of the deceased accused. Rather, it should be extinguished upon extinction
of the criminal action engendered by the death of the accused pending finality of his conviction.
Accordingly, we rule: if the private offended party, upon extinction of the civil liability ex delicto desires
to recover damages from the same act or omission complained of, he must subject to Section 1, Rule
111 16 (1985 Rules on Criminal Procedure as amended) file a separate civil action, this time predicated
not on the felony previously charged but on other sources of obligation. The source of obligation upon
which the separate civil action is premised determines against whom the same shall be enforced.
If the same act or omission complained of also arises from quasi-delict or may, by provision of law,
result in an injury to person or property (real or personal), the separate civil action must be filed
against the executor or administrator 17 of the estate of the accused pursuant to Sec. 1, Rule 87 of the
Rules of Court:
Sec. 1. Actions which may and which may not be brought against executor or
administrator. No action upon a claim for the recovery of money or debt or interest
thereon shall be commenced against the executor or administrator; but actions to
recover real or personal property, or an interest therein, from the estate, or to enforce
a lien thereon, and actions to recover damages for an injury to person or property, real
or personal, may be commenced against him.
This is in consonance with our ruling in Belamala 18 where we held that, in recovering damages for
injury to persons thru an independent civil action based on Article 33 of the Civil Code, the same must
be filed against the executor or administrator of the estate of deceased accused and not against the
estate under Sec. 5, Rule 86 because this rule explicitly limits the claim to those for funeral expenses,
expenses for the last sickness of the decedent, judgment for money and claims arising from contract,
express or implied. Contractual money claims, we stressed, refers only to purely personal
obligations other than those which have their source in delict or tort.
Conversely, if the same act or omission complained of also arises from contract, the separate civil
action must be filed against the estate of the accused, pursuant to Sec. 5, Rule 86 of the Rules of
Court.
From this lengthy disquisition, we summarize our ruling herein:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability as well as
the civil liability based solely thereon. As opined by Justice Regalado, in this regard, "the death of the
accused prior to final judgment terminates his criminal liability and only the civil
liability directly arising from and based solely on the offense committed, i.e., civil liability ex
delicto in senso strictiore."

2. Corollarily, the claim for civil liability survives notwithstanding the death of accused, if the same
may also be predicated on a source of obligation other than delict. 19 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 20
b) Contracts
c) Quasi-contracts
d) . . .
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. This separate civil action may be enforced either
against the executor/administrator or 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, conformably with provisions of Article 1155 21 of the Civil Code, that should thereby avoid any
apprehension on a possible privation of right by prescription. 22
Applying this set of rules to the case at bench, we hold that the death of appellant Bayotas
extinguished his criminal liability and the civil liability based solely on the act complained of, i.e., rape.
Consequently, the appeal is hereby dismissed without qualification.
WHEREFORE, the appeal of the late Rogelio Bayotas is DISMISSED with costs de oficio.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
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.:
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 Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008
Decision4 and the May 30, 2008 Resolution5 of he 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 Account10 with petitioners 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 retirees visa from the Philippine Leisure and Retirement Authority (PLRA), to petitioners 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
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint Dollar
Account15 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.19Petitioner 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 Fangs
dollar account with petitioners Escolta Branch.20Petitioner 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 petitioners 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
Fangs 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, 2003.28Neither 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.32While 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.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
Complaint44 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 attorneys
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 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 attorneys 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 PETITIONERS EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANGS FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEYS FEES.63
Petitioners 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 petitioners employees to release Liu Chiu Fangs funds
to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorneys 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 petitioners 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 attorneys 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 petitioners
employees were negligent in allowing the withdrawal of Liu Chiu Fangs 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 Depositors
obligations heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
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
Petitioners 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, quasicontracts, 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 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 attorneys fees.1wphi1
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 222985 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 his 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.
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.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 182356

December 4, 2013

DRA, LEILA A DELA LLANO, Petitioner,

vs.
REBECCA BIONG, doing business under the name and style of Pongkay Trading, Respondent.
DECISION
BRION, J.:
Very case essentially turns on two basic questions: questions of fact and questions of law. Questions of
fact are the parties and their counsel to respond to, based on what supporting facts the legal questions
require; the court can only draw conclusion from the facts or evidence adduced. When the facts are
lacking because of the deficiency of presented evidence, then the court can only draw one conclusion:
that the cause must fail for lack of evidentiary support.
The present case is one such case as Dra. Leila A dela Llanas(petitioner) petition for review on
certorari1challenging the February 11, 2008 Decision2 and the March 31, 2008 resolution3 of the Court
of Appeals (CA) in CA-G.R. CV No. 89163.
The Factual Antecedents
On March 30, 2000, at around 11:00 p.m., Juan dela Llana was driving a 1997 Toyota Corolla car along
North Avenue, Quezon City.4
His sister, Dra. dela Llana, was seated at the front passenger seat while a certain Calimlim was at the
backseat.5
Juan stopped the car across the Veterans Memorial Hospital when the signal light turned red. A few
seconds after the car halted, a dump truck containing gravel and sand suddenly rammed the cars rear
end, violently pushing the car forward. Due to the impact, the cars rear end collapsed and its rear
windshield was shattered. Glass splinters flew, puncturing Dra. dela Llana. Apart from these minor
wounds, Dra. dela Llana did not appear to have suffered from any other visible physical injuries. 6
The traffic investigation report dated March 30, 2000 identified the truck driver as Joel Primero. It
stated that Joel was recklessly imprudent in driving the truck. 7
Joel later revealed that his employer was respondent Rebecca Biong, doing business under the name
and style of "Pongkay Trading" and was engaged in a gravel and sand business. 8
In the first week of May 2000, Dra. dela Llana began to feel mild to moderate pain on the left side of
her neck and shoulder. The pain became more intense as days passed by. Her injury became more
severe. Her health deteriorated to the extent that she could no longer move her left arm. On June 9,
2000, she consulted with Dr. Rosalinda Milla, a rehabilitation medicine specialist, to examine her
condition. Dr. Milla told her that she suffered from a whiplash injury, an injury caused by the
compression of the nerve running to her left arm and hand. Dr. Milla required her to undergo physical
therapy to alleviate her condition. Dra. dela Llanas condition did not improve despite three months of
extensive physical therapy.9
She then consulted other doctors, namely, Drs. Willie Lopez, Leonor Cabral-Lim and Eric Flores, in
search for a cure. Dr. Flores, a neuro-surgeon, finally suggested that she undergo a cervical spine
surgery to release the compression of her nerve. On October 19, 2000, Dr. Flores operated on her
spine and neck, between the C5 and the C6 vertebrae. 10
The operation released the impingement of the nerve, but incapacitated Dra. dela Llana from the
practice of her profession since June 2000 despite the surgery. 11

Dra. dela Llana, on October 16, 2000, demanded from Rebecca compensation for her injuries, but
Rebecca refused to pay.12
Thus, on May 8, 2001, Dra. dela Llana sued Rebecca for damages before the Regional Trial Court of
Quezon City (RTC). She alleged that she lost the mobility of her arm as a result of the vehicular
accident and claimed P150,000.00 for her medical expenses (as of the filing of the complaint) and an
average monthly income of P30,000.00 since June 2000. She further prayed for actual, moral, and
exemplary damages as well as attorneys fees.13
In defense, Rebecca maintained that Dra. dela Llana had no cause of action against her as no
reasonable relation existed between the vehicular accident and Dra. dela Llanas injury. She pointed
out that Dra. dela Llanas illness became manifest one month and one week from the date of the
vehicular accident. As a counterclaim, she demanded the payment of attorneys fees and costs of the
suit.14
At the trial, Dra. dela Llana presented herself as an ordinary witness 15 and Joel as a hostile witness.16
Dra. dela Llana reiterated that she lost the mobility of her arm because of the vehicular accident. To
prove her claim, she identified and authenticated a medical certificate dated November 20, 2000
issued by Dr. Milla. The medical certificate stated that Dra. dela Llana suffered from a whiplash injury. It
also chronicled her clinical history and physical examinations. 17
Meanwhile, Joel testified that his truck hit the car because the trucks brakes got stuck. 18
In defense, Rebecca testified that Dra. dela Llana was physically fit and strong when they met several
days after the vehicular accident. She also asserted that she observed the diligence of a good father of
a family in the selection and supervision of Joel. She pointed out that she required Joel to submit a
certification of good moral character as well as barangay, police, and NBI clearances prior to his
employment. She also stressed that she only hired Primero after he successfully passed the driving
skills test conducted by Alberto Marcelo, a licensed driver-mechanic. 19
Alberto also took the witness stand. He testified that he checked the truck in the morning of March 30,
2000. He affirmed that the truck was in good condition prior to the vehicular accident. He opined that
the cause of the vehicular accident was a damaged compressor. According to him, the absence of air
inside the tank damaged the compressor.20
RTC Ruling
The RTC ruled in favor of Dra. dela Llana and held that the proximate cause of Dra. dela Llanas
whiplash injury to be Joels reckless driving.21
It found that a whiplash injury is an injury caused by the sudden jerking of the spine in the neck area. It
pointed out that the massive damage the car suffered only meant that the truck was over-speeding. It
maintained that Joel should have driven at a slower pace because road visibility diminishes at night. He
should have blown his horn and warned the car that his brake was stuck and could have prevented the
collision by swerving the truck off the road. It also concluded that Joel was probably sleeping when the
collision occurred as Joel had been driving for fifteen hours on that fateful day. The RTC further
declared that Joels negligence gave rise to the presumption that Rebecca did not exercise the
diligence of a good father of a family in Joel's selection and supervision of Joel. Rebecca was vicariously
liable because she was the employer and she personally chose him to drive the truck. On the day of
the collision, she ordered him to deliver gravel and sand to Muoz Market, Quezon City. The Court
concluded that the three elements necessary to establish Rebeccas liability were present: (1) that the
employee was chosen by the employer, personally or through another; (2) that the services were to be
rendered in accordance with orders which the employer had the authority to give at all times; and (3)
that the illicit act of the employee was on the occasion or by reason of the functions entrusted to him.
The RTC thus awarded Dra. dela Llana the amounts of P570,000.00 as actual damages, P250,000.00 as
moral damages, and the cost of the suit.22
CA Ruling
In a decision dated February 11, 2008, the CA reversed the RTC ruling. It held that Dra. dela Llana
failed to establish a reasonable connection between the vehicular accident and her whiplash injury by
preponderance of evidence. Citing Nutrimix Feeds Corp. v. Court of Appeals, 23 it declared that courts

will not hesitate to rule in favor of the other party if there is no evidence or the evidence is too slight to
warrant an inference establishing the fact in issue. It noted that the interval between the date of the
collision and the date when Dra. dela Llana began to suffer the symptoms of her illness was lengthy. It
concluded that this interval raised doubts on whether Joels reckless driving and the resulting collision
in fact caused Dra. dela Llanas injury. It also declared that courts cannot take judicial notice that
vehicular accidents cause whiplash injuries. It observed that Dra. dela Llana did not immediately visit a
hospital to check if she sustained internal injuries after the accident. Moreover, her failure to present
expert witnesses was fatal to her claim. It also gave no weight to the medical certificate. The medical
certificate did not explain how and why the vehicular accident caused the injury. 24
The Petition
Dra. dela Llana points out in her petition before this Court that Nutrimix is inapplicable in the present
case. She stresses that Nutrimix involved the application of Article 1561 and 1566 of the Civil Code,
provisions governing hidden defects. Furthermore, there was absolutely no evidence in Nutrimix that
showed that poisonous animal feeds were sold to the respondents in that case. As opposed to the
respondents in Nutrimix, Dra. dela Llana asserts that she has established by preponderance of
evidence that Joels negligent act was the proximate cause of her whiplash injury. First, pictures of her
damaged car show that the collision was strong. She posits that it can be reasonably inferred from
these pictures that the massive impact resulted in her whiplash injury. Second, Dr. Milla categorically
stated in the medical certificate that Dra. dela Llana suffered from whiplash injury. Third, her
testimony that the vehicular accident caused the injury is credible because she was a surgeon.
Dra. dela Llana further asserts that the medical certificate has probative value. Citing several cases,
she posits that an uncorroborated medical certificate is credible if uncontroverted. 25
She points out that expert opinion is unnecessary if the opinion merely relates to matters of common
knowledge. She maintains that a judge is qualified as an expert to determine the causation between
Joels reckless driving and her whiplash injury. Trial judges are aware of the fact that whiplash injuries
are common in vehicular collisions.
The Respondents Position
In her Comment,26 Rebecca points out that Dra. dela Llana raises a factual issue which is beyond the
scope of a petition for review on certiorari under Rule 45 of the Rules of Court. She maintains that the
CAs findings of fact are final and conclusive. Moreover, she stresses that Dra. dela Llanas arguments
are not substantial to merit this Courts consideration.
The Issue
The sole issue for our consideration in this case is whether Joels reckless driving is the proximate
cause of Dra. dela Llanas whiplash injury.
Our Ruling We find the petition unmeritorious.
The Supreme Court may review questions of fact in a petition for review on certiorari when the findings
of fact by the lower courts are conflicting
The issue before us involves a question of fact and this Court is not a trier of facts. As a general rule,
the CAs findings of fact are final and conclusive and this Court will not review them on appeal. It is not
the function of this Court to examine, review or evaluate the evidence in a petition for review
on certiorari under Rule 45 of the Rules of Court. We can only review the presented evidence, by way
of exception, when the conflict exists in findings of the RTC and the CA. 27
We see this exceptional situation here and thus accordingly examine the relevant evidence presented
before the trial court.
Dra. dela Llana failed to establish her case by preponderance of evidence
Article 2176 of the Civil Code provides that "[w]hoever 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 a quasi-delict." Under this provision,
the elements necessary to establish a quasi-delict case are:

(1) damages to the plaintiff;

(2) negligence, by act or omission, of the defendant or by some person for whose acts the defendant
must respond, was guilty; and
(3) the connection of cause and effect between such negligence and the damages. 28
These elements show that the source of obligation in a quasi-delict case is the breach or omission of
mutual duties that civilized society imposes upon its members, or which arise from non-contractual
relations of certain members of society to others. 29
Based on these requisites, Dra. dela Llana must first establish by preponderance of evidence the three
elements of quasi-delict before we determine Rebeccas liability as Joels employer.
She should show the chain of causation between Joels reckless driving and her whiplash injury.
Only after she has laid this foundation can the presumption - that Rebecca did not exercise the
diligence of a good father of a family in the selection and supervision of Joel - arise. 30
Once negligence, the damages and the proximate causation are established, this Court can then
proceed with the application and the interpretation of the fifth paragraph of Article 2180 of the Civil
Code.31
Under Article 2176 of the Civil Code, in relation with the fifth paragraph of Article 2180, "an action
predicated on an employees act or omission may be instituted against the employer who is held liable
for the negligent act or omission committed by his employee." 32
The rationale for these graduated levels of analyses is that it is essentially the wrongful or negligent
act or omission itself which creates the vinculum juris in extra-contractual obligations.33
In civil cases, a party who alleges a fact has the burden of proving it.
He who alleges has the burden of proving his allegation by preponderance of evidence or greater
weight of credible evidence.34
The reason for this rule is that bare allegations, unsubstantiated by evidence, are not equivalent to
proof.
In short, mere allegations are not evidence.35
In the present case, the burden of proving the proximate causation between Joels negligence and Dra.
dela Llanas whiplash injury rests on Dra. dela Llana. She must establish by preponderance of evidence
that Joels negligence, in its natural and continuous sequence, unbroken by any efficient intervening
cause, produced her whiplash injury, and without which her whiplash injury would not have occurred. 36
Notably, Dra. dela Llana anchors her claim mainly on three pieces of evidence:
(1) the pictures of her damaged car,
(2) the medical certificate dated November 20, 2000, and
(3) her testimonial evidence. However, none of these pieces of evidence show the causal relation
between the vehicular accident and the whiplash injury. In other words,
Dra. dela Llana, during trial, did not adduce the factum probans or the evidentiary facts by which the
factum probandum or the ultimate fact can be established, as fully discussed below. 37
A.
The pictures of the damaged
car only demonstrate the
impact of the collision

Dra. dela Llana contends that the pictures of the damaged car show that the massive impact of the
collision caused her whiplash injury. We are not persuaded by this bare claim. Her insistence that these
pictures show the causation grossly belies common logic. These pictures indeed demonstrate the
impact of the collision. However, it is a far-fetched assumption that the whiplash injury can also be
inferred from these pictures.
B.
The medical certificate cannot be
considered because it was
not admitted in evidence
Furthermore, the medical certificate, marked as Exhibit "H" during trial, should not be considered in
resolving this case for the reason that it was not admitted in evidence by the RTC in an order dated
September 23, 2004.38
Thus, the CA erred in even considering this documentary evidence in its resolution of the case. It is a
basic rule that evidence which has not been admitted cannot be validly considered by the courts in
arriving at their judgments.
However, even if we consider the medical certificate in the disposition of this case, the medical
certificate has no probative value for being hearsay. It is a basic rule that evidence, whether oral or
documentary, is hearsay if its probative value is not based on the personal knowledge of the witness
but on the knowledge of another person who is not on the witness stand. 39
Hearsay evidence, whether objected to or not, cannot be given credence 40 except in very unusual
circumstance that is not found in the present case. Furthermore, admissibility of evidence should not
be equated with weight of evidence. The admissibility of evidence depends on its relevance and
competence, while the weight of evidence pertains to evidence already admitted and its tendency to
convince and persuade. Thus, a particular item of evidence may be admissible, but its evidentiary
weight depends on judicial evaluation within the guidelines provided by the Rules of Court. 41
During trial, Dra. dela Llana testified:
"Q: Did your physician tell you, more or less, what was the reason why you were feeling that pain in
your left arm?
A: Well, I got a certificate from her and in that certificate, she stated that my condition was due to a
compression of the nerve, which supplied my left arm and my left hand.
Court: By the way, what is the name of this physician, Dra.?
Witness: Her name is Dra. Rosalinda Milla. She is a Rehabilitation Medicine Specialist. Atty. Yusingco:
You mentioned that this Dra. Rosalinda Milla made or issued a medical certificate. What relation does
this medical certificate, marked as Exhibit H have to do with that certificate, you said was made by
Dra. Milla?
Witness: This is the medical certificate that Dra. Milla made out for me.
Atty. Yusingco: Your Honor, this has been marked as Exhibit H.
Atty. Yusingco: What other medical services were done on you, Dra. dela Llana, as a result of that
feeling, that pain that you felt in your left arm?
Witness: Well, aside from the medications and physical therapy, a re-evaluation of my condition after
three months indicated that I needed surgery.
Atty. Yusingco: Did you undergo this surgery?
Witness: So, on October 19, I underwent surgery on my neck, on my spine.
Atty. Yusingco: And, what was the result of that surgical operation?

Witness: Well, the operation was to relieve the compression on my nerve, which did not resolve by the
extensive and prolonged physical therapy that I underwent for more than three months." 42(emphasis
ours)
Evidently, it was Dr. Milla who had personal knowledge of the contents of the medical certificate.
However, she was not presented to testify in court and was not even able to identify and affirm the
contents of the medical certificate. Furthermore, Rebecca was deprived of the opportunity to crossexamine Dr. Milla on the accuracy and veracity of her findings. We also point out in this respect that
the medical certificate nonetheless did not explain the chain of causation in fact between Joels
reckless driving and Dra. dela Llanas whiplash injury. It did not categorically state that the whiplash
injury was a result of the vehicular accident. A perusal of the medical certificate shows that it only
attested to her medical condition, i.e., that she was suffering from whiplash injury. However, the
medical certificate failed to substantially relate the vehicular accident to Dra. dela Llanas whiplash
injury. Rather, the medical certificate only chronicled
her medical history and physical examinations.
C.
Dra. dela Llanas opinion that
Joels negligence caused her
whiplash injury has no probative value
Interestingly, the present case is peculiar in the sense that Dra. dela Llana, as the plaintiff in this quasidelict case, was the lone physician-witness during trial. Significantly, she merely testified as an
ordinary witness before the trial court. Dra. dela Llana essentially claimed in her testimony that Joels
reckless driving caused her whiplash injury. Despite the fact that Dra. dela Llana is a physician and
even assuming that she is an expert in neurology, we cannot give weight to her opinion that Joels
reckless driving caused her whiplash injury without violating the rules on evidence. Under the Rules of
Court, there is a substantial difference between an ordinary witness and an expert witness. The opinion
of an ordinary witness may be received in evidence regarding:
(a) the identity of a person about whom he has adequate knowledge;
(b) a handwriting with which he has sufficient familiarity; and
(c) the mental sanity of a person with whom he is sufficiently acquainted. Furthermore, the witness
may also testify on his impressions of the emotion, behavior, condition or appearance of a person. 43
On the other hand, the opinion of an expert witness may be received in evidence on a matter requiring
special knowledge, skill, experience or training which he shown to possess. 44
However, courts do not immediately accord probative value to an admitted expert testimony, much
less to an unobjected ordinary testimony respecting special knowledge. The reason is that the
probative value of an expert testimony does not lie in a simple exposition of the expert's opinion.
Rather, its weight lies in the assistance that the expert witness may afford the courts by demonstrating
the facts which serve as a basis for his opinion and the reasons on which the logic of his conclusions is
founded.45
In the present case, Dra. dela Llanas medical opinion cannot be given probative value for the reason
that she was not presented as an expert witness. As an ordinary witness, she was not competent to
testify on the nature, and the cause and effects of whiplash injury. Furthermore, we emphasize that
Dra. dela Llana, during trial, nonetheless did not provide a medical explanation on the nature as well
as the cause and effects of whiplash injury in her testimony.
The Supreme Court cannot take
judicial notice that vehicular
accidents cause whiplash injuries.
Indeed, a perusal of the pieces of evidence presented by the parties before the trial court shows
that Dra. Dela Llana did not present any testimonial or documentary evidence that directly
shows the causal relation between the vehicular accident and Dra. Dela Llanas injury. Her
claim that Joels negligence causes her whiplash injury was not established because of the deficiency

of the presented evidence during trial. We point out in this respect that courts cannot take judicial
notice that vehicular ccidents cause whiplash injuries. This proportion is not public knowledge, or is
capable of unquestionable demonstration, or ought to be known to judges because of their judicial
functions.46 We have no expertise in the field of medicine. Justices and judges are only tasked to apply
and interpret the law on the basis of the parties pieces of evidence and their corresponding legal
arguments.
In sum, Dra. dela Llana miserably failed to establish her cause by preponderance of evidence. While
we commiserate with her, our solemn duty to independently and impartially assess the merits of the
case binds us to rule against Dra. dela Llanas favor. Her claim, unsupported by prepondernace of
evidence, is merely a bare assertion and has no leg to stand on.
WHEREFORE, presmises considered, the assailed Decision dated February 11, 2008 and Resolution
dated March 31, 2008 of the Court of Appeals are hereby AFFIRMED and the petition is hereby DENIED
for lack of merit.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Baguio City
SECOND DIVISION

G.R. No. 82562 April 11, 1997

LYDIA VILLEGAS, MA TERESITA VILLEGAS, ANTONIO VILLEGAS, JR., and ANTONIETTE
VILLEGAS,petitioners,
vs.
THE COURT OF APPEALS, PEOPLE OF THE PHILIPPINES and ANTONIO V.
RAQUIZA, respondents.
G.R. No. 82592 April 11, 1997
ANTONIO V. RAQUIZA, petitioner,
vs.
COURT OF APPEALS, LYDIA A. VILLEGAS, ANTONIO VILLEGAS, JR., MA. ANTONETTE
VILLEGAS, MA. LYDIA VILLEGAS and ESTATE OF ANTONIO J. VILLEGAS, respondents.
ROMERO, J.:
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 through (a) a
speech before the Lion's Club of Malasiqui, Pangasinan on August 10; (b) public statements in Manila
on August 13 and in Davao on August 17, which was coupled with a radio-TV interview; and (c) a public
statement shortly prior to his appearance before the Senate Committee on Public Works (the
Committee) on August 20 to formally submit a letter-complaint implicating Raquiza, among other
government officials.
The Committee, however, observed that all the allegations in the complaint were based mainly on the
uncorroborated testimony of a certain Pedro U. Fernandez, whose credibility turned out to be highly
questionable. Villegas also failed to submit the original copies of his documentary evidence. Thus, after
thorough investigation, Raquiza was cleared of all charges by the Committee. 1 All these acts of
political grandstanding received extensive media coverage.
On July 25, 1969, an information for libel was filed by the Office of the City Fiscal of Manila with the
then Court of First Instance of Manila against Villegas who denied the charge. After losing in the 1971
elections, Villegas left for the United States where he stayed until his death on November 16, 1984.
Nevertheless, trial proceeded on absentia by the time of his death the in 1984, the prosecution had
already rested its case Two months after notice of his death, the court issued an order dismissing the
crimal aspect of the case but reserving the right to resolve its civil aspect. No memorandum was ever
filed in his behalf.
Judge Marcelo R. Obien 2 rendered judgment on March 7, 1985, the dispositive portion of which was
amended on March 26 to read as follows:
WHEREFORE, and in view of the foregoing considerations, judgment is hereby rendered
as follows:
1. The dismissal of the criminal case against Antonio J. Vlllegas, on account of his
death on November 16, 1984. is hereby reiterated.
2. Ordenng the estate of Antonio J. Villegas, represented herein by his legal heirs,
namely: Lydia A Villegas, Ma. Teresita Villegas, Antonio Villegas, Jr., Ma. Anton(i)ette
Villegas, and Ma. Lydia Villegas (sic), to pay plaintiff Antonio V. Raquiza Two Hundred
Million Pesos (P200,000,000.00), itemized as follows:
a) One Hundred Fifty Million Pesos (P150.000.000.00) as moral damages:

b) Two Hundred Thousand Pesos (P200.000.00) as actual damages:

c) Forty-nine Million Eight Hundred Thousand Pesos (P49,800,000.00) as exemplary
damages; and
d) The cost of suit.
SO ORDERED.

(Amendments underscored)

The heirs of Villegas (the Heirs), through their father's counsel, Atty. Norberto, Quisumbing appealed
the decision on these three main grounds:
1. Whether the trial court, three months after notice of the death of the accused and
before his counsel could file a memorandum in his behalf, could velidly render
judgment in the case?
2. Whether in the absence of formal substitution of parties, the trial court could validly
render judgment against the heirs and estate of a deceased accused?
3 Whether, under the facts of the instant case, deceased Villegas was liable for libel,
and assuming he was, whether the damages awarded by the trial court were just and
reasonable?
On March 15, 1988, the Court of Appeals rendered a decision affirming the trial court's judgment
modified only with respect to the award of damages which was reduced to P2 million representing P1.5
million, P300,000.00, and P200,000.00 in moral exemplary and actual damages, respectively. Both
parties elevated said decision to this Court for review
In their petition (G.R. No. 82562), the Heirs once again raise the very same issues brought before the
Court of Appeals, albeit reworded. On the other hand, petitioner Requiza (G.R. No. 82592) questions
the extensions of time to file appellant's brief granted by the appellate court to the Heirs, as well as
the drastic reduction in the award of damages.
It is immediately apparent that the focal issue in these petitions is the effect of the death of Villegas
before the case was decided by the trial court. Stated otherwise, did the death of the accused before
final judgment extinguish his civil liability?
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.:
It is thus evident that as jurisprudence evolved from Castillo 5 to Torrijos, 6 the rule
established was that the survival of the civil liability depends on whether the same can
be predicated on sources of obligations other than delict. Stated differently, the claim
for civil liability is also extinguished together with the criminal action if it were solely
based thereon, i.e., civil liability ex delicto.
xxx xxx xxx
(I)n recovering damages for injury to persons thru an independent civil action based
on Article 33 of the Civil Code, the same must be filed against the executor or
administrator of the estate of deceased accused (undet Sec. 1, Rule 87, infra.) and not
against the estate under Sec. 5, Rule 86 because this rule explicitly limits the claim to
those for funeral expenses, expenses for the last sickness of the decedent, judgment
for money and claims arising from contract, express or implied. 7
xxx xxx xxx
From this lengthy dlsquisition, we summarize our ruling herein:
1 Death of the accused pending appeal of his conviction extinguishes his criminal
liability as well as the civil liability based solely thereon As opined by Justice Regalado,
in this regard, "the death of the accused prior to final judgment terminates his criminal

liability and only the civil liability directly arising from and based solely on the offense
committed, i.e., civil liability ex delicto in senso strictiore."
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, conformably with (the)
provisions of Article 1155 of the Civil Code, that should thereby avoid any
apprehension on a possible privation of right by prescription. (Emphasis supplied).
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. If the Court ruled in Bayotas that the death of an accused
during the pendency of his appeal extinguishes not only his criminal but also his civil liability unless
the latter can be predicated on a source of obligation other than the act or omission complained of,
with more reason should it apply to the case at bar where the accused died shortly after the
prosecution had rested its case and before he was able to submit his memorandum and all this before
any decision could even be reached by the trial court.
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, 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 crinimal 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 10(Emphasis supplied)
Hence, logically, the court a quo should have dismissed both actions against Vilegas which dismissal
will not, however, bar Raquiza as the private offended party from pursuing his claim for damages
against the executor or administrator of the former's estate, notwitnstanding the fact that he did not
reserve the right to institute a civil separate civil action based on Article 33 of the Civil Code.

It cannot be argued either that to follow Bayotas would result in further delay in this protracted
litigation. This is because 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. The pertinent provisions state as follws:
Rule 3
Sec.17. Death of party. After a party dies and the claim is not there
extinguished, the court shall order upon proper notice the legal representative of the
deceased to appear and to be substituted for the deceased, within a period of thirty
(30) days, or within such time as may begranted. . . . The heirs of the deceased may
be allowed to be for the deceased, without requiring the appointment of an executor or
administrator and the court may appoint guardian ad litem for the minor heirs.
Rule 87
Sec. 1. Actions which may and which may not be brought against or executor or
administrator. No action upon a claim for the recovery of money or debt or interest
thereon shall be commenced against the executor or administrator; but actions to
recover real or personal property, or an interest therein, from the estate, or to enforce
a lien thereon, and actions to recover damages for an injury to person or property, real
or personal may be commenced against him.
Accordingly, the Court sees no more necessity in resolving the other issues used by both parties in
these petitions.
WHEREFORE, the petition in G.R. No. 82562 is GRANTED and the petition in G.R. No. 82592 is DENIED.
The decisions of the Court of Appeals in CA-G.R. CR No. 82186 dated March 15, 1988, and of the Manila
Regional Trial Court, Branch 44, dated March 7, 1985, as amended, are hereby REVERSED and SET
ASIDE, 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.
SO ORDERED.