Republic of the Philippines The plaintiff demurred to the above answer, and the court below sustained the
SUPREME COURT demurrer, directing the defendants, on the 23rd of January, 1907, to amend their
Manila
EN BANC
G.R. No. L-4089             January 12, 1909
ARTURO PELAYO, plaintiff-appellant,  right of action against the defendants, with costs against the plaintiff, who excepted
vs.
MARCELO LAURON, ET AL., defendants-appellees.
J.H. Junquera, for appellant.
Filemon Sotto, for appellee.
TORRES, J.:
On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a
complaint against Marcelo Lauron and Juana Abella setting forth that on or about
the 13th of October of said year, at night, the plaintiff was called to the house of the
defendants, situated in San Nicolas, and that upon arrival he was requested by them
to render medical assistance to their daughter-in-law who was about to give birth to
a child; that therefore, and after consultation with the attending physician, Dr.
Escaño, it was found necessary, on account of the difficult birth, to remove the fetus
by means of forceps which operation was performed by the plaintiff, who also had
to remove the afterbirth, in which services he was occupied until the following
morning, and that afterwards, on the same day, he visited the patient several times;
that the just and equitable value of the services rendered by him was P500, which
the defendants refuse to pay without alleging any good reason therefor; that for said
reason he prayed that the judgment be entered in his favor as against the defendants,
or any of them, for the sum of P500 and costs, together with any other relief that
might be deemed proper.
In answer to the complaint counsel for the defendants denied all of the allegation
therein contained and alleged as a special defense, that their daughter-in-law had
died in consequence of the said childbirth, and that when she was alive she lived
with her husband independently and in a separate house without any relation
whatever with them, and that, if on the day when she gave birth she was in the house
of the defendants, her stay their was accidental and due to fortuitous circumstances;
therefore, he prayed that the defendants be absolved of the complaint with costs
against the plaintiff.
answer. In compliance with this order the defendants presented, on the same date,
their amended answer, denying each and every one of the allegations contained in
the complaint, and requesting that the same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was entered by the
court below on the 5th of April, 1907, whereby the defendants were absolved from
the former complaint, on account of the lack of sufficient evidence to establish a
to the said judgment and in addition moved for a new trial on the ground that the
judgment was contrary to law; the motion was overruled and the plaintiff excepted
and in due course presented the corresponding bill of exceptions. The motion of the
defendants requesting that the declaration contained in the judgment that the
defendants had demanded therefrom, for the reason that, according to the evidence,
no such request had been made, was also denied, and to the decision the defendants
excepted.
Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by
virtue of having been sent for by the former, attended a physician and rendered
professional services to a daughter-in-law of the said defendants during a difficult
and laborious childbirth, in order to decide the claim of the said physician regarding
the recovery of his fees, it becomes necessary to decide who is bound to pay the bill,
whether the father and mother-in-law of the patient, or the husband of the latter.
According to article 1089 of the Civil Code, obligations are created by law, by
contracts, by quasi-contracts, and by illicit acts and omissions or by those in which
any kind of fault or negligence occurs.
Obligations arising from law are not presumed. Those expressly determined in the
code or in special laws, etc., are the only demandable ones. Obligations arising from
contracts have legal force between the contracting parties and must be fulfilled in
accordance with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised among the
mutual obligations to which the spouses are bound by way of mutual support. (Arts.
142 and 143.)
If every obligation consists in giving, doing or not doing something (art. 1088), and
spouses are mutually bound to support each other, there can be no question but that,
when either of them by reason of illness should be in need of medical assistance, the
other is under the unavoidable obligation to furnish the necessary services of a
physician in order that health may be restored, and he or she may be freed from the
sickness by which life is jeopardized; the party bound to furnish such support is The foregoing suffices to demonstrate that the first and second errors assigned to the
therefore liable for all expenses, including the fees of the medical expert for his judgment below are unfounded, because, if the plaintiff has no right of action
professional services. This liability originates from the above-cited mutual against the defendants, it is needless to declare whether or not the use of forceps is a
obligation which the law has expressly established between the married couple. surgical operation.

In the face of the above legal precepts it is unquestionable that the person bound to Therefore, in view of the consideration hereinbefore set forth, it is our opinion that
pay the fees due to the plaintiff for the professional services that he rendered to the the judgment appealed from should be affirmed with the costs against the appellant.
daughter-in-law of the defendants during her childbirth, is the husband of the patient So ordered.
and not her father and mother- in-law, the defendants herein. The fact that it was not
the husband who called the plaintiff and requested his assistance for his wife is no
bar to the fulfillment of the said obligation, as the defendants, in view of the
imminent danger, to which the life of the patient was at that moment exposed,
considered that medical assistance was urgently needed, and the obligation of the
husband to furnish his wife in the indispensable services of a physician at such
critical moments is specially established by the law, as has been seen, and
compliance therewith is unavoidable; therefore, the plaintiff, who believes that he is
entitled to recover his fees, must direct his action against the husband who is under
obligation to furnish medical assistance to his lawful wife in such an emergency.

From the foregoing it may readily be understood that it was improper to have
brought an action against the defendants simply because they were the parties who
called the plaintiff and requested him to assist the patient during her difficult
confinement, and also, possibly, because they were her father and mother-in-law and
the sickness occurred in their house. The defendants were not, nor are they now,
under any obligation by virtue of any legal provision, to pay the fees claimed, nor in
consequence of any contract entered into between them and the plaintiff from which
such obligation might have arisen.

In applying the provisions of the Civil Code in an action for support, the supreme
court of Spain, while recognizing the validity and efficiency of a contract to furnish
support wherein a person bound himself to support another who was not his relative,
established the rule that the law does impose the obligation to pay for the support of
a stranger, but as the liability arose out of a contract, the stipulations of the
agreement must be held. (Decision of May 11, 1897.)

Within the meaning of the law, the father and mother-in-law are strangers with
respect to the obligation that devolves upon the husband to provide support, among
which is the furnishing of medical assistance to his wife at the time of her
confinement; and, on the other hand, it does not appear that a contract existed
between the defendants and the plaintiff physician, for which reason it is obvious
that the former can not be compelled to pay fees which they are under no liability to
pay because it does not appear that they consented to bind themselves.

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-7089             August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant, 
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-
appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year
1941 the Northern Theatrical Enterprises Inc., a domestic corporation operated a
movie house in Laoag, Ilocos Norte, and among the persons employed by it was the
plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to
guard the main entrance of the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he carried a revolver. In
the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or
entrance of the movie house. Infuriated by the refusal of plaintiff De la Cruz to let
him in without first providing himself with a ticket, Martin attacked him with a bolo.
De la Cruz defendant himself as best he could until he was cornered, at which
moment to save himself he shot the gate crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of
the Court of First Instance of Ilocos Norte. After a re-investigation conducted by the
Provincial Fiscal the latter filed a motion to dismiss the complaint, which was
granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same Court.
After trial, he was finally acquitted of the charge on January 31, 1948. In both
criminal cases De la Cruz employed a lawyer to defend him. He demanded from his
former employer reimbursement of his expenses but was refused, after which he
filed the present action against the movie corporation and the three members of its
board of directors, to recover not only the amounts he had paid his lawyers but also
moral damages said to have been suffered, due to his worry, his neglect of his
interests and his family as well in the supervision of the cultivation of his land, a
total of P15,000. On the basis of the complaint and the answer filed by defendants
wherein they asked for the dismissal of the complaint, as well as the agreed
statement of facts, the Court of First Instance of Ilocos Norte after rejecting the
theory of the plaintiff that he was an agent of the defendants and that as such agent
he was entitled to reimbursement of the expenses incurred by him in connection
with the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no
cause of action and dismissed the complaint without costs. De la Cruz appealed
directly to this Tribunal for the reason that only questions of law are involved in the
appeal.
We agree with the trial court that the relationship between the movie corporation
and the plaintiff was not that of principal and agent because the principle of
representation was in no way involved. Plaintiff was not employed to represent the
defendant corporation in its dealings with third parties. He was a mere employee
hired to perform a certain specific duty or task, that of acting as special guard and
staying at the main entrance of the movie house to stop gate crashers and to maintain
peace and order within the premises. The question posed by this appeal is whether
an employee or servant who in line of duty and while in the performance of the task
assigned to him, performs an act which eventually results in his incurring in
expenses, caused not directly by his master or employer or his fellow servants or by
reason of his performance of his duty, but rather by a third party or stranger not in
the employ of his employer, may recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint
said that "after studying many laws or provisions of law to find out what law is
applicable to the facts submitted and admitted by the parties, has found none and it
has no other alternative than to dismiss the complaint." The trial court is right. We
confess that we are not aware of any law or judicial authority that is directly
applicable to the present case, and realizing the importance and far-reaching effect
of a ruling on the subject-matter we have searched, though vainly, for judicial
authorities and enlightenment. All the laws and principles of law we have found, as
regards master and servants, or employer and employee, refer to cases of physical
injuries, light or serious, resulting in loss of a member of the body or of any one of
the senses, or permanent physical disability or even death, suffered in line of duty
and in the course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's Liability Act and
the Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in the performance of
his duties, presents a novel question which under present legislation we are neither by the plaintiff was not the proximate cause of the damages suffered but may be
able nor prepared to decide in favor of the employee. regarded as only a remote cause, because from the shooting to the damages suffered
there was not that natural and continuous sequence required to fix civil
In a case like the present or a similar case of say a driver employed by a responsibility.
transportation company, who while in the course of employment runs over and
inflicts physical injuries on or causes the death of a pedestrian; and such driver is In view of the foregoing, the judgment of the lower court is affirmed. No costs.
later charged criminally in court, one can imagine that it would be to the interest of
the employer to give legal help to and defend its employee in order to show that the
latter was not guilty of any crime either deliberately or through negligence, because
should the employee be finally held criminally liable and he is found to be insolvent,
the employer would be subsidiarily liable. That is why, we repeat, it is to the interest
of the employer to render legal assistance to its employee. But we are not prepared
to say and to hold that the giving of said legal assistance to its employees is a legal
obligation. While it might yet and possibly be regarded as a normal obligation, it
does not at present count with the sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount he
may have paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff
by reason of the expenses incurred by him in remunerating his lawyer, is not caused
by his act of shooting to death the gate crasher but rather by the filing of the charge
of homicide which made it necessary for him to defend himself with the aid of
counsel. Had no criminal charge been filed against him, there would have been no
expenses incurred or damage suffered. So the damage suffered by plaintiff was
caused rather by the improper filing of the criminal charge, possibly at the instance
of the heirs of the deceased gate crasher and by the State through the Fiscal. We say
improper filing, judging by the results of the court proceedings, namely, acquittal. In
other words, the plaintiff was innocent and blameless. If despite his innocence and
despite the absence of any criminal responsibility on his part he was accused of
homicide, then the responsibility for the improper accusation may be laid at the door
of the heirs of the deceased and the State, and so theoretically, they are the parties
that may be held responsible civilly for damages and if this is so, we fail to see now
this responsibility can be transferred to the employer who in no way intervened,
much less initiated the criminal proceedings and whose only connection or relation
to the whole affairs was that he employed plaintiff to perform a special duty or task,
which task or duty was performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the
payment of the lawyer's fee did not flow directly from the performance of his duties
but only indirectly because there was an efficient, intervening cause, namely, the
filing of the criminal charges. In other words, the shooting to death of the deceased
 Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation
duly organized and existing under the laws of the Philippines. 6 Respondent Ana
Grace Rosales (Rosales) is the owner of China Golden Bridge Travel Services, 7 a
travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales. 9

In 2000, respondents opened a Joint Peso Account 10 with petitioner’s Pritil-Tondo

Branch.11 As of August 4, 2004, respondents’ Joint Peso Account showed a balance
of ₱2,515,693.52.12

In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a
Taiwanese National applying for a retiree’s visa from the Philippine Leisure and
Retirement Authority (PLRA), to petitioner’s branch in Escolta to open a savings
account, as required by the PLRA.13 Since Liu Chiu Fang could speak only in
Mandarin, respondent Rosales acted as an interpreter for her. 14

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint

Republic of the Philippines Dollar Account15 with an initial deposit of US$14,000.00.16
SUPREME COURT
Manila On July 31, 2003, petitioner issued a "Hold Out" order against respondents’
accounts.17
SECOND DIVISION
On September 3, 2003, petitioner, through its Special Audit Department Head
G.R. No. 183204               January 13, 2014 Antonio Ivan Aguirre, filed before the Office of the Prosecutor of Manila a criminal
case for Estafa through False Pretences, Misrepresentation, Deceit, and Use of
Falsified Documents, docketed as I.S. No. 03I-25014, 18 against respondent
THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,  Rosales.19 Petitioner accused respondent Rosales and an unidentified woman as the
vs. ones responsible for the unauthorized and fraudulent withdrawal of US$75,000.00
ANA GRACE ROSALES AND YO YUK TO, Respondents. from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch. 20Petitioner
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a
DECISION Withdrawal Clearance for the dollar account of Liu Chiu Fang; 21 that in the
afternoon of the same day, respondent Rosales went to petitioner’s Escolta Branch
DEL CASTILLO, J.: to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was
going to withdraw her dollar deposits in cash; 22 that Gutierrez told respondent
Rosales to come back the following day because the bank did not have enough
Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid dollars;23 that on February 6, 2003, respondent Rosales accompanied an unidentified
upon demand by the depositor.2 impostor of Liu Chiu Fang to the bank; 24 that the impostor was able to withdraw Liu
Chiu Fang’s dollar deposit in the amount of US$75,000.00; 25 that on March 3, 2003,
This Petition for Review on Certiorari 3 under Rule 45 of the Rules of Court assails respondents opened a dollar account with petitioner; and that the bank later
the April 2, 2008 Decision4 and the May 30, 2008 Resolution 5 of he Court of discovered that the serial numbers of the dollar notes deposited by respondents in
Appeals CA) in CA-G.R. CV No. 89086. the amount of US$11,800.00 were the same as those withdrawn by the impostor. 26

Factual Antecedents Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
withdrawal from the dollar account of Liu Chiu Fang. 27 Respondent Rosales claimed
that she did not go to the bank on February 5, 2003. 28Neither did she inform
Gutierrez that Liu Chiu Fang was going to close her account. 29 Respondent Rosales
further claimed that after Liu Chiu Fang opened an account with petitioner, she lost
track of her.30 Respondent Rosales’ version of the events that transpired thereafter is
as follows:
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu
Fang was at the bank to close her account. 31 At noon of the same day, respondent
Rosales went to the bank to make a transaction. 32 While she was transacting with the
teller, she caught a glimpse of a woman seated at the desk of the Branch Operating
Officer, Melinda Perez (Perez).33 After completing her transaction, respondent
Rosales approached Perez who informed her that Liu Chiu Fang had closed her
account and had already left.34 Perez then gave a copy of the Withdrawal Clearance
issued by the PLRA to respondent Rosales. 35 On June 16, 2003, respondent Rosales
received a call from Liu Chiu Fang inquiring about the extension of her PLRA Visa
and her dollar account.36 It was only then that Liu Chiu Fang found out that her
account had been closed without her knowledge. 37 Respondent Rosales then went to
the bank to inform Gutierrez and Perez of the unauthorized withdrawal. 38 On June
23, 2003, respondent Rosales and Liu Chiu Fang went to the PLRA Office, where
they were informed that the Withdrawal Clearance was issued on the basis of a
Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a certain
Richard So.39 Liu Chiu Fang, however, denied executing the SPA. 40 The following
day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at the PLRA
Office to discuss the unauthorized withdrawal. 41 During the conference, the bank
officers assured Liu Chiu Fang that the money would be returned to her. 42
On December 15, 2003, the Office of the City Prosecutor of Manila issued a
Resolution dismissing the criminal case for lack of probable cause. 43 Unfazed,
petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of
Manila a Complaint44 for Breach of Obligation and Contract with Damages,
docketed as Civil Case No. 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to withdraw their deposits but
were unable to because petitioner had placed their accounts under "Hold Out"
status.45 No explanation, however, was given by petitioner as to why it issued the
"Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that
they be allowed to withdraw their deposits.47 They likewise prayed for actual, moral,
and exemplary damages, as well as attorney’s fees. 48
Petitioner alleged that respondents have no cause of action because it has a valid
reason for issuing the "Hold Out" order.49 It averred that due to the fraudulent
scheme of respondent Rosales, it was compelled to reimburse Liu Chiu Fang the
amount of US$75,000.0050 and to file a criminal complaint for Estafa against
respondent Rosales.51
While the case for breach of contract was being tried, the City Prosecutor of Manila
issued a Resolution dated February 18, 2005, reversing the dismissal of the criminal
complaint.52 An Information, docketed as Criminal Case No. 05-236103, 53 was then
filed charging respondent Rosales with Estafa before Branch 14 of the RTC of
Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision 55 finding petitioner liable for
damages for breach of contract. 56The RTC ruled that it is the duty of petitioner to
release the deposit to respondents as the act of withdrawal of a bank deposit is an act
of demand by the creditor. 57 The RTC also said that the recourse of petitioner is
against its negligent employees and not against respondents. 58 The dispositive
portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering
[petitioner] METROPOLITAN BANK & TRUST COMPANY to allow
[respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their
Savings and Time Deposits with the agreed interest, actual damages of ₱50,000.00,
moral damages of ₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the
amount due [respondents] as and for attorney’s fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of
actual damages because "the basis for [respondents’] claim for such damages is the
professional fee that they paid to their legal counsel for [respondent] Rosales’
defense against the criminal complaint of [petitioner] for estafa before the Office of
the City Prosecutor of Manila and not this case." 60 Thus, the CA disposed of the case
in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the
RTC, Branch 21, Manila in Civil Case No. 04-110895 is AFFIRMED with
MODIFICATION that the award of actual damages to [respondents] Rosales and Yo
Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May 30,
2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT"
PROVISION IN THE APPLICATION AND AGREEMENT FOR
DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU
FANG’S FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEY’S FEES.63
Petitioner’s Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause
stipulated in the Application and Agreement for Deposit Account. 64 It posits that the
said clause applies to any and all kinds of obligation as it does not distinguish
between obligations arising ex contractu or ex delictu. 65 Petitioner also contends that
the fraud committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the "Hold-Out" order. 67 Petitioner
likewise denies that its employees were negligent in releasing the dollars. 68 It claims
that it was the deception employed by respondent Rosales that caused petitioner’s
employees to release Liu Chiu Fang’s funds to the impostor. 69
Lastly, petitioner puts in issue the award of moral and exemplary damages and
attorney’s fees. It insists that respondents failed to prove that it acted in bad faith or
in a wanton, fraudulent, oppressive or malevolent manner. 70
Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to
withhold their deposits because they have no monetary obligation to
petitioner.71 They insist that petitioner miserably failed to prove its accusations
against respondent Rosales.72 In fact, no documentary evidence was presented to
show that respondent Rosales participated in the unauthorized withdrawal. 73 They
also question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by
the alleged impostor.74Respondents likewise maintain that what was established
during the trial was the negligence of petitioner’s employees as they allowed the
withdrawal of the funds without properly verifying the identity of the
depositor.75Furthermore, respondents contend that their deposits are in the nature of
a loan; thus, petitioner had the obligation to return the deposits to them upon
demand.76 Failing to do so makes petitioner liable to pay respondents moral and
exemplary damages, as well as attorney’s fees. 77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached its
contract with respondents, and (2) if so, whether it is liable for damages. The issue
of whether petitioner’s employees were negligent in allowing the withdrawal of Liu
Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we
find no need to discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents because it has a
valid reason for issuing the "Hold Out" order. Petitioner anchors its right to withhold
respondents’ deposits on the Application and Agreement for Deposit Account,
which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations
with the Bank, all monies, properties or securities of the Depositor now in or which
may hereafter come into the possession or under the control of the Bank, whether
left with the Bank for safekeeping or otherwise, or coming into the hands of the
Bank in any way, for so much thereof as will be sufficient to pay any or all
obligations incurred by Depositor under the Account or by reason of any other
transactions between the same parties now existing or hereafter contracted, to sell in
any public or private sale any of such properties or securities of Depositor, and to
apply the proceeds to the payment of any Depositor’s obligations heretofore
mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of the
Depositors, assert a lien on any balance of the Account and apply all or any part
thereof against any indebtedness, matured or unmatured, that may then be owing to
the Bank by any or all of the Depositors. It is understood that if said indebtedness is
only owing from any of the Depositors, then this provision constitutes the consent
by all of the depositors to have the Account answer for the said indebtedness to the
extent of the equal share of the debtor in the amount credited to the Account. 78
Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for
Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising
from any of the sources of obligation enumerated in Article 1157 79 of the Civil
Code, to wit: law, contracts, quasi-contracts, delict, and quasi-delict. In this case,
petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was
filed by petitioner against respondent Rosales, this is not enough reason for
petitioner to issue a "Hold Out" order as the case is still pending and no final
judgment of conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold Out" order, the
criminal complaint had not yet been filed. Thus, considering that respondent Rosales
is not liable under any of the five sources of obligation, there was no legal basis for
petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of
the RTC and the CA that the "Hold Out" clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of contract when
it unjustifiably refused to release respondents’ deposit despite demand. Having
breached its contract with respondents, petitioner is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorney’s fees.1âwphi1
In cases of breach of contract, moral damages may be recovered only if the
defendant acted fraudulently or in bad faith, 80 or is "guilty of gross negligence
amounting to bad faith, or in wanton disregard of his contractual obligations." 81
In this case, a review of the circumstances surrounding the issuance of the "Hold
Out" order reveals that petitioner issued the "Hold Out" order in bad faith. First of
all, the order was issued without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out."82 Third, the order was issued prior to
the filing of the criminal complaint. Records show that the "Hold Out" order was
issued on July 31, 2003,83 while the criminal complaint was filed only on September
3, 2003.84 All these taken together lead us to conclude that petitioner acted in bad
faith when it breached its contract with respondents. As we see it then, respondents
are entitled to moral damages.
As to the award of exemplary damages, Article 2229 85 of the Civil Code provides
that exemplary damages may be imposed "by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory
damages." They are awarded only if the guilty party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner when it refused to release the deposits of
respondents without any legal basis. We need not belabor the fact that the banking
industry is impressed with public interest. 87 As such, "the highest degree of diligence
is expected, and high standards of integrity and performance are even required of
it."88 It must therefore "treat the accounts of its depositors with meticulous care and
always to have in mind the fiduciary nature of its relationship with them." 89 For
failing to do this, an award of exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article
220890 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner has the right to
protect itself from fraud or suspicions of fraud, the exercise of his right should be
done within the bounds of the law and in accordance with due process, and not in
bad faith or in a wanton disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision G.R. No. 158911               March 4, 2008
and the May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No.
89086 are hereby AFFIRMED. SO ORDERED. MANILA ELECTRIC COMPANY, Petitioner, 
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO RAMOY, ROMANA
RAMOY-RAMOS, ROSEMARIE RAMOY, OFELIA DURIAN and CYRENE
PANADO, Respondents.

DECISION

AUSTRIA-MARTINEZ, J.:

This resolves the Petition for Review on Certiorari under Rule 45 of the Rules of
Court, praying that the Decision 1 of the Court of Appeals (CA) dated December 16,
2002, ordering petitioner Manila Electric Company (MERALCO) to pay Leoncio
Ramoy2 moral and exemplary damages and attorney's fees, and the CA
Resolution3 dated July 1, 2003, denying petitioner's motion for reconsideration, be
reversed and set aside.

The Regional Trial Court (RTC) of Quezon City, Branch 81, accurately summarized
the facts as culled from the records, thus:

The evidence on record has established that in the year 1987 the National Power
Corporation (NPC) filed with the MTC Quezon City a case for ejectment against
several persons allegedly illegally occupying its properties in Baesa, Quezon City.
Among the defendants in the ejectment case was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On April 28, 1989 after the defendants failed to file an
answer in spite of summons duly served, the MTC Branch 36, Quezon City rendered
judgment for the plaintiff [MERALCO] and "ordering the defendants to demolish or
remove the building and structures they built on the land of the plaintiff and to
vacate the premises." In the case of Leoncio Ramoy, the Court found that he was
occupying a portion of Lot No. 72-B-2-B with the exact location of his apartments
indicated and encircled in the location map as No. 7. A copy of the decision was
furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record; TSN,
July 2, 1993, p. 5).

Republic of the Philippines On June 20, 1990 NPC wrote Meralco requesting for the "immediate disconnection
SUPREME COURT of electric power supply to all residential and commercial establishments beneath
Manila the NPC transmission lines along Baesa, Quezon City (Exh. 7, p. 143, Record).
Attached to the letter was a list of establishments affected which included plaintiffs
Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court decision (Exh.
THIRD DIVISION
2). After deliberating on NPC's letter, Meralco decided to comply with NPC's
request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued notices of disconnection
to all establishments affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-
C), Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie Ramoy
(Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H) and Cyrene S. Panado
(Exh. 3-I).
In a letter dated August 17, 1990 Meralco requested NPC for a joint survey to
determine all the establishments which are considered under NPC property in view
of the fact that "the houses in the area are very close to each other" (Exh. 12).
Shortly thereafter, a joint survey was conducted and the NPC personnel pointed out
the electric meters to be disconnected (Exh. 13; TSN, October 8, 1993, p. 7; TSN,
July 1994, p. 8).
In due time, the electric service connection of the plaintiffs [herein respondents] was
disconnected (Exhibits D to G, with submarkings, pp. 86-87, Record).
Plaintiff Leoncio Ramoy testified that he and his wife are the registered owners of a
parcel of land covered by TCT No. 326346, a portion of which was occupied by
plaintiffs Rosemarie Ramoy, Ofelia Durian, Jose Valiza and Cyrene S. Panado as
lessees. When the Meralco employees were disconnecting plaintiffs' power
connection, plaintiff Leoncio Ramoy objected by informing the Meralco foreman
that his property was outside the NPC property and pointing out the monuments
showing the boundaries of his property. However, he was threatened and told not to
interfere by the armed men who accompanied the Meralco employees. After the
electric power in Ramoy's apartment was cut off, the plaintiffs-lessees left the
premises.
During the ocular inspection ordered by the Court and attended by the parties, it was
found out that the residence of plaintiffs-spouses Leoncio and Matilde Ramoy was
indeed outside the NPC property. This was confirmed by defendant's witness R.P.
Monsale III on cross-examination (TSN, October 13, 1993, pp. 10 and 11). Monsale
also admitted that he did not inform his supervisor about this fact nor did he
recommend re-connection of plaintiffs' power supply (Ibid., p. 14).
The record also shows that at the request of NPC, defendant Meralco re-connected
the electric service of four customers previously disconnected none of whom was
any of the plaintiffs (Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein respondents' claim
for moral damages, exemplary damages and attorney's fees. However, the RTC
ordered MERALCO to restore the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated December 16, 2002, the
CA faulted MERALCO for not requiring from National Power Corporation (NPC) a
writ of execution or demolition and in not coordinating with the court sheriff or
other proper officer before complying with the NPC's request. Thus, the CA held
MERALCO liable for moral and exemplary damages and attorney's fees.
MERALCO's motion for reconsideration of the Decision was denied per Resolution
dated July 1, 2003.
Hence, herein petition for review on certiorari on the following grounds:
I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND MERALCO
NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT ELECTRIC
SERVICE OF RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED MORAL
AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES AGAINST
MERALCO UNDER THE CIRCUMSTANCES THAT THE LATTER ACTED IN
GOOD FAITH IN THE DISCONNECTION OF THE ELECTRIC SERVICES OF
THE RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a Service Contract
whereby it is obliged to supply respondents with electricity. Nevertheless, upon
request of the NPC, MERALCO disconnected its power supply to respondents on
the ground that they were illegally occupying the NPC's right of way. Under the
Service Contract, "[a] customer of electric service must show his right or proper
interest over the property in order that he will be provided with and assured a
continuous electric service."7 MERALCO argues that since there is a Decision of the
Metropolitan Trial Court (MTC) of Quezon City ruling that herein respondents were
among the illegal occupants of the NPC's right of way, MERALCO was justified in
cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is anchored on culpa
contractual or breach of contract for the latter's discontinuance of its service to
respondents under Article 1170 of the Civil Code which provides:
Article 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
liable for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court expounded
on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a corresponding right of relief. The
law, recognizing the obligatory force of contracts, will not permit a party to be set
free from liability for any kind of misperformance of the contractual undertaking or
a contravention of the tenor thereof. A breach upon the contract confers upon the
injured party a valid cause for recovering that which may have been lost or
suffered. The remedy serves to preserve the interests of the promissee that may
include his "expectation interest," which is his interest in having the benefit of his
bargain by being put in as good a position as he would have been in had the contract
been performed, or his "reliance interest," which is his interest in being reimbursed
for loss caused by reliance on the contract by being put in as good a position as he
would have been in had the contract not been made; or his "restitution interest,"
which is his interest in having restored to him any benefit that he has conferred on
the other party. Indeed, agreements can accomplish little, either for their makers or
for society, unless they are made the basis for action. The effect of every infraction
is to create a new duty, that is, to make recompense to the one who has been injured
by the failure of another to observe his contractual obligation unless he can show
extenuating circumstances, like proof of his exercise of due diligence x x x or of
the attendance of fortuitous event, to excuse him from his ensuing
liability.9 (Emphasis supplied)
Article 1173 also provides that the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of the place. The
Court emphasized in Ridjo Tape & Chemical Corporation v. Court of Appeals 10 that
"as a public utility, MERALCO has the obligation to discharge its functions with
utmost care and diligence."11
The Court agrees with the CA that under the factual milieu of the present case,
MERALCO failed to exercise the utmost degree of care and diligence required of it.
To repeat, it was not enough for MERALCO to merely rely on the Decision of the
MTC without ascertaining whether it had become final and executory. Verily, only
upon finality of said Decision can it be said with conclusiveness that respondents
have no right or proper interest over the subject property, thus, are not entitled to the
services of MERALCO.
Although MERALCO insists that the MTC Decision is final and executory, it never
showed any documentary evidence to support this allegation. Moreover, if it were
true that the decision was final and executory, the most prudent thing for
MERALCO to have done was to coordinate with the proper court officials in
determining which structures are covered by said court order. Likewise, there is no
evidence on record to show that this was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates such great
degree of prudence on its part, and failure to exercise the diligence required means
that MERALCO was at fault and negligent in the performance of its obligation.
In Ridjo Tape,12 the Court explained:
[B]eing a public utility vested with vital public interest, MERALCO is impressed
with certain obligations towards its customers and any omission on its part to
perform such duties would be prejudicial to its interest. For in the final analysis, the
bottom line is that those who do not exercise such prudence in the discharge of their
duties shall be made to bear the consequences of such oversight. 13
This being so, MERALCO is liable for damages under Article 1170 of the Civil
Code.
The next question is: Are respondents entitled to moral and exemplary damages and
attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such damages are
justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio Ramoy by
withholding from him and his tenants the supply of electricity to which they were
entitled under the Service Contract. This is contrary to public policy because, as
discussed above, MERALCO, being a vital public utility, is expected to exercise
utmost care and diligence in the performance of its obligation. It was incumbent
upon MERALCO to do everything within its power to ensure that the improvements
built by respondents are within the NPC’s right of way before disconnecting their
power supply. The Court emphasized in Samar II Electric Cooperative, Inc. v.
Quijano14 that:
Electricity is a basic necessity the generation and distribution of which is imbued
with public interest, and its provider is a public utility subject to strict
regulation by the State in the exercise of police power. Failure to comply with
these regulations will give rise to the presumption of bad faith or abuse of
right.15 (Emphasis supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and diligence in the
performance of its obligation to Leoncio Ramoy, its customer, is tantamount to bad
faith. Leoncio Ramoy testified that he suffered wounded feelings because of
MERALCO's actions.16 Furthermore, due to the lack of power supply, the lessees of
his four apartments on subject lot left the premises. 17 Clearly, therefore, Leoncio
Ramoy is entitled to moral damages in the amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one who testified
regarding the effects on him of MERALCO's electric service disconnection. His co-
respondents Matilde Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado
did not present any evidence of damages they suffered.
It is a hornbook principle that damages may be awarded only if proven. In Mahinay
v. Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be pleading and proof of
moral suffering, mental anguish, fright and the like. While respondent alleged in
his complaint that he suffered mental anguish, serious anxiety, wounded feelings
and moral shock, he failed to prove them during the trial. Indeed, respondent
should have taken the witness stand and should have testified on the mental
anguish, serious anxiety, wounded feelings and other emotional and mental suffering
he purportedly suffered to sustain his claim for moral damages. Mere allegations do
not suffice; they must be substantiated by clear and convincing proof. No other
person could have proven such damages except the respondent himself as they
were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court, it is
nevertheless essential that the claimant should satisfactorily show the existence of
the factual basis of damages and its causal connection to defendant’s acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for actual injury suffered
and not to impose a penalty on the wrongdoer. In Francisco vs. GSIS, the Court held
that there must be clear testimony on the anguish and other forms of mental
suffering. Thus, if the plaintiff fails to take the witness stand and testify as to his/her
social humiliation, wounded feelings and anxiety, moral damages cannot be
awarded. In Cocoland Development Corporation vs. National Labor Relations
Commission, the Court held that "additional facts must be pleaded and proven to
warrant the grant of moral damages under the Civil Code, these being, x x x social
humiliation, wounded feelings, grave anxiety, etc. that resulted therefrom."
x x x The award of moral damages must be anchored to a clear showing that
respondent actually experienced mental anguish, besmirched reputation, sleepless
nights, wounded feelings or similar injury. There was no better witness to this
experience than respondent himself. Since respondent failed to testify on the
witness stand, the trial court did not have any factual basis to award moral
damages to him.19 (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his wounded feelings,
may be awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil Code provides that in
contracts and quasi-contracts, the court may award exemplary damages if the
defendant, in this case MERALCO, acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, while Article 2233 of the same Code provides
that such damages cannot be recovered as a matter of right and the adjudication
of the same is within the discretion of the court.1avvphi1
The Court finds that MERALCO fell short of exercising the due diligence required,
but its actions cannot be considered wanton, fraudulent, reckless, oppressive or
malevolent. Records show that MERALCO did take some measures, i.e.,
coordinating with NPC officials and conducting a joint survey of the subject area, to
verify which electric meters should be disconnected although these measures are not
sufficient, considering the degree of diligence required of it. Thus, in this case,
exemplary damages should not be awarded.
Since the Court does not deem it proper to award exemplary damages in this case,
then the CA's award for attorney's fees should likewise be deleted, as Article 2208 of
the Civil Code states that in the absence of stipulation, attorney's fees cannot be
recovered except in cases provided for in said Article, to wit:
Article 2208. In the absence of stipulation, attorney’s fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
 (2) When the defendant’s act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the

plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff’s plainly valid, just and demandable claim;

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and
skilled workers;

(8) In actions for indemnity under workmen’s compensation and

employer’s liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that
attorney’s fees and expenses of litigation should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court

of Appeals is AFFIRMED with MODIFICATION. The award for exemplary
damages and attorney's fees is DELETED.

No costs.

SO ORDERED.