1.G.R. No. 105774            April 25, 2002

GREAT ASIAN SALES CENTER CORPORATION and TAN CHONG LIN, petitioners, vs.THE COURT OF APPEALS and BANCASIA FINANCE AND INVESTMENT CORPORATION, respondents.

CARPIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedure assailing the June 9, 1992 Decision1 of the Court of Appeals2 in CA-G.R. CV No. 20167. The Court of Appeals affirmed the January 26, 1988 Decision3 of the Regional Trial Court of Manila, Branch 52,4 ordering petitioners Great Asian Sales Center Corporation ("Great Asian" for brevity) and Tan Chong Lin to pay, solidarily, respondent Bancasia Finance and Investment Corporation ("Bancasia" for brevity) the amount of P1,042,005.00. The Court of Appeals affirmed the trial court’s award of interest and costs of suit but deleted the award of attorney’s fees.

The Facts

Great Asian is engaged in the business of buying and selling general merchandise, in particular household appliances. On March 17, 1981, the board of directors of Great Asian approved a resolution authorizing its Treasurer and General Manager, Arsenio Lim Piat, Jr. ("Arsenio" for brevity) to secure a loan from Bancasia in an amount not to exceed P1.0 million. The board resolution also authorized Arsenio to sign all papers, documents or promissory notes necessary to secure the loan. On February 10, 1982, the board of directors of Great Asian approved a second resolution authorizing Great Asian to secure a discounting line with Bancasia in an amount not exceeding P2.0 million. The second board resolution also designated Arsenio as the authorized signatory to sign all instruments, documents and checks necessary to secure the discounting line.

On March 4, 1981, Tan Chong Lin signed a Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. On January 29, 1982, Tan Chong Lin signed a Comprehensive and Continuing Surety Agreement in favor of Bancasia to guarantee, solidarily, the debts of Great Asian to Bancasia. Thus, Tan Chong Lin signed two surety agreements ("Surety Agreements" for brevity) in favor of Bancasia.

Great Asian, through its Treasurer and General Manager Arsenio, signed four (4) Deeds of Assignment of Receivables ("Deeds of Assignment" for brevity), assigning to Bancasia fifteen (15) postdated checks. Nine of the checks were payable to Great Asian, three were payable to "New Asian Emp.", and the last three were payable to

cash. Various customers of Great Asian issued these postdated checks in payment for appliances and other merchandise.

Great Asian and Bancasia signed the first Deed of Assignment on January 12, 1982 covering four postdated checks with a total face value of P244,225.82, with maturity dates not later than March 17, 1982. Of these four postdated checks, two were dishonored. Great Asian and Bancasia signed the second Deed of Assignment also on January 12, 1982 covering four postdated checks with a total face value of P312,819.00, with maturity dates not later than April 1, 1982. All these four checks were dishonored. Great Asian and Bancasia signed the third Deed of Assignment on February 11, 1982 covering eight postdated checks with a total face value of P344,475.00, with maturity dates not later than April 30, 1982. All these eight checks were dishonored. Great Asian and Bancasia signed the fourth Deed of Assignment on March 5, 1982 covering one postdated check with a face value of P200,000.00, with maturity date on March 18, 1982. This last check was also dishonored. Great Asian assigned the postdated checks to Bancasia at a discount rate of less than 24% of the face value of the checks.

Arsenio endorsed all the fifteen dishonored checks by signing his name at the back of the checks. Eight of the dishonored checks bore the endorsement of Arsenio below the stamped name of "Great Asian Sales Center", while the rest of the dishonored checks just bore the signature of Arsenio. The drawee banks dishonored the fifteen checks on maturity when deposited for collection by Bancasia, with any of the following as reason for the dishonor: "account closed", "payment stopped", "account under garnishment", and "insufficiency of funds". The total amount of the fifteen dishonored checks is P1,042,005.00. Below is a table of the fifteen dishonored checks:

Drawee Bank Check No. Amount Maturity Date

1st Deed

Solid Bank C-A097480 P137,500.00 March 16, 1982

Pacific Banking Corp. 23950 P47,211.00 March 17, 1982

2nd Deed

Metrobank 030925 P68,722.00 March 19, 1982

030926 P45,230.00 March 19, 1982

Solidbank C-A097478 P140,000.00 March 23, 1982

Pacific Banking Corp. CC 769910 P58,867.00 April 1, 1982

3rd Deed

Phil. Trust Company 060835 P21,228.00 April 21, 1982

060836 P22,187.00 April 28, 1982

Allied Banking Corp. 11251624 P41,773.00 April 22, 1982

11251625 P38,592.00 April 29, 1982

Pacific Banking Corp. 237984 P37,886.00 April 23, 1982

237988 P47,385.00 April 28, 1982

237985 P46,748.00 April 30, 1982

Security Bank & Trust Co. 22061 P88,676.00 April 30, 1982

4th Deed

Pacific Banking Corp. 860178 P200,000.00 March 18, 1982

After the drawee bank dishonored Check No. 097480 dated March 16, 1982, Bancasia referred the matter to its lawyer, Atty. Eladia Reyes, who sent by registered mail to Tan Chong Lin a letter dated March 18, 1982, notifying him of the dishonor and demanding payment from him. Subsequently, Bancasia sent by personal delivery a letter dated June 16, 1982 to Tan Chong Lin, notifying him of the dishonor of the fifteen checks and demanding payment from him. Neither Great Asian nor Tan Chong Lin paid Bancasia the dishonored checks.

On May 21, 1982, Great Asian filed with the then Court of First Instance of Manila a petition for insolvency, verified under oath by its Corporate Secretary, Mario Tan. Attached to the verified petition was a "Schedule and Inventory of Liabilities and Creditors of Great Asian Sales Center Corporation," listing Bancasia as one of the creditors of Great Asian in the amount of P1,243,632.00.

On June 23, 1982, Bancasia filed a complaint for collection of a sum of money against Great Asian and Tan Chong Lin. Bancasia impleaded Tan Chong Lin because of the Surety Agreements he signed in favor of Bancasia. In its answer, Great Asian denied the material allegations of the complaint claiming it was unfounded, malicious, baseless, and unlawfully instituted since there was already a pending insolvency proceedings, although Great Asian subsequently withdrew its petition for voluntary insolvency. Great Asian further raised the alleged lack of authority of Arsenio to sign the Deeds of Assignment as well as the absence of consideration and consent of all the parties to the Surety Agreements signed by Tan Chong Lin.

Ruling of the Trial Court

The trial court rendered its decision on January 26, 1988 with the following findings and conclusions:

"From the foregoing facts and circumstances, the Court finds that the plaintiff has established its causes of action against the defendants. The Board Resolution (Exh. "T"), dated March 17, 1981, authorizing Arsenio Lim Piat, Jr., general manager and treasurer of the defendant Great Asian to

apply and negotiate for a loan accommodation or credit line with the plaintiff Bancasia in an amount not exceeding One Million Pesos (P1,000,000.00), and the other Board Resolution approved on February 10, 1982, authorizing Arsenio Lim Piat, Jr., to obtain for defendant Asian Center a discounting line with Bancasia at prevailing discounting rates in an amount not to exceed Two Million Pesos (P2,000,000.00), both of which were intended to secure money from the plaintiff financing firm to finance the business operations of defendant Great Asian, and pursuant to which Arsenio Lim Piat, Jr. was able to have the aforementioned fifteen (15) checks totaling P1,042,005.00 discounted with the plaintiff, which transactions were obviously known by the beneficiary thereof, defendant Great Asian, as in fact, in its aforementioned Schedule and Inventory of Liabilities and Creditors (Exh. DD, DD-1) attached to its Verified Petition for Insolvency, dated May 12, 1982 (pp. 50-56), the defendant Great Asian admitted an existing liability to the plaintiff, in the amount of P1,243,632.00, secured by it, by way of ‘financing accommodation,’ from the said financing institution Bancasia Finance and Investment Corporation, plaintiff herein, sufficiently establish the liability of the defendant Great Asian to the plaintiff for the amount of P1,042,005.00 sought to be recovered by the latter in this case.5

xxx

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the two (2) defendants ordering the latter, jointly and severally, to pay the former:

(a) The amount of P1,042,005.00, plus interest thereon at the legal rate from the filing of the complaint until the same is fully paid;

(b) Attorney’s fees equivalent to twenty per cent (20%) of the total amount due; and

(c) The costs of suit.

SO ORDERED."6

Ruling of the Court of Appeals

On appeal, the Court of Appeals sustained the decision of the lower court, deleting only the award of attorney’s fees, as follows:

"As against appellants’ bare denial of it, the Court is more inclined to accept the appellee’s version, to the effect that the subject deeds of assignment are but individual transactions which -- being collectively evidentiary of the loan accommodation and/or credit line it granted the appellant corporation -- should not be taken singly and distinct therefrom. In addition to its

plausibility, the proposition is, more importantly, adequately backed by the documentary evidence on record. Aside from the aforesaid Deeds of Assignment (Exhs. "A", "D", "I", and "R") and the Board Resolutions of the appellant corporation’s Board of Directors (Exhs. "T", "U" and "V"), the appellee -- consistent with its theory -- interposed the Surety Agreements the appellant Tan Chong Lin executed (Exhs. "W" and "X"), as well as the demand letters it served upon the latter as surety (Exhs. "Y" and "Z"). It bears emphasis that the second Resolution of the appellant corporation’s Board of Directors (Exh. "V") even closely coincides with the execution of the February 11, 1982 and March 5, 1982 Deeds of Assignment (Exhs. "I" and "R"). Were the appellants’ posturings true, it seems rather strange that the appellant Tan Chong Lin did not even protest or, at least, make known to the appellee what he -- together with the appellant corporation -- represented to be a corporate larceny to which all of them supposedly fell prey. In the petition for voluntary insolvency it filed, the appellant corporation, instead, indirectly acknowledged its indebtedness in terms of financing accommodations to the appellee, in an amount which, while not exactly matching the sum herein sought to be collected, approximates the same (Exhs. "CC", "DD" and "DD-1").7

xxx

The appellants contend that the foregoing warranties enlarged or increased the surety’s risk, such that appellant Tan Chong Lin should be released from his liabilities (pp. 37-44, Appellant’s Brief). Without saying more, the appellants’ position is, however, soundly debunked by the undertaking expressed in the Comprehensive and Continuing Surety Agreements (Exhs. "W" and "X"), to the effect that the "xxx surety/ies, jointly and severally among themselves and likewise with the principal, hereby agree/s and bind/s himself to pay at maturity all the notes, drafts, bills of exchange, overdrafts and other obligations which the principal may now or may hereafter owe the creditor xxx." With the possible exception of the fixed ceiling for the amount of loan obtainable, the surety undertaking in the case at bar is so comprehensive as to contemplate each and every condition, term or warranty which the principal parties may have or may be minded to agree on. Having affixed his signature thereto, the appellant Tan Chong Lin is expected to have, at least, read and understood the same.

xxx

With the foregoing disquisition, the Court sees little or no reason to go into the appellants’ remaining assignments of error, save the matter of attorney’s fees. For want of a statement of the rationale therefore in the body of the challenged decision, the trial court’s award of attorney’s fees should be deleted and disallowed (Abrogar vs. Intermediate Appellate Court, 157 SCRA 57).

WHEREFORE, the decision appealed from is MODIFIED, to delete the trial court’s award of attorney’s fees. The rest is AFFIRMED in toto.

SO ORDERED."8

The Issues

The petition is anchored on the following assigned errors:

"1. The respondent Court erred in not holding that the proper parties against whom this action for collection should be brought are the drawers and indorser of the checks in question, being the real parties in interest, and not the herein petitioners.

2. The respondent Court erred in not holding that the petitioner-corporation is discharged from liability for failure of the private respondent to comply with the provisions of the Negotiable Instruments Law on the dishonor of the checks.

3. The respondent Court erred in its appreciation and interpretation of the effect and legal consequences of the signing of the deeds of assignment and the subsequent indorsement of the checks by Arsenio Lim Piat, Jr. in his individual and personal capacity and without stating or indicating the name of his supposed principal.

4. The respondent Court erred in holding that the assignment of the checks is a loan accommodation or credit line accorded by the private respondent to petitioner-corporation, and not a purchase and sale thereof.

5. The respondent Court erred in not holding that there was a material alteration of the risk assumed by the petitioner-surety under his surety agreement by the terms, conditions, warranties and obligations assumed by the assignor Arsenio Lim Piat, Jr. under the deeds of assignment or receivables.

6. The respondent Court erred in holding that the petitioner-corporation impliedly admitted its liability to private respondent when the former included the latter as one of its creditors in its petition for voluntary insolvency, although no claim was filed and proved by the private respondent in the insolvency court.

7. The respondent Court erred in holding the petitioners liable to private respondent on the transactions in question."9

The issues to be resolved in this petition can be summarized into three:

1. WHETHER ARSENIO HAD AUTHORITY TO EXECUTE THE DEEDS OF ASSIGNMENT AND THUS BIND GREAT ASIAN;

2. WHETHER GREAT ASIAN IS LIABLE TO BANCASIA UNDER THE DEEDS OF ASSIGNMENT FOR BREACH OF CONTRACT PURSUANT TO THE CIVIL CODE, INDEPENDENT OF THE NEGOTIABLE INSTRUMENTS LAW;

3. WHETHER TAN CHONG LIN IS LIABLE TO GREAT ASIAN UNDER THE SURETY AGREEMENTS.

The Court’s Ruling

The petition is bereft of merit.

First Issue: Authority of Arsenio to Sign the Deeds of Assignment

Great Asian asserts that Arsenio signed the Deeds of Assignment and indorsed the checks in his personal capacity. The primordial question that must be resolved is whether Great Asian authorized Arsenio to sign the Deeds of Assignment. If Great Asian so authorized Arsenio, then Great Asian is bound by the Deeds of Assignment and must honor its terms.

The Corporation Code of the Philippines vests in the board of directors the exercise of the corporate powers of the corporation, save in those instances where the Code requires stockholders’ approval for certain specific acts. Section 23 of the Code provides:

"SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees x x x."

In the ordinary course of business, a corporation can borrow funds or dispose of assets of the corporation only on authority of the board of directors. The board of directors normally designates one or more corporate officers to sign loan documents or deeds of assignment for the corporation.

To secure a credit accommodation from Bancasia, the board of directors of Great Asian adopted two board resolutions on different dates, the first on March 17, 1981, and the second on February 10, 1982. These two board resolutions, as certified under oath by Great Asian’s Corporate Secretary Mario K. Tan, state:

First Board Resolution

"RESOLVED, that the Treasurer of the corporation, Mr. Arsenio Lim Piat, Jr., be authorized as he is authorized to apply for and negotiate for a loan accommodation or credit line in the amount not to exceed ONE MILLION PESOS (P1,000,000.00), with Bancasia Finance and Investment Corporation, and likewise to sign any and all papers, documents, and/or promissory notes in connection with said loan accommodation or credit line, including the power to mortgage such properties of the corporation as may be needed to effectuate the same."10 (Emphasis supplied)

Second Board Resolution

"RESOLVED that Great Asian Sales Center Corp. obtain a discounting line with BANCASIA FINANCE & INVESTMENT CORPORATION, at prevailing discounting rates, in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000),** Philippine Currency.

RESOLVED FURTHER, that the corporation secure such other forms of credit lines with BANCASIA FINANCE & INVESTMENT CORPORATION in an amount not to exceed** TWO MILLION PESOS ONLY (P2,000,000.00),** PESOS, under such terms and conditions as the signatories may deem fit and proper.

RESOLVED FURTHER, that the following persons be authorized individually, jointly or collectively to sign, execute and deliver any and all instruments, documents, checks, sureties, etc. necessary or incidental to secure any of the foregoing obligation:

(signed)Specimen Signature

1. ARSENIO LIM PIAT, JR.            

PROVIDED FINALLY that this authority shall be valid, binding and effective until revoked by the Board of Directors in the manner prescribed by law, and that BANCASIA FINANCE & INVESTMENT CORPORATION shall not be bound by any such revocation until such time as it is noticed in writing of such revocation."11(Emphasis supplied)

The first board resolution expressly authorizes Arsenio, as Treasurer of Great Asian, to apply for a "loan accommodation or credit line" with Bancasia for not more than P1.0 million. Also, the first resolution explicitly authorizes Arsenio to sign any document, paper or promissory note, including mortgage deeds over properties of Great Asian, to secure the loan or credit line from Bancasia.

The second board resolution expressly authorizes Great Asian to secure a "discounting line" from Bancasia for not more than P2.0 million. The second board resolution also expressly empowers Arsenio, as the authorized signatory of Great Asian, "to sign, execute and deliver any and all documents, checks x x x necessary or incidental to secure" the discounting line. The second board resolution specifically authorizes Arsenio to secure the discounting line "under such terms and conditions as (he) x x x may deem fit and proper."

As plain as daylight, the two board resolutions clearly authorize Great Asian to secure a loan or discounting linefrom Bancasia. The two board resolutions also categorically designate Arsenio as the authorized signatory to sign and deliver all the implementing documents, including checks, for Great Asian. There is no iota of doubt whatsoever about the purpose of the two board resolutions, and about the authority of Arsenio to act and sign for Great Asian. The second board resolution even gave Arsenio full authority to agree with Bancasia on the terms and conditions of the discounting line. Great Asian adopted the correct and proper board resolutions to secure a loan or discounting line from Bancasia, and Bancasia had a right to rely on the two board resolutions of Great Asian. Significantly, the two board resolutions specifically refer to Bancasia as the financing institution from whom Great Asian will secure the loan accommodation or discounting line.

Armed with the two board resolutions, Arsenio signed the Deeds of Assignment selling, and endorsing, the fifteen checks of Great Asian to Bancasia. On the face of the Deeds of Assignment, the contracting parties are indisputably Great Asian and Bancasia as the names of these entities are expressly mentioned therein as the assignor and assignee, respectively. Great Asian claims that Arsenio signed the Deeds of Assignment in his personal capacity because Arsenio signed above his printed name, below which was the word "Assignor", thereby making Arsenio the assignor. Great Asian conveniently omits to state that the first paragraph of the Deeds expressly contains the following words: "the ASSIGNOR, Great Asian Sales Center, a domestic corporation x x x herein represented by its Treasurer Arsenio Lim Piat, Jr." The assignor is undoubtedly Great Asian, represented by its Treasurer, Arsenio. The only issue to determine is whether the Deeds of Assignment are indeed the transactions the board of directors of Great Asian authorized Arsenio to sign under the two board resolutions.

Under the Deeds of Assignment, Great Asian sold fifteen postdated checks at a discount, over three months, to Bancasia. The Deeds of Assignment uniformly state that Great Asian, –

"x x x for valuable consideration received, does hereby SELL, TRANSFER, CONVEY, and ASSIGN, unto the ASSIGNEE, BANCASIA FINANCE & INVESTMENT CORP., a domestic corporation x x x, the following ACCOUNTS RECEIVABLES due and payable to it, having an aggregate face value of x x x."

The Deeds of Assignment enabled Great Asian to generate instant cash from its fifteen checks, which were still not due and demandable then. In short, instead of

waiting for the maturity dates of the fifteen postdated checks, Great Asian sold the checks to Bancasia at less than the total face value of the checks. In exchange for receiving an amount less than the face value of the checks, Great Asian obtained immediately much needed cash. Over three months, Great Asian entered into four transactions of this nature with Bancasia, showing that Great Asian availed of a discounting line with Bancasia.

In the financing industry, the term "discounting line" means a credit facility with a financing company or bank, which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount.12 The term "discount" means the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a business entity to generate instant cash out of its receivables which are still to mature at future dates. The financing company or bank which buys the receivables makes its profit out of the difference between the face value of the receivable and the discounted price. Thus, Section 3 (a) of the Financing Company Act of 1998 provides:

"Financing companies" are corporations x x x primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial or agricultural enterprises by discounting or factoring commercial papers or accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other evidences of indebtedness, or by financial leasing of movable as well as immovable property." (Emphasis supplied)

This definition of "financing companies" is substantially the same definition as in the old Financing Company Act (R.A. No. 5980).13

Moreover, Section 1 (h) of the New Rules and Regulations adopted by the Securities and Exchange Commission to implement the Financing Company Act of 1998 states:

"Discounting" is a type of receivables financing whereby evidences of indebtedness of a third party, such as installment contracts, promissory notes and similar instruments, are purchased by, or assigned to, a financing company in an amount or for a consideration less than their face value." (Emphasis supplied)

Likewise, this definition of "discounting" is an exact reproduction of the definition of "discounting" in the implementing rules of the old Finance Company Act.

Clearly, the discounting arrangements entered into by Arsenio under the Deeds of Assignment were the very transactions envisioned in the two board resolutions of Great Asian to raise funds for its business. Arsenio acted completely within the limits of his authority under the two board resolutions. Arsenio did exactly what the board of directors of Great Asian directed and authorized him to do.

Arsenio had all the proper and necessary authority from the board of directors of Great Asian to sign the Deeds of Assignment and to endorse the fifteen postdated

checks. Arsenio signed the Deeds of Assignment as agent and authorized signatory of Great Asian under an authority expressly granted by its board of directors. The signature of Arsenio on the Deeds of Assignment is effectively also the signature of the board of directors of Great Asian, binding on the board of directors and on Great Asian itself. Evidently, Great Asian shows its bad faith in disowning the Deeds of Assignment signed by its own Treasurer, after receiving valuable consideration for the checks assigned under the Deeds.

Second Issue: Breach of Contract by Great Asian

Bancasia’s complaint against Great Asian is founded on the latter’s breach of contract under the Deeds of Assignment. The Deeds of Assignment uniformly stipulate14 as follows:

"If for any reason the receivables or any part thereof cannot be paid by the obligor/s, the ASSIGNOR unconditionally and irrevocably agrees to pay the same, assuming the liability to pay, by way of penalty three per cent (3%) of the total amount unpaid, for the period of delay until the same is fully paid.

In case of any litigation which the ASSIGNEE may institute to enforce the terms of this agreement, the ASSIGNOR shall be liable for all the costs, plus attorney’s fees equivalent to twenty-five (25%) per cent of the total amount due. Further thereto, the ASSIGNOR agrees that any and all actions which may be instituted relative hereto shall be filed before the proper courts of the City of Manila, all other appropriate venues being hereby waived.

The last Deed of Assignment15 contains the following added stipulation:

"xxx Likewise, it is hereby understood that the warranties which the ASSIGNOR hereby made are deemed part of the consideration for this transaction, such that any violation of any one, some, or all of said warranties shall be deemed as deliberate misrepresentation on the part of the ASSIGNOR. In such event, the monetary obligation herein conveyed unto the ASSIGNEE shall be conclusively deemed defaulted, giving rise to the immediate responsibility on the part of the ASSIGNOR to make good said obligation, and making the ASSIGNOR liable to pay the penalty stipulated hereinabove as if the original obligor/s of the receivables actually defaulted. xxx"

Obviously, there is one vital suspensive condition in the Deeds of Assignment. That is, in case the drawers fail to pay the checks on maturity, Great Asian obligated itself to pay Bancasia the full face value of the dishonored checks, including penalty and attorney’s fees. The failure of the drawers to pay the checks is a suspensive condition,16 the happening of which gives rise to Bancasia’s right to demand payment from Great Asian. This conditional obligation of Great Asian arises from its written contracts with Bancasia as embodied in the Deeds of Assignment. Article 1157 of the Civil Code provides that -

"Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts."

By express provision in the Deeds of Assignment, Great Asian unconditionally obligated itself to pay Bancasia the full value of the dishonored checks. In short, Great Asian sold the postdated checks on with recourse basis against itself. This is an obligation that Great Asian is bound to faithfully comply because it has the force of law as between Great Asian and Bancasia. Article 1159 of the Civil Code further provides that -

"Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith."

Great Asian and Bancasia agreed on this specific with recourse stipulation, despite the fact that the receivables were negotiable instruments with the endorsement of Arsenio. The contracting parties had the right to adopt thewith recourse stipulation which is separate and distinct from the warranties of an endorser under the Negotiable Instruments Law. Article 1306 of the Civil Code provides that –

"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 explicit with recourse stipulation against Great Asian effectively enlarges, by agreement of the parties, the liability of Great Asian beyond that of a mere endorser of a negotiable instrument. Thus, whether or not Bancasia gives notice of dishonor to Great Asian, the latter remains liable to Bancasia because of the with recoursestipulation which is independent of the warranties of an endorser under the Negotiable Instruments Law.

There is nothing in the Negotiable Instruments Law or in the Financing Company Act (old or new), that prohibits Great Asian and Bancasia parties from adopting the with recourse stipulation uniformly found in the Deeds of Assignment. Instead of being negotiated, a negotiable instrument may be assigned.17 Assignment of a negotiable instrument is actually the principal mode of conveying accounts receivable under the Financing Company Act. Since in discounting of receivables the assignee is

subrogated as creditor of the receivable, the endorsement of the negotiable instrument becomes necessary to enable the assignee to collect from the drawer. This is particularly true with checks because collecting banks will not accept checks unless endorsed by the payee. The purpose of the endorsement is merely to facilitate collection of the proceeds of the checks.

The purpose of the endorsement is not to make the assignee finance company a holder in due course because policy considerations militate against according finance companies the rights of a holder in due course.18Otherwise, consumers who purchase appliances on installment, giving their promissory notes or checks to the seller, will have no defense against the finance company should the appliances later turn out to be defective. Thus, the endorsement does not operate to make the finance company a holder in due course. For its own protection, therefore, the finance company usually requires the assignor, in a separate and distinct contract, to pay the finance company in the event of dishonor of the notes or checks.

As endorsee of Great Asian, Bancasia had the option to proceed against Great Asian under the Negotiable Instruments Law. Had it so proceeded, the Negotiable Instruments Law would have governed Bancasia’s cause of action. Bancasia, however, did not choose this route. Instead, Bancasia decided to sue Great Asian for breach of contract under the Civil Code, a right that Bancasia had under the express with recourse stipulation in the Deeds of Assignment.

The exercise by Bancasia of its option to sue for breach of contract under the Civil Code will not leave Great Asian holding an empty bag. Great Asian, after paying Bancasia, is subrogated back as creditor of the receivables. Great Asian can then proceed against the drawers who issued the checks. Even if Bancasia failed to give timely notice of dishonor, still there would be no prejudice whatever to Great Asian. Under the Negotiable Instruments Law, notice of dishonor is not required if the drawer has no right to expect or require the bank to honor the check, or if the drawer has countermanded payment.19 In the instant case, all the checks were dishonored for any of the following reasons: "account closed", "account under garnishment", insufficiency of funds", or "payment stopped". In the first three instances, the drawers had no right to expect or require the bank to honor the checks, and in the last instance, the drawers had countermanded payment.

Moreover, under common law, delay in notice of dishonor, where such notice is required, discharges the drawer only to the extent of the loss caused by the delay.20 This rule finds application in this jurisdiction pursuant to Section 196 of the Negotiable Instruments Law which states, "Any case not provided for in this Act shall be governed by the provisions of existing legislation, or in default thereof, by the rules of the Law Merchant." Under Section 186 of the Negotiable Instruments Law, delay in the presentment of checks discharges the drawer. However, Section 186 refers only to delay in presentment of checks but is silent on delay in giving notice of dishonor. Consequently, the common law or Law Merchant can supply this gap in accordance with Section 196 of the Negotiable Instruments Law.

One other issue raised by Great Asian, that of lack of consideration for the Deeds of Assignment, is completely unsubstantiated. The Deeds of Assignment uniformly provide that the fifteen postdated checks were assigned to Bancasia "for valuable consideration." Moreover, Article 1354 of the Civil Code states that, "Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary." The record is devoid of any showing on the part of Great Asian rebutting this presumption. On the other hand, Bancasia’s Loan Section Manager, Cynthia Maclan, testified that Bancasia paid Great Asian a consideration at the discount rate of less than 24% of the face value of the postdated checks.21 Moreover, in its verified petition for voluntary insolvency, Great Asian admitted its debt to Bancasia when it listed Bancasia as one of its creditors, an extra-judicial admission that Bancasia proved when it formally offered in evidence the verified petition for insolvency.22 The Insolvency Law requires the petitioner to submit a schedule of debts that must "contain a full and true statement of all his debts and liabilities."23 The Insolvency Law even requires the petitioner to state in his verification that the schedule of debts contains "a full, correct and true discovery of all my debts and liabilities x x x."24 Great Asian cannot now claim that the listing of Bancasia as a creditor was not an admission of its debt to Bancasia but merely an acknowledgment that Bancasia had sent a demand letter to Great Asian.

Great Asian, moreover, claims that the assignment of the checks is not a loan accommodation but a sale of the checks. With the sale, ownership of the checks passed to Bancasia, which must now, according to Great Asian, sue the drawers and indorser of the check who are the parties primarily liable on the checks. Great Asian forgets that under the Deeds of Assignment, Great Asian expressly undertook to pay the full value of the checks in case of dishonor. Again, we reiterate that this obligation of Great Asian is separate and distinct from its warranties as indorser under the Negotiable Instruments Law.

Great Asian is, however, correct in saying that the assignment of the checks is a sale, or more properly a discounting, of the checks and not a loan accommodation. However, it is precisely because the transaction is a sale or a discounting of receivables, embodied in separate Deeds of Assignment, that the relevant provisions of the Civil Code are applicable and not the Negotiable Instruments Law.

At any rate, there is indeed a fine distinction between a discounting line and a loan accommodation. If the accounts receivable, like postdated checks, are sold for a consideration less than their face value, the transaction is one of discounting, and is subject to the provisions of the Financing Company Act. The assignee is immediately subrogated as creditor of the accounts receivable. However, if the accounts receivable are merely used as collateral for the loan, the transaction is only a simple loan, and the lender is not subrogated as creditor until there is a default and the collateral is foreclosed.

In summary, Great Asian’s four contracts assigning its fifteen postdated checks to Bancasia expressly stipulate the suspensive condition that in the event the drawers of the checks fail to pay, Great Asian itself will pay Bancasia. Since the common condition in the contracts had transpired, an obligation on the part of Great Asian

arose from the four contracts, and that obligation is to pay Bancasia the full value of the checks, including the stipulated penalty and attorney’s fees.

Third Issue: The liability of surety Tan Chong Lin

Tan Chong Lin, the President of Great Asian, is being sued in his personal capacity based on the Surety Agreements he signed wherein he solidarily held himself liable with Great Asian for the payment of its debts to Bancasia. The Surety Agreements contain the following common condition:

"Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by the Creditor, its successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes."

Indisputably, Tan Chong Lin explicitly and unconditionally bound himself to pay Bancasia, solidarily with Great Asian, if the drawers of the checks fail to pay on due date. The condition on which Tan Chong Lin’s obligation hinged had happened. As surety, Tan Chong Lin automatically became liable for the entire obligation to the same extent as Great Asian.

Tan Chong Lin, however, contends that the following warranties in the Deeds of Assignment enlarge or increase his risks under the Surety Agreements:

"The ASSIGNOR warrants:

1. the soundness of the receivables herein assigned;

2. that said receivables are duly noted in its books and are supported by appropriate documents;

3. that said receivables are genuine, valid and subsisting;

4. that said receivables represent bona fide sale of goods, merchandise, and/or services rendered in the ordinary course of its business transactions;

5. that the obligors of the receivables herein assigned are solvent;

6. that it has valid and genuine title to and indefeasible right to dispose of said accounts;

7. that said receivables are free from all liens and encumbrances;

8. that the said receivables are freely and legally transferable, and that the obligor/s therein will not interpose any objection to this assignment, and has in fact given his/their consent hereto."

Tan Chong Lin maintains that these warranties in the Deeds of Assignment materially altered his obligations under the Surety Agreements, and therefore he is released from any liability to Bancasia. Under Article 1215 of the Civil Code, what releases a solidary debtor is a "novation, compensation, confusion or remission of the debt" made by the creditor with any of the solidary debtors. These warranties, however, are the usual warranties made by one who discounts receivables with a financing company or bank. The Surety Agreements, written on the letter head of "Bancasia Finance & Investment Corporation," uniformly state that "Great Asian Sales Center x x x has obtained and/or desires to obtain loans, overdrafts, discounts and/or other forms of credits from" Bancasia. Tan Chong Lin was clearly on notice that he was holding himself as surety of Great Asian which was discounting postdated checks issued by its buyers of goods and merchandise. Moreover, Tan Chong Lin, as President of Great Asian, cannot feign ignorance of Great Asian’s business activities or discounting transactions with Bancasia. Thus, the warranties do not increase or enlarge the risks of Tan Chong Lin under the Surety Agreements. There is, moreover, no novation of the debt of Great Asian that would warrant release of the surety.

In any event, the provisions of the Surety Agreements are broad enough to include the obligations of Great Asian to Bancasia under the warranties. The first Surety Agreement states that:

"x x x herein Surety/ies, jointly and severally among themselves and likewise with principal, hereby agree/s and bind/s himself/themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the Principal may now or may hereafter owe the Creditor, including extensions or renewals thereof in the sum *** ONE MILLION ONLY*** PESOS (P1,000,000.00), Philippine Currency, plus stipulated interest thereon at the rate of sixteen percent (16%) per annum, or at such increased rate of interest which the Creditor may charge on the Principal’s obligations or renewals or the reduced amount thereof, plus all the costs and expenses which the Creditor may incur in connection therewith.

x x x

Upon failure of the Principal to pay at maturity, with or without demand, any of the obligations above mentioned, or in case of the Principal’s failure promptly to respond to any other lawful demand made by the Creditor, its

successors, administrators or assigns, both the Principal and the Surety/ies shall be considered in default and the Surety/ies agree/s to pay jointly and severally to the Creditor all outstanding obligations of the Principal, whether due or not due, and whether held by the Creditor as Principal or agent, and it is agreed that a certified statement by the Creditor as to the amount due from the Principal shall be accepted by the Surety/ies as correct and final for all legal intents and purposes. (Emphasis supplied)

The second Surety Agreement contains the following provisions:

"x x x herein Surety/ies, jointly and severally among themselves and likewise with PRINCIPAL, hereby agree and bind themselves to pay at maturity all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor, including extensions and/or renewals thereof in the principal sum not to exceed TWO MILLION (P2,000,000.00) PESOS, Philippine Currency, plus stipulated interest thereon, or such increased or decreased rate of interest which the Creditor may charge on the principal sum outstanding pursuant to the rules and regulations which the Monetary Board may from time to time promulgate, together with all the cost and expenses which the CREDITOR may incur in connection therewith.

If for any reason whatsoever, the PRINCIPAL should fail to pay at maturity any of the obligations or amounts due to the CREDITOR, or if for any reason whatsoever the PRINCIPAL fails to promptly respond to and comply with any other lawful demand made by the CREDITOR, or if for any reason whatsoever any obligation of the PRINCIPAL in favor of any person or entity should be considered as defaulted, then both the PRINCIPAL and the SURETY/IES shall be considered in default under the terms of this Agreement. Pursuant thereto, the SURETY/IES agree/s to pay jointly and severally with the PRINCIPAL, all outstanding obligations of the CREDITOR, whether due or not due, and whether owing to the PRINCIPAL in its personal capacity or as agent of any person, endorsee, assignee or transferee. x x x. (Emphasis supplied)

Article 1207 of the Civil Code provides, "xxx There is a solidary liability only when the obligation expressly so states, or when the law or nature of the obligation requires solidarity." The stipulations in the Surety Agreements undeniably mandate the solidary liability of Tan Chong Lin with Great Asian. Moreover, the stipulations in the Surety Agreements are sufficiently broad, expressly encompassing "all the notes, drafts, bills of exchange, overdraft and other obligations of every kind which the PRINCIPAL may now or may hereafter owe the Creditor". Consequently, Tan Chong Lin must be held solidarily liable with Great Asian for the nonpayment of the fifteen dishonored checks, including penalty and attorney’s fees in accordance with the Deeds of Assignment.

The Deeds of Assignment stipulate that in case of suit Great Asian shall pay attorney’s fees equivalent to 25% of the outstanding debt. The award of attorney’s fees in the instant case is justified,25 not only because of such stipulation, but also because Great

Asian and Tan Chong Lin acted in gross and evident bad faith in refusing to pay Bancasia’s plainly valid, just and demandable claim. We deem it just and equitable that the stipulated attorney’s fee should be awarded to Bancasia.

The Deeds of Assignment also provide for a 3% penalty on the total amount due in case of failure to pay, but the Deeds are silent on whether this penalty is a running monthly or annual penalty. Thus, the 3% penalty can only be considered as a one-time penalty. Moreover, the Deeds of Assignment do not provide for interest if Great Asian fails to pay. We can only award Bancasia legal interest at 12% interest per annum, and only from the time it filed the complaint because the records do not show that Bancasia made a written demand on Great Asian prior to filing the complaint.26 Bancasia made an extrajudicial demand on Tan Chong Lin, the surety, but not on the principal debtor, Great Asian.

WHEREFORE, the assailed Decision of the Court of Appeals in CA-G.R. CV No. 20167 is AFFIRMED with MODIFICATION. Petitioners are ordered to pay, solidarily, private respondent the following amounts: (a) P1,042,005.00 plus 3% penalty thereon, (b) interest on the total outstanding amount in item (a) at the legal rate of 12% per annum from the filing of the complaint until the same is fully paid, (c) attorney’s fees equivalent to 25% of the total amount in item (a), including interest at 12% per annum on the outstanding amount of the attorney’s fees from the finality of this judgment until the same is fully paid, and (c) costs of suit.

SO ORDERED.

3.

G.R. No. 133978             November 12, 2002

JOSE S. CANCIO, JR., represented by ROBERTO L. CANCIO, petitioner, vs.EMERENCIANA ISIP, respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

The instant petition for review under Rule 45 of the Rules of Court raises pure questions of law involving the March 20, 19981 and June 1, 19982 Orders3 rendered by the Regional Trial Court of Pampanga, Branch 49, in Civil Case No. G-3272.

The undisputed facts are as follows:

Petitioner, assisted by a private prosecutor, filed three cases of Violation of B.P. No. 22 and three cases of Estafa, against respondent for allegedly issuing the following checks without sufficient funds, to wit: 1) Interbank Check No. 25001151 in the amount of P80,000.00; 2) Interbank Check No. 25001152 in the amount of P 80,000.00; and 3) Interbank Check No. 25001157 in the amount of P30,000.00.4

The Office of the Provincial Prosecutor dismissed Criminal Case No. 13356, for Violation of B.P. No. 22 covering check no. 25001151 on the ground that the check was deposited with the drawee bank after 90 days from the date of the check. The two other cases for Violation of B.P. No. 22 (Criminal Case No. 13359 and 13360) were filed with and subsequently dismissed by the Municipal Trial Court of Guagua, Pampanga, Branch 1, on the ground of "failure to prosecute."5

Meanwhile, the three cases for Estafa were filed with the Regional Trial Court of Pampanga, Branch 49, and docketed as Criminal Case Nos. G-3611 to G-3613. On October 21, 1997, after failing to present its second witness, the prosecution moved to dismiss the estafa cases against respondent. The prosecution likewise reserved its right to file a separate civil action arising from the said criminal cases. On the same date, the trial court granted the motions of the prosecution. Thus-

Upon motion of the prosecution for the dismissal of these cases without prejudice to the refiling of the civil aspect thereof and there being no comment from the defense, let these cases be dismissed without prejudice to the refiling of the civil aspect of the cases.

SO ORDER[ED].6

On December 15, 1997, petitioner filed the instant case for collection of sum of money, seeking to recover the amount of the checks subject of the estafa cases. On February 18, 1998, respondent filed a motion to dismiss the complaint contending that petitioner’s action is barred by the doctrine of res judicata. Respondent further prayed that petitioner should be held in contempt of court for forum-shopping.7

On March 20, 1998, the trial court found in favor of respondent and dismissed the complaint. The court held that the dismissal of the criminal cases against respondent on the ground of lack of interest or failure to prosecute is an adjudication on the merits which amounted to res judicata on the civil case for collection. It further held that the filing of said civil case amounted to forum-shopping.

On June 1, 1998, the trial court denied petitioner’s motion for reconsideration.8 Hence, the instant petition.

The legal issues for resolution in the case at bar are: 1) whether the dismissal of the estafa cases against respondent bars the institution of a civil action for collection of the value of the checks subject of the estafa cases; and 2) whether the filing of said civil action violated the anti-forum-shopping rule.

An act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e., (1) civil liability ex delicto, under Article 100 of the Revised Penal Code;9 and (2) independent civil liabilities, such as those (a) not arising from an act or omission complained of as felony [e.g. culpa contractual or obligations arising from law under Article 3110 of the Civil Code,11 intentional torts under Articles 3212 and 34,13and culpa aquiliana under Article 217614 of the Civil Code]; or (b) where the injured party is granted a right to file an action independent and distinct from the criminal action [Article 33,15 Civil Code].16 Either of these two possible liabilities may be enforced against the offender subject, however, to the caveat under Article 2177 of the Civil Code that the offended party "cannot recover damages twice for the same act or omission" or under both causes.17

The modes of enforcement of the foregoing civil liabilities are provided for in the Revised Rules of Criminal Procedure. Though the assailed order of the trial court was issued on March 20, 1998, the said Rules, which took effect on December 1, 2000, must be given retroactive effect in the instant case considering that statutes regulating the procedure of the court are construed as applicable to actions pending and undetermined at the time of their passage.18

Section 1, Rule 111, of the Revised Rules of Criminal Procedure provides:

SECTION 1. Institution of criminal and civil actions. – (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unless the offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.

The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting its evidence and under circumstances affording the offended party a reasonable opportunity to make such reservation.

x x x x x x x x x

Where the civil action has been filed separately and trial thereof has not yet commenced, it may be consolidated with the criminal action upon application with the court trying the latter case. If the application is granted, the trial of both actions shall proceed in accordance with section 2 of this Rule governing consolidation of the civil and criminal actions.

Under the 1985 Rules on Criminal Procedure, as amended in 1988 and under the present Rules, the civil liability ex-delicto is deemed instituted with the criminal action, but the offended party is given the option to file a separate civil action before the prosecution starts to present evidence.19

Anent the independent civil actions under Articles 31, 32, 33, 34 and 2176 of the Civil Code, the old rules considered them impliedly instituted with the civil liability ex-delicto in the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action. Under the present Rules, however, the independent civil actions may be filed separately and prosecuted independently even without any reservation in the criminal action. The failure to make a reservation in the criminal action is not a waiver of the right to file a separate and independent civil action based on these articles of the Civil Code.20

In the case at bar, a reading of the complaint filed by petitioner show that his cause of action is based on culpa contractual, an independent civil action. Pertinent portion of the complaint reads:

x x x x x x x x x

2. That plaintiff is the owner/proprietor to CANCIO’S MONEY EXCHANGE with office address at Guagua, Pampanga;

3. That on several occasions, particularly on February 27, 1993 to April 17 1993, inclusive, defendant drew, issued and made in favor of the plaintiff the following checks:

CHECK NO. DATE AMOUNT

1. Interbank Check No. 25001151 March 10, 1993 P80,000.00

2. Interbank Check No. 25001152 March 27, 1993 P80,000.00

3. Interbank Check No. 25001157 May 17, 1993 P30,000.00

in exchange of cash with the assurance that the said checks will be honored for payment on their maturity dates, copy of the aforementioned checks are hereto attached and marked.

4. That when the said checks were presented to the drawee bank for encashment, the same were all dishonored for reason of DRAWN AGAINST INSUFFICIENT FUNDS (DAIF);

5. That several demands were made upon the defendant to make good the checks but she failed and refused and still fails and refuses without justifiable reason to pay plaintiff;

6. That for failure of the defendant without any justifiable reason to pay plaintiff the value of the checks, the latter was forced to hire the services of undersigned counsel and agreed to pay the amount of P30,000.00 as attorney’s fees and P1,000.00 per appearance in court;

7. That for failure of the defendant without any justifiable reason to pay plaintiff and forcing the plaintiff to litigate, the latter will incur litigation expenses in the amount of P20,000.00.

IN VIEW OF THE FOREGOING, it is prayed of this Court that after due notice and hearing a judgment be rendered ordering defendant to pay plaintiff as follows:

a. the principal sum of P190,000.00 plus the legal interest;

b. attorney’s fees of P30,000.00 plus P1,000.00 per court appearance;

c. litigation expenses in the amount of P20,000.00

PLAINTIFF prays for other reliefs just and equitable under the premises.

x x x x x x x x x.21

Evidently, petitioner sought to enforce respondent’s obligation to make good the value of the checks in exchange for the cash he delivered to respondent. In other words, petitioner’s cause of action is the respondent’s breach of the contractual obligation. It matters not that petitioner claims his cause of action to be one based on delict.22 The nature of a cause of action is determined by the facts alleged in the complaint as constituting the cause of action. The purpose of an action or suit and the law to govern it is to be determined not by the claim of the party filing the action, made in his

argument or brief, but rather by the complaint itself, its allegations and prayer for relief.23

Neither does it matter that the civil action reserved in the October 21, 1997 order of the trial court was the civil action ex delicto. To reiterate, an independent civil action arising from contracts, as in the instant case, may be filed separately and prosecuted independently even without any reservation in the criminal action. Under Article 31 of the Civil Code "[w]hen the civil action is based on an obligation not arising from the act or omission complained of as a felony, [e.g. culpa contractual] such civil action may proceed independently of the criminal proceedings and regardless of the result of the latter." Thus, in Vitola, et al. v. Insular Bank of Asia and America,24 the Court, applying Article 31 of the Civil Code, held that a civil case seeking to recover the value of the goods subject of a Letter of Credit-Trust Receipt is a civil action ex contractu and not ex delicto. As such, it is distinct and independent from the estafa case filed against the offender and may proceed regardless of the result of the criminal proceedings.

One of the elements of res judicata is identity of causes of action.25 In the instant case, it must be stressed that the action filed by petitioner is an independent civil action, which remains separate and distinct from any criminal prosecution based on the same act.26 Not being deemed instituted in the criminal action based on culpa criminal, a ruling on the culpability of the offender will have no bearing on said independent civil action based on an entirely different cause of action, i.e., culpa contractual.

In the same vein, the filing of the collection case after the dismissal of the estafa cases against respondent did not amount to forum-shopping. The essence of forum-shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, to secure a favorable judgment. Although the cases filed by petitioner arose from the same act or omission of respondent, they are, however, based on different causes of action. The criminal cases for estafa are based on culpa criminal while the civil action for collection is anchored on culpa contractual. Moreover, there can be no forum-shopping in the instant case because the law expressly allows the filing of a separate civil action which can proceed independently of the criminal action.27

Clearly, therefore, the trial court erred in dismissing petitioner’s complaint for collection of the value of the checks issued by respondent. Being an independent civil action which is separate and distinct from any criminal prosecution and which require no prior reservation for its institution, the doctrine of res judicata and forum-shopping will not operate to bar the same.

WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The March 20, 1998 and June 1, 1998 Orders of the Regional Trial Court of Pampanga, Branch 49, in Civil Case No. G-3272 are REVERSED and SET ASIDE. The instant case is REMANDED to the trial court for further proceedings.

SO ORDERED.

4 . G.R. No. 180761               August 9, 2010

ROMAN GARCES, Petitioner, vs.SIMPLICIO HERNANDEZ, JR., CANDIDO HERNANDEZ, ROSITA HERNANDEZ, and JEFFREY MANGUBAT,*Respondents.

D E C I S I O N

CARPIO MORALES, J.:

The present petition for review on certiorari bears, in the main, on the issue of whether respondents who were charged with but acquitted of murder are civilly liable to the heirs of Rustico Garces (the victim).

In its November 10, 2004 Decision1 acquitting respondent of murder, Branch 4 of the Regional Trial Court (RTC) of Batangas City discoursed.

It is stated that the guilt of an accused rests solely on the strength of the Prosecution’s evidence and does not depend on the weakness of the evidence of the Defense. Moreover, such guilt must be proven beyond a reasonable doubt.

In the case at bar, there is clearly no moral certainty that can be arrived at by the Court in convicting the accused. Physical and testimonial evidence presented by the Prosecution have failed to elicit in the mind of the Court the conclusion that the herein accused should and must be held criminally liable for the heinous death of Rustico Garces. As a matter of fact, the physical evidence in his case instead of strengthening only weakened its case.

Moreover, it is noted that not one of the accused went into hiding even though they have acquired knowledge about the death of Rustico. Instead, Simplicio Sr., Candido and Simplicio Hernandez Jr. voluntarily went with the police investigators on the night of August 13, 2000. As the oft repeated dictum states ["]the guilty fleeth while the innocent is as brave as a lion". And, with respect to accused Rosita Hernandez, she appears to have been arrested in Cuta, Batangas City. She must have been visiting her husband and children at the Provincial Jail of Batangas located in Cuta, Batangas City on March 5, 2000 when it happened. These actuations of the accused eloquently speak of their innocence in the face of unreliable evidence presented by the Prosecution.2(emphasis and underscoring supplied)

After the promulgation of judgment, Atty. Florentino H. Garces entered his appearance as counsel for the father of the victim, Roman Garces (petitioner), and filed a Motion for Reconsideration of the trial court’s decision respecting respondents’ civil liability.3 The trial court dismissed the motion in this wise:

Acting on the motion for reconsideration dated December 9, 2004 filed by Atty. Florentino H. Garces, it is to be stated at the very outset that said Counsel appears to have no legal personality to file the motion. The records do not show that he was Counsel of record for the Private Prosecution and neither [was] the motion signed by the [Provincial] Prosecutor.

As regards the manifestation on the right of the private Prosecution to claim civil damages where the acquittal of the accused was based on grounds of reasonable doubt, suffice it to state that while such right subsists in favor of the Private Prosecution, the matter should be properly prosecuted in an appropriate separate civil action and not in the same criminal case which gave rise to such right. 4  (underscoring supplied)

Petitioner’s Supplemental Motion for Reconsideration5 was dismissed by the trial court for being moot and academic.6

Petitioner assailed the trial court’s denial of his motions via Certiorari7 before the Court of Appeals which dismissed it for lack of merit,8 viz:

x x x [P]etitioner argues that the fact that the prosecutor did not sign the motion for reconsideration is of no moment since what is sought to be reconsidered involves only the civil liability of private respondents. We agree.

x x x x

The foregoing notwithstanding, We cannot entertain the petition.

It is settled that a judgment of acquittal is immediately final and executory and the prosecution cannot appeal the acquittal because of the constitutional prohibition against double jeopardy. Nonetheless, insofar as the civil aspect of the case is concerned, the offended party, despite a judgment of acquittal, is afforded the remedy of appeal.

In the present case, there is no dispute that the judgment of the trial court acquitting private respondents is already final. What petitioner is assailing is the failure of public respondent to rule on the civil liability of private respondents. However, while an appeal appears to have been open and available, petitioner, without any justifiable reason, did not resort to this remedy. This is a fatal procedural lapse. Section 1, Rule 65 of the Rules of Civil Procedure is plain and unambiguous in providing that the remedy of certiorari may be availed of only when "there is no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law."9 (emphasis and italics in the original; underscoring supplied)

At all events, the appellate court held that, even on the merits, petitioner’s certiorari would not lie on the following ratiocination:

x x x x

While physical evidence was submitted, primarily a gun, empty bullet shells recovered near the body of Rustico, the slug recovered from the body of Rustico, the traces of blood and the strands of hair recovered at the house of private respondents – these failed to point to private respondents as the perpetrators of the killing. The gun recovered was never established to have belonged to any of the private respondents. Furthermore, the ballistics examination failed to confirm that the slug recovered from the body of Rustico came from the same gun. As for the traces of blood and strands of hair, these were never established to have come from Rustico.

As for the testimonial evidence, We find no reason to disagree with the finding of public respondent giving no credence to the testimonies of Miguel Jovello and Jefferson Garcia. Both Jovello and Garcia testified that they saw Simplicio, Jr. and Candido at around eleven o’clock (11:00) in the morning of August 13, 2000 traversing the barangay road while carrying the dead body of Rustico with Simplicio, Sr. and Rosita walking with them. Indeed, as observed by public respondent, if such fact actually happened, there should have been many witnesses who could have testified to this event. Besides, settled is the rule that to be credible, testimonial evidence should not only come from the mouth of a credible witness but should also be credible. In this case, the said testimonies are inconsistent with human nature. It is unbelievable that private respondents would kill Rustico and then expose themselves to prosecution by parading the evidence of their crime in public and in broad daylight. While petitioner claims that "the events transpired in an insolated place within a desolate town", no evidence was offered to prove such claim.10 (emphasis and underscoring supplied)

Thus, petitioner filed the present petition11 which contends that

I

CONTRARY TO THE RULING OF THE COURT OF APPEALS, THE PETITION FOR CERTIORARI WAS THE PROPER REMEDY AVAILED OF BY PETITIONER GARCES IN ASSAILING THE ACTS OF PUBLIC RESPONDENT JUDGE ANTONA WHICH WERE COMMITTED IN GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION.

II

THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR WHEN IT DENIED THE PETITION FOR CERTIORARI CONSIDERING THAT THERE IS MORE THAN A PREPONDERANCE OF EVIDENCE ON RECORD SUPPORTING THE CLAIMS OF PETITIONER GARCES AGAINST THE PRIVATE RESPONDENTS.12 (capitalization and emphasis in the original; underscoring supplied)

Rule 111, Section 1 of the Revised Rules of Court provides:

SECTION 1. Institution of criminal and civil actions. – (a) When a criminal action is instituted, the civil action for the recovery of civil liability arising from the offense charged shall be deemed instituted with the criminal action unlessthe offended party waives the civil action, reserves the right to institute it separately or institutes the civil action prior to the criminal action.

The reservation of the right to institute separately the civil action shall be made before the prosecution starts presenting its evidence under circumstances affording the offended party a reasonable opportunity to make such reservation.

x x x x (italics in the original; underscoring supplied)

In his Petition for Certiorari13 before the appellate court, petitioner admitted that he "did not waive the civil action or reserve the right to institute it separately nor did he institute the civil action prior to the criminal action."14Petitioner’s remedy then was, as correctly ruled by the appellate court, to appeal within the reglementary period the trial court’s decision, which was silent on the civil aspect of the case.

Technicality aside, on the merits, the petition just the same fails.1avvph!1 Rule 120, Section 2 of the Rules of Court provides:

SEC. 2. Contents of the judgment. – If the judgment is of conviction, it shall state (1) the legal qualification of the offense constituted by the acts committed by the accused and the aggravating or mitigating circumstances which attended its commission,; (2) the participation of the accused in the offense, whether as principal, accomplice, or accessory after the fact; (3) the penalty imposed upon the accused; and (4) the civil liability or damages caused by his wrongful act or omission to be recovered from the accused by the offended party, if there is any, unless the enforcement of the civil liability by a separate civil action has been reserved or waived.

In case the judgment is of acquittal , it shall state whether the evidence of the prosecution absolutely failed to prove the guilt of the accused or merely failed to prove his guilt beyond reasonable doubt. In either case, the judgment shall determine if the act or omission from which the civil liability might arise did not exist.

x x x x (emphasis and underscoring supplied)

Under the immediately-quoted rule, a trial court, in case of acquittal of an accused, is to state whether the prosecution absolutely failed to prove his guilt or merely failed to prove his guilt beyond reasonable doubt, and in either case, it shall determine if the act or omission from which the civil liability might arise did not exist. From the earlier-quoted portion of the decision of the trial court, however, particularly the following portions:

In the case at bar, there is clearly no moral certainty that can be arrived at by the Court in convicting the accused. Physical and testimonial evidence presented by the Prosecution have failed to elicit in the mind of the Court the conclusion that the herein accused should and must be held criminally liable for the heinous death of Rustico Garces. As a matter of fact, the physical evidence in his case instead of strengthening only weakened its case.

x x x These actuations of the accused eloquently speak of their innocence in the face of unreliable evidence presented by the Prosecution15 (emphasis and underscoring supplied),

the Court finds that the acts or omissions from which the civil liability of respondents might arise did not exist.

WHEREFORE, the petition is DISMISSED.

3.G.R. No. 165732             December 14, 2006

SAFEGUARD SECURITY AGENCY, INC., and ADMER PAJARILLO, petitioners, vs.LAURO TANGCO, VAL TANGCO, VERN LARRY TANGCO, VAN LAURO TANGCO, VON LARRIE TANGCO, VIEN LARI TANGCO and VIVIEN LAURIZ TANGCO, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari filed by Safeguard Security Agency, Inc. (Safeguard) and Admer Pajarillo (Pajarillo) assailing the Decision1 dated July 16, 2004 and the Resolution2 dated October 20, 2004 issued by the Court of Appeals (CA) in CA-G.R. CV No. 77462.

On November 3, 1997, at about 2:50 p.m., Evangeline Tangco (Evangeline) went to Ecology Bank, Katipunan Branch, Quezon City, to renew her time deposit per advise of the bank's cashier as she would sign a specimen card. Evangeline, a duly licensed firearm holder with corresponding permit to carry the same outside her residence, approached security guard Pajarillo, who was stationed outside the bank, and pulled out her firearm from her bag to deposit the same for safekeeping. Suddenly, Pajarillo shot Evangeline with his service shotgun hitting her in the abdomen instantly causing her death.

Lauro Tangco, Evangeline's husband, together with his six minor children (respondents) filed with the Regional Trial Court (RTC) of Quezon City, a criminal case of Homicide against Pajarillo, docketed as Criminal Case No. 0-97-73806 and assigned to Branch 78. Respondents reserved their right to file a separate civil action in the said criminal case. The RTC of Quezon City subsequently convicted Pajarillo of Homicide in its Decision dated January 19, 2000.3 On appeal to the CA, the RTC decision was affirmed with modification as to the penalty in a Decision4 dated July 31, 2000. Entry of Judgment was made on August 25, 2001.

Meanwhile, on January 14, 1998, respondents filed with RTC, Branch 273, Marikina City, a complaint5 for damages against Pajarillo for negligently shooting Evangeline and against Safeguard for failing to observe the diligence of a good father of a family to prevent the damage committed by its security guard. Respondents prayed for actual, moral and exemplary damages and attorney's fees.

In their Answer,6 petitioners denied the material allegations in the complaint and alleged that Safeguard exercised the diligence of a good father of a family in the selection and supervision of Pajarillo; that Evangeline's death was not due to

Pajarillo's negligence as the latter acted only in self-defense. Petitioners set up a compulsory counterclaim for moral damages and attorney's fees.

Trial thereafter ensued. On January 10, 2003, the RTC rendered its Decision,7 the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs, the heirs of Evangeline Tangco, and against defendants Admer Pajarillo and Safeguard Security Agency, Inc. ordering said defendants to pay the plaintiffs, jointly and severally, the following:

1. ONE HUNDRED FIFTY SEVEN THOUSAND FOUR HUNDRED THIRTY PESOS (P157,430.00), as actual damages

2. FIFTY THOUSAND PESOS (P50,000.00) as death indemnity;

3. ONE MILLION PESOS (P1,000,000.00), as moral damages;

4. THREE HUNDRED THOUSAND PESOS (P300,000.00), as exemplary damages;

5. THIRTY THOUSAND PESOS (P30,000.00), as attorney's fees; and

6. costs of suit.

For lack of merit, defendants' counterclaim is hereby DISMISSED.

SO ORDERED. 8

The RTC found respondents to be entitled to damages. It rejected Pajarillo's claim that he merely acted in self-defense. It gave no credence to Pajarillo's bare claim that Evangeline was seen roaming around the area prior to the shooting incident since Pajarillo had not made such report to the head office and the police authorities. The RTC further ruled that being the guard on duty, the situation demanded that he should have exercised proper prudence and necessary care by asking Evangeline for him to ascertain the matter instead of shooting her instantly; that Pajarillo had already been convicted of Homicide in Criminal Case No. 0-97-73806; and that he also failed to proffer proof negating liability in the instant case.

The RTC also found Safeguard as employer of Pajarillo to be jointly and severally liable with Pajarillo. It ruled that while it may be conceded that Safeguard had perhaps exercised care in the selection of its employees, particularly of Pajarillo, there was no sufficient evidence to show that Safeguard exercised the diligence of a good father of

a family in the supervision of its employee; that Safeguard's evidence simply showed that it required its guards to attend trainings and seminars which is not the supervision contemplated under the law; that supervision includes not only the issuance of regulations and instructions designed for the protection of persons and property, for the guidance of their servants and employees, but also the duty to see to it that such regulations and instructions are faithfully complied with.

Petitioners appealed the RTC decision to the CA. On July 16, 2004, the CA issued its assailed Decision, the dispositive portion of which reads:

IN VIEW OF ALL THE FOREGOING, the appealed decision is hereby AFFIRMED, with the modification that Safeguard Security Agency, Inc.'s civil liability in this case is only subsidiary under Art. 103 of the Revised Penal Code. No pronouncement as to costs.9

In finding that Safeguard is only subsidiarily liable, the CA held that the applicable provisions are not Article 2180 in relation to Article 2176 of the Civil Code, on quasi-delicts, but the provisions on civil liability arising from felonies under the Revised Penal Code; that since Pajarillo had been found guilty of Homicide in a final and executory judgment and is said to be serving sentence in Muntinlupa, he must be adjudged civilly liable under the provisions of Article 100 of the Revised Penal Code since the civil liability recoverable in the criminal action is one solely dependent upon conviction, because said liability arises from the offense charged and no other; that this is also the civil liability that is deemed extinguished with the extinction of the penal liability with a pronouncement that the fact from which the civil action might proceed does not exist; that unlike in civil liability arising from quasi-delict, the defense of diligence of a good father of a family in the employment and supervision of employees is inapplicable and irrelevant in civil liabilities based on crimes or ex-delicto; that Article 103 of the Revised Penal Code provides that the liability of an employer for the civil liability of their employees is only subsidiary, not joint or solidary.

Petitioners filed their Motion for Reconsideration which the CA denied in a Resolution dated October 20, 2004.

Hence, the instant Petition for Review on Certiorari with the following assignment of errors, to wit:

The Honorable Court of Appeals gravely erred in finding petitioner Pajarillo liable to respondents for the payment of damages and other money claims.

The Honorable Court of Appeals gravely erred when it applied Article 103 of the Revised Penal Code in holding petitioner Safeguard solidarily [sic] liable with petitioner Pajarillo for the payment of damages and other money claims.

The Honorable Court of Appeals gravely erred in failing to find that petitioner Safeguard Security Agency, Inc. exercised due diligence in the selection and supervision of its employees, hence, should be excused from any liability.10

The issues for resolution are whether (1) Pajarillo is guilty of negligence in shooting Evangeline; and (2) Safeguard should be held solidarily liable for the damages awarded to respondents.

Safeguard insists that the claim for damages by respondents is based on culpa aquiliana under Article 217611 of the Civil Code, in which case, its liability is jointly and severally with Pajarillo. However, since it has established that it had exercised due diligence in the selection and supervision of Pajarillo, it should be exonerated from civil liability.

We will first resolve whether the CA correctly held that respondents, in filing a separate civil action against petitioners are limited to the recovery of damages arising from a crime or delict, in which case the liability of Safeguard as employer under Articles 102 and 103 of the Revised Penal Code12 is subsidiary and the defense of due diligence in the selection and supervision of employee is not available to it.

The CA erred in ruling that the liability of Safeguard is only subsidiary.

The law at the time the complaint for damages was filed is Rule 111 of the 1985 Rules on Criminal Procedure, as amended, to wit:

SECTION 1. Institution of criminal and civil actions. - When a criminal action is instituted, the civil action for the recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33, 34, and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.

Respondents reserved the right to file a separate civil action and in fact filed the same on January 14, 1998.

The CA found that the source of damages in the instant case must be the crime of homicide, for which he had already been found guilty of and serving sentence thereof, thus must be governed by the Revised Penal Code.

We do not agree.

An act or omission causing damage to another may give rise to two separate civil liabilities on the part of the offender, i.e., (1) civil liability ex delicto, under Article 100 of the Revised Penal Code; and (2) independent civil liabilities, such as those (a) not arising from an act or omission complained of as a felony, e.g., culpa contractual or obligations arising from law under Article 31 of the Civil Code, intentional torts under Articles 32 and 34, and culpa aquiliana under Article 2176 of the Civil Code; or (b) where the injured party is granted a right to file an action independent and distinct from the criminal action under Article 33 of the Civil Code. Either of these liabilities may be enforced against the offender subject to the caveat under Article 2177 of the Civil Code that the offended party cannot recover damages twice for the same act or omission or under both causes.13

It is important to determine the nature of respondents' cause of action. The nature of a cause of action is determined by the facts alleged in the complaint as constituting the cause of action.14 The purpose of an action or suit and the law to govern it is to be determined not by the claim of the party filing the action, made in his argument or brief, but rather by the complaint itself, its allegations and prayer for relief.15

The pertinent portions of the complaint read:

7. That Defendant Admer A. Pajarillo was the guard assigned and posted in the Ecology Bank – Katipunan Branch, Quezon City, who was employed and under employment of Safeguard Security Agency, Inc. hence there is employer-employee relationship between co-defendants.

The Safeguard Security Agency, Inc. failed to observe the diligence of a good father of a family to prevent damage to herein plaintiffs.

8. That defendant Admer Pajarillo upon seeing Evangeline Tangco, who brought her firearm out of her bag, suddenly without exercising necessary caution/care, and in idiotic manner, with the use of his shotgun, fired and burst bullets upon Evangeline M. Tangco, killing her instantly. x x x

16. That defendants, being employer and the employee are jointly and severally liable for the death of Evangeline M. Tangco.16

Thus, a reading of respondents' complaint shows that the latter are invoking their right to recover damages against Safeguard for their vicarious responsibility for the injury caused by Pajarillo's act of shooting and killing Evangeline under Article 2176, Civil Code which provides:

ARTICLE 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between

the parties is called a quasi-delict and is governed by the provisions of this Chapter.

The scope of Article 2176 is not limited to acts or omissions resulting from negligence. In Dulay v. Court of Appeals,17 we held:

x x x Well-entrenched is the doctrine that Article 2176 covers not only acts committed with negligence, but also acts which are voluntary and intentional. As far back as the definitive case of Elcano v. Hill (77 SCRA 98 [1977]), this Court already held that:

"x x x Article 2176, where it refers to "fault or negligence," covers not only acts "not punishable by law" but also acts criminal in character, whether intentional and voluntary or negligent. Consequently, a separate civil action lies against the offender in a criminal act, whether or not he is criminally prosecuted and found guilty or acquitted, provided that the offended party is not allowed, if he is actually charged also criminally, to recover damages on both scores, and would be entitled in such eventuality only to the bigger award of the two, assuming the awards made in the two cases vary. In other words, the extinction of civil liability referred to in Par. (e) of Section 3, Rule 111, refers exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability for the same act considered as quasi-delict only and not as a crime is not extinguished even by a declaration in the criminal case that the criminal act charged has not happened or has not been committed by the accused. Briefly stated, We here hold, in reiteration of Garcia, that culpa aquiliana includes voluntary and negligent acts which may be punishable by law." (Emphasis supplied)

The civil action filed by respondents was not derived from the criminal liability of Pajarillo in the criminal case but one based on culpa aquiliana or quasi-delict which is separate and distinct from the civil liability arising from crime.18 The source of the obligation sought to be enforced in the civil case is a quasi-delict not an act or omission punishable by law.

In Bermudez v. Melencio-Herrera,19 where the issue involved was whether the civil action filed by plaintiff-appellants is founded on crime or on quasi-delict, we held:

x x x The trial court treated the case as an action based on a crime in view of the reservation made by the offended party in the criminal case (Criminal Case No. 92944), also pending before the court, to file a separate civil action. Said the trial court:

It would appear that plaintiffs instituted this action on the assumption that defendant Pontino's negligence in the accident of May 10, 1969 constituted a quasi-delict. The Court cannot accept the validity of that assumption. In Criminal Case No. 92944 of this Court, plaintiffs had already appeared as

complainants. While that case was pending, the offended parties reserved the right to institute a separate civil action. If, in a criminal case, the right to file a separate civil action for damages is reserved, such civil action is to be based on crime and not on tort. That was the ruling in Joaquin vs. Aniceto, L-18719, Oct. 31, 1964.

We do not agree. The doctrine in the case cited by the trial court is inapplicable to the instant case

In cases of negligence, the injured party or his heirs has the choice between an action to enforce the civil liability arising from crime under Article 100 of the Revised Penal Code and an action forquasi-delict under Article 2176-2194 of the Civil Code. If a party chooses the latter, he may hold the employer solidarily liable for the negligent act of his employee, subject to the employer's defense of exercise of the diligence of a good father of the family.

In the case at bar, the action filed by appellant was an action for damages based on quasi-delict. The fact that appellants reserved their right in the criminal case to file an independent civil action did not preclude them from choosing to file a civil action for quasi-delict.20 (Emphasis supplied)

Although the judgment in the criminal case finding Pajarillo guilty of Homicide is already final and executory, such judgment has no relevance or importance to this case.21 It would have been entirely different if respondents' cause of action was for damages arising from a delict, in which case the CA is correct in finding Safeguard to be only subsidiary liable pursuant to Article 103 of the Revised Penal Code.22

As clearly shown by the allegations in the complaint, respondents' cause of action is based on quasi-delict. Under Article 2180 of the Civil Code, when the injury is caused by the negligence of the employee, there instantly arises a presumption of law that there was negligence on the part of the master or the employer either in the selection of the servant or employee, or in the supervision over him after selection or both. The liability of the employer under Article 2180 is direct and immediate. Therefore, it is incumbent upon petitioners to prove that they exercised the diligence of a good father of a family in the selection and supervision of their employee.

We must first resolve the issue of whether Pajarillo was negligent in shooting Evangeline.

The issue of negligence is factual in nature. Whether a person is negligent or not is a question of fact, which, as a general rule, we cannot pass upon in a petition for review on certiorari, as our jurisdiction is limited to reviewing errors of law.23 Generally, factual findings of the trial court, affirmed by the CA, are final and conclusive and may not be reviewed on appeal. The established exceptions are: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of

discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the CA is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of fact are conclusions without citation of specific evidence on which they are based; (8) when the CA manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a different conclusion; and (9) when the findings of fact of the CA are premised on the absence of evidence and are contradicted by the evidence on record. [24]

A thorough review of the records of the case fails to show any cogent reason for us to deviate from the factual finding of the trial court and affirmed by the CA that petitioner Pajarillo was guilty of negligence in shooting Evangeline.

Respondents' evidence established that Evangeline's purpose in going to the bank was to renew her time deposit.25 On the other hand, Pajarillo claims that Evangeline drew a gun from her bag and aimed the same at him, thus, acting instinctively, he shot her in self-defense.

Pajarillo testified that when Evangeline aimed the gun at him at a distance of about one meter or one arm's length26 he stepped backward, loaded the chamber of his gun and shot her.27 It is however unimaginable that petitioner Pajarillo could still make such movements if indeed the gun was already pointed at him. Any movement could have prompted Evangeline to pull the trigger to shoot him.

Petitioner Pajarillo would like to justify his action in shooting Evangeline on his mere apprehension that Evangeline will stage a bank robbery. However, such claim is befuddled by his own testimony. Pajarillo testified that prior to the incident, he saw Evangeline roaming under the fly over which was about 10 meters away from the bank28 and saw her talking to a man thereat;29 that she left the man under the fly-over, crossed the street and approached the bank. However, except for the bare testimony of Pajarillo, the records do not show that indeed Evangeline was seen roaming near the vicinity of the bank and acting suspiciously prior to the shooting incident. In fact, there is no evidence that Pajarillo called the attention of his head guard or the bank's branch manager regarding his concerns or that he reported the same to the police authorities whose outpost is just about 15 meters from the bank.

Moreover, if Evangeline was already roaming the vicinity of the bank, she could have already apprised herself that Pajarillo, who was posted outside the bank, was armed with a shotgun; that there were two guards inside the bank30 manning the entrance door. Thus, it is quite incredible that if she really had a companion, she would leave him under the fly-over which is 10 meters far from the bank and stage a bank robbery all by herself without a back-up. In fact, she would have known, after surveying the area, that aiming her gun at Pajarillo would not ensure entrance to the bank as there were guards manning the entrance door.

Evidence, to be believed, must not only proceed from the mouth of a credible witness, but it must be credible in itself — such as the common experience and observation of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs to the miraculous and is outside judicial cognizance.31

That Evangeline just wanted to deposit her gun before entering the bank and was actually in the act of pulling her gun from her bag when petitioner Pajarillo recklessly shot her, finds support from the contentions raised in petitioners' petition for review where they argued that when Evangeline approached the bank, she was seen pulling a gun from inside her bag and petitioner Pajarillo who was suddenly beset by fear and perceived the act as a dangerous threat, shot and killed the deceased out of pure instinct;32 that the act of drawing a gun is a threatening act, regardless of whether or not the gun was intended to be used against petitioner Pajarillo;33 that the fear that was created in the mind of petitioner Pajarillo as he saw Evangeline Tangco drawing a gun from her purse was suddenly very real and the former merely reacted out of pure self-preservation.34

Considering that unlawful aggression on the part of Evangeline is absent, Pajarillo's claim of self-defense cannot be accepted specially when such claim was uncorroborated by any separate competent evidence other than his testimony which was even doubtful. Pajarillo's apprehension that Evangeline will shoot him to stage a bank robbery has no basis at all. It is therefore clear that the alleged threat of bank robbery was just a figment of Pajarillo's imagination which caused such unfounded unlawful aggression on his part.

Petitioners argue that Evangeline was guilty of contributory negligence. Although she was a licensed firearm holder, she had no business bringing the gun in such establishment where people would react instinctively upon seeing the gun; that had Evangeline been prudent, she could have warned Pajarillo before drawing the gun and did not conduct herself with suspicion by roaming outside the vicinity of the bank; that she should not have held the gun with the nozzle pointed at Pajarillo who mistook the act as hold up or robbery.

We are not persuaded.

As we have earlier held, Pajarillo failed to substantiate his claim that Evangeline was seen roaming outside the vicinity of the bank and acting suspiciously prior to the shooting incident. Evangeline's death was merely due to Pajarillo's negligence in shooting her on his imagined threat that Evangeline will rob the bank.

Safeguard contends that it cannot be jointly held liable since it had adequately shown that it had exercised the diligence required in the selection and supervision of its employees. It claims that it had required the guards to undergo the necessary training and to submit the requisite qualifications and credentials which even the RTC found to have been complied with; that the RTC erroneously found that it did not exercise the

diligence required in the supervision of its employee. Safeguard further claims that it conducts monitoring of the activities of its personnel, wherein supervisors are assigned to routinely check the activities of the security guards which include among others, whether or not they are in their proper post and with proper equipment, as well as regular evaluations of the employees' performances; that the fact that Pajarillo loaded his firearm contrary to Safeguard's operating procedure is not sufficient basis to say that Safeguard had failed its duty of proper supervision; that it was likewise error to say that Safeguard was negligent in seeing to it that the procedures and policies were not properly implemented by reason of one unfortunate event.

We are not convinced.

Article 2180 of the Civil Code provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage.

As the employer of Pajarillo, Safeguard is primarily and solidarily liable for the quasi-delict committed by the former. Safeguard is presumed to be negligent in the selection and supervision of his employee by operation of law. This presumption may be overcome only by satisfactorily showing that the employer exercised the care and the diligence of a good father of a family in the selection and the supervision of its employee.

In the selection of prospective employees, employers are required to examine them as to their qualifications, experience, and service records.35 On the other hand, due diligence in the supervision of employees includes the formulation of suitable rules and regulations for the guidance of employees and the issuance of proper instructions intended for the protection of the public and persons with whom the employer has relations through his or its employees and the imposition of necessary disciplinary measures upon employees in case of breach or as may be warranted to ensure the performance of acts indispensable to the business of and beneficial to their employer. To this, we add that actual implementation and monitoring of consistent compliance with said rules should be the constant concern of the employer, acting through dependable supervisors who should regularly report on their supervisory functions.36 To establish these factors in a trial involving the issue of vicarious liability, employers must submit concrete proof, including documentary evidence.

We agree with the RTC's finding that Safeguard had exercised the diligence in the selection of Pajarillo since the record shows that Pajarillo underwent a psychological and neuro-psychiatric evaluation conducted by the St. Martin de Porres Center where no psychoses ideations were noted, submitted a certification on the Pre-licensing training course for security guards, as well as police and NBI clearances.

The RTC did not err in ruling that Safeguard fell short of the diligence required in the supervision of its employee, particularly Pajarillo. In this case, while Safeguard presented Capt. James Camero, its Director for Operations, who testified on the issuance of company rules and regulations, such as the Guidelines of Guards Who Will Be Assigned To Banks,37 Weapons Training,38 Safeguard Training Center Marksmanship Training Lesson Plan,39 Disciplinary/Corrective Sanctions,40 it had also been established during Camero's cross-examination that Pajarillo was not aware of such rules and regulations.41 Notwithstanding Camero's clarification on his re-direct examination that these company rules and regulations are lesson plans as a basis of guidelines of the instructors during classroom instructions and not necessary to give students copy of the same,42 the records do not show that Pajarillo had attended such classroom instructions.

The records also failed to show that there was adequate training and continuous evaluation of the security guard's performance. Pajarillo had only attended an in-service training on March 1, 1997 conducted by Toyota Sta. Rosa, his first assignment as security guard of Safeguard, which was in collaboration with Safeguard. It was established that the concept of such training was purely on security of equipments to be guarded and protection of the life of the employees.43

It had not been established that after Pajarillo's training in Toyota, Safeguard had ever conducted further training of Pajarillo when he was later assigned to guard a bank which has a different nature of business with that of Toyota. In fact, Pajarillo testified that being on duty in a bank is different from being on duty in a factory since a bank is a very sensitive area.44

Moreover, considering his reactions to Evangeline's act of just depositing her firearm for safekeeping, i.e., of immediately shooting her, confirms that there was no training or seminar given on how to handle bank clients and on human psychology.

Furthermore, while Safeguard would like to show that there were inspectors who go around the bank two times a day to see the daily performance of the security guards assigned therein, there was no record ever presented of such daily inspections. In fact, if there was really such inspection made, the alleged suspicious act of Evangeline could have been taken noticed and reported.

Turning now to the award of damages, we find that the award of actual damages in the amount P157,430.00 which were the expenses incurred by respondents in connection with the burial of Evangeline were supported by receipts. The award of P50,000.00 as civil indemnity for the death of Evangeline is likewise in order.

As to the award of moral damages, Article 2206 of the Civil Code provides that the spouse, legitimate children and illegitimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Moral damages are awarded to enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he/she has undergone, by reason of the defendant's culpable action. Its award is aimed at restoration, as much as possible, of the spiritual status quo ante; thus it must be proportionate to the suffering inflicted.45 The intensity of the pain experienced by the relatives of the victim is proportionate to the intensity of affection for him and bears no relation whatsoever with the wealth or means of the offender.46

In this case, respondents testified as to their moral suffering caused by Evangeline's death was so sudden causing respondent Lauro to lose a wife and a mother to six children who were all minors at the time of her death. In People v. Teehankee, Jr.,47 we awarded one million pesos as moral damages to the heirs of a seventeen-year-old girl who was murdered. In Metro Manila Transit Corporation v. Court of Appeals,48 we likewise awarded the amount of one million pesos as moral damages to the parents of a third year high school student and who was also their youngest child who died in a vehicular accident since the girl's death left a void in their lives. Hence, we hold that the respondents are also entitled to the amount of one million pesos as Evangeline's death left a void in the lives of her husband and minor children as they were deprived of her love and care by her untimely demise.

We likewise uphold the award of exemplary damages in the amount of P300,000.00. Under Article 2229 of the Civil Code, exemplary damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated or compensatory damages.49 It is awarded as a deterrent to socially deleterious actions. In quasi-delict, exemplary damages may be granted if the defendant acted with gross negligence.50

Pursuant to Article 2208 of the Civil Code, attorney's fees may be recovered when, as in the instant case, exemplary damages are awarded. Hence, we affirm the award of attorney's fees in the amount of P30,000.00.

WHEREFORE, the petition for review is DENIED. The Decision dated July 16, 2004 of the Court of Appeals is AFFIRMED with MODIFICATION that the civil liability of petitioner Safeguard Security Agency, Inc. is SOLIDARY and PRIMARY under Article 2180 of the Civil Code.

SO ORDERED.