Obligations and Contracts

Module I
A. Definition and Requisites

Ang Yu Asuncion v. CA, G.R. No. 109125, December 2, 1994.

B. Sources of Obligations

Makati Stock Exchange v. Campos, G.R. 138814, Apr. 16, 2009

Van de Brug v. PNB, G.R. No. 207004, June 06, 2018

1. Law

Pelayo v. Lauron, 12 Phil 453

OSG v. Ayala Land, G.R. No. 177056, Sept. 18, 2009

2. Contracts

Alferez v. Canencia, GR 244542, Jun. 28, 2021

IP E-Game Ventures v. Tan, GR 239576

Chanelay v. GSIS, GR 210539, Jul. 5, 2021

Heirs of Gonzales v. Basas, GR 206847, June 15, 2022

3. Quasi-Contract

Domestic Petroleum v. Manila International Airport, GR 210641, Mar. 27, 2019

Officers and Employees of Iloilo v. COA, GR 218383, Jan. 5, 2021

4. Delicts

Dy vs. People, G.R. No. 189081, 10 August 2016

Pilipinas Petroleum Corporation vs. Duque, GR No. 216467, February 15, 2017

5. Quasi-Delicts

VDM Trading v. Carungcong, GR 206709, Feb 6, 2019

UCPB v. Heirs of Leporgo, GR 210976, Jan 12, 2021

De Jesus v. Uyloan, GR 234851, Feb. 15, 2022

Fegarido v. Alcantara, GR 240066, June 13, 2022

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Ang Yu Asuncion v. CA, G.R. No. 109125, December 2, 1994.

This case involves the "right of first refusal" under the Civil Code's provisions on obligations and contracts.
The petitioners, lessees of a property owned by the Cu Unjieng spouses, alleged they had been given
priority to purchase the property should it be sold. However, the property was sold to Buen Realty
Development Corporation without offering it to the petitioners. The Regional Trial Court and the Court of
Appeals ruled that while petitioners were entitled to a "right of first refusal," such right was not absolute
and did not constitute a perfected contract of sale. The Supreme Court affirmed the Court of Appeals’
ruling, emphasizing that there was no perfected contract between the petitioners and the Cu Unjiengs.

Facts:

Petitioners were long-time lessees of commercial and residential spaces owned by the Cu Unjieng spouses.
The property in question was located on Ongpin Street, Binondo, Manila. The petitioners alleged that the
owners offered them the priority to purchase the property for ₱6 million, but they countered with an offer
of ₱5 million. Negotiations ensued, with no agreement reached on price and terms.

Later, without informing the petitioners, the Cu Unjiengs sold the property to Buen Realty for ₱15 million.
The petitioners claimed their "right of first refusal" had been violated, as affirmed by the Regional Trial
Court and the Court of Appeals. However, the lower courts held that the "right of first refusal" was not
equivalent to a perfected contract of sale and did not bind the subsequent buyer, Buen Realty.

Petitioners moved for execution of the trial court's decision, arguing that Buen Realty purchased the
property with notice of their "right of first refusal," given the annotation of lis pendens on the title. The
Court of Appeals annulled the orders of execution, prompting this petition for review.

Issues:

1. Whether or not the "right of first refusal" constitutes a perfected contract of sale.

2. Whether or not the annotation of lis pendens binds Buen Realty to the petitioners' right of first
refusal.

3. Whether or not the petitioners are entitled to specific performance compelling Buen Realty to
sell the property to them.

Ruling:

The Supreme Court ruled in favor of Buen Realty Development Corporation, affirming the Court of Appeals'
decision.

1. Right of First Refusal vs. Perfected Contract: The "right of first refusal" is merely a preparatory
agreement and does not constitute a perfected contract of sale. Under Article 1458 of the Civil Code, a
contract of sale requires a meeting of minds on the object and the price. In this case, no definitive
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agreement was reached between the petitioners and the Cu Unjiengs regarding the terms of sale. The
"right of first refusal" is not a binding obligation to sell.

2. Effect of Lis Pendens: The annotation of lis pendens serves to notify third parties of pending litigation
involving a property. However, it does not automatically bind third-party buyers to specific obligations
arising from unresolved issues in the litigation. Buen Realty purchased the property for ₱15 million, and
the petitioners' "right of first refusal" was contingent on their agreement to match the purchase price—a
condition that was neither met nor perfected into a contract.

3. No Specific Performance: Specific performance cannot be granted because the "right of first refusal" is
not equivalent to a sale contract. While the petitioners may seek damages under Article 19 of the Civil
Code for bad faith or arbitrary conduct, they cannot compel the execution of a deed of sale in their favor
absent a perfected contract.

Rationale:

The Supreme Court underscored the nature of obligations and contracts under the Civil Code. A perfected
contract requires a clear agreement on the object and the price. In this case, the "right of first refusal" was
a mere preparatory juridical relation and not a binding obligation to sell. The Court cited Article 1319,
which provides that consent is manifested by the meeting of offer and acceptance, and Article 1479, which
requires a consideration distinct from the price for an option to be binding.

The petitioners’ reliance on lis pendens was misplaced. The principle of lis pendens merely preserves the
status quo and notifies third parties of pending litigation; it does not create substantive rights or
obligations for the buyer. Moreover, Buen Realty, not having been a party to the original litigation, could
not be deprived of its property without due process.

The Court emphasized the need to honor the consensuality principle in contracts, stating that obligations
cannot arise from preparatory agreements without the parties’ clear consent. Petitioners’ remedy lies in
a separate action for damages, not specific performance.

Legal Basis:

1. Article 1458, Civil Code — Defines a contract of sale and its essential elements.

2. Article 1319, Civil Code — Specifies the requirements for consent in contracts.

3. Article 1479, Civil Code — Establishes that an option must be supported by distinct consideration
to be enforceable.

4. Article 19, Civil Code — Imposes a duty to act in good faith and justice in the exercise of rights.
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Disposition: The Supreme Court upheld the decision of the Court of Appeals, ruling that the orders of
execution issued by the trial court were improper. The petitioners may pursue damages in a separate case
but cannot enforce a specific performance against Buen Realty.

Petitioners: Ang Yu Asuncion, Arthur Go, and Keh Tiong

Respondents: Court of Appeals and Buen Realty Development Corporation
Ponente: Justice Vitug
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Makati Stock Exchange v. Campos, G.R. 138814, Apr. 16, 2009

This case revolves around the claim of Miguel V. Campos (respondent), as Chairman Emeritus of Makati
Stock Exchange, Inc. (MKSE), to participate equally in the allocation of Initial Public Offerings (IPOs).
Campos alleged that he was deprived of this right by the MKSE Board of Directors, which he asserted had
caused him financial loss and sought damages. The Securities and Exchange Commission (SEC) en banc
dismissed Campos' petition for failure to state a cause of action, which was affirmed by the Supreme Court
upon review. The Court ruled that Campos failed to establish a legal basis for his alleged right to IPO
allocations, as the practice cited was not a source of enforceable rights under the law.

Facts

Miguel V. Campos, a founding member and Chairman Emeritus of MKSE, filed a petition before the
Securities, Investigation and Clearing Department (SICD) of the SEC in 1994. He sought to nullify a 1993
MKSE Board Resolution that allegedly deprived him of his right to participate equally in IPO allocations.
Campos argued that he had always enjoyed such rights as a member and Chairman Emeritus, but the
Board had denied him these privileges due to alleged personal animosity stemming from his association
with a third party involved in legal disputes against MKSE directors.

Campos claimed financial damage and sought delivery of the IPO shares he was allegedly entitled to
purchase, as well as P2 million in moral damages, P1 million in exemplary damages, and P500,000 in
attorney’s fees.

The SEC en banc dismissed Campos’ petition for failure to state a cause of action, reasoning that his
position as Chairman Emeritus did not confer any enforceable right to IPO allocations. The Court of Appeals
reversed this dismissal. MKSE then elevated the case to the Supreme Court.

Issues

1. Whether or not Campos sufficiently established a legal right to participate equally in IPO
allocations.

2. Whether or not the dismissal of Campos’ petition by the SEC en banc was proper.

Ruling

1. No. Campos failed to establish any legal basis for his alleged right to participate equally in IPO
allocations. While Campos asserted that his position as Chairman Emeritus and the customary practice
within MKSE entitled him to such allocations, the Court held that custom alone does not create
enforceable rights absent a legal or contractual basis.

2. Yes. The SEC en banc was correct in dismissing Campos’ petition for failure to state a cause of action.
The petition lacked allegations of a source of obligation—whether rooted in law, contract, or other juridical
sources—as required under Article 1157 of the Civil Code.

Rationale of the Ruling

The Supreme Court emphasized that for a cause of action to exist, a complainant must demonstrate (1) a
legal right, (2) a correlative obligation of the defendant, and (3) an act or omission violating that right.
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Campos’ petition merely stated conclusions of law, without identifying the source of his alleged right to
IPO allocations.

The resolution cited by Campos, which conferred upon him the honorary title of Chairman Emeritus, did
not specify any privilege or right to participate in IPO allocations. Further, the Court clarified that the
allocation of IPO shares, as described by Campos, was a mere practice and not a legally enforceable
obligation. Customary practices, absent a legal foundation, do not generate obligations under the Civil
Code.

Campos’ reliance on his honorary title and general practice failed to demonstrate an enforceable right. As
such, the SEC en banc correctly dismissed his petition for lack of a cause of action. The Supreme Court
reinstated the SEC en banc’s orders dismissing the petition.

Legal Basis

• Article 1157, Civil Code: Obligations arise from law, contracts, quasi-contracts, acts or omissions
punishable by law, or quasi-delicts.

• Article 1156, Civil Code: An obligation is a juridical necessity to give, to do, or not to do.

• Rule 45, Rules of Court: The Court’s jurisdiction in reviewing decisions of the Court of Appeals.

Motive in the Case

Motive was alleged to involve personal animosity of the MKSE directors toward Campos, purportedly
because of his association with a third party who had filed cases against them. However, the Court found
that this did not suffice to establish an enforceable right, as the claim lacked a legal foundation.

Judge

Justice Chico-Nazario penned the decision for the Supreme Court.

Disposition

The petition was granted. The decision of the Court of Appeals was reversed, and the orders of the SEC en
banc were reinstated, dismissing Campos’ petition for failure to state a cause of action.
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Van de Brug v. PNB, G.R. No. 207004, June 06, 2018

The Supreme Court ruled that the petitioners, heirs of the late spouses Romulus and Evelyn Aguilar, were
not entitled to restitution under Republic Act (RA) 7202 (Sugar Restitution Law). Despite the loans being
covered by RA 7202, the Philippine National Bank's (PNB) recomputation revealed no excess payments.
The petitioners' insistence on including proceeds from land voluntarily sold by PNB to the Department of
Agrarian Reform (DAR) for application to their accounts was rejected. The Court emphasized that PNB had
no legal obligation to credit such proceeds, nor did it act in bad faith by treating the petitioners differently
from another borrower with whom it had a compromise agreement.

Facts

The late spouses Aguilar obtained sugar crop loans from PNB between the late 1970s and early 1980s,
secured by real estate mortgages on four parcels of land in Negros Occidental. When the loans went
unpaid, PNB foreclosed the mortgages in 1985 and consolidated ownership of the properties.

With the enactment of RA 7202 in 1992, the law aimed to provide relief to sugar producers by limiting
interest rates to 12% per annum and condoning penalties. The late Romulus Aguilar and later his heirs
sought the law's benefits, including crediting proceeds from the sale of their foreclosed agricultural lands
under the Comprehensive Agrarian Reform Program (CARP).

PNB recomputed the accounts but found no excess payments to warrant restitution. Petitioners refused
to formally acknowledge the recomputation, insisting instead that proceeds from CARP sales be directly
credited to their loans. They also cited a similar compromise agreement between PNB and another
borrower (Spouses Pfleider) as grounds for similar treatment.

The Regional Trial Court (RTC) ruled in favor of the Aguilars, ordering PNB to credit the CARP proceeds,
restitute any excess, and reconvey the residential lot. The Court of Appeals (CA) reversed, finding no legal
basis for restitution under RA 7202.

Issues

1. Whether or not the petitioners were entitled to restitution under RA 7202.

2. Whether or not PNB acted in bad faith by denying the petitioners' request for treatment similar
to that of another borrower.

Ruling

The Supreme Court denied the petition, affirming the CA's decision to dismiss the case.

1. On Restitution Under RA 7202:

The Court held that RA 7202 benefits, such as recomputation, condonation of excess interest, and
restitution, applied only when excess payments were made. PNB's recomputation, audited by the
Commission on Audit (COA), showed no such excess payments on the Aguilars' accounts. Thus, no
restitution was warranted.

2. On Alleged Bad Faith by PNB:

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PNB did not act in bad faith by denying the petitioners' demands. It had no legal obligation to
extend the same terms it had offered to another borrower (Spouses Pfleider), as the petitioners'
circumstances differed significantly. The Pfleiders had conformed to PNB’s recomputation and
entered a compromise agreement, whereas the Aguilars refused to acknowledge the
recomputation and insisted on crediting CARP proceeds upfront.

Rationale

• Recomputation and Legal Basis:

Section 3 of RA 7202 provides for the recomputation of sugar loans with a 12% cap on interest and
condonation of penalties. Under Section 6 of the Implementing Rules and Regulations (IRR),
restitution is available only when excess payments exist. Since the recomputed interest
(₱689,944.52) exceeded the actual interest paid (₱12,658.22), no excess existed. Thus, restitution
was not legally mandated.

• Treatment of CARP Proceeds:

The Court clarified that CARP proceeds from foreclosed properties are not automatically treated
as loan payments under RA 7202. The DOJ Opinion No. 91, Series of 1995, emphasized that
foreclosure transfers property ownership to the creditor, barring sugar producers from reclaiming
such properties or their proceeds.

• Allegations of Bad Faith:

Articles 19 and 21 of the Civil Code mandate good faith in exercising rights. PNB's differential
treatment of the Aguilars and Pfleiders was justified, as the latter had conformed to the
recomputation and compromise agreement terms. The Aguilars' refusal to follow a similar process
negated claims of unequal treatment or bad faith.

• Legal Consistency:

The Court underscored that restitution under RA 7202 cannot impair vested property rights
obtained through foreclosure. PNB lawfully owned the foreclosed properties, and its discretion in
handling CARP proceeds complied with statutory and contractual obligations.

Legal Basis

1. RA 7202 (Sugar Restitution Law): Sections 3 and 6 of the law and its IRR specify the conditions for
loan recomputation, condonation, and restitution.

2. Civil Code Articles 19 and 21: Address abuse of rights and bad faith in exercising legal rights.

Conclusion

The petitioners' claims were denied. PNB's actions adhered to RA 7202 and the Civil Code. The absence of
excess payments negated restitution, while PNB's refusal to grant the same terms offered to the Pfleiders
was justified based on differing circumstances and the principle of contractual relativity.

Petitioner and Respondent

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• Petitioners: Astrid A. Van de Brug, Martin G. Aguilar, and Glenn G. Aguilar

• Respondent: Philippine National Bank (PNB)

Justice: Decision penned by Justice Caguioa

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Pelayo v. Lauron, 12 Phil 453

This case revolves around an obligation arising from the rendering of medical services during a childbirth
emergency. Arturo Pelayo, a physician, was summoned by Marcelo Lauron and Juana Abella to assist their
daughter-in-law during a difficult childbirth. Pelayo demanded a fee of P500 for his professional services,
but the respondents refused payment, leading to a legal dispute. The key issue was whether the
defendants, as the patient’s father and mother-in-law, were liable to pay for the medical services rendered.
The court ruled that the obligation to pay lay with the husband of the patient, as the law imposes the
responsibility for mutual support, including medical assistance, between spouses. The Supreme Court
affirmed the lower court’s decision, absolving the defendants from liability.

Facts

On October 13, 1906, Arturo Pelayo, a physician in Cebu, was called to the home of Marcelo Lauron and
Juana Abella to assist their daughter-in-law during a critical childbirth. After consulting with another
physician, Dr. Escaño, Pelayo performed a forceps delivery and subsequently removed the afterbirth,
providing further medical care until the following morning. Despite these services, the patient passed
away. Pelayo demanded P500 as payment for his professional services, which the defendants refused to
pay, asserting that they were not legally bound to do so.

The defendants argued that the patient lived independently with her husband, and her stay at their house
was incidental. They further claimed no contractual obligation existed between themselves and the
plaintiff. The trial court ruled in favor of the defendants due to insufficient evidence establishing their
liability. Pelayo appealed the decision, asserting that the defendants’ act of summoning him constituted
an obligation to pay for his services.

Issues

1. Whether or not the father and mother-in-law (defendants) are liable to pay for the medical
services rendered to their daughter-in-law.

2. Whether or not the act of summoning the physician created an obligation on the part of the
defendants to pay the claimed fee.

Ruling

The Supreme Court ruled in favor of the defendants, affirming the decision of the lower court. It held that:

1. The obligation to provide medical assistance to the patient lies with her husband as part of the
mutual support duties between spouses under Articles 142 and 143 of the Civil Code.

2. The father and mother-in-law are not legally obligated to pay for the medical services rendered,
as there was no contract or legal provision binding them to such payment.
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Rationale

The Court’s rationale was rooted in the provisions of the Civil Code governing obligations and contracts.
According to Article 1089, obligations arise from law, contracts, quasi-contracts, illicit acts, or omissions.
In this case, no legal or contractual basis was established to hold the defendants liable.

1. Obligation of the Husband:

o Under Articles 142 and 143 of the Civil Code, spouses are mutually obligated to support
each other, including providing medical assistance during illness. Thus, the obligation to
pay for the services rendered by Dr. Pelayo falls on the patient’s husband, not her in-laws.

o Even though the defendants summoned the physician, this action was performed in
response to an emergency and did not create a binding contractual obligation.

2. Lack of Contract:

o The Court emphasized that obligations arising from contracts must be expressly agreed
upon by the parties. Here, there was no evidence of an agreement between Dr. Pelayo
and the defendants that would obligate them to pay the claimed fee.

3. Legal Basis for Support:

o The law does not impose an obligation on parents-in-law to support their children-in-law.
The defendants, as in-laws, are considered legal strangers to the obligation of support,
which is primarily the responsibility of the husband.

4. Counter to the Plaintiff’s Argument:

o The plaintiff argued that summoning him constituted an implied contract. However, the
Court clarified that mere solicitation of medical assistance in an emergency does not
establish a contractual obligation to pay unless explicitly agreed upon.

Legal Basis

1. Articles 1089, 1090, and 1091 of the Civil Code – Define the sources of obligations and their
enforceability.

2. Articles 142 and 143 of the Civil Code – Establish mutual obligations of support between spouses,
including medical assistance.

3. Supreme Court of Spain Decision (May 11, 1897): While recognizing contracts for support, the
decision underscores that liability to pay support for a non-relative arises only out of a contract.

Disposition
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The judgment of the lower court was affirmed, with costs against the appellant. The action was dismissed
as the plaintiff had no right to recover from the defendants.

Judge: Justice Torres

Petitioner’s Counsel: J.H. Junquera
Respondent’s Counsel: Filemon Sotto
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OSG v. Ayala Land, G.R. No. 177056, Sept. 18, 2009

This case concerns whether mall operators are obligated to provide free parking spaces in their premises
under the National Building Code (NBC) and its Implementing Rules and Regulations (IRR). The Office of
the Solicitor General (OSG) sought to compel the respondents—Ayala Land, Robinsons Land, Shangri-La
Plaza, and SM Prime Holdings—to cease charging parking fees, alleging that the NBC and the IRR require
free parking spaces for the public. Both the trial court and the appellate court dismissed the OSG's claims,
holding that there is no express provision in the NBC or its IRR mandating free parking. The Supreme Court
affirmed this ruling, emphasizing that obligations derived from law must be explicitly provided and that
prohibiting the collection of parking fees would amount to a taking of private property without just
compensation.

Facts

Respondents operate malls that include parking facilities constructed or leased at their own expense. They
charge parking fees to cover the maintenance and security of these facilities. Parking tickets issued by the
respondents include a waiver of liability for any loss or damage to vehicles.
In 1999, Senate Committees investigated the legality of charging parking fees and concluded that it
violated the NBC. The OSG, acting on this recommendation, filed a petition for declaratory relief to enjoin
respondents from collecting parking fees. Respondents argued that the NBC and its IRR do not explicitly
prohibit parking fees and that the requirement for parking spaces pertains only to compliance with space
ratios, not cost.

The RTC ruled in favor of respondents, holding that the NBC does not require free parking. The Court of
Appeals affirmed this decision, stating that there is no legal basis to compel mall operators to provide free
parking.

Issues

1. Whether or not mall operators are required under the National Building Code to provide free
parking spaces.

2. Whether the prohibition against charging parking fees constitutes an unlawful taking of private
property.

Ruling

The Supreme Court ruled in favor of the respondents and affirmed the decision of the lower courts.

1. No Obligation for Free Parking Spaces

The Court held that Section 803 of the NBC and Rule XIX of its IRR merely require the provision of
parking spaces based on specific ratios to ensure proper site occupancy and building compliance.
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There is no mention or implication that such parking must be provided free of charge. Obligations
derived from law must be explicitly stated, and neither the NBC nor its IRR prescribes free parking.

2. Unlawful Taking of Property

The Court declared that prohibiting mall operators from charging parking fees would effectively
deprive them of their right to use and profit from their property, amounting to a taking without
just compensation. Police power does not include confiscation or appropriation of private
property for public use without due process or compensation.

Rationale

The Supreme Court reasoned that the NBC’s requirement for parking spaces is designed to address issues
of site occupancy and ventilation, not to regulate the cost of parking. The Court rejected the OSG’s reliance
on police power, emphasizing that regulatory measures must be reasonable and cannot infringe on private
property rights without due process or just compensation.

The Court highlighted the following points:

• Statutory Construction: A statute must be interpreted based on its clear and unambiguous
language. The NBC does not explicitly address the issue of parking fees.

• Principles of Obligations and Contracts: Under Article 1158 of the Civil Code, obligations arising
from law are not presumed and must be expressly provided.

• Eminent Domain vs. Police Power: Prohibiting respondents from charging fees would amount to
an unlawful confiscation of property rights under the guise of regulation.

The Court also noted that requiring free parking may lead to unintended consequences, such as increased
traffic congestion, which counters the rationale for safeguarding public welfare.

Legal Basis

• Article 1158, Civil Code of the Philippines: Obligations derived from law are not presumed and
must be explicitly provided.

• National Building Code (PD 1096): Section 803 and Rule XIX mandate parking space requirements
but do not impose restrictions on the collection of parking fees.

• Principles of Police Power and Eminent Domain: Regulation cannot equate to confiscation or an
undue burden on private property without just compensation.

Judge

Associate Justice Minita V. Chico-Nazario penned the decision, with concurrence from the Court’s
members.
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Alferez v. Canencia, GR 244542, Jun. 28, 2021

The case revolves around the dispute over a Deed of Sale with Assumption of Mortgage entered into
between the Alferez heirs and the respondents. The petitioners argued that the sale covered only Federico
Alferez's share of the estate, while respondents claimed that the contract included all the properties
described therein. The Court of Appeals (CA) initially invalidated the Regional Trial Court (RTC) decision for
lack of jurisdiction. The Supreme Court reversed the CA's decision, reinstating the RTC judgment, and
upheld the validity of the Deed of Sale. The Court reasoned that the contract was clear and binding on the
parties and that the petitioners’ actions as owners and representatives were sufficient to validate the sale.

Facts

Federico Alferez died in 1980, leaving several properties and debts. His wife Teodora and their children—
petitioners Ma. Concepcion, Antonio, and Esperanza—executed an Extrajudicial Settlement with Donation
in 1982. This settlement divided the conjugal properties between Teodora and the children.

Due to outstanding debts, the administratrix, Ma. Concepcion, sought authorization to sell portions of the
estate. In 1985, Ma. Concepcion executed a Deed of Sale with Assumption of Mortgage with the
respondents, covering three parcels of land. Petitioners later contested the deed, claiming it only covered
Federico’s share and that the terms were misrepresented. They also alleged bad faith and manipulation
by the respondents.

The RTC ruled in favor of respondents, finding the contract valid and binding. The CA declared the RTC
judgment void for lack of jurisdiction, citing that the matter should have been resolved in the ongoing
probate proceedings for Federico’s estate.

Issues

1. Whether or not the RTC had jurisdiction over the case.

2. Whether or not the Deed of Sale with Assumption of Mortgage is valid.

Ruling

1. RTC Jurisdiction

The Supreme Court ruled that the RTC had jurisdiction. While the CA misinterpreted Rule 73, Section 1 as
conferring jurisdiction, it only governs venue. The RTC, as a court of general jurisdiction, properly handled
the case as it involved ownership and contractual disputes, which are distinct from the probate court’s
limited jurisdiction over estate matters.

2. Validity of the Deed of Sale

The Court upheld the validity of the Deed of Sale. It found the contract clear, unambiguous, and
enforceable. The Extrajudicial Settlement with Donation granted ownership of the properties to the
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petitioners, who had the authority to sell them. The petitioners’ claim that the sale only covered Federico’s
share was unsupported by evidence, and there was no indication of fraud or bad faith on the part of the
respondents.

Rationale

The Court emphasized the following points:

• Obligations from Contracts: Contracts are the law between parties (Article 1159 of the Civil Code).
The Deed of Sale explicitly conveyed all described parcels of land, and no reservations or
qualifications were stated. Petitioners, as the absolute owners, were bound by the agreement they
entered into.

• Parol Evidence Rule: The Court rejected petitioners’ attempt to introduce evidence contradicting
the clear terms of the contract. Petitioners could not claim the contract failed to reflect their intent
without proof of ambiguity or mistake in the document.

• Ownership and Representation: The Extrajudicial Settlement with Donation transferred Teodora’s
share to her children. Petitioners, therefore, had full ownership and authority to dispose of the
properties, as confirmed by the Special Powers of Attorney executed by Antonio and Esperanza.

• Motive: The Court found no bad faith or undue advantage by the respondents. Petitioners’
financial difficulties did not invalidate the agreement, as the parties were presumed to act in good
faith.

• Legal Basis for Jurisdiction: The Court clarified that Section 1, Rule 73 pertains to venue, not
jurisdiction. The RTC was competent to resolve ownership and contractual disputes.

Legal Basis

1. Article 1159, Civil Code: Contracts must be performed in good faith as the law between the
parties.

2. Article 1370, Civil Code: If contract terms are clear, the literal meaning shall control.

3. Rule 73, Section 1, Rules of Court: Addresses venue, not jurisdiction, in probate cases.

4. Rule 130, Section 9, Rules of Court: Parol evidence cannot alter clear contractual terms unless
exceptions are proven.

Disposition

The Supreme Court reversed and set aside the CA decision, reinstating the RTC judgment. The Deed of
Sale with Assumption of Mortgage was declared valid and binding.
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Petitioners: Ma. Concepcion Alferez, Antonio S. Alferez, and Esperanza Alferez Evans
Respondents: Spouses Exequiel and Celestina Canencia, Norma A. Alforque, and Teresa A. Alforque
Ponente: Justice Lopez, J.
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IP E-Game Ventures v. Tan, GR 239576

In this case concerning Obligations and Contracts, IP E-Game Ventures, Inc. (petitioner) entered into an
agreement with George H. Tan (respondent) to incentivize the latter for successfully negotiating the sale
of Digital Paradise, Inc.'s shares. The petitioner failed to fulfill the complete monetary and stock incentives
stipulated in the agreement. The courts ruled in favor of the respondent, finding the petitioner liable for
the balance and stock incentives. The case underscores the binding nature of contracts, which are
considered the law between the parties, provided they are not contrary to law or public policy.

Facts

In 2010, IP E-Game Ventures, Inc. and George H. Tan entered into an incentive agreement wherein the
respondent would negotiate with ePLDT for the sale of at least 75% of Digital Paradise, Inc. to the
petitioner for ₱145,000,000. The petitioner agreed to compensate the respondent with:

1. ₱5,000,000 in cash; and

2. Shares of Digital Paradise, Inc. valued at ₱5,000,000, upon the successful sale of shares.

On April 1, 2011, the sale of shares was finalized, and the petitioner paid the respondent ₱3,700,000.
However, the balance of ₱1,300,000 and the shares were not delivered. Despite multiple demands and a
proposed compromise, the petitioner did not comply. Instead, the petitioner alleged that the parties had
entered into a subsequent agreement reducing the monetary incentive to ₱3,700,000 due to unforeseen
expenses. The respondent filed a complaint for specific performance, arguing that the petitioner's refusal
to fully comply caused him undue hardship.

The petitioner moved to dismiss the complaint, claiming the agreement did not specify a deadline for
performance, making the respondent's demands premature. The RTC and CA rejected this defense, ruling
in favor of the respondent.

Issues

1. Whether or not the petitioner’s obligation to pay the balance and transfer the shares was
already due and demandable.

2. Whether or not the respondent sufficiently established a cause of action against the petitioner.

Ruling

The Supreme Court denied the petition and affirmed the rulings of the RTC and CA. The petitioner was
ordered to pay:

1. ₱4,000,000 in actual damages (reduced as part of the respondent’s compromise);

2. ₱30,000 in attorney's fees; and

3. Costs of suit.

Rationale

1. Binding Nature of Contracts

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The Court emphasized that a contract is the law between the parties and must be performed in
good faith unless contrary to law, morals, public order, or policy. The Agreement clearly stipulated
that the petitioner's obligations would become due "no later than the execution of the definitive
agreement/s for the sale of shares," which occurred on April 1, 2011. The petitioner's claim of a
subsequent agreement to reduce the incentive was unsupported by evidence and contradicted
the contractual provision requiring amendments to be in writing.

2. Clear and Unambiguous Stipulations

The Agreement explicitly outlined the terms of payment and the respondent's entitlement. The
petitioner’s attempt to delay payment based on an alleged lack of a specific due date was
dismissed. The Court noted that contractual stipulations should be interpreted plainly and given
effect according to their literal meaning when unambiguous.

3. Legal Basis and Cause of Action

Under Article 1306 of the Civil Code, obligations arising from contracts have the force of law
between the parties. The petitioner's failure to comply constituted a breach of the Agreement,
giving rise to the respondent's cause of action under Article 1191 of the Civil Code, which allows
for rescission or enforcement of obligations in case of breach. The Court also upheld the trial
court's finding that the respondent sufficiently established his cause of action, demonstrating the
petitioner’s breach of a perfected contract.

4. Rejection of Petitioner's Defenses

The Court held that the petitioner’s claim of a subsequent agreement lacked credibility, as it was
unsupported by evidence and contradicted the express terms of the original Agreement. The
Court also dismissed the petitioner’s assertion that the obligation to transfer shares was not yet
due, affirming that the due date was determinable from the original Agreement.

Legal Basis

• Article 1306, Civil Code: "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."

• Article 1191, Civil Code: Allows the injured party to seek rescission or enforcement in case of
breach.

• Article 1233, Civil Code: Payment means delivery of the thing or rendition of the service
stipulated.

Petitioner, Respondent, and Judge

• Petitioner: IP E-Game Ventures, Inc.

• Respondent: George H. Tan

• Ponente: Justice Mario V. Lopez

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This case reiterates the inviolability of contractual agreements, the consequences of failing to meet
obligations, and the primacy of written terms in resolving disputes.
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Chanelay v. GSIS, GR 210539, Jul. 5, 2021

The case involves the validity of the termination of a Joint Venture Agreement (JVA) between Chanelay
Development Corporation (CDC) and the Government Service Insurance System (GSIS) regarding the
renovation, improvement, and sale of unsold condominium units in Kanlaon Tower II (now Chanelay
Towers). GSIS terminated the JVA after CDC failed to fulfill its contractual obligations. The Supreme Court
upheld the termination, forfeited CDC’s property rights, and nullified unauthorized contracts entered into
by CDC. The ruling emphasized adherence to contractual stipulations and the equitable remedies available
under the Civil Code.

Facts

In 1995, GSIS entered into a JVA with CDC for the renovation and marketing of Kanlaon Tower II. Under
the JVA:

1. CDC was to renovate the property and sell unsold units at its own expense.

2. CDC was required to pay GSIS ₱180,300,000 regardless of actual sales proceeds, plus 71% of sales
revenue.

CDC requested extensions to pay the guaranteed amount, which GSIS granted. However, CDC still failed to
remit payments or report sales. CDC also constructed additional units and reallocated parking slots
without GSIS's consent.

On November 9, 1998, GSIS terminated the JVA under its cancellation clause. CDC filed a complaint for
reformation of the JVA, claiming it was a partnership agreement. GSIS countered, asserting that CDC had
breached the JVA and sought nullification of CDC’s unauthorized transactions.

The trial court ruled in favor of GSIS, dismissing CDC's claims and declaring GSIS entitled to forfeiture of
the improvements made by CDC. The Court of Appeals modified this decision by deleting the award of
₱180,300,000 in GSIS's favor and ordering CDC to reimburse third parties for unauthorized contracts.

Issues

1. Whether GSIS must reimburse CDC for renovation expenses and honor contracts with third
parties.

2. Whether GSIS is entitled to the guaranteed payment of ₱180,300,000 under the JVA.

3. Whether GSIS is entitled to liquidated damages.

Ruling

1. GSIS is not required to reimburse CDC for improvements or honor unauthorized contracts. The Court
upheld GSIS's termination of the JVA due to CDC's breaches. Under the JVA, termination resulted in the
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forfeiture of improvements made by CDC without reimbursement. CDC was merely a marketing agent and
lacked authority to bind GSIS to third-party contracts.

2. GSIS is not entitled to the guaranteed payment of ₱180,300,000. The Supreme Court held that GSIS
had chosen rescission as its remedy, precluding it from also claiming specific performance. Rescission
under Article 1191 of the Civil Code voids the contract, restoring parties to their pre-contractual positions
without enforcing payment obligations.

3. GSIS is not entitled to liquidated damages. GSIS did not include a claim for liquidated damages in its
counterclaim. Procedural rules bar claims not raised before the trial court from being entertained on
appeal.

Rationale

Contractual Terms as Law: Contracts have the force of law and must be complied with in good faith. Here,
CDC violated key provisions of the JVA by failing to pay the guaranteed amount, reporting no sales, and
unlawfully altering the property.

Termination and Forfeiture: The JVA expressly provided for forfeiture of improvements upon termination
without reimbursement. This was a condition agreed upon by both parties, and CDC could not later evade
it by alleging a different intent.

Rescission vs. Specific Performance: Under Article 1191, a party may choose between specific
performance or rescission. GSIS elected rescission, which nullifies payment obligations under the JVA.

Unauthorized Contracts: CDC lacked authority under the JVA to execute binding contracts with third
parties on GSIS’s behalf. Parties dealing with CDC were bound to verify its authority.

Legal Basis:

• Article 1191, Civil Code: Governs rescission in reciprocal obligations.

• Article 1315, Civil Code: Contracts bind only the parties who entered into them unless authority
is conferred.

• Article 1159, Civil Code: Obligations arising from contracts have the force of law.

Judge

Justice Lazaro-Javier authored the decision.

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Heirs of Gonzales v. Basas, GR 206847, June 15, 2022

The case involves a dispute over ownership of a property in Tondo, Manila, sold by the spouses Dominador
and Estefania Basas to Zenaida B. Gonzales and later to Romeo Munda. Zenaida claimed ownership under
a Deed of Absolute Sale executed in 1996 and sought to enforce her rights after the property was sold
again to Munda in 1997. The issue revolved around whether Zenaida or Munda had a better claim to the
property. The Supreme Court ruled in favor of Zenaida, declaring her the rightful owner and holding that
the subsequent sale to Munda was invalid as the spouses Basas no longer owned the property.
Furthermore, Munda was found to be a buyer in bad faith. The Court reinstated the decision of the
Regional Trial Court (RTC) and nullified the Certificate of Title issued to Munda.

Facts:

In 1996, the spouses Dominador and Estefania Basas sold a parcel of land, including a house, to Zenaida
B. Gonzales for a total price of ₱800,000. Zenaida paid ₱650,000 upfront, with the balance to be settled
once the spouses secured the necessary consent from the National Housing Authority (NHA) for the sale.
Despite their agreement, the spouses Basas subsequently sold the same property to Romeo Munda in
1997 for a much lower declared price of ₱100,000, although other documents indicated the true selling
price was ₱1.4 million.

Zenaida discovered the second sale after her demands for the title and possession of the property went
unanswered. She filed an adverse claim and sued for nullification of the sale to Munda, asserting her rights
under the earlier sale. Munda, who had taken possession of the property, claimed to be an innocent
purchaser for value, asserting that the title was clean when he purchased it.

The RTC ruled in favor of Zenaida, recognizing her as the rightful owner and nullifying the sale to Munda.
However, the Court of Appeals reversed the RTC decision, holding that Munda was a buyer in good faith.
Zenaida’s heirs elevated the case to the Supreme Court following her death in 2012.

Issues:

1. Whether or not the sale between Zenaida B. Gonzales and the spouses Basas transferred
ownership of the subject property to Zenaida.

2. Whether or not Romeo Munda was an innocent purchaser for value and in good faith.

3. Who between Zenaida and Munda had a better right to the property?

Ruling:

The Supreme Court ruled in favor of the petitioners, the heirs of Zenaida B. Gonzales. The Court reinstated
the RTC's decision and declared Zenaida the rightful owner of the property.
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Rationale:

1. Validity of the Sale to Zenaida:

o The 1996 Deed of Absolute Sale (DOAS) executed by the spouses Basas and Zenaida was
valid and transferred ownership of the property to Zenaida. The agreement was a contract
of sale subject to the resolutory condition that the spouses Basas secure the NHA’s
consent. The spouses’ subsequent inaction did not void the sale.

o Constructive delivery occurred when the DOAS was executed, as ownership had
effectively passed to Zenaida, even though physical possession remained with the spouses
under a rental agreement.

o Registration of the sale is not a mode of acquiring ownership but is necessary for binding
third parties. Zenaida’s adverse claim annotated in 1997 further established her assertion
of ownership.

2. Bad Faith of Romeo Munda:

o Munda’s claim of being a buyer in good faith was refuted by evidence that he became
aware of Zenaida’s adverse claim and prior purchase during the process of registering his
title. The adverse claim was annotated in October 1997, months before Munda’s title was
issued in March 1998.

o Munda’s failure to investigate Zenaida’s earlier claims, despite being informed by Zenaida
herself and the barangay’s involvement in mediating the dispute, showed willful disregard
and bad faith.

3. Inapplicability of Double Sale Doctrine (Article 1544, Civil Code):

o The spouses Basas no longer owned the property when they sold it to Munda, rendering
the second sale invalid. Article 1544 applies only when the same seller validly sells the
same property to multiple buyers.

o Even if Article 1544 were applied, Zenaida’s earlier purchase and her annotated adverse
claim gave her a better right, as Munda’s title was tainted by bad faith.

4. Liability of Spouses Basas:

o The spouses Basas breached their contract with Zenaida by selling the property again to
Munda and failing to secure the NHA’s consent as promised. This unjust enrichment and
fraudulent behavior justified the award of exemplary damages and attorney’s fees against
their estate.

5. Legal Basis:

o The Civil Code provisions on contracts (Articles 1318, 1458, and 1544) and the principle of
nemo dat quod non habet (one cannot give what one does not have) formed the legal
foundation of the ruling. The Court also emphasized that registration under the Torrens
system does not cure defects in title or bad faith in transactions.
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Disposition:

The Supreme Court granted the petition, reinstating the RTC's decision with the modification that
exemplary damages shall earn interest at 6% per annum from the date of finality until full payment. The
liabilities of the spouses Basas were transmitted to their heirs, consistent with the Civil Code’s provisions
on succession.

Petitioners: Heirs of Zenaida B. Gonzales, represented by Arnel B. Gonzales.

Respondents: Spouses Dominador and Estefania Basas and Romeo Munda.
Ponente: Justice Hernando.
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Domestic Petroleum v. Manila International Airport, GR 210641, Mar. 27, 2019

This case involves a dispute over rental overpayments by Domestic Petroleum Retailer Corporation (DPRC)
to Manila International Airport Authority (MIAA) under a lease contract. DPRC filed for the refund of
overpaid rental fees based on the invalidation of MIAA's Resolution No. 98-30. The issues centered on
whether DPRC’s action for a refund was governed by quasi-contract (solutio indebiti) and subject to a six-
year prescription period, and whether the payments were made due to mistake. The Supreme Court ruled
in favor of DPRC, reinstating the full refund of P9,593,179.87, reasoning that the action arose from a breach
of the lease contract, not solutio indebiti, thus subject to a ten-year prescriptive period. The Court also
ruled that the overpayments were not made by mistake, as DPRC paid under protest due to the presumed
legality of MIAA's resolution.

Facts

DPRC and MIAA entered into a lease contract on June 4, 1998, involving land and a building in Pasay City.
The agreed monthly rentals were later unilaterally increased by MIAA through Resolution No. 98-30,
effective June 1, 1998. DPRC initially protested the increase but continued payments under protest. In
2004, the Supreme Court invalidated Resolution No. 98-30 in a separate case, ruling it void for lack of
notice and hearing. Based on this, DPRC demanded a refund of overpayments amounting to
P9,593,179.87, but MIAA ignored the demand. DPRC subsequently filed a complaint for the refund.

The RTC ruled in favor of DPRC, ordering a refund of the full amount. On appeal, the CA reduced the refund
to P3,839,643.05, holding that the action was based on solutio indebiti, which prescribed in six years,
barring recovery of amounts paid before January 9, 2003.

Issues

1. Whether or not DPRC’s claim for refund is governed by solutio indebiti, subject to a six-year
prescriptive period.

2. Whether or not DPRC’s payments were made due to mistake.

3. Whether or not the full refund of P9,593,179.87 should be granted.

Ruling

The Supreme Court granted the petition and reinstated the RTC’s ruling, awarding the full refund of
P9,593,179.87 plus 12% annual legal interest from July 27, 2006.

Rationale

1. Nature of the Action – Not Solutio Indebiti:

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The Court ruled that solutio indebiti does not apply because the parties were bound by a valid
lease contract. Under the contract, price escalation required a valid administrative order and prior
notice to the lessee. The overpayment stemmed from MIAA’s breach of the contract by enforcing
the invalid resolution without complying with these conditions. Thus, the action was based on a
breach of contract, not a quasi-contract. The ten-year prescriptive period for written contracts
under Article 1144 of the Civil Code applied.

2. Payments Not Made by Mistake:

DPRC did not pay due to an error or misconception of fact or law. The payments were made under
protest because, at the time, Resolution No. 98-30 had the presumption of legality. DPRC’s protest
indicated an awareness of the resolution’s potential invalidity, negating the element of mistake
required for solutio indebiti.

3. Prescription of Action:

The CA erred in applying a six-year prescriptive period. The ten-year period under Article 1144
commenced only in 2004, when Resolution No. 98-30 was declared invalid. Additionally, DPRC’s
extrajudicial demand on July 27, 2006, interrupted the prescriptive period, resetting it to begin
anew. Thus, DPRC’s 2008 complaint was timely.

4. Legal Basis for Refund:

The Court cited Articles 1657 and 1659 of the Civil Code, which require the lessor to observe
contractual terms, including valid price escalations. By imposing an increase without compliance,
MIAA enriched itself unjustly, violating the contract. The Court also referenced Article 1155,
affirming that extrajudicial demand interrupts prescription.

Legal Principles Applied

• Article 1144, Civil Code: Ten-year prescription for actions based on written contracts.

• Article 1657, Civil Code: Lessees’ obligations, including paying stipulated rent.

• Article 1659, Civil Code: Lessees’ remedies for lessor’s failure to comply with the contract.

• Article 1155, Civil Code: Extrajudicial demand interrupts the prescriptive period.

• Presumption of Legality of Administrative Acts: Payments made under protest due to presumed
validity of administrative orders are not made by mistake.

Petitioner: Domestic Petroleum Retailer Corporation

Respondent: Manila International Airport Authority
Ponente: Justice Alfredo Benjamin S. Caguioa
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Officers and Employees of Iloilo v. COA, GR 218383, Jan. 5, 2021

This case involves a petition questioning the disallowance by the Commission on Audit (COA) of a
Productivity Enhancement Incentive (PEI) granted by the Iloilo Provincial Government to its employees in
2009. The COA disallowed the disbursement due to the province exceeding its Personal Services limitation
under the Local Government Code and ruled that the approving officers acted with gross negligence. The
Supreme Court upheld COA's decision, emphasizing that the disbursement was unauthorized and violated
budgetary rules, and held the approving and certifying officials solidarily liable for the disallowed amounts
while the recipients were required to return what they personally received under the principle of solutio
indebiti.

Facts

In December 2009, the Iloilo Sangguniang Panlalawigan enacted Appropriation Ordinance No. 2009-06,
granting a PEI of ₱50,000 per employee, totaling ₱102.7 million. During post-audit, COA disallowed the
payment due to violations of:

1. Section 325(a) of the Local Government Code (Republic Act No. 7160), which limits Personal
Services appropriations to 45% of total annual income.

2. Department of Budget and Management (DBM) Local Budget Circular No. 2009-93, requiring
compliance with the Personal Services limitation.

Before the PEI was granted, the Province of Iloilo had already exceeded its Personal Services limit by ₱38.7
million, which increased to ₱141.4 million with the disbursement of the PEI. COA also noted that Iloilo
officials had previously been issued a similar notice of disallowance in 2004, which was affirmed by the
Supreme Court.

The provincial officials argued that they acted in good faith and invoked the financial capability of the
province to support the PEI, while the employees who received the PEI should not be compelled to return
it.

Issues

1. Whether the COA committed grave abuse of discretion in disallowing the PEI granted to Iloilo
employees for 2009.

2. Whether the approving officers and recipients of the PEI acted in good faith, and whether they
are liable to return the disallowed amounts.

Ruling

1. COA did not commit grave abuse of discretion in disallowing the PEI.
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The Supreme Court upheld the disallowance, ruling that the PEI grant violated Section 325(a) of RA 7160.
The law limits appropriations for Personal Services, and the disbursement of the PEI further exceeded this
limit, making the disbursement unauthorized and illegal. Administrative Order No. 276 (2009) and DBM
Circular No. 2009-93 clarified that any PEI grant must comply with budgetary limitations, which the
province disregarded.

2. Approving officers and recipients are liable to return the disallowed amounts.

• Approving Officers: The Court found the approving and certifying officers grossly negligent for
failing to ensure compliance with the Personal Services limitation. They had prior knowledge of
budgetary restrictions and a prior disallowance from 2004. This lack of diligence and disregard for
clear legal mandates constituted gross negligence, making them solidarily liable for the full
amount disallowed.

• Recipients: The employees who received the PEI were held liable under the principle of solutio
indebiti (Civil Code, Art. 2154), which requires the return of undue payments made by mistake.
The Court rejected the defense of good faith since the grant of PEI was unauthorized. Exceptions
to the rule, such as benefits genuinely given in consideration of services rendered, did not apply
because the PEI grant lacked legal basis and financial capability.

Rationale

The Supreme Court emphasized the importance of fiscal responsibility among public officials and
adherence to the law. The decision highlighted:

• The prior notice of disallowance (2004) demonstrated that the officials were aware of the legal
limitations yet failed to exercise the necessary diligence.

• The approving officers' act of granting a PEI amount five times higher than that given to other
government offices indicated gross negligence.

• The financial incapacity of the province to fund the PEI rendered the disbursement unauthorized.

• The principle of solutio indebiti was applied to ensure that no one, including passive recipients,
unjustly benefits from public funds obtained in violation of the law.

The Court reiterated that the approval and receipt of funds must comply with clear and straightforward
legal requirements. Public officers are presumed to know the law, and the failure to observe legal and fiscal
limitations is tantamount to negligence or bad faith.

Legal Basis

1. Republic Act No. 7160 (Local Government Code), Section 325(a): Limits Personal Services
appropriations to 45% of total income for first- to third-class provinces.
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2. Administrative Code of 1987 (Book IV, Chapter 5, Sec. 43): Holds approving officials solidarily
liable for illegal expenditures.

3. Civil Code of the Philippines, Article 2154 (Solutio Indebiti): Obligation to return undue payments
made by mistake.

Petitioner and Respondents

• Petitioners: The officers and employees of the Iloilo Provincial Government, represented by Atty.
Edgar Claudio O. Sumido.

• Respondents: Commission on Audit (Chairperson Ma. Gracia M. Pulido-Tan, Commissioners Heidi

L. Mendoza, and Jose A. Fabia).

• Decision Writer: Justice ZALAMEDA

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Dy vs. People, G.R. No. 189081, 10 August 2016

This case pertains to the petition of Gloria S. Dy (Petitioner) against the People of the Philippines and
Mandy Commodities Co., Inc. (Respondents), represented by its president William Mandy, regarding a civil
liability dispute arising from alleged estafa. The petitioner was acquitted in the criminal case for failure to
prove guilt beyond reasonable doubt but was ordered to pay civil liability. The Supreme Court reversed
the Court of Appeals' (CA) decision to affirm the civil liability due to procedural and legal inconsistencies,
ruling that any civil obligation arising from the case must be pursued separately in a proper civil action.

Facts:

Gloria S. Dy, former General Manager of Mandy Commodities Co., Inc. (MCCI), facilitated a loan from the
International China Bank of Commerce (ICBC) for MCCI in the amount of ₱20,000,000.00, secured by a
chattel mortgage on MCCI's property. Upon MCCI's default, the property faced foreclosure. To prevent
this, MCCI's president, William Mandy, issued multiple checks totaling ₱21,706,281.00 and entrusted them
to Dy, instructing her to use them to pay the ICBC loan. Dy, however, claimed that she encashed the checks
and returned the money to Mandy.

ICBC eventually foreclosed the property as no payments were made. Mandy discovered this later and filed
a complaint for estafa against Dy. The Regional Trial Court (RTC) acquitted Dy, citing insufficient evidence
to prove misappropriation or conversion, crucial elements of estafa. However, it ordered her to pay the
amount of the checks based on a finding of a loan agreement between the parties. The CA upheld this
decision, emphasizing that acquittal on reasonable doubt does not absolve civil liability. Dy appealed to
the Supreme Court, arguing that the civil liability awarded was improper given her acquittal for estafa.

Issues:

1. Whether or not civil liability ex delicto can be awarded when the accused is acquitted due to
insufficient evidence of a crime.

2. Whether or not civil liability arising from a loan agreement can be adjudicated in a criminal case
for estafa.

Ruling:

The Supreme Court granted the petition and reversed the CA decision, ruling that:

1. Civil liability ex delicto cannot be awarded when no crime exists. The absence of misappropriation
or conversion negates the existence of estafa and, consequently, any civil liability arising from it.

2. Civil liability arising from the loan (a contractual obligation) is ex contractu and must be pursued
separately in a civil action.
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Rationale:

The Court elaborated on several key points:

1. Distinction Between Civil and Criminal Liabilities:

Civil liability ex delicto arises directly from the act or omission constituting a crime. If no crime
exists, as in this case where the element of criminal fraud was unproven, no such civil liability can
be imposed. The RTC's finding of a loan agreement shifts the obligation from criminal liability to
contractual liability (ex contractu), which is outside the scope of a criminal proceeding.

2. Due Process:

Procedural fairness requires clear notice of claims and the opportunity to defend them. In criminal
proceedings, the accused prepares a defense against allegations of crime, not breaches of
contract. Adjudicating contractual liability in a criminal case deprives the accused of adequate
notice and remedies (e.g., filing counterclaims or presenting evidence specific to a contract
dispute), violating due process.

3. Legal Basis:

The Revised Penal Code and jurisprudence (e.g., Manantan v. Court of Appeals) affirm that
acquittal for lack of evidence does not preclude civil liability unless it is clear that the act or
omission from which civil liability arises did not exist. However, where the source of obligation is
a contract, as in this case, the Rules of Court mandate a separate civil action under Rule 111.

4. Rationale Against Misuse of Criminal Cases:

The Court criticized the practice of using criminal cases as leverage to collect debts, emphasizing
that contractual obligations must be addressed through appropriate civil actions. This ensures that
creditors do not weaponize criminal courts as collection agencies, which undermines the justice
system.

Legal Basis:

• Article 29, Civil Code: Allows civil liability to subsist despite acquittal for reasonable doubt.

• Article 315, Revised Penal Code: Defines estafa and its elements, including fraud and
misappropriation.

• Rule 111, Rules of Court: Stipulates the independent nature of civil actions arising from sources
other than the crime.

• Article 1150, Civil Code: Prescribes the period for filing actions, starting from the legal possibility
of bringing the action.

Judge:
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The decision was penned by Justice Francis H. Jardeleza, with Justices Velasco, Jr., Peralta, Perez, and Reyes
concurring.
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Pilipinas Petroleum Corporation vs. Duque, GR No. 216467, February 15, 2017

The case involves a dispute over a dishonored corporate check issued by respondents Carlos and Teresa
Duque in their capacity as officers of Fitness Consultants, Inc. (FCI) to petitioner Pilipinas Shell Petroleum
Corporation (PSPC). The issue arose under Batas Pambansa Blg. 22 (BP 22), which penalizes the issuance
of bouncing checks. The trial court initially convicted respondents of BP 22 violations and held them civilly
liable for the value of the check. However, their criminal conviction was overturned on appeal. Ultimately,
the Supreme Court ruled that since respondents were acquitted of the BP 22 charge, their civil liability
arising from the dishonored corporate check was also extinguished.

Facts

Pilipinas Shell Petroleum Corporation (PSPC) subleased a portion of its building to The Fitness Center (TFC).
Due to operational challenges, TFC assigned its rights and obligations under the sublease to Fitness
Consultants, Inc. (FCI), represented by Carlos Duque, its proprietor, and Teresa Duque, its corporate
secretary. Subsequently, FCI encountered financial difficulties and failed to pay the rental dues to PSPC. To
address the outstanding obligation, FCI issued a corporate check signed by respondents Carlos and Teresa
Duque in their capacity as corporate officers. However, the check was dishonored upon presentment for
the reason "account closed." Despite being notified of the dishonor, the respondents failed to settle the
obligation or arrange payment within the required period. This led PSPC to file a criminal complaint under
Batas Pambansa Blg. 22 (BP 22) against the respondents.

The Metropolitan Trial Court (MeTC) of Makati convicted the respondents of violating BP 22, sentencing
them to pay a fine and holding them civilly liable for the amount of the dishonored check, plus interest
and attorney's fees. On appeal, the Regional Trial Court (RTC) acquitted the respondents due to the
prosecution's failure to prove all the elements of the offense. Initially, the RTC upheld their civil liability
but later reversed itself, holding that the obligation was a corporate debt for which only FCI, not the
respondents personally, was liable. The Court of Appeals (CA) affirmed the RTC's decision, ruling that civil
liability arising from a corporate check in BP 22 cases attaches only upon conviction.

Issues

1. Whether or not respondents may be held civilly liable for the dishonored corporate check
despite their acquittal.

Ruling

The Supreme Court held that respondents cannot be held civilly liable following their acquittal from the
BP 22 charge.

Rationale
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1. Criminal and Civil Liability in BP 22 Cases:

o As per established jurisprudence, the civil liability of corporate officers in BP 22 cases is

tied to their conviction. If acquitted, no civil liability arises from the dishonored corporate
check unless explicitly stated by the court.

o The Court cited Gosiaco v. Ching and Bautista v. Auto Plus Traders, Inc., which affirm that
acquittal extinguishes both criminal and civil liabilities in BP 22 cases.

2. Nature of the Obligation:

o The dishonored check was issued by FCI for corporate obligations, not personal debts of
respondents. As corporate officers, respondents cannot be held personally liable unless
fraud or bad faith is proven.

o There was no evidence showing that respondents personally guaranteed the obligation or
misused the corporate veil for fraudulent purposes.

3. Corporate Fiction:

o The Court emphasized that juridical entities have a separate legal personality distinct from
their officers. Corporate officers are not personally liable for corporate obligations unless
the corporate veil is pierced due to fraud, which was not proven here.

4. Legal Basis:

o The Court relied on Section 1 of BP 22 and jurisprudence to assert that the civil liability
arising from a dishonored check depends on the conviction of the signatory.

o The Supreme Court also noted that respondents signed the check in their official
capacities, further shielding them from personal liability.
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VDM Trading v. Carungcong, GR 206709, Feb 6, 2019

The case involves a complaint for damages filed by petitioners against respondents for alleged damage to
Unit 2208B-1 of the Wack Wack Twin Towers Condominium due to water leakage. Petitioners claim the
leakage originated from unauthorized plumbing works in the balcony of Unit 2308B-1 owned by
respondent Carungcong and failed oversight by respondent Wack Wack Condominium Association. The
issue centers on whether respondents’ negligence caused the damage, establishing a quasi-delict. The
Court of Appeals (CA) dismissed the complaint, citing lack of evidence and ruling that the proximate cause
was substandard construction by the building developer, Golden Dragon. The Supreme Court affirmed the
CA's decision, denying the petition for lack of merit.

Facts

VDM Trading, Inc., owned by Spouses Luis and Nena Domingo, owns Unit 2208B-1 at Wack Wack Twin
Towers Condominium. In December 1998, while the petitioners were abroad, water leakage damaged
their unit. Their attorney-in-fact, Atty. Villareal, identified Unit 2308B-1 (owned by Leonita Carungcong and
leased to Hak Yek Tan) as the source. Allegedly, unauthorized plumbing on the balcony of Unit 2308B-1
caused soapy water to seep through.

Despite demand letters from petitioners, no repair or compensation was made. Petitioners sued for
₱490,635 in actual damages, ₱300,000 in exemplary damages, and legal fees. Respondents denied liability,
asserting the leakage stemmed from construction defects by Golden Dragon, the developer. The trial court
ruled in favor of the petitioners, holding respondents solidarily liable. However, the CA reversed this ruling,
citing insufficient evidence to prove negligence or causation by respondents.

Issues

1. Whether or not respondents Carungcong and Wack Wack Condominium Association were
negligent or at fault.

2. Whether or not the plumbing works in Unit 2308B-1 were the proximate cause of the damage
to Unit 2208B-1.

Ruling

The Supreme Court denied the petition, affirming the CA's decision to dismiss the complaint.

Rationale

1. Lack of Sufficient Evidence

The Court found the petitioners’ evidence insufficient and inadmissible. The letter-quotation from M.
Laher Construction was deemed unauthenticated and hearsay, while the handwritten report by Nena
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Domingo's sister, Nancy Lagman-Castillo, lacked credibility as she was not presented as a witness.
Petitioners relied heavily on hearsay evidence, including statements from Wack Wack’s property manager,
which were unsubstantiated.

2. Absence of Fault or Negligence by Respondents

Petitioners failed to establish specific acts of negligence by Carungcong or her lessee, Tan. There was no
proof that the plumbing works were unauthorized, negligent, or violated condominium rules. As for Wack
Wack Condominium Association, its responsibility was limited to maintaining common areas, not
individual units, as stipulated in the Amended Master Deed.

3. Lack of Proximate Cause

The Court emphasized that petitioners failed to prove causation between the plumbing works in Unit
2308B-1 and the damage in Unit 2208B-1. Petitioners’ own records revealed an earlier case before the
HLURB, where they attributed the leakage to defective construction by Golden Dragon. The HLURB
decision, which found Golden Dragon liable, further weakened their claims.

4. Legal Basis for the Ruling

The Court cited Article 2176 of the Civil Code, which defines a quasi-delict as an act or omission causing
damage due to fault or negligence, requiring proof of causation. Petitioners failed to meet this burden, as
their claims were unsupported by admissible evidence or expert testimony.

Motive Analysis

The petitioners’ primary motive was to recover damages for the destruction in their unit. However, the
Court observed inconsistencies in their arguments, particularly their prior acknowledgment of
construction defects caused by Golden Dragon. This weakened their claim of negligence by respondents.

Legal Basis

• Article 2176, Civil Code of the Philippines: Defines quasi-delict and its elements (damage, fault or
negligence, and proximate cause).

• Rule 132, Rules of Court: Addresses the admissibility of evidence, particularly private documents
and hearsay.

Disposition

The Supreme Court affirmed the CA's decision, dismissing the complaint for damages filed against
respondents Carungcong and Wack Wack Condominium Association.

Parties Involved
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• Petitioners: VDM Trading, Inc. and Spouses Luis and Nena Domingo

• Respondents: Leonita Carungcong and Wack Wack Twin Towers Condominium Association

• Judge: Justice Alfredo Benjamin S. Caguioa

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UCPB v. Heirs of Leporgo, GR 210976, Jan 12, 2021

This case involves the liability of UCPB Leasing and Finance Corporation (ULFC) as the registered owner of
a trailer truck that caused the death of Florencio Leporgo, Sr. in a road accident. The heirs of Leporgo filed
for damages against ULFC and the driver, Miguelito Almazan. The issue centers on whether ULFC, as a
financing company and registered owner of the vehicle leased to Subic Bay Movers, Inc. (SBMI), can be
held jointly liable for damages despite not operating the vehicle directly. The Court ruled that ULFC is
solidarily liable due to its failure to register the lease agreement and its obligations under the Land
Transportation and Traffic Code, which prioritizes the protection of third parties.

Facts

On November 13, 2000, Florencio Leporgo, Sr., a Bureau of Customs employee, was driving his car when
it was struck by a trailer truck owned by ULFC but leased to SBMI. The truck, driven recklessly by Miguelito
Almazan, caused a series of collisions, culminating in an explosion that killed Leporgo. The heirs filed a
complaint for damages. ULFC argued that the lease agreement with SBMI exempted it from liability under
Republic Act (R.A.) No. 8556, and it questioned the validity of the service of summons.

The Regional Trial Court (RTC) and the Court of Appeals (CA) ruled in favor of the heirs, finding ULFC and
Almazan jointly and severally liable. The CA emphasized the principle of substantial compliance in service
of summons and ULFC's liability as the registered owner, as the lease was not registered with the Land
Transportation Office (LTO).

Issues

1. Whether or not the RTC acquired jurisdiction over ULFC.

2. Whether or not ULFC is solidarily liable with Almazan for the damages caused by the trailer truck
despite the lease agreement with SBMI.

3. Whether or not the computation of damages awarded to the heirs of Leporgo was proper.

Ruling

1. Jurisdiction: The RTC validly acquired jurisdiction over ULFC. The service of summons, although not
directed to the responsible officers listed under the Rules, was sufficient under the principle of substantial
compliance. ULFC also voluntarily submitted to the court’s jurisdiction by actively participating in the
proceedings through its Answer Ad Cautelam.

2. Liability: ULFC, as the registered owner of the trailer truck, is solidarily liable with Almazan. R.A. No.
4136 mandates that third parties can rely on the registered owner of a vehicle for liability. ULFC’s failure
to register the lease agreement with the LTO, as required under Section 5 of the Land Transportation and
Traffic Code, barred it from invoking the exemption under Section 12 of R.A. No. 8556. Thus, ULFC remains
liable for damages despite the vehicle being under SBMI’s control.
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3. Damages:

• The Court corrected the computation of Leporgo’s loss of earning capacity to P2,710,319.99 using
the proper formula:
Net earning capacity=[23(80−age at death)]×[Gross annual income−(50% of GAI)]\text{Net
earning capacity} = \left[ \frac{2}{3}(80 - \text{age at death}) \right] \times \left[\text{Gross annual
income} - (50\% \text{ of GAI})\right]Net earning capacity=[32
(80−age at death)]×[Gross annual income−(50% of GAI)]

• Actual damages of P482,533.04, based on documented funeral expenses, were upheld.

• Moral damages were reduced from P1,000,000.00 to P100,000.00 as the earlier amount was
deemed excessive.

• Exemplary damages of P50,000.00 were sustained to penalize ULFC for failing to register the lease
agreement and ensure insurance coverage.

Interest at 6% per annum was imposed on the total monetary award from the RTC judgment date
(February 2, 2009) until full satisfaction.

Rationale of the Ruling

The Court emphasized that public safety and accountability to third parties are paramount under the Land
Transportation and Traffic Code (R.A. No. 4136). By failing to register its lease with SBMI, ULFC prevented
the LTO from updating the vehicle's ownership records, thereby misleading the public and exposing
innocent victims to unnecessary risks. The Court also highlighted that R.A. No. 8556, which exempts
financing companies from liability under specific conditions, does not supersede R.A. No. 4136.

ULFC’s defense—that it was not operating the vehicle at the time of the accident—was countered by its
legal obligation as the registered owner. The failure to meet regulatory requirements, including insurance
coverage, further strengthened the ruling against ULFC. The Court relied on PCI Leasing and Finance, Inc.
v. UCPB General Insurance Co., Inc., which upheld that unregistered lease agreements cannot defeat
claims of third parties.

Legal Basis

1. Land Transportation and Traffic Code (R.A. No. 4136): Requires registration of leases to bind third
parties (Sec. 5).

2. Financing Company Act (R.A. No. 8556): Exemption from liability under Sec. 12 is invalidated by
failure to register the lease.

3. Civil Code:

o Article 2199: Actual damages require proof of pecuniary loss.

o Article 2206: Award of moral damages for death is mandatory.

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4. Jurisprudence:

o PCI Leasing and Finance, Inc. v. UCPB General Insurance Co., Inc. clarified that R.A. No.
4136 prevails over R.A. No. 8556 in protecting third parties.

Parties

• Petitioner: UCPB Leasing and Finance Corporation (ULFC)

• Respondents: Heirs of Florencio Leporgo, Sr., represented by Florencio Leporgo, Jr.

• Driver: Miguelito Almazan

• Judge: Hon. Carandang

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De Jesus v. Uyloan, GR 234851, Feb. 15, 2022

In G.R. No. 234851, Paolo Anthony C. De Jesus (petitioner) filed a complaint for damages against Dr. Romeo
F. Uyloan (substituted by his wife, Salvacion Uyloan), Dr. John Francois Ojeda, and Asian Hospital and
Medical Center (respondents), claiming medical negligence during a gallbladder operation. The petitioner
alleged that the respondents breached their contractual obligation to perform the procedure with due
diligence. However, the Supreme Court ruled that the cause of action was based on quasi-delict (medical
negligence) and that the complaint was time-barred under Article 1146 of the Civil Code.

Facts

On September 15, 2010, petitioner underwent surgery at the Asian Hospital and Medical Center to remove
gallstones (laparoscopic cholecystectomy). However, during the procedure, Dr. Uyloan and Dr. Ojeda
converted the laparoscopic method to an open cholecystectomy due to a punctured cystic artery. The
petitioner claimed that this change was made without his consent.

Post-surgery, the petitioner experienced continuous abdominal pain and bile leakage. Upon further
medical examination at another hospital, it was revealed that the respondents had mistakenly cut and
clipped his common bile duct, causing severe internal complications. The petitioner underwent corrective
surgery on November 19, 2010.

On November 10, 2015, the petitioner filed a complaint for damages, alleging that the respondents
breached their obligations under a medical contract. He also sought to hold the hospital vicariously liable
under the doctrine of corporate responsibility. The respondents moved to dismiss the complaint, arguing
that the claim was time-barred under the four-year prescriptive period for quasi-delicts.

The RTC denied the motions to dismiss, holding that the issue of prescription required further evidence.
On appeal, the Court of Appeals (CA) reversed the RTC, ruling that the complaint was time-barred.

Issues

1. Whether or not the petitioner's claim was based on breach of contract or quasi-delict.

2. Whether or not the complaint was barred by the four-year prescriptive period under Article
1146 of the Civil Code.

Ruling

The Supreme Court affirmed the CA's decision, denying the petition.

1. Breach of Contract or Quasi-Delict: The Court ruled that while the petitioner attempted to base
his claim on an implied medical contract, his allegations and arguments clearly established that
the action was grounded on medical negligence (quasi-delict). For a medical malpractice case to
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be based on a breach of contract, there must be an express promise to achieve a specific result.
The petitioner's reliance on an implied contract was insufficient to support a contractual claim.

2. Prescription: The Court held that the complaint was time-barred. Under Article 1146 of the Civil
Code, actions based on quasi-delicts must be filed within four years from the time the cause of
action accrues. In this case, the cause of action accrued on September 15, 2010, when the
operation occurred. The complaint was filed on November 10, 2015, exceeding the four-year
period.

Rationale

The Supreme Court emphasized that the distinction between actions based on contracts and quasi-delicts
is crucial in determining the applicable prescriptive period. A contractual claim requires an express
promise of a specific outcome, while a quasi-delict involves negligence without such an agreement.

The Court noted that the petitioner’s complaint primarily alleged the elements of medical negligence: the
doctors’ breach of their professional duty of care, resulting in harm to the petitioner. These allegations
pointed to a tortious claim rather than a contractual one. The petitioner's reliance on foreign jurisprudence
regarding implied contracts in medical malpractice cases was unavailing, as the circumstances did not
involve an express agreement or special contract promising a specific result.

Furthermore, the petitioner’s argument that the six- or ten-year prescriptive period for contractual claims
should apply was dismissed. The Court clarified that medical negligence is governed by Article 2176 of the
Civil Code, which falls under quasi-delicts. The applicable prescriptive period of four years under Article
1146 had already lapsed.

The Court’s interpretation underscores the importance of timely filing and the proper classification of
claims, as these procedural elements are vital to the efficient administration of justice.

Legal Basis

1. Article 1146, Civil Code: Actions based on quasi-delicts prescribe within four years.

2. Article 2176, Civil Code: Fault or negligence causing damage, when no pre-existing contractual
relationship exists, constitutes a quasi-delict.

3. Jurisprudence (Lucas v. Tuaño): Physicians owe their patients a duty of care, the breach of which
constitutes actionable malpractice.

Petitioner and Respondents

• Petitioner: Paolo Anthony C. De Jesus

• Respondents: Dr. Romeo F. Uyloan (substituted by Salvacion Uyloan), Dr. John Francois Ojeda,
Asian Hospital and Medical Center
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Decision Writer

Chief Justice Gesmundo

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Fegarido v. Alcantara, GR 240066, June 13, 2022

This case involves the death of Cristina S. Alcantara due to a vehicular accident involving a jeepney driven
by petitioner Gerry S. Fegarido and owned by petitioner Linalie A. Milan. The Regional Trial Court (RTC)
and the Court of Appeals (CA) found both petitioners solidarily liable for damages arising from negligence.
Despite Fegarido’s acquittal in the criminal case due to the lack of proof beyond reasonable doubt, the
independent civil action for damages based on quasi-delict proceeded, which requires only
preponderance of evidence. The Supreme Court denied the petition, affirming the CA's decision, and
upheld the damages awarded to the respondents.

Facts
On October 15, 2008, Cristina S. Alcantara was struck by a jeepney driven by Fegarido while crossing the
road in Olongapo City. The impact caused her severe head injuries, leading to her death three days later.
Fegarido was charged with reckless imprudence resulting in homicide but was acquitted by the Municipal
Trial Court in Cities due to lack of proof beyond reasonable doubt.

The heirs of Alcantara subsequently filed a civil action for damages against both Fegarido and Milan, the
registered owner of the jeepney. The RTC found Fegarido negligent in operating the vehicle and Milan
vicariously liable for failing to exercise diligence in hiring and supervising her employee. The CA upheld
this decision.

Petitioners contested the findings, arguing that Fegarido’s criminal acquittal negates civil liability and that
there was no evidence proving negligence.

Issues

1. Whether or not Fegarido was negligent and liable for Alcantara's death.

2. Whether or not Milan, as the jeepney owner, was vicariously liable for damages.

3. Whether or not the award of damages was proper.

Ruling
The Supreme Court ruled against the petitioners and affirmed the CA’s decision.

1. Fegarido’s Negligence

The Court found sufficient evidence proving that Fegarido’s gross negligence caused Alcantara’s
death. Eyewitness testimonies and physical evidence showed that the jeepney was moving fast as
it made a left turn, sideswiping the victim. The screeching sound and the force of the impact
indicated that Fegarido failed to exercise reasonable care in operating the vehicle.
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The Court reiterated that a criminal acquittal does not preclude civil liability based on quasi-delict. An
independent civil action requires only preponderance of evidence, a lower standard than proof beyond
reasonable doubt.

2. Milan’s Vicarious Liability

Under Article 2180 of the Civil Code, employers are liable for damages caused by their employees
if negligence in selection or supervision is proven. Milan failed to exercise the diligence required
by law. Her husband, who vetted Fegarido, conducted only one driving test and did not require
additional qualifications like medical or drug tests. Thus, Milan was held vicariously liable.

3. Award of Damages

The Court upheld the award of:

• ₱138,591.00 as actual damages, supported by receipts for medical and funeral expenses.

• ₱100,000.00 as moral damages, compensating the heirs for emotional suffering.

• ₱50,000.00 as exemplary damages, to serve as a deterrent to reckless behavior by public utility

operators.

• ₱40,000.00 as attorney's fees and litigation expenses, given the prolonged litigation.

All awards were subject to 6% legal interest per annum from the finality of the decision until full payment.

Rationale of the Ruling

The Court explained that negligence under quasi-delict focuses on the lack of due care rather than the
criminal intent. The testimonies of witnesses established the negligence of Fegarido in operating the
jeepney at an unsafe speed. Milan's inadequate hiring and supervision practices failed to prevent such
negligence. The legal basis lies in Articles 2176 and 2180 of the Civil Code, which impose liability for
damages caused by negligence and for employers' failure to exercise due diligence, respectively.

The Court emphasized that the civil liability based on quasi-delict is distinct from criminal liability and may
proceed independently, as clarified in Philippine Rabbit Bus Lines, Inc. v. People and other jurisprudence.
The presumption of employer negligence is rebuttable only through evidence of due diligence, which
Milan failed to provide.

Petitioners: Gerry S. Fegarido and Linalie A. Milan

Respondents: Heirs of Cristina S. Alcantara
Ponente: Justice Leonen