G.R. No.

100401 August 24, 1992

CONSOLIDATED DAIRY PRODUCTS CO., JESUS B. BITO and FEDERICO B. GUILAS, as
Acting Trustees of CONSOLIDATED PHILIPPINES, INC. and DAIRY EXPORT CO.,
INC., petitioners,
vs.
THE COURT OF APPEALS and STANDARD INVESTMENT CORPORATION, respondents.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV
No. 01644 entitled "Consolidated Dairy Products Co., et al., versus The Court of Appeals and
Standard Investment Corporation," which affirmed in toto the decision of the then Court of First
Instance (now Regional Trial Court) of Rizal (Pasay City).
The facts of the case as summarized by the trial court and adopted by the Court of Appeals are
as follows:
Sometime in 1956 Consolidated Dairy Products Company, Inc., a foreign corporation in
Seattle, Washington, U.S.A. (hereinafter referred to as Consolidated Seattle), agreed with
Santiago Syjuco, Inc. (hereinafter referred to as Syjuco, Inc.) to go into a joint venture to
manufacture and sell Darigold milk and other dairy products in this country. To achieve this
purpose, they organized and incorporated defendant Consolidated Philippines, Inc. (hereinafter
referred to as Consolidated Philippines),with offices at Paraaque, Rizal. Consolidated Seattle
owned 51% of the capital stock while the remaining 49% of the capital stock was owned by the
Syjuco Inc. Thereafter, Consolidated Seattle extended to Consolidated Philippines the
exclusive right to use the tradename Darigold in the Philippines. In turn, Consolidated
Philippines began processing and distributing Darigold evaporated filled milk in the Philippines.
At the start of its operation, Consolidated Philippines was importing its can requirements from
the United States. However, due to economic policy then prevailing in the country,
Consolidated Philippines was constrained to secure its can requirement from local sources.
Hence, on April 2, 1959, Consolidated Philippines entered into a contract with plaintiff Standard
Investment Corporation (hereinafter referred to as Standard), operating under the tradename
Standard Can Company. Under the said can supply agreement, Consolidated Philippines
agreed to purchase from the latter all its requirements of can up to May 31, 1969 (Exhibit C).
Pursuant to this agreement, plaintiff constructed a can-making plant and purchased the
required machineries and equipment and sent technicians to train in the United States under
and for the account of Consolidated Philippines.
In 1966, Dairy Export Company (hereinafter referred to as Dexco), a subsidiary of
Consolidated Seattle and also holding office at 635 Elliot Avenue West, Seattle, Washington,
U.S.A. with Consolidated Seattle, applied for a license to do business in the Philippines which
was approved by the Securities and Exchange Commission. It held office in the very office of
Consolidated Philippines. Thereafter, on September 30, 1966, Dexco entered into a contract
with Consolidated Philippines whereby the latter agreed to purchase from the former packaged
sweetened condensed filled milk.

1
On May 6, 1968, plaintiff Standard, Consolidated Philippines and Dexco signed a
memorandum of agreement by virtue of which the tenure of the can supply agreement of April
2, 1959 between the plaintiff and Consolidated Philippines was extended up to December 31,
1981.
On January 12, 1972, Consolidated Seattle thru Louis Arrigoni, notified Consolidated
Philippines that the former was placing the control and licensing of the Darigold trademark in
the Orient, including the Republic of the Philippines, into the hands of Dexco (Exhibit 8).
On August 28, 1974, Consolidated Seattle, through its President, Dr. Louis Arrigoni, wrote Mr.
Augusto Syjuco of Syjuco, Inc, a personal and confidential letter offering to sell to him the
interest of Consolidated Seattle in Consolidated Philippines, alleging a great many economies
could be made by a single management and production organization running the three
organizations, the Standard, Consolidated Philippines and Dexco, as the set up then existing
will ultimately result in the demise of Consolidated Philippines (Exhibit O). This was refused by
Mr. Augusto Syjuco.
On November 13, 1974, Dexco wrote Consolidated Philippines that it was cancelling effective
January 25, 1975 the license granted to Consolidated Philippines to use the tradename
Darigold (Exhibit P).
Mr. Augusto Syjuco, in his behalf and in behalf of Syjuco, Inc., the minority stockholder in
Consolidated Philippines, protested the cancellation of the license (Exhibit Q).
Subsequently, Dr. Louis Arrigoni, speaking as President of Consolidated Seattle, offered
Syjuco, Inc. to sell (sic) Consolidated Seattle's share in Consolidated Philippines for P 1.00 or
to buy Syjuco, Inc.'s share in Consolidated Philippines or to file bankruptcy proceedings for
Consolidated Philippines.
Left with no better choice, Syjuco, Inc. chose to sell its 49% equity in Consolidated Philippines
to Consolidated Seattle. Consequently, on October 8, 1976, Syjuco, Inc. executed a
memorandum agreement by virtue of which it agreed to sell to Consolidated Seattle all its
Interest in Consolidated Philippines and to dissolve Consolidated Philippines, subject to the
condition that the right of plaintiff to submit claims it may have shall be respected in case
Consolidated Philippines is not dissolved (Exhibit E).
Accordingly, Consolidated Seattle bought the entire interest of Syjuco, Inc. and its
stockholdings Consolidated Philippines and proceeded to dissolve Consolidated Philippines
(TSN, October 22, 1979, p. 20).
Before Consolidated Philippines could be dissolved, however, Dexco the wholly owned
subsidiary of Consolidated Seattle took over the marketing activities of Consolidated
Philippines (Exhibits A and A-1) and proceeded to sell milk under the tradename Darigold upon
the dissolution of Consolidated Philippines (TSN, October 22, 1979, pp. 31 and 105; Exhibits
AA, AA-1, AA-2, AA-4, BB, BB-1 and BB-3).
Earlier, however, on November 3, 1976, E.L. Benitez, then general manager of Consolidated
Philippines, notified plaintiff that it was cancelling the can supply contract of April 2, 1959
(Exhibit B), prompting plaintiff to demand reimbursement for the separation pay of the

employees concerned due to the cessation of their operation on November 15, 1976 in the
amount of P1,022,472.59 and payment of unrealized profits (Exhibits H, I and N).
Since plaintiff's demands were rejected (Exhibit 11), it was constrained to file this case and to
engage the services of counsel for 25% of all recoveries (Exhibit X).

3
The counterclaim of the defendants Consolidated Philippines and Dexco are denied for lack of
merit. (pp. 9-10, Decision; pp. 564-565, Record)
Not satisfied with the decision of the trial court, Consolidated Seattle and Consolidated
Philippines, thru its acting trustees, appealed to the Court of Appeals. On April 19, 1991, the
Court of Appeals rendered a decision affirming the decision of the trial court in toto.

After summons have been validly served on the defendants, defendant Dexco in its answer
claims that plaintiff Standard had no cause of action against it considering that the basis for its
In this petition for review, Consolidated Seattle and Consolidated Philippines pray for the
instant action was the can supply contract between the said plaintiff and Consolidated
reversal of the decision of the Court of Appeals and the dismissal of the complaint of Standard.
Philippines wherein Dexco was not a party and therefore no(t) privy (to the) contract existing
between them, and that assuming that it was bound by the can supply contract and liable to the The following assignment of errors were raised:
plaintiff, this action was premature as no demand relative thereto was made.
FIRST ASSIGNMENT OF ERROR
Defendant Consolidated Philippines, through its trustees, defendant Jesus Bito and Federico
Guilas, claims that the plaintiff's action was premature as the same never referred to an
impartial referee which was provided for by can supply agreement, that the dissolution and
liquidation of Consolidated Philippines was mutually agreed upon by the Consolidated Seattle
and Syjuco, Inc., and that the dissolution and liquidation of Consolidated Philippines
extinguished its obligation under the can supply contract, and finally that the guarantee
extended by Consolidated Seattle for Consolidated Philippines' liability under the can supply
contract covered only liabilities for cans already supplied and not liabilities accruing
subsequent to the execution of the memorandum agreement of October 8. In both answers
Consolidated Philippines as well as Dexco filed Counterclaims which were denied by the
plaintiff.
Defendant, Consolidated Seattle did not file any answer. (pp. 1-4, Decision; p. 14, Record) (pp.
53-56, Rollo)
After the parties presented their respective evidence, the trial court rendered judgment in favor
of Standard. The dispositive portion of which reads:
IN VIEW OF THE FOREGOING, this Court hereby orders the defendants, namely,
Consolidated Dairy Products Company of Seattle, Washington, U.S.A. and/or its alter ego
Dairy Export Company Inc., as well as Consolidated Philippines. Inc. (represented by its Acting
Trustees Jesus B. Bito and Federico B. Guilas) to pay plaintiff, jointly and severally, the
following:
a) P1,022,472.59 representing the separation pay that plaintiff had to pay its employees plus
6% interest per annum computed from the date of the filing of this case on April 4, 1977 until
the defendants fully pay their obligation;

THE LOWER COURT ERRED IN NOT DISMISSING THE AMENDED COMPLAINT FOR
FAILURE TO STATE A CAUSE OF ACTION AGAINST DEFENDANT DAIRY EXPORT
COMPANY INC. (DEXCO).
SECOND ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN NOT RULING THAT PLAINTIFF HAD KNOWLEDGE OF
AND APPROVED, OR AT LEAST, AGREED TO, THE DISSOLUTION OF CONSOLIDATED
PHILIPPINES INC. (CPI) WHICH WOULD NECESSARILY HAVE THE EFFECT OF
TERMINATING THE CAN SUPPLY CONTRACT (EXHIBIT "C") AND EXTINGUISHING CPI'S
OBLIGATIONS UNDER SAID CONTRACT.
THIRD ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN NOT RULING THAT PLAINTIFF'S ACTION IS PREMATURE
FOR FAILURE OF PLAINTIFF TO FIRST REFER ITS CLAIM TO AN IMPARTIAL REFEREE
AS CALLED FOR UNDER THE CAN SUPPLY CONTRACT.
FOURTH ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN SUSTAINING PLAINTIFF'S CLAIM FOR UNREALIZED
PROFITS.
FIFTH ASSIGNMENT OF ERROR
THE LOWER COURT ERRED IN AWARDING PLAINTIFF INVENTORY LOSSES IN THE
SUM OF P1,150,197.00
SIXTH ASSIGNMENT OF ERROR

THE LOWER COURT ERRED IN AWARDING EXEMPLARY DAMAGES AND ATTORNEY'S

b) P8,107,931.13 representing plaintiff's aggregate unrealized profit from the years 1974 to
FEES IN FAVOR OF PLAINTIFF.
1981 plus 6% interest per annum computed from April 4, 1977, the date of the filing of this case (pp. 15-16, Rollo)
until defendants fully pay their obligation;
It is a settled rule that only questions of law may be raised in a petition for certiorari under Rule
c) Pl,150,197.80 representing inventory losses suffered by plaintiff plus 6% interest per
45 of the Rules of Court. Findings of fact of the Court of Appeals are final and binding upon this
annumcomputed from April 4, 1977 until defendants fully settle their obligation; and
Court unless it is shown that they are grounded entirely on speculations, surmises or
d) Pl,000,000.00 as exemplary damages, considering the damages caused the plaintiff and the conjectures. In this case, We have carefully reviewed the records and found that the findings of
facts of both the court a quo and the appellate court are supported by evidence.
fraudulent scheme used by the defendants, plus 25% of all the abovementioned amounts as
attorney's fees.

In its first assigned error, petitioner faulted respondent appellate court in affirming the decision
of the trial court denying Dexco's motion to dismiss amended complaint filed by respondentplaintiff Standard on the ground that in the amended complaint Standard impleaded as
additional defendant herein petitioner Dexco but said amended complaint did not state any
cause of action against the latter.
The pertinent allegations in the amended complaint which tended to show Dexco's participation
in the transactions subject of this case states:
15. That subsequent to the arbitrary termination of the Can Supply Contract by
CPI, * defendant Dexco took over the business of CPI with E.L. Benitez, the Manager of CPI
being appointed by Dr. Loius Arrigoni, the President of defendant CDPC and defendant
DEXCO in the United States of America, as the new General Manager of the Dexco branch in
the Philippines;
16. That the dissolution of CPI which prejudiced plaintiff Standard was caused by defendant
CDPC in order for its Dexco branch in the Philippines to be able to take over the business of
CPI;
17. That the act of defendants CDPC and Dexco mentioned above, constituted a breach of
contract with plaintiff, in bad faith;
18. That defendant Dexco is not only a subsidiary of defendant CDPC, but also an alter ego of
the latter, defendant CDPC making use of defendant Dexco as a vehicle for the evasion of its
obligation under the "Can Supply Contract" and Memorandum Agreement (Annexes "A" and
"B" hereof);
19. That, therefore, defendant Dexco and defendant CDPC being one and the same juridical
person, the liability of defendant CDPC to plaintiff for evading its obligation is, likewise, the
liability of defendant Dexco; . . . (p. 20, Rollo).
A cause of action is the fact or combination of facts which affords a party a right to judicial
interference in his behalf. The cause of action must always consist of two (2) elements: (1) the
plaintiff's primary right and the defendant's corresponding primary duty, whatever may be the
subject to which they
relate person, character, property or contract; and (2) the delict or wrongful act or omission
of the defendant, by which the primary right and duty have been violated (De Guzman, Jr., v.
CA, G.R. No. 92029-30, 20 December 1990). The allegations in the amended complaint were
sufficient to make out a case against Dexco. It alleged that Dexco took over the business of
Consolidated Philippines and that both corporations are actually one and the same, the former
being the alter ego of the latter and that Dexco was used as a vehicle for the evasion by
Consolidated Seattle (the mother company of Consolidated Philippines in Seattle) of its
liabilities to Standard. Indeed, if these allegations are proven, Dexco can be held liable to
Standard by applying the doctrine of piercing the veil of corporate entity. The applicable law to
the set of facts stated in the complaint need not be set out directly. In this case, it is sufficient
that Standard claimed it had a right against Consolidated Philippines by virtue of the can
supply contract it executed with them and that the termination of Consolidated Philippines was
only a ploy to escape from its liabilities in favor of Standard because in truth, Consolidated
Philippines continued to do its business thru Dexco, which is an alter ego of the former. The
test of sufficiency of the facts alleged is whether or not the Court could render a valid judgment

5
as prayed for, accepting as true the exclusive facts set forth in the complaint (Sumalinog v.
Doronio, G.R. No. 42281, 6 April 1990).
The petitioners further argue that Dexco cannot be held liable because it was not privy to the
can supply contract between Standard and Consolidated Philippines. It is true that in the
agreement whereby Standard undertook to supply cans to Consolidated Philippines, Dexco
was not a party. The said agreement dated April 2, 1959 was for Standard to supply and
Consolidated Philippines to buy. It should be noted that before the expiration of the first can
supply contract in 1969 Dexco, another subsidiary of Consolidated Seattle, was already
organized and was licensed to do business in the Philippines in 1966. Thus, on May 6, 1968,
the said can supply agreement was extended to December 31, 1981 and Dexco was a party to
this extension. Dexco, in this extension agreement was in fact an active party. As held by
respondent appellate court:
It is argued that the can supply contract dated April 2, 1959 was, executed by Standard
Investment Corporation and Consolidated Philippines only and therefore Dexco should not be
bound by the contents thereof, much less obligated to answer for the undertakings thereunder
by reason of the rule on privity of contracts. Verily, Dexco nonchalantly admitted that it signed
the subsequent agreement on May 6, 1968 with plaintiff-appellee (Standard) and Consolidated
Philippines (Exhibit "D") but its participation therein was limited only to the contract dated
September 30, 1966 between Consolidated Philippines and Dexco referred to in paragraph 2
of Exhibit "D-l." Pursuing this chain of arguments, if, indeed, Dexco was never privy to the
transaction dated April 2, 1959, it is a wonder then for Dexco to have signed and approved the
extension of that contract in the Memorandum of Agreement dated May 6, 1968 which
principally stipulated:
1. That certain Agreement dated April 2, 1959 between the above-named STANIN and the
above-named CPI, relating to the supply of cans by STANIN to CPI (a copy of which
agreement is attached hereto as Exhibit "A" and by this reference incorporated herein) is
hereby extended for a period commencing on its present expiration date and ending on
December 31, 1981, upon the terms and conditions set forth in the said agreement dated April
2, 1959 (Exhibit D-1). (p. 63, Rollo)
The petitioners also alleged that Standard should be estopped from demanding any claim from
them because Standard and Syjuco, Inc. had identical officers. Since the officers of Syjuco,
Inc. voted for the dissolution of Consolidated Philippines and acceded to the dissolution of
Standard, they cannot now complain and ask for damages in favor of Standard against the
petitioners. It is allegedly proper that the veil of corporate fiction of Standard and Syjuco, Inc.
should be pierced and considering that SSI had knowledge of the dissolution and in fact
accepted the dissolution of CPI, Standard is therefore bound by the dissolution.
The records revealed that Syjuco, Inc. which originally owned 49% of the shares of stock of
Consolidated Philippines (with Consolidated Seattle owning 51%) was left with no choice but to
sell its shares in Consolidated Philippines to Consolidated Seattle. Consolidated Philippines
however, cannot continue its existence because Consolidated Seattle cancelled the license
granted to it to use the tradename Darigold. With the cancellation of the license Consolidated
Philippines had no more reason to continue its existence. Moreover, while Syjuco, Inc. agreed
to the subsequent dissolution of CPI, it signed the agreement (Exhibit E) because of the

condition that Consolidated Seattle in Washington will guarantee full payment of Consolidated
Philippines' liabilities to Standard in the can supply contract [Par. 6(d) of the Memorandum of
Agreement].
The appellate court allegedly erred when it ruled that the clause on Section 6(d) of the
Memorandum of Agreement (p. 5, Exhibit "E") which provided:
(d) It guarantees the full payment under the terms of the Can Supply Contract between CPI
and Standard Can Company, of CPI's liability to Standard Can Company for cans already
supplied by Standard Can Company. This however does not preclude Standard Can Company
from submitting directly to CPI other claims that it may have under the Can Supply Contract.
was enough safeguard for the preservation of Standard's claims without elaborating on the
reason why it held so. It is the opinion of the petitioners that the above clause referred only to
claims already due and owing as of the effective date of Consolidated Philippines' dissolution,
but does not refer to claims for reimbursement of separation pay and for loss of expected
profits for the unexpired portion of the can supply contract.
While the first paragraph of the said clause had specific reference to Consolidated Philippines'
liability to Standard for cans already supplied, the second part of the clause covers all other
claims which Standard may have against Consolidated Philippines. The terms of the
agreement are clear and need no explanation or interpretation. None could suit petitioner's
contention legally.
We agree with respondent appellate court that petitioners had no right to invoke the defense
that the claim must first be referred to an impartial referee as provided for in the can supply
agreement because there was an outright rejection by the petitioners of private respondent's
claim. The records showed that two (2) letters dated November 7 and 18, 1976 were sent by
private respondent demanding the payment of separation pay to its employees but petitioners,
through the law offices of Salcedo, del Rosario, Bito, Misa and Lozada, denied the claim
outright (p. 473, Records, Exh. 11) because these claims were allegedly outside of the cost of
the purchased and delivered cans as agreed upon in the contract.
We now go to the propriety of the award of damages. The trial court received evidence to
support private respondent's claim for damages. It should be emphasized here that the
damages claimed by private respondents do not refer to claims which were already due from
the can supply contract. The claims here are for damages caused by the fraudulent termination
by petitioners of the can supply contract four (4) years before the end of its term and for such a
short notice. We reproduce herein the findings of the trial court and adopt them with
modifications as regards the amount:
Plaintiff's first claim is for reimbursement for the separation pay it paid its employees due to the
termination of the can supply agreement in the amount of Pl,022,472.59.
The evidence supports plaintiff's claim above (sub-par. A and C, par. 111 of Exhibit C and
Exhibit J-1). The amount actually paid by plaintiffs to the separated employee is P929,520.54
(Exhibits L and R to R-54). To this was added 10% since 10% must be added to costs of
production, thus making the total of P1,022,472.59 (Exhibit C and I).
(p. 521, Record)

7
There is no question that Standard paid these amounts to their separated employees. It was
obliged to do so by virtue of the CBA it signed with the employees.
The second claim of plaintiff is for unrealized profit amounting to P8,101,931.13. In support of
this claim plaintiff showed that from 1971 to 1975 It made an aggregate profit of P
8,107,931.13 (Exhibits M, U, U-2, U-4, U-6, U-8, U-10, U-12, U-14, U-16 and U-18), and
argued that since the can supply contract had another five (5) years to go (1977 to 1981)
plaintiff would have earned that much. (Ibid.)
Indemnification for damages shall comprehend not only the value of the loss suffered, but also
that of the profits which the obligee failed to obtain (Art. 2200 NCC). The presumption that
Standard would earn exactly the same profit as it did five (5) years before its closure is
speculative. A more reasonable amount would be the average of the yearly profit for the five
years preceding the closure (1971-1975) multiplied by the number of years remaining as
provided for in the contract. The average yearly profit for 1971 to 1975 is P1,041,095.76 (p.
280, Records). This amount multiplied by five (years) amounts to P5,205,478.80.
We also affirm the findings of the appellate court on inventory losses as it is sufficiently
supported by evidence, to wit:
The financial statement of plaintiff further shows that it incurred inventory losses in the year
1977 (Exhibit V), due to cans which rusted and could not have been disposed of (TSN,
November 27, 1979, p. 13), administrative expenses connected with the cost of the cans, cost
of raw materials and depreciated portion of the machinery all amounting to P1,150,197.80
(TSN, November 26, 1979, Exhibit V). These losses were due to the cancellation of the can
supply contract before its agreed expiration date. It is only right that defendants be held liable
for them.
(p. 64, Rollo)
There is no doubt that the breach committed by the petitioners was made in a wanton and
fraudulent manner. There was no reason for petitioners to terminate the can supply contract
with Standard. The latter was purposely organized for the benefit of Consolidated Philippines.
Neither was there a need to close Consolidated Philippines because Consolidated Seattle had
all the intentions of continuing its business only this time to be undertaken by its sole
subsidiary, Dexco to the prejudice of Standard. Where a defendant violates a contract with
plaintiff, the court may award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive and malevolent manner (Art. 2232, Civil Code).
The claim for attorney's fees of 25% percent of all recoveries is unconscionable. It is hereby
reduced to 15%.
ACCORDINGLY, the decision of respondent Court of Appeals is affirmed with modification on
the amount of damages awarded as discussed above.
SO ORDERED.

G.R. No. 188072

October 19, 2011
EMERITA M. DE GUZMAN, Petitioner,
vs.
ANTONIO M. TUMOLVA, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing
the February 24, 2009 Decision1 of the Court of Appeals (CA) and its May 26, 2009
Resolution2 in CA-G.R. SP. No. 104945 entitled "Antonio M. Tumolva v. Emerita M. De
Guzman."
The Facts
On September 6, 2004, petitioner Emerita M. De Guzman (De Guzman), represented by her
attorneys-in-fact, Lourdes Rivera and Dhonna Chan, and respondent Antonio Tumolva, doing
business under the name and style A.M. Tumolva Engineering Works (the Contractor), entered
into a Construction Agreement3 (Agreement) for the construction of an orphanage consisting of
an administration building, directors/guests house, dining and service building, childrens
dormitory, male staff house, and covered walkways in Brgy. Pulong Bunga, Purok 4, Silang,
Cavite, for a contract price of P 15,982,150.39. Incorporated in the Agreement was the plan
and specifications of the perimeter fence. The Contractor, however, made deviations from the
agreed plan4 with respect to the perimeter fence of the orphanage.

9
On September 6, 2005, after the completion of the project, De Guzman issued a Certificate of
Acceptance. For his part, the Contractor issued a quitclaim acknowledging the termination of
the contract and the full compliance therewith by De Guzman.
In November 2006, during typhoon "Milenyo," a portion of the perimeter fence collapsed and
other portions tilted. In her Letter dated December 5, 2006, De Guzman, through counsel,
demanded the repair of the fence in accordance with the plan. In response, the Contractor
claimed that the destruction of the fence was an act of God and expressed willingness to
discuss the matter to avoid unnecessary litigation. De Guzman, however, reiterated her
demand for the restoration of the wall without additional cost on her part, or in the alternative,
for the Contractor to make an offer of a certain amount by way of compensation for the
damages she sustained. Her demand was not heeded.
On February 14, 2008, De Guzman filed a Request for Arbitration 5 of the dispute before the
Construction Industry Arbitration Commission (CIAC). She alleged that the Contractor
deliberately defrauded her in the construction of the perimeter fence by "under sizing the
required column rebars from 12mm. based on the plan to only 10mm., the required concrete
hollow blocks from #6 to #5, and the distance between columns from 3.0m to 4.3m." 6 Further,
the Contractor neither anchored the lenten beams to the columns nor placed drains or
weepholes along the lower walls. She prayed for an award of actual, moral and exemplary
damages, as well as attorneys fees and expenses of litigation, and for the inspection and
technical assessment of the construction project and the rectification of any defect.
In his Answer with Counterclaim, the Contractor denied liability for the damaged fence
claiming, among others, that its destruction was an act of God. He admitted making deviations
from the plan, but pointed out that the same were made with the knowledge and consent of De
Guzman through her representatives, Architect Quin Baterna and Project Engineer Rodello
Santos (Engineer Santos), who were present during the construction of the fence. He further
argued that pursuant to the Agreement, the claim for damages was already barred by the 12month period from the issuance of the Certificate of Acceptance of the project within which to
file the claim. He, thus, prayed for the dismissal of the action and interposed a counterclaim for
actual and compensatory damages for the additional work/change orders made on the project
in the amount of P 2,046,500.00, attorneys fees and litigation expenses.
After due proceedings, the CIAC issued the Award dated July 17, 2008 in favor of De Guzman,
the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered and AWARD is made on the monetary claims of
Claimant EMERITA M. DE GUZMAN, directing Respondent Contractor ANTONIO M.
TUMOLVA, to pay her the following amounts:
P 187,509.00 as actual damages for reconstructing the collapsed and damaged perimeter
fence.
Interest is awarded on the foregoing amount at the legal rate of 6% per annum computed
from the date of this Award. After finality thereof, interest at the rate of 12% per annum shall be
paid thereon until full payment of the awarded amount shall have been made, "this interim
period being deemed to be at that time already a forbearance of credit" (Eastern Shipping
Lines, Inc. v. Court of Appeals (243 SCRA 78 [1994])
P 100,000.00 as moral damages.

P 100,000.00 as exemplary damages.

P 50,000.00 for attorneys fees and expenses of litigation.
P 437,509.00 TOTAL AMOUNT DUE THE CLAIMANT
The CIAC staff is hereby directed to make the necessary computation of how much has been
paid by Claimant as its proportionate share of the arbitration costs totaling P 110,910.44, which
computed amount shall be reimbursed by Respondent to the Claimant.
SO ORDERED.7
Aggrieved, the Contractor filed before the CA a Petition for Review with prayer for the issuance
of a temporary restraining order, challenging the CIACs award of damages in favor of De
Guzman.
On February 24, 2009, the CA modified the Award rendered by CIAC. The dispositive portion of
the decision states:
WHEREFORE, the instant petition is partly GRANTED. The assailed Award dated July 17,
2008 rendered by the CIAC in CIAC Case No. 03-2008 is hereby MODIFIED, deleting the
award of actual, moral and exemplary damages, but awarding temperate damages in the
amount of P 100,000.00 for reconstructing the collapsed and damaged perimeter fence. The
rest of the Award stands.
SO ORDERED.8
The CA held that although the Contractor deviated from the plan, CIACs award of actual
damages was not proper inasmuch as De Guzman failed to establish its extent with reasonable
certainty. The CA, however, found it appropriate to award temperate damages considering that
De Guzman suffered pecuniary loss as a result of the collapse of the perimeter fence due to
the Contractors negligence and violation of his undertakings in the Agreement. It further ruled
that there was no basis for awarding moral damages reasoning out that De Guzmans worry for
the safety of the children in the orphanage was insufficient to justify the award. Likewise, it
could not sustain the award of exemplary damages as there was no showing that the
Contractor acted in wanton, reckless, fraudulent, oppressive, or malevolent manner.
De Guzman filed a motion for reconsideration of the said decision, but it was denied for lack of
merit by the CA in its Resolution dated May 26, 2009.
Hence, De Guzman interposed the present petition before this Court anchored on the following
GROUNDS
(I)
THE COURT OF APPEALS ERRED IN RULING THAT THE EVIDENCE ON RECORD
FAILED TO SUFFICIENTLY ESTABLISH THE AMOUNT OF ACTUAL DAMAGES THAT
PETITIONER DE GUZMAN CAN RECOVER FROM THE RESPONDENT.
(II)
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER DE GUZMAN IS NOT
ENTITLED TO AWARDS OF MORAL AND EXEMPLARY DAMAGES.9
De Guzman argues inter alia that the Contractor is liable for the actual damages that she
suffered from the collapse of the perimeter fence. He failed to put weep holes on the collapsed

11
portion of the said fence, which could have relieved the pressure from the wet soil of the
adjoining higher ground.
De Guzman adds that the computation of the cost of rebuilding the collapsed portion of the
perimeter fence by Engineer Santos constituted substantial evidence warranting an award of
actual damages. His affidavit served as his direct testimony in the case even if he did not
appear during the hearing. Having been notarized, it must be admissible in evidence without
further proof of authenticity.
Further, De Guzman questions the CAs deletion of the award for moral and exemplary
damages. She insists that her anxiety and suffering over the safety of the children in the
orphanage entitled her to an award of moral damages. It is likewise her position that the
Contractors wanton acts of deliberately cheating the benefactors of the orphanage by making
deviations on the approved plan through the use of construction materials of inferior quality
warranted the imposition of exemplary damages against the Contractor.
The Courts ruling
There is no doubt that De Guzman incurred damages as a result of the collapse of the
perimeter fence. The Contractor is clearly guilty of negligence and, therefore, liable for the
damages caused. As correctly found by the CA:
Nonetheless, the Court sustains the CIACs conclusion that the CONTRACTOR was negligent
in failing to place weepholes on the collapsed portion of the perimeter fence. Fault or
negligence of the obligor consists in his failure to exercise due care and prudence in the
performance of the obligation as the nature of the obligation so demands, taking into account
the particulars of each case. It should be emphasized that even if not provided for in the plan,
the CONTRACTOR himself admitted the necessity of putting weepholes and claimed to have
actually placed them in view of the higher ground elevation of the adjacent lot vis--vis the level
ground of the construction site. Since he was the one who levelled the ground and was, thus,
aware that the lowest portion of the adjoining land was nearest the perimeter fence, he should
have ensured that sufficient weepholes were placed because water would naturally flow
towards the fence.
However, the CONTRACTOR failed to refute Mr. Ramos claim that the collapsed portion of the
perimeter fence lacked weepholes. Records also show that the omission of such weepholes
and/or their being plastered over resulted from his failure to exercise the requisite degree of
supervision over the work, which is the same reason he was unable to discover the deviations
from the plan until the fence collapsed. Hence, the CONTRACTOR cannot be relieved from
liability therefor.10
The Court finds no compelling reason to deviate from this factual finding by the CIAC, as
affirmed by the CA. It is settled that findings of fact of quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to specific matters, are generally
accorded not only respect, but also finality, especially when affirmed by the CA. In particular,
factual findings of construction arbitrators are final and conclusive and not reviewable by this
Court on appeal.11
CIACs award of actual damages, however, is indeed not proper under the circumstances as
there is no concrete evidence to support the plea. In determining actual damages, one cannot
rely on mere assertions, speculations, conjectures or guesswork, but must depend on

competent proof and on the best evidence obtainable regarding specific facts that could afford
some basis for measuring compensatory or actual damages. 12 Article 2199 of the New Civil
Code defines actual or compensatory damages as follows:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages.
Unfortunately, De Guzman failed to adduce evidence to satisfactorily prove the amount of
actual damage incurred. Contrary to her assertion, the handwritten calculation of reconstruction
costs made by Engineer Santos and attached to his affidavit cannot be given any probative
value because he never took the witness stand to affirm the veracity of his allegations in his
affidavit and be cross-examined on them. In this regard, it is well to quote the ruling of the
Court in the case of Tating v. Marcella,13 to wit:
There is no issue on the admissibility of the subject sworn statement. However, the
admissibility of evidence should not be equated with weight of evidence. The admissibility of
evidence depends on its relevance and competence while the weight of evidence pertains to
evidence already admitted and its tendency to convince and persuade. Thus, a particular item
of evidence may be admissible, but its evidentiary weight depends on judicial evaluation within
the guidelines provided by the rules of evidence. It is settled that affidavits are classified as
hearsay evidence since they are not generally prepared by the affiant but by another who uses
his own language in writing the affiants statements, which may thus be either omitted or
misunderstood by the one writing them. Moreover, the adverse party is deprived of the
opportunity to cross-examine the affiant. For this reason, affidavits are generally rejected for
being hearsay, unless the affiants themselves are placed on the witness stand to testify
thereon.
Neither is there any evidence presented to substantiate Engineer Santos computation of the
reconstruction costs. For such computation to be considered, there must be some other
relevant evidence to corroborate the same.14Thus, the CA was correct in disregarding the
affidavit of Engineer Santos for being hearsay and in not giving probative weight to it. There
being no tangible document or concrete evidence to support the award of actual damages, the
same cannot be sustained.
Nevertheless, De Guzman is indeed entitled to temperate damages as provided under Article
2224 of the Civil Code for the loss she suffered. When pecuniary loss has been suffered but
the amount cannot, from the nature of the case, be proven with certainty, temperate damages
may be recovered. Temperate damages may be allowed in cases where from the nature of the
case, definite proof of pecuniary loss cannot be adduced, although the court is convinced that
the aggrieved party suffered some pecuniary loss.15 Undoubtedly, De Guzman suffered
pecuniary loss brought about by the collapse of the perimeter fence by reason of the
Contractors negligence and failure to comply with the specifications. As she failed to prove the
exact amount of damage with certainty as required by law, the CA was correct in awarding
temperate damages, in lieu of actual damages. However, after weighing carefully the attendant
circumstances and taking into account the cost of rebuilding the damaged portions of the
perimeter fence, the amount of P 100,000.00 awarded to De Guzman should be increased.
This Court, in recognition of the pecuniary loss suffered, finds the award of P 150,000.00 by
way of temperate damages as reasonable and just under the premises.

13
As to the CIACs award of P 100,000.00 as moral damages, this Court is one with the CA that
De Guzman is not entitled to such an award. The record is bereft of any proof that she actually
suffered moral damages as contemplated in Article 2217 of the Code, which provides:
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendants wrongful act or omission.
Certainly, the award of moral damages must be anchored on a clear showing that she actually
experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings, or
similar injury. There could not have been a better witness to this experience than De Guzman
herself.16 Her testimony, however, did not provide specific details of the suffering she allegedly
went through after the fence collapsed while she was miles away in the United States. As the
CA aptly observed, "the testimony of the OWNER as to her worry for the safety of the children
in the orphanage is insufficient to establish entitlement thereto." 17 Since an award of moral
damages is predicated on a categorical showing by the claimant that she actually experienced
emotional and mental sufferings, it must be disallowed absent any evidence thereon. 18
Moreover, under the aforequoted provision, moral damages cannot be recovered as the
perimeter fence collapsed in the midst of the strong typhoon "Milenyo." It was not clearly
established that the destruction was the proximate result of the Contractors act of making
deviation from the plan. As correctly concluded by the CA, viz:
However, while it cannot be denied that the Contractor deviated from the plan, there was no
clear showing whether the same caused or contributed to the collapse/tilting of the subject
perimeter fence. No competent evidence was presented to establish such fact. As the CIAC
itself acknowledged, "(t)here is no way by which to accurately resolve this issue by the
evidence submitted by the parties." The statement of Edwin B. Ramos, Engineering Aide at the
Office of the Municipal Engineer of Silang, Cavite, who conducted an ocular inspection of the
collapsed perimeter fence, that the observed deviations from the plan "affected the strength of
the fence and made it weaker, such that its chance of withstanding the pressure of water from
the other side thereof was greatly diminished or affected" was merely an expression of opinion.
As he himself admitted, he is not qualified to render an expert opinion. 19
Further, De Guzman was not able to show that her situation fell within any of the cases
enumerated in Article 221920 of the Civil Code upon which to base her demand for the award of
moral damages.
Neither does the breach of contract committed by the Contractor, not being fraudulent or made
in bad faith, warrant the grant of moral damages under Article 2220 which provides that:
Art. 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.
De Guzman cannot be awarded exemplary damages either, in the absence of any evidence
showing that the Contractor acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner as provided in Article 2232 of the Civil Code. The ruling in the case of Nakpil and Sons
v. Court of Appeals,21 relied upon by De Guzman, where it was emphasized that the wanton
negligence in effecting the plans, designs, specifications, and construction of a building is

equivalent to bad faith in the performance of the assigned task, finds no application in the case
at bench. As already pointed out, there is negligence on the part of Contractor, but it is neither
wanton, fraudulent, reckless, oppressive, nor malevolent.
The award of exemplary damages cannot be made merely on the allegation of De Guzman
that the Contractors deviations from the plans and specifications without her written consent
was deplorable and condemnable. The Court regards the deviations as excusable due to the
unavailability of the approved construction materials. Besides, these were made known to De
Guzmans project manager who was present all the time during the construction. Indeed, no
deliberate intent on the part of the Contractor to defraud the orphanages benefactors was ever
shown, much less proved. As may be gleaned from his testimony:
xxx
2.2.0 : What can you say to the claim that the column rebars were reduced in size from 12mm
to 10mm?
A : That is untrue.
2.2.1 : Why did you say that it was untrue?
A : Because the column rebars that we used is 12mm and not 10mm contrary to the claim of
the claimant. The column rebars that claimant and his engineers claimed to have been
undersized [were] those already subjected to stretching. Due to the lateral load on the
perimeter fence coming from the water that accumulated thereon, the strength of the column
bars was subjected to such kind of force beyond its capacity thereby resulting them to yield or
"mapatid." As a result of such stretching, the column rebars were deformed thereby causing it
[to] change its width but the length was extended. You can compare it to a candy like "tira-tira"
which if you stretch it becomes longer but its width is reduced. The other column rebars on the
perimeter fence which [were] not subjected to stretching will prove what I am stating.
2.2.2 : Also, in the said request for arbitration, it was claimed that the required hollow blocks
(CHB) was reduced also from #6 to #5, how would you explain this?
A : It is true but such deviation was known to them in view of the fact that there was no
available CHB #6 in Silang, Cavite and so to save on the travel cost in bringing materials from
Manila to the site, it was agreed that such CHB #5 shall be used instead.
2.2.3 : What was the effect of such deviation in using CHB #5 instead of CHB #6?
A : No effect, madam.
2.2.4 : Why did you state so, Mr. Witness?
A : Because the entire area of the land which is being secured by the perimeter fence was fully
covered with the fence which is made of CHB. This simply implies that even though we used a
much lesser size of CHB, but we increased the compressive strength of the mortar and filler
used in the premises. This has really no effect because we cover the entire place with fence.
2.2.5 : It was also claimed that the distance between columns was deviated from 3.0 m. to 4.0
m, will you please explain this matter.
A : The computation of the distance between the columns of the perimeter fence as appearing
on the plan was 3.0 m inside to inside. However, the computation made by the engineer of the
claimant as alleged in their Request for Arbitration was 4.0 m. outside to outside which should
be 3.6 m. outside to outside as correct distance.

15
2.2.6 : It now appears from your statement that there was a deviation as between the 3.0 m.
inside to inside computation in the plan and the actual 3.6 m. outside to outside computation
made by the engineers of the claimant. My question Mr. Witness is, what would be the effect of
such deviation on the columns?
A : It is true that there was such a deviation on the distance of the column but it will have no
effect because still the factor of safety was well provided for. Even the existing law on building
construction supports this matter. I even sought Engineer Rommel Amante on the matter and
his report supports my allegation.
2.2.7 : Was such deviation approved by the claimant or the representatives of the claimant?
A : Yes because during all the time the construction of the perimeter fence was done, the
project manager of the claimant was present and observing the works. Further, they have
executed a Certificate of Final Acceptance of the project. 22
xxx
As regards the award of attorneys fees, the Court upholds De Guzmans entitlement to
reasonable attorneys fees, although it recognizes that it is a sound policy not to set a premium
on the right to litigate.23 It must be recalled that De Guzmans repeated demands for the repair
of the fence or the payment of damages by way of compensation, were not heeded by the
Contractor. The latters unjust refusal to satisfy De Guzmans valid, just and demandable claim
constrained her to litigate and incur expenses to protect her interest. Article 2208 of the Civil
Code, thus, provides:
Art. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
xxx
(2) When the defendants act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
xxx
Finally, the dismissal of the Contractors counterclaim is sustained for lack of merit.1avvphi1 In
his Comment24 and Memorandum,25 the Contractor pleaded that damages should have been
awarded to him. This deserves scant consideration. A perusal of the record reveals that the
matter as regards the return of what he had donated by reason of De Guzmans ingratitude
was not among the issues raised in this petition. Thus, the same cannot be taken cognizance
by the Court.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated February
24, 2009 and its Resolution dated May 26, 2009 are AFFIRMED with the MODIFICATION that
the award of P 100,000.00 as temperate damages is increased to P 150,000.00. The award
shall earn interest at the rate of 12% per annum reckoned from the finality of this judgment until
fully paid.
SO ORDERED.

17
compensation benefits due a seaman pursuant to POEA Standard Employment Contract, Part
II, Section C, paragraph 4(c) and paragraph 5, which reads:
"SECTION C. COMPENSATION BENEFIT
"4. The liabilities of the employer when the seaman suffers injury or illness during the term of
his contract are as follows:

G.R. No. 142049

January 30, 2001

GERMAN MARINE AGENCIES, INC. and LUBECA MARINE MANAGEMENT HK

LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and FROILAN S. DE LARA, respondents.
GONZAGA-REYES, J.:
On 17 October 1994, private respondent was hired by petitioners to work as a radio officer on
board its vessel, the M/V T.A. VOYAGER. Sometime in June, 1995, while the vessel was
docked at the port of New Zealand, private respondent was taken ill. His worsening health
condition was brought by his crewmates to the attention of the master of the vessel. However,
instead of disembarking private respondent so that he may receive immediate medical
attention at a hospital in New Zealand, the master of he vessel proceeded to Manila, a voyage
of ten days, during which time the health of private respondent rapidly deteriorated. Upon
arrival in Manila, private respondent was not immediately disembarked but was made to wait
for several hours until a vacant slot in the Manila pier was available for the vessel to dock.
Private respondent was confined in the Manila Doctors Hospital, wherein he was treated by a
team of medical specialists from 24 June 1995 to 26 July 1995.1wphi1.nt
After private respondent was discharged from the hospital, he demanded from petitioners the
payment of his disability benefits and the unpaid balance of his sickness wages, pursuant to
the Standard Employment Contract of the parties. Having been assured by petitioners that all
his benefits would be paid in time, private respondent waited for almost a year, to no avail.
Eventually, petitioners told private respondent that, aside from the sickness wages that he had
already received, no other compensation or benefit was forthcoming. 1 Private respondent filed
a complaint with the National Labor Relations Commission (NLRC) for payment of disability
benefits and the balance of his sickness wages. On 31 July 1997, the labor arbiter rendered a
decision,2 the pertinent parts of which are quoted hereunder
In the case at bar, there is no issue on the propriety or illegality of complainant's discharge or
release from employment as Radio Operator. What complainant is pursuing is limited to

c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel, the seaman is entitled to one hundred
percent (100%) of his basic wages until he is declared fit to work or the degree of permanent
disability has been assessed by the company-designated physician, but is [sic] no case shall
this period exceed one hundred twenty (120) days. For this purpose, the seaman shall submit
himself to a post-employment medical examination by the company-designated physician
within three working days upon his return, except when he is physically incapacitated to do so,
in which case the written notice to the agency within the same period is deemed as compliance
x x x.
"5. In case of permanent total or partial disability of the seamen [sic] [during] the term of
employment caused by either injury or illness, the seamen [sic] shall be compensated in
accordance with the schedule of benefits enumerated in Appendix 1 of this Contract.
Computation of his benefits arising from an illness or disease shall be governed by the rates
and the rules of compensation applicable at the time of [sic] the illness or disease was
contracted."
The aforecited provisions of the POEA Standards [sic] Employment Contract is clear and
unmistakable that its literal meaning should be preserved.
Thus, the only question at which the liability of respondents is anchored is whether complainant
was really fit to work in his position as radio operator. If this is so, it could mean that he is not
entitled to disability compensation which respondents vigorously disputed, citing in support the
certification made by Dra. Victoria Forendo [sic] Cayabyab, allegedly "the officially accredited
and designated physician of respondents, which is likewise, accredited with the Philippine
Overseas Employment Administration" where it is stated that "Nothing [sic] his job description
as a radio operator, Mr. De Lara may be allowed to go back to work." (Annex D & E).
Complainant on the other hand disputes respondent's above posture contending that the more
persuasive and authentic evidence for purposes of deciding his fitness or lack of fitness to work
is the certificate issued by Ms. Naneth [sic] Domingo-Reyes, MD, FPMA where it appears that
after submitting himself to another medical examination by his attending physicians at the
Manila Doctors Hospital on December 4, 1996, to verify possible mistake in his post treatment
examination on March 25, 1996, firmly "was classified under partial permanent disability and is
not fit to go back to his previous work due to mental state." (Annex "C", complainant's reply to
respondent's position paper).
We have gone into a judicious study and analysis of the arguments and exhibits particularly the
ones relied upon by the parties and find that of the complainant worthy of consideration.
Looking closely at Annexes "D" and "E" of respondents' position paper, there is hardly any
clear affirmation that complainant was fully fit to resume his work as radio operator. Although
the document alluded to, declares that complainant may be allowed to go back to work, the

tenor of the same seems uncertain that complainant is fit to resume his work, and that
assuming that such was the message, the words "may be" can not be taken as overriding that
coming from the Manila Doctor Hospital which in the beginning handled the medical case of
complainant and to which respondents unconditionally referred him and by reason of which six
or seven medical especialists [sic] of the hospital took turn [s] studying and reviewing his
uncertain ailment after release by respondents. Otherwise stated, unlike the message of
annexes D to E of respondents, annex "C" of complainant is clear and unmistakable and
confirm complainant's partial permanent disability and his definite unfitness to go back to his
previous work due to his mental health. Some pronouncements in this exhibit mentions also
that when complainant was admitted an emerging basis for drowsiness, behavioral change and
off and on fever" and different procedures were resorted along his case, like emergency CT
scan on the brain and his admission in June 24, 1995 was catastropic, whereas, more could be
said in three document[s] issued by Dra. Victoria Florendo Cayabyab.

19
all in the aggregate of Twenty Six Thousand One Hundred Thirty Seven Dollars
(US$26,137.00) or its peso equivalent, the claim for damages being hereby dismissed for lack
of merit, plus ten (10%) percent attorney's fees.

Finally, respondents contend that the annexes issued by Dr. Domingo-Reyes of the Manila
Doctors Hospital should not be given weight because it is not issued by the hospital or doctor
duly accredited by the POEA. Neither would a close look on the applicable provision for
seamen show that a duly accredited hospital or doctor is needed for purposes of the grant of
compensation benefits to a such [sic] or ailing seamen. We are more persuaded based on the
arguments of the complainant among others, that it is absurd to require an ailing seaman in
high seas or in a foreign land to still wait until the ship where he is working land in the country
to secure treatment in a duly accredited hospital or doctor.

The basic issue here is: Whether or not petitioner is liable to pay private respondent's claim as
awarded by the NLRC, and whether or not there was abuse of discretion on the part of the
NLRC in affirming such decision on appeal? To resolve this issue, this Court took time in
looking closely at the pertinent provision of the Standard Employment Contract Governing the
Employment of Filipino Seafarers on Board Ocean-Going Vessels, particularly PART II,
SECTION C, par. no. 4 (c), and par. no. 5, which states as follows:

On the basis of the above therefore, and convinced that complainant's "partial permanent
disability" which was contracted in the course or on account of his employment as radio
operator in foreign principal's vessel, he is entitled to disability benefit in accordance with the
schedule of benefits enumerated in Appendix 1 of the Contract, the maximum of which is US
$50,000. But since the amount prayed for is US$25,000.00 which were presume has a more
realistic basis, the same is hereby granted.
Concerning the sickness wage, respondents averred that the same had already been paid.
However, there is no evidence that the same has been paid except the payment to the
complainant of P49,546.00. Since complainant's salary as US$870 and a seaman's sick wage
entitlement is fixed to a maximum of 120 days, his "sickness wages would rest to a total sum of
US$3,480 or its peso equivalent. On this, complainant has been paid only [P]49,546.00
(US$1,943), thereby leaving for complainant a balance of US$1,537. Finally, it is also argued
that as regards the balance, the same has been paid citing as proof the Sickness Release and
Quitclaim signed by complainant (Annexes "C" & "C-1"). Complainant, on the other hand
denied this, and contended that the quitclaim and release is invalid. Considering that there is
no proof on record that this balance of US$1,537 was paid, unlike the P49,546.00, the same is
granted.
WHEREFORE, premises above-considered, a decision is hereby issued ordering respondent
German Marine Agencies Inc. to pay complainant the following sums:
(a) Disability benefit - - - - - - - - - - - - - - - - - US$25,000.00
(b) Sickness wage balance - - - - - - - - - - - - - - - - - US $1,137.00

SO ORDERED.
On 29 July 1998, the NLRC3 affirmed the labor arbiter's decision in toto and declared that the
latter's findings and conclusions were supported by substantial evidence. 4 After its motion for
reconsideration was denied by the NLRC on 20 May 1999, petitioners repaired to the Court of
Appeals.5 The appellate court's assailed decision was promulgated on 1 December 1999,
upholding the decision of the NLRC, with the modification that petitioners were ordered to pay
private respondent exemplary damages in the amount of P50,000.00. The appellate court
reasoned out its decision,6 thus

"SECTION C. COMPENSATION BENEFIT

"4. The liabilities of the employer when the seaman suffers injury or illness during the term of
his contract are as follows:
"xxx

xxx

xxx

c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel, the seaman is entitled to one hundred
percent (100%) of his basic wages until he is declared fit to work or his degree of permanent
disability has been assessed by the company-designated physician, but in no case shall this
period exceed one hundred twenty (120) days. x x x x.
"5. In case of permanent total or partial disability of the seamen during the term of his
employment caused by either injury or illness the seamen shall be compensated in accordance
with the schedule of benefits enumerated in Appendix 1 of his Contract. Computation of his
benefits arising from an illness or disease shall be governed by the rates and the rules of
compensation applicable at the time the illness or disease was contracted.
xxx

xxx

xxx. . ."

A cursory reading of these applicable contractual provisions and a thorough evaluation of the
supporting evidence presented by both parties, lends strong credence to the contentions and
arguments presented by private respondent.
The award of disability compensation has a clear and valid basis in the Standard Employment
Contract and the facts as supported by the medical certificate issued by Dr. Nannette
Domingo-Reyes of the Manila Doctors Hospital. Petitioners' contention, that dr. DomingoReyes is not company designated is far from the truth. The designation of the Manila Doctors
Hospital by petitioners as the company doctor for private respondent cannot be denied. Their

very act of committing private respondent for treatment at the Manila Doctors Hospital under
the care of its physician is tantamount to company designation. The very act of paying the
hospital bills by the petitioners constitutes their confirmation of such designation. Hence,
petitioners cannot resort to the convenience of denying this fact just to evade their obligation to
pay private respondent of his claims for disability benefit.
This Court also finds no basis on (sic) the petitioners' contention that the company-designated
[physician] must also be accredited with the POEA before he can engaged in the medical
treatment of a sick seaman. There is nothing in the Standard Employment Contract that
provides this accreditation requirement, and even if there is, this would be absurd and contrary
to public policy as its effect will deny and deprive the ailing seaman of his basic right to seek
immediate medical attention from any competent physician. The lack of POEA accreditation of
a physician who actually treated the ailing seaman does not render the findings of such
physician (declaring the seaman permanently disabled) less authoritative or credible. To our
mind, it is the competence of the attending physician, not the POEA accreditation, that
determines the true health status of the patient-seaman, which in this instant case, is [sic] the
attending physicians from the Manila Doctors Hospital.
As to the award of the balance of wages, this Court is inclined not to disturb the factual findings
of the NLRC. The failure of the petitioners to present a strong and credible evidence supporting
the fact of alleged payment of the balance of sickness justified the award of such claim. The
long standing doctrine in labor cases that "in case of doubt, the doubt is resolved in favor of
labor" applies. For there are indications that the evidence presented by petitioners appears to
be of dubious origin as private respondent challenged the petitioners to present the original
copy of the quitclaim and the vouchers in a motion demanding from petitioners to produce the
original copy of those documents purporting to show that he had received the alleged sum of
P39,803.30, which allegedly shows the payment of the balance of his sickness wages. This
motion was vehemently opposed by petitioners. To our mind, such opposition only created
more doubts and eroded the veracity and credence of petitioners' documentary evidence.
As to the award of attorney's fees, the same is justified by the fact that private respondent
actually hired the services of a lawyer to vindicate his right to claim for his disability benefit
which is being arbitrarily denied to him by petitioners. Had it not been for the arbitrary denial of
petitioners, private respondent could not have been compelled to hire the services of a lawyer
to pursue his claims in court, for which he is presumed to have incurred costs.
With respect to private respondent's claim for damages, this Court finds that the NLRC
overlooked the attendance of negligence on the part of petitioners in their failure to provide
immediate medical attention to private respondent. It further appears that negligence not only
exists but was deliberately perpetrated by petitioners by its arbitrary refusal to commit the ailing
private respondent to a hospital in New Zealand or at any nearest port deprived of his right to
immediate medical attention by petitioners, which resulted to the serious deterioration of his
health that caused his permanent partial disability. Such deprivation of immediate medical
attention appears deliberate by the clear manifestation from petitioners' own words which
states that, "the proposition of the complainant that respondents should have taken the
complainant to the nearest port of New Zealand is easier said than done. It is worthy to note
that deviation from the route of the vessel will definitely result to loss of a fortune in dollars not

21
only to the respondents but likewise to the owners of the cargoes being shipped by the said
vessel."
By petitioners' own statement, they reveal their utter lack of concern for their Filipino crew. This
kind of attitude cannot be taken to pass by this Court without appropriate sanction by way of
payment of exemplary damages, if only to show that the life of a Filipino crew must be
accorded due attention and respect by the petitioners. For after all, had it not been for the toils
of this crew, among others, petitioners would not be doing as good in their business and
making "fortunes in dollars."
In affirming the decision of the Labor Arbiter, this Court finds that the NLRC never abused its
discretion nor exceeded its jurisdiction.
Hence, this Court finds no valid basis to disturb the findings of the NLRC.
WHEREFORE, the decision of the NLRC dated 29 July 1998, and the Order dated 20 May
1999, are hereby AFFIRMED, and in addition thereto, petitioners are ordered to pay exemplary
damages to private respondent in the sum of Fifty Thousand Pesos (P50,000.00).
SO ORDERED.
Petitioners' motion for reconsideration was denied by the Court of Appeals in its Resolution of
11 February 2000. Hence, the present appeal.
Disability Benefits
Petitioners contend that the existence and degree of a seaman's disability must be declared by
a "company-designated physician" who must be accredited with the POEA. Following this line
of reasoning, petitioners claim that private respondent is not entitled to disability benefits
because he was found fit to return to work by Dr. Victoria Florendo Cayabyab, the designated
physician of petitioners, who is also accredited with the POEA. 7
Disagreeing with petitioners' stand, the labor arbiter ruled that, for purposes of determining
compensation benefits under the Standard Employment Contract, an ailing seaman need not
have his condition assessed by a doctor or hospital accredited with the POEA. Consequently,
the labor arbiter gave more weight to the opinion of the specialists from the Manila Doctors
Hospital who treated private respondent and declared him as having sustained a partial
permanent disability and unfit to go back to his previous work. 8 Meanwhile, the Court of
Appeals held that petitioners' act of committing private respondent for treatment at the Manila
Doctors Hospital and of paying his hospital bills therein is tantamount to "companydesignation," and therefore, the certificate issued by Dr. Nanette Domingo-Reyes of the Manila
Doctors Hospital describing private respondent as suffering from a partial permanent disability
should be construed as decisive in the matter of private respondent's entitlement to disability
benefits. The appellate court also declared that nothing in the Standard Employment Contract
requires the company-designated physician or hospital to also be accredited with the POEA. 9
In the case at bar, the parties are at odds as to the proper interpretation of the POEA Standard
Employment Contract Government the Employment of All Filipino Seamen On Board OceanGoing Vessels (Standard Employment Contract), particularly Part II, Section C thereof, which
provides that

xxx

xxx

xxx

4. The liabilities of the employer when the seaman suffers injury or illness during the term of his
contract are as follows:
a. The employer shall continue to pay the seaman his basic wages during the time he is on
board the vessel;
b. If the injury or illness requires medical and/or dental treatment in a foreign port, the employer
shall be liable for the full cost of such medical, dental, surgical and hospital treatment as well
as board and lodging until the seaman is declared fit to work or to be repatriated.
However, if after repatriation the seaman still requires medical attention arising from said injury
or illness, he shall be so provided at cost to the employer until such time he is declared fit or
the degree of his disability has been established by the company-designated physician.
c. The employer shall pay the seaman his basic wages from the time he leaves the vessel for
medical treatment. After discharge from the vessel the seaman is entitled to one hundred
percent (100%) of his basic wages until he is declared fit to work or the degree of permanent
disability has been assessed by the company-designated physician, but in no case shall this
period exceed one hundred twenty (120) days. For this purpose, the seaman shall submit
himself to a post-employment medical examination by the company-designated physician
within three working days upon his return except when he is physically incapacitated to do so,
in which case a written notice to the agency within the same period is deemed as compliance.
Failure of the seaman to comply with the mandatory reporting requirement shall result in his
forfeiture of the right to claim the above benefits.
xxx

xxx

xxx

5. In case of permanent total or partial disability of the seaman during the term of employment
caused by either injury or illness the seaman shall be compensated in accordance with the
schedule of benefits enumerated in Appendix 1 of his Contract. Computation of his benefits
arising from an illness or disease shall be governed by the rates and the rules of compensation
applicable at the time the illness or disease was contracted.
xxx

xxx

xxx

Petitioners' contention that the existence and grade of a seaman's disability must be
pronounced by a physician accredited by the POEA does not find any support in the
abovecited provision, nor in any other portion of the Standard Employment Contract. In order to
claim disability benefits under the Standard Employment Contract, it is the "companydesignated" physician who must proclaim that the seaman suffered a permanent disability,
whether total or partial, due to either injury or illness, during the term of the latter's
employment. There is no provision requiring accreditation by the POEA of such physician. In
fact, aside from their own gratuitous allegations, petitioners are unable to cite a single provision
in the said contract in support of their assertions or to offer any credible evidence to
substantiate their claim. If accreditation of the company-designated physician was
contemplated by the POEA, it would have expressly provided for such a qualification, by
specifically using the term "accreditation" in the Standard Employment Contract, to denote its
intention. For instance, under the Labor Code it is expressly provided that physicians and
hospitals providing medical care to an injured or sick employee covered by the Social Security

23
System or Government Service Insurance System must be accredited by the Employees
Compensation Commission.10 It is a cardinal rule in the interpretation of contracts that if the
terms of a contract are clear and leave no doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall control. 11 There I no ambiguity in the wording of the
Standard Employment Contract the only qualification prescribed for the physician entrusted
with the task of assessing the seaman's disability is that he be "company-designated." When
the language of the contract is explicit, as in the case at bar, leaving no doubt as to the
intention of the drafters thereof, the courts may not read into it any other intention that would
contradict its plain import.12
The word "designate" means to specify, to mark out and make known, to identify by name, to
indicate, to show, to distinguish by mark or description, or to set apart for a purpose or
duty.13 The Court agrees with the appellate court's ruling that petitioners' act of committing
private respondent for treatment at the Manila Doctors Hospital and paying the hospital bills
therein is tantamount to "company-designation." By such unequivocal acts, petitioners clearly
set apart and distinguished the Manila Doctors Hospital, together with its team of specialists,
as the ones qualified to assess the existence and degree of private respondent's disability and
thereby resolve the question of the latter's entitlement to disability benefits under the Standard
Employment Contract.
In addition to their having been effectively designated by petitioners, it was the physicians from
the Manila Doctors Hospital who examined and treated private respondent for a little more than
one month, subjecting the latter to a series of medical procedures, such as medical therapy,
neurological surgical drainage for brain abscess, bilateral thalamic area S/P craniotomy (Burr
Hole), and opthalmological (orbit) surgery for socket revision and reconstruction of his left eye.
The extensive medical attention given to private respondent enabled the Manila Doctors
Hospital specialists to acquire a detailed knowledge and familiarity with private respondent's
medical condition.14 No doubt such specialized knowledge enabled these physicians to arrive
at a much more accurate appraisal of private respondent's condition, including the degree of
any disability which he might have sustained, as compared to another physician not privy to
private respondent's case from the very beginning. Thus, the appellate court was not mistaken
in giving more weight to the certificate issued by Dr. Nanette Domingo-Reyes of the Manila
Doctors Hospital dated December 4, 1996, than to the one issued by Dr. Victoria Florendo
Cayabyab.
On the strength of Dr. Domingo-Reyes's medical certificate which stated that private
respondent "can be classified under partial permanent disability and is not fit to go back to his
previous work due to his mental state," the labor arbiter awarded $25,000.00 as disability
benefits, which award was upheld by the NLRC and the appellate court. Petitioners insist that
there is no factual basis for the award of $25,000.00 since there is no finding as to the grade of
permanent partial disability sustained by private respondent, in accordance with Appendix 1 of
the Standard Employment Contract (Schedule of Disability or Impediment For Injuries Suffered
and Diseases or Illness Contracted), and therefore, no means of determining the exact amount
of compensation to which private respondent may be entitled. 15

25

The Court does not agree with petitioners' position. Under the Standard Employment Contract
the grade of disability suffered by the seaman must be ascertained in accordance with
Appendix 1 of such contract, which is partially reproduced herein
Appendix 1
SCHEDULE OF DISABILITY OR IMPEDIMENT
FOR INJURIES SUFFERED AND OR ILLNESS CONTRACTED
HEAD
Traumatic head injuries that result to:
1.
2.

3.
4.
5.
6.

7.

8.

9.

Apperture unfilled with bone not over three (3) inches

without brain injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.........
Apperture unfilled with bone over three (3) inches without
brain
injury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
........
Severe paralysis of both upper or lower extremities or one
upper and one lower extremity . . . . . . . . . . . . . . . . . . . . . .
.............
Moderate paralysis of two (2) extremities producing
moderate difficulty in movements with self care
activities . . . . . . . . . . .
Slight paralysis affecting one extremity producing slight
difficulty with self-care
activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Severe mental disorder or Severe Complex Cerebral
function disturbance or post traumatic psychoneurosis
which require regular aid and attendance as to render
worker permanently unable to perform any work . . . . . . . .
..................
Moderate mental disorder or moderate brain functional
disturbance which limits worker to the activities of daily
living with some directed care or attendance . . . . . . . . . . .
........
Slight mental disorder or disturbance that requires little
attendance or aid and which interferes to a slight degree
with the working capacity of the claimant . . . . . . . . . . . . . .
......
Incurable imbecility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
..

Gr. 9

Gr. 3
Gr. 1
Gr. 6
Gr. 10

Gr. 1

APPENDIX 1-A
SCHEDULE OF DISABILITY ALLOWANCES
Impediment
Grace
1 Maximum Rate
2"
3"
4"
5"
6"
7"
8"
9"
10 "
11 "
12 "
13 "
14 "

Impediment
x
x
x
x
x
x
x
x
x
x
x
x
x
x

120.00%
88.81%
78.36%
68.66%
58.96%
50.00%
41.80%
33.59%
26.12%
20.15%
14.93%
10.45%
6.72%
3.74%

Maximum Rate: US$50,000.

To be paid in Philippine Currency equivalent at the exchange rate prevailing during the time of
payment.
Private respondent asked petitioner for disability benefits in the amount of $25,000.00, or fifty
percent (50%) of the maximum rate of $50,000.00, which, under Appendix 1-A, is awarded
when the seaman sustains a grade 6 disability. One of the grade 6 head injuries listed in
Appendix 1, specifically number seven (7), is described as a "moderate mental disorder or
moderate brain functional disturbance which limits worker to the activities of daily living with
some directed care or attendance." This coincides with Dr. Domingo-Reyes' diagnosis of
private respondent's condition, as follows
xxx

Gr. 6

Gr. 10
Gr. 1

xxx

xxx

Work-ups and Management:

Patient was admitted on an emergency bases for drowsiness, behavioral change and on and
off fever. This started with headaches since the first week of June 1995 while on duty (on
voyage). Patient progressively deteriorated and arrived here already dehydrated with high
grade fever. (emphasis supplied)
Emergency CT Scan of the brain revealed rounded masses in both thalamus on the brain; the
larger mass was situated at the right.

Burr hole at the right parietal and drainage of the right thalamic abscess was done on June 26,
Each grade under Appendix 1 has an equivalent disability allowance or benefit expressed in
terms of a percentage of the maximum amount of $50,000.00. This is specified in Appendix 1-A 1995. Repair of shallow fornix of left eye and biopsy was done for culture studies thereafter.
of the Standard Employment Contract

Mr. De Lara stayed in the hospital for 33 days and was still in bedridden state when discharge.
He became ambulant on mid-August 1996 but his cerebral functions (cognitive and behavioral)
remain impaired.
This is his 18th month of illness. His admission last June 24, 1995 is considered catastrophic.
He now can be classified under partial permanent disability and is not fit to go back to his
previous work due to his mental state.16 (emphasis supplied)
xxx

xxx

xxx

Thus, the medical certificate of Dr. Domingo-Reyes is more than sufficient basis for the award
of disability benefits in the amount of $25,000.00 in favor of private respondent.
Sickness wages
Petitioners assert that the award of $1,137.00, representing the balance of the sickness wages
owed to private respondent, is erroneous and in absolute disregard of their documentary
evidence particularly the three check vouchers in the total amount of P89,354.80, all issued
in 1995 in favor of either private respondent or his wife, and the "Sickwages Release &
Quitclaim" which, according to petitioners, taken together would prove that they had paid
private respondent the total amount of P89,354.80, or $3,480.00, corresponding to the 120
days sickness wages as required under the Standard Employment Contract.
Contrary to petitioners' assertions, the labor arbiter held that only P49,546.00 ($1,943.00) was
paid by petitioners and that private respondent is still entitled to the balance of the sickness
wages in the amount of $1,537.00. According to the labor arbiter, petitioners failed to prove that
they had paid this amount to private respondent, notwithstanding the document entitled
"Sickness Release & Quitclaim" introduced by petitioners in evidence, which was not given
credence.17 The NLRC and the Court of Appeals concurred with the labor arbiter on this issue.
The appellate court held that the documentary evidence of petitioners was insufficient to
support their contentions.18
The Supreme Court has always accorded respect and finality to the findings of fact of the
NLRC, particularly if they coincide with those of the Labor Arbiter, when supported by
substantial evidence. The reason for this is that a quasi-judicial agency like the NLRC has
acquired a unique expertise because its jurisdiction is confined to specific matters. 19 Whether
or not petitioners actually paid the balance of the sickness wages to private respondent is a
factual question. In the absence of proof that the labor arbiter or the NLRC had gravely abused
their discretion, the Court shall deem conclusive and cannot be compelled to overturn this
particular factual finding.20
Damages
We affirm the appellate court's finding that petitioners are guilty of negligence in failing to
provide immediate medical attention to private respondent. It has been sufficiently established
that, while the M/V T.A. VOYAGER was docked at the port of New Zealand, private respondent
was taken ill, causing him to lose his memory and rendering him incapable of performing his
work as radio officer of the vessel. The crew immediately notified the master of the vessel of
private respondent's worsening condition. However, instead of disembarking private
respondent so that he may receive immediate medical attention at a hospital in New Zealand
or at a nearby port, the master of the vessel proceeded with the voyage, in total disregard of

27
the urgency of private respondent'' condition. Private respondent was kept on board without
any medical attention whatsoever for the entire duration of the trip from New Zealand to the
Philippines, a voyage of ten days. To make matters worse, when the vessel finally arrived in
Manila, petitioners failed to directly disembark private respondent for immediate hospitalization.
Private respondent was made to suffer a wait of several more hours until a vacant slot was
available at the pier for the vessel to dock. It was only upon the insistence of private
respondent's relatives that petitioners were compelled to disembark private respondent and
finally commit him to a hospital.21 There is no doubt that the failure of petitioners to provide
private respondent with the necessary medical care caused the rapid deterioration and
inevitable worsening of the latter's condition, which eventually resulted in his sustaining a
permanent disability.1wphi1.nt
In light of the foregoing, petitioners are liable for moral damages for the physical suffering and
mental anguish caused to private respondent.22 There is no hard and fast rule in the
determination of what would be a fair amount of moral damages, since each case must be
governed by its own peculiar circumstances.23 In the present case, the Court considers the
amount of P50,000.00 in moral damages as proper.24
Meanwhile, exemplary damages are imposed by way of example or correction for the public
good, pursuant to Article 2229 of the Civil Code. They are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive to curb
socially deleterious actions. While exemplary damages cannot be recovered as a matter of
right, they need not be proved, although plaintiff must show that he is entitled to moral,
temperate, or compensatory damages before the court may consider the question of whether
or not exemplary damages should be awarded.25 In quasi-delicts, exemplary damages may be
granted if the defendant acted with gross negligence. 26 Coming now to the case at bar, the
appellate court found that
negligence not only exists but was deliberately perpetrated by petitioners by its arbitrary
refusal to commit the ailing private respondent to a hospital in New Zealand or at any nearest
port which resulted to the serious deterioration of his health that caused his permanent
partial disability. Such deprivation of immediate medical attention appears deliberate by the
clear manifestation from petitioners' own words which states that, "the proposition of the
complainant that respondents should have taken the complainant to the nearest port of New
Zealand is easier said than done. It is worthy to note that deviation from the route of the vessel
will definitely result to loss of a fortune in dollars not only to the respondents [petitioners
herein] but likewise to the owners of the cargoes being shipped by the said vessel."
Petitioners never denied making this statement. Given the prevailing circumstances, the
appellate court's award of P50,000.00 as exemplary damages is adequate, fair, and
reasonable.27
Although the labor arbiter awarded attorney's fees, which award was subsequently affirmed by
the NLRC and the Court of Appeals, the basis for the same was not discussed in his decision
nor borne out by the records of this case, and should therefore be deleted. There must always
be a factual basis for the award of attorney's fees.28This is consistent with the policy that no
premium should be placed on the right to litigate. 29

29
respondent Rosales went to petitioners Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in
cash;22 that Gutierrez told respondent Rosales to come back the following day because the
bank did not have enough dollars;23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the bank; 24 that the impostor was
able to withdraw Liu Chiu Fangs dollar deposit in the amount of US$75,000.00; 25 that on
March 3, 2003, respondents opened a dollar account with petitioner; and that the bank later
discovered that the serial numbers of the dollar notes deposited by respondents in the amount
of US$11,800.00 were the same as those withdrawn by the impostor.26
G.R. No. 183204
January 13, 2014
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized
THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
withdrawal from the dollar account of Liu Chiu Fang. 27 Respondent Rosales claimed that she
vs.
did not go to the bank on February 5, 2003.28Neither did she inform Gutierrez that Liu Chiu
ANA GRACE ROSALES AND YO YUK TO, Respondents.
Fang was going to close her account.29 Respondent Rosales further claimed that after Liu Chiu
DECISION
Fang opened an account with petitioner, she lost track of her.30 Respondent Rosales version of
the events that transpired thereafter is as follows:
DEL CASTILLO, J.:
1
On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was
Bank deposits, which are in the nature of a simple loan or mutuum, must be paid upon
2
at the bank to close her account.31 At noon of the same day, respondent Rosales went to the
demand by the depositor.
bank to make a transaction.32 While she was transacting with the teller, she caught a glimpse of
This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2,
a woman seated at the desk of the Branch Operating Officer, Melinda Perez (Perez). 33 After
2008 Decision4 and the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV
completing her transaction, respondent Rosales approached Perez who informed her that Liu
No. 89086.
Chiu Fang had closed her account and had already left. 34 Perez then gave a copy of the
Factual Antecedents
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
Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly
PLRA Visa and her dollar account.36 It was only then that Liu Chiu Fang found out that her
organized and existing under the laws of the Philippines. 6 Respondent Ana Grace Rosales
7
8
(Rosales) is the owner of China Golden Bridge Travel Services, a travel agency. Respondent 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
Yo Yuk To is the mother of respondent Rosales.9
In 2000, respondents opened a Joint Peso Account10 with petitioners Pritil-Tondo Branch.11 As 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
of August 4, 2004, respondents Joint Peso Account showed a balance of P2,515,693.52.12
by Liu Chiu Fang in favor of a certain Richard So. 39 Liu Chiu Fang, however, denied executing
In May 2002, respondent Rosales accompanied her client Liu Chiu Fang, a Taiwanese National
the SPA.40 The following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met at
applying for a retirees visa from the Philippine Leisure and Retirement Authority (PLRA), to
the PLRA Office to discuss the unauthorized withdrawal. 41During the conference, the bank
petitioners branch in Escolta to open a savings account, as required by the PLRA. 13 Since Liu
officers assured Liu Chiu Fang that the money would be returned to her.42
Chiu Fang could speak only in Mandarin, respondent Rosales acted as an interpreter for her. 14
On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution
On March 3, 2003, respondents opened with petitioners Pritil-Tondo Branch a Joint Dollar
dismissing the criminal case for lack of probable cause.43 Unfazed, petitioner moved for
15
16
Account with an initial deposit of US$14,000.00.
reconsideration.
On July 31, 2003, petitioner issued a "Hold Out" order against respondents accounts. 17
On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a
On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan
Complaint44 for Breach of Obligation and Contract with Damages, docketed as Civil Case No.
Aguirre, filed before the Office of the Prosecutor of Manila a criminal case for Estafa through
04110895 and raffled to Branch 21, against petitioner. Respondents alleged that they
False Pretences, Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. attempted several times to withdraw their deposits but were unable to because petitioner had
No. 03I-25014,18 against respondent Rosales.19Petitioner accused respondent Rosales and an placed their accounts under "Hold Out" status.45 No explanation, however, was given by
unidentified woman as the ones responsible for the unauthorized and fraudulent withdrawal of
petitioner as to why it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order
US$75,000.00 from Liu Chiu Fangs dollar account with petitioners Escolta Branch. 20Petitioner be lifted and that they be allowed to withdraw their deposits. 47 They likewise prayed for actual,
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal
moral, and exemplary damages, as well as attorneys fees. 48
Clearance for the dollar account of Liu Chiu Fang;21 that in the afternoon of the same day,
WHEREFORE, the 1 December 1999 Decision and 11 February 2000 Resolution of the Court
of Appeals are AFFIRMED, with the modification that petitioners must also pay private
respondent P50,000.00 as moral damages and the award of attorney's fees is deleted. SO
ORDERED.

Petitioner alleged that respondents have no cause of action because it has a valid reason for
issuing the "Hold Out" order.49 It averred that due to the fraudulent scheme of respondent
Rosales, it was compelled to reimburse Liu Chiu Fang the amount of US$75,000.00 50 and to
file a criminal complaint for Estafa against respondent Rosales. 51
While the case for breach of contract was being tried, the City Prosecutor of Manila issued a
Resolution dated February 18, 2005, reversing the dismissal of the criminal complaint. 52 An
Information, docketed as Criminal Case No. 05-236103, 53 was then filed charging respondent
Rosales with Estafa before Branch 14 of the RTC of Manila. 54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision55 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 P50,000.00, moral damages of P50,000.00, exemplary damages of P30,000.00
and 10% of the amount due [respondents] as and for attorneys fees plus the cost of suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual
damages because "the basis for [respondents] claim for such damages is the professional fee
that they paid to their legal counsel for [respondent] Rosales defense against the criminal
complaint of [petitioner] for estafa before the Office of the City Prosecutor of Manila and not
this case."60 Thus, the CA disposed of the case in this wise:
WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch
21, Manila in Civil Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of
actual damages to [respondents] Rosales and Yo Yuk To is hereby DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008
Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION
AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS EMPLOYEES WERE
NEGLIGENT IN RELEASING LIU CHIU FANGS FUNDS.

31
C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY
DAMAGES, AND ATTORNEYS FEES.63
Petitioners Arguments
Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the
Application and Agreement for Deposit Account.64 It posits that the said clause applies to any
and all kinds of obligation as it does not distinguish between obligations arising ex contractu or
ex delictu.65 Petitioner also contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in issuing the "Hold-Out"
order.67 Petitioner likewise denies that its employees were negligent in releasing the dollars. 68 It
claims that it was the deception employed by respondent Rosales that caused petitioners
employees to release Liu Chiu Fangs funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary damages and attorneys fees.
It insists that respondents failed to prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner.70
Respondents Arguments
Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold
their deposits because they have no monetary obligation to petitioner.71 They insist that
petitioner miserably failed to prove its accusations against respondent Rosales. 72 In fact, no
documentary evidence was presented to show that respondent Rosales participated in the
unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by
the alleged impostor.74 Respondents likewise maintain that what was established during the
trial was the negligence of petitioners employees as they allowed the withdrawal of the funds
without properly verifying the identity of the depositor.75 Furthermore, respondents contend that
their deposits are in the nature of a loan; thus, petitioner had the obligation to return the
deposits to them upon demand.76 Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorneys fees. 77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether petitioner breached its contract
with respondents, and (2) if so, whether it is liable for damages. The issue of whether
petitioners employees were negligent in allowing the withdrawal of Liu Chiu Fangs dollar
deposits has no bearing in the resolution of this case. Thus, we find no need to discuss the
same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents because it has a valid
reason for issuing the "Hold Out" order. Petitioner anchors its right to withhold respondents
deposits on the Application and Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and all obligations with the Bank,
all monies, properties or securities of the Depositor now in or which may hereafter come into

the possession or under the control of the Bank, whether left with the Bank for safekeeping or
otherwise, or coming into the hands of the Bank in any way, for so much thereof as will be
sufficient to pay any or all obligations incurred by Depositor under the Account or by reason of
any other transactions between the same parties now existing or hereafter contracted, to sell in
any public or private sale any of such properties or securities of Depositor, and to apply the
proceeds to the payment of any Depositors obligations heretofore mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without notice to all of the Depositors,
assert a lien on any balance of the Account and apply all or any part thereof against any
indebtedness, matured or unmatured, that may then be owing to the Bank by any or all of the
Depositors. It is understood that if said indebtedness is only owing from any of the Depositors,
then this provision constitutes the consent by all of the depositors to have the Account answer
for the said indebtedness to the extent of the equal share of the debtor in the amount credited
to the Account.78
Petitioners reliance on the "Hold Out" clause in the Application and Agreement for Deposit
Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of
the sources of obligation enumerated in Article 115779 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 attorneys fees.1wphi1
In cases of breach of contract, moral damages may be recovered only if the defendant acted
fraudulently or in bad faith,80 or is "guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order
reveals that petitioner issued the "Hold Out" order in bad faith. First of all, the order was issued
without any legal basis. Second, petitioner did not inform respondents of the reason for the
"Hold Out."82 Third, the order was issued prior to the filing of the criminal complaint. Records
show that the "Hold Out" order was issued on July 31, 2003, 83 while the criminal complaint was

33
filed only on September 3, 2003.84 All these taken together lead us to conclude that petitioner
acted in bad faith when it breached its contract with respondents. As we see it then,
respondents are entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil Code provides that
exemplary damages may be imposed "by way of example or correction for the public good, in
addition to the moral, temperate, liquidated or compensatory damages." They are awarded
only if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner.86
In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner when it refused to release the deposits of respondents without any legal
basis. We need not belabor the fact that the banking industry is impressed with public
interest.87 As such, "the highest degree of diligence is expected, and high standards of integrity
and performance are even required of it."88 It must therefore "treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its
relationship with them."89 For failing to do this, an award of exemplary damages is justified to
set an example.
The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the
Civil Code.
In closing, it must be stressed that while we recognize that petitioner has the right to protect
itself from fraud or suspicions of fraud, the exercise of his right should be done within the
bounds of the law and in accordance with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the
May 30, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby
AFFIRMED. SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:

G.R. No. 162987

May 21, 2009
SOFIA M. GUILLANG, represented by SUSAN GUILLANG-CABATBAT, REYNALDO,
GERARDO, BIENVENIDO, DAWNA, and NELLIE, all surnamed GUILLANG, GENARO
GUILLANG, JOSE DIGNADICE, and ALVIN LLANILLO, Petitioners,
vs.
RODOLFO BEDANIA and RODOLFO DE SILVA, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review1 of the 3 June 2003 Decision2 and the 23 March 2004
Resolution3 of the Court of Appeals in CA-G.R. CV No. 69289. The 3 June 2003 Decision set

35
aside the 5 December 2000 Decision4 of the Regional Trial Court, Branch 30, Manila (trial
court). The 23 March 2004 Resolution denied the motion for reconsideration.
The Facts
On 25 October 1994, at about 5:45 in the afternoon, petitioner Genaro M. Guillang (Genaro)
was driving his brand new Toyota Corolla GLI sedan with conduction sticker no. 54-DFT (car)
along Emilio Aguinaldo Highway (highway) in Cavite. Genaro, Antero Guillang (Antero), Felipe
Jurilla, Jose Dignadice (Dignadice), and Alvin Llanillo (Llanillo) had all just left from Golden
City, Dasmarias, Cavite, and were on their way to Manila. At the other side of the highway,
respondent Rodolfo A. Bedania (Bedania) was driving a ten-wheeler Isuzu cargo truck with
plate no. CAC-923 (truck) towards Tagaytay City. The truck was owned by respondent Rodolfo
de Silva (de Silva).
Along the highway and the road leading to the Orchard Golf Course, Bedania negotiated a Uturn. When the truck entered the opposite lane of the highway, Genaros car hit the right portion
of the truck. The truck dragged Genaros car some five meters to the right of the road.
As a consequence, all the passengers of the car were rushed to the De La Salle University
Medical Center in Dasmarias, Cavite for treatment. Because of severe injuries, Antero was
later transferred to the Philippine General Hospital. However, on 3 November 1994, Antero
died due to the injuries he sustained from the collision. The car was a total wreck while the
truck sustained minor damage.
On 24 April 1995, petitioners Genaro, Llanillo, Dignadice, and the heirs of Antero 5 instituted a
complaint for damages based on quasi-delict against respondents Bedania and de Silva.
On 5 December 2000, the trial court rendered a decision in favor of petitioners. The trial court
found Bedania grossly negligent for recklessly maneuvering the truck by making a sudden Uturn in the highway without due regard to traffic rules and the safety of other motorists. The trial
court also declared de Silva grossly negligent in the selection and supervision of his driver,
Bedania. The dispositive portion of the decision provides:
WHEREFORE, judgment is hereby rendered ordering defendants Rodolfo A. Bedania and
Rodolfo de Silva, jointly and severally, to pay plaintiffs, as follows:
1. The sum of P508,566.03 representing the damage/repair costs of the Toyota to plaintiff
Genaro M. Guillang.
2. The sum of P50,000.00 for the death of Antero Guillang plus P185,000.00 for his burial
expenses, to the heirs of Antero Guillang.
3. For hospital and medical expenses as reflected in Exhibits E, E-1 to E-30 to plaintiffs Genaro
M. Guillang, Jose Dignadice and Alvin Llanillo.
4. The sum of P50,000.00 as moral damages for the heirs of the deceased Antero Guillang.
5. The sum of P50,000.00 as moral damages each to plaintiffs Jose Dignadice, Alvin Llanillo
and Genaro Guillang.
6. The sum of P50,000.00 as exemplary damages.
7. The sum of P100,000.00 as and for attorneys fess.
8. The costs of the suit.
SO ORDERED.6

Respondents appealed to the Court of Appeals.

On 3 June 2003, the Court of Appeals rendered its decision in favor of respondents. The
dispositive portion of the decision provides:
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET ASIDE.
The complaint of the herein appellees in Civil Case No. 95-73666 is DISMISSED, for lack of
merit. The appellants counterclaims in the instant case are likewise DISMISSED. No
pronouncement as to cost.
SO ORDERED.7
Petitioners filed a motion for reconsideration. On 23 March 2004, the Court of Appeals denied
the motion.
Hence, this petition.
The Ruling of the Regional Trial Court
According to the trial court, there is a presumption that a person driving a motor vehicle has
been negligent if at the time of the mishap, he was violating any traffic regulation. 8 In this case,
the trial court found that the Traffic Accident Investigation Report (report), 9 corroborated by the
testimonies of the witnesses, showed that the truck committed a traffic violation by executing a
U-turn without signal lights. The trial court also declared that Bedania violated Sections
45(b),10 48,11 and 5412 of Republic Act No. 413613 when he executed the sudden U-turn. The
trial court added that Bedania violated another traffic rule when he abandoned the victims after
the collision.14The trial court concluded that Bedania was grossly negligent in his driving and
held him liable for damages.
Moreover, the trial court found that Bedania did not make the U-turn at an intersection.
According to the trial court, vehicles trying to maneuver to change directions must seek an
intersection where it is safer to maneuver and not recklessly make a U-turn in a highway. The
trial court said Bedania should have observed extreme caution in making a U-turn because it
was unexpected that a long cargo truck would execute a U-turn along the highway.
The trial court also said that Bedanias gross negligence raised the legal presumption that de
Silva, as Bedanias employer, was negligent in the selection and supervision of his employees.
The trial court said that, under Articles 217615 and 218016 of the Civil Code, de Silvas liability
was based on culpa aquiliana which holds the employer primarily liable for tortious acts of his
employees, subject to the defense that he exercised all the diligence of a good father of a
family in the selection and supervision of his employees. The trial court ruled that de Silva
failed to prove this defense and, consequently, held him liable for damages.
The Ruling of the Court of Appeals
The Court of Appeals reversed the trial courts decision and said that the trial court overlooked
substantial facts and circumstances which, if properly considered, would justify a different
conclusion and alter the results of the case.
The Court of Appeals dismissed the testimonies of the witnesses and declared that they were
"contrary to human observation, knowledge and experience." The Court of Appeals also said
that the following were the physical evidences in the case:
1. It was not yet dark when the incident transpired;

37
2. The four-lane highway the appellees were cruising on was wide, straight, dry, relatively plain
and with no obstructions to the drivers vision;
3. The point of impact of the collision is on the lane where the car was cruising and the car hit
the gas tank of the truck located at its right middle portion, which indicates that the truck had
already properly positioned itself and had already executed the U-turn before the impact
occurred;
4. Genaro Guillang was not able to stop the car in time and the cars front portion was totally
wrecked. This negates appellees contention that they were traveling at a moderate speed; and
5. The sheer size of the truck makes it improbable for the said vehicle to negotiate a U-turn at a
sudden and fast speed as appellees vigorously suggest without toppling over on its
side.17 (Citations omitted)
The Court of Appeals concluded that the collision was caused by Genaros negligence. The
Court of Appeals declared that the truck arrived at the intersection way ahead of the car and
had already executed the U-turn when the car, traveling at a fast speed, hit the trucks side.
The Court of Appeals added that considering the time and the favorable visibility of the road
and the road conditions, Genaro, if he was alert, had ample time to react to the changing
conditions of the road. The Court of Appeals found no reason for Genaro not to be prudent
because he was approaching an intersection and there was a great possibility that vehicles
would be traversing the intersection either going to or from Orchard Golf Course. The Court of
Appeals said Genaro should have slowed down upon reaching the intersection. The Court of
Appeals concluded that Genaros failure to observe the necessary precautions was the
proximate cause of Anteros death and the injuries of the petitioners.
The Court of Appeals also relied on the testimony of Police Traffic Investigator Efren Videna
(Videna) that the car was running at a fast speed and overtook another vehicle just before the
collision occurred.18 The Court of Appeals concluded that Genaro did not see the truck as the
other vehicle temporarily blocked his view of the intersection. The Court of Appeals also gave
weight to Videnas testimony that it was normal for a ten-wheeler truck to make a U-turn on that
part of the highway because the entrance to Orchard Golf Course was spacious. 19
The Issues
Petitioners raise the following issues:
1. Did the Court of Appeals decide a question of substance in this case in a way probably not in
accord with law or with the applicable decisions of the Honorable Supreme Court?
2. Did the Court of Appeals depart from the accepted and usual course of judicial proceedings
particularly when it revised, and recast the findings of facts of the trial court pertaining to
credibility of witnesses of which the trial court was at the vantage point to evaluate?
3. Did the Court of Appeals act with grave abuse of discretion amounting to lack of jurisdiction
when it rendered the palpably questionable Court of Appeals Decision that tampered with the
findings of fact of the trial court for no justifiable reason?
4. Is the Court of Appeals judgment and resolution reversing the decision of the trial court
supported by the evidence and the law and jurisprudence applicable? 20
The issue in this case is who is liable for the damages suffered by petitioners. The trial court
held Bedania and de Silva, as Bedanias employer, liable because the proximate cause of the

collision was the sudden U-turn executed by Bedania without any signal lights. On the other
hand, the Court of Appeals reversed the trial courts decision and held Genaro liable because
the proximate cause of the collision was Genaros failure to stop the car despite seeing that
Bedania was making a U-turn.
The Ruling of the Court
The principle is well-established that this Court is not a trier of facts. Therefore, in an appeal
by certiorari under Rule 45 of the Rules of Court, only questions of law may be raised. The
resolution of factual issues is the function of the lower courts whose findings on these matters
are received with respect and are, as a rule, binding on this Court. 21
However, this rule is subject to certain exceptions. One of these is when the findings of the
appellate court are contrary to those of the trial court. 22 Findings of fact of the trial court and the
Court of Appeals may also be set aside when such findings are not supported by the evidence
or where the lower courts conclusions are based on a misapprehension of facts. 23 Such is the
situation in this case and we shall re-examine the facts and evidence presented before the
lower courts.
Article 2176 of the Civil Code provides that 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 relations between the parties, is called a
quasi-delict. To sustain a claim based on quasi-delict, the following requisites must concur: (a)
damage suffered by the plaintiff; (b) fault or negligence of defendant; and (c) connection of
cause and effect between the fault or negligence of defendant and the damage incurred by the
plaintiff.24
There is no dispute that petitioners suffered damages because of the collision. However, the
issues on negligence and proximate cause are disputed.
On the Presumption of Negligence and Proximate Cause
Negligence is defined as the failure to observe for the protection of the interest of another
person that degree of care, precaution, and vigilance which the circumstances justly demand,
whereby such other person suffers injury. In Picart v. Smith,25 we held that the test of
negligence is whether the defendant in doing the alleged negligent act used that reasonable
care and caution which an ordinary person would have used in the same situation.
The conclusion of the Court of Appeals that Genaro was negligent is not supported by the
evidence on record. In ruling that Genaro was negligent, the Court of Appeals gave weight and
credence to Videnas testimony. However, we find that Videnas testimony was inconsistent
with the police records and report that he made on the day of the collision. First, Videna
testified that the car was running fast and overtook another vehicle that already gave way to
the truck.26 But this was not indicated in either the report or the police records. Moreover, if the
car was speeding, there should have been skid marks on the road when Genaro stepped on
the brakes to avoid the collision. But the sketch of the accident showed no skid marks made by
the car.27 Second, Videna testified that the petitioners came from a drinking spree because he
was able to smell liquor.28 But in the report,29 Videna indicated that the condition of Genaro was
"normal." Videna did not indicate in the report that Genaro "had been drinking liquor" or that
Genaro "was obviously drunk." Third, Videna testified that when he arrived at the scene,
Bedania was inside his truck.30 This contradicts the police records where Videna stated that
after the collision Bedania escaped and abandoned the victims. 31 The police records also

39
showed that Bedania was arrested by the police at his barracks in Anabu, Imus, Cavite and
was turned over to the police only on 26 October 1994. 32
Under Article 2185 of the Civil Code, unless there is proof to the contrary, a person driving a
vehicle is presumed negligent if at the time of the mishap, he was violating any traffic
regulation.
In this case, the report33 showed that the truck, while making the U-turn, failed to signal, a
violation of traffic rules. The police records also stated that, after the collision, Bedania
escaped and abandoned the petitioners and his truck. 34 This is another violation of a traffic
regulation.35 Therefore, the presumption arises that Bedania was negligent at the time of the
mishap.
The evidence presented in this case also does not support the conclusion of the Court of
Appeals that the truck had already executed the U-turn before the impact occurred. If the truck
had fully made the U-turn, it should have been hit on its rear.36 If the truck had already
negotiated even half of the turn and is almost on the other side of the highway, then the truck
should have been hit in the middle portion of the trailer or cargo compartment. But the
evidence clearly shows, and the Court of Appeals even declared, that the car hit the trucks gas
tank, located at the trucks right middle portion, which disproves the conclusion of the Court of
Appeals that the truck had already executed the U-turn when it was hit by the car.
Moreover, the Court of Appeals said that the point of impact was on the lane where the car was
cruising. Therefore, the car had every right to be on that road and the car had the right of way
over the truck that was making a U-turn. Clearly, the truck encroached upon the cars lane
when it suddenly made the U-turn.
The Court of Appeals also concluded that Bedania made the U-turn at an intersection. Again,
this is not supported by the evidence on record. The police sketch 37 does not indicate an
intersection and only shows that there was a road leading to the Orchard Golf Course near the
place of the collision. Furthermore, U-turns are generally not advisable particularly on major
streets.38 Contrary to Videnas testimony, it is not normal for a truck to make a U-turn on a
highway. We agree with the trial court that if Bedania wanted to change direction, he should
seek an intersection where it is safer to maneuver the truck. Bedania should have also turned
on his signal lights and made sure that the highway was clear of vehicles from the opposite
direction before executing the U-turn.
The finding of the Court of Appeals that it was not yet dark when the collision occurred is also
not supported by the evidence on record. The report stated that the daylight condition at the
time of the collision was "darkness."39
Contrary to the conclusion of the Court of Appeals, the sheer size of the truck does not make it
improbable for the truck to execute a sudden U-turn. The trial courts decision did not state that
the truck was traveling at a fast speed when it made the U-turn. The trial court said the truck
made a "sudden" U-turn, meaning the U-turn was made unexpectedly and with no warning, as
shown by the fact that the trucks signal lights were not turned on.
Clearly, Bedanias negligence was the proximate cause of the collision which claimed the life of
Antero and injured the petitioners. Proximate cause is that which, in the natural and continuous
sequence, unbroken by any efficient, intervening cause, produces the injury, and without which
the result would not have occurred.40 The cause of the collision is traceable to the negligent act

of Bedania for if the U-turn was executed with the proper precaution, the mishap in all
probability would not have happened. The sudden U-turn of the truck without signal lights
posed a serious risk to oncoming motorists. Bedania failed to prevent or minimize that risk. The
trucks sudden U-turn triggered a series of events that led to the collision and, ultimately, to the
death of Antero and the injuries of petitioners.
We agree with the trial court that de Silva, as Bedanias employer, is also liable for the
damages suffered by petitioners. De Silva failed to prove that he exercised all the diligence of a
good father of a family in the selection and supervision of his employees.
On the Award of Damages and Attorneys Fees
According to prevailing jurisprudence, civil indemnity for death caused by a quasi-delict is
pegged at P50,000.41Moral damages in the amount of P50,000 is also awarded to the heirs of
the deceased taking into consideration the pain and anguish they suffered. 42 Bienvenido
Guillang (Bienvenido), Anteros son, testified that Sofia, Anteros wife and his mother, became
depressed after Anteros death and that Sofia died a year after.43 Bienvenido also testified on
the pain and anguish their family suffered as a consequence of their fathers death. 44 We
sustain the trial courts award of P50,000 as indemnity for death and P50,000 as moral
damages to the heirs of Antero.
As to funeral and burial expenses, the court can only award such amount as are supported by
proper receipts.45In this case, petitioners proved funeral and burial expenses of P55,000 as
evidenced by Receipt No. 1082,46P65,000 as evidenced by Receipt No. 114647 and P15,000 as
evidenced by Receipt No. 1064,48 all issued by the Manila South Cemetery Association, Inc.,
aggregating P135,000. We reduce the trial courts award of funeral and burial expenses
from P185,000 to P135,000.
As to hospitalization expenses, only substantiated and proven expenses, or those that appear
to have been genuinely incurred in connection with the hospitalization of the victims will be
recognized in court.49 In this case, the trial court did not specify the amount of hospitalization
expenses to be awarded to the petitioners. Since petitioners presented receipts for
hospitalization expenses during the trial, we will determine the proper amounts to be awarded
to each of them. We award hospitalization expenses of P27,000.98 to the heirs of
Antero,50P10,881.60 to Llanillo,51 P5,436.77 to Dignadice,52 and P300 to Genaro53 because
these are the amounts duly substantiated by receipts.
We affirm the trial courts award of P508,566.03 for the repair of the car. The Court notes that
there is no dispute that Genaro was driving a brand new Toyota Corolla GLI sedan and that,
after the collision, the car was a total wreck. In this case, the repair order presented by Genaro
is sufficient proof of the damages sustained by the car.541avvphi1.zw+
Moral damages may be recovered in quasi-delicts causing physical injuries. 55 However, in
accordance with prevailing jurisprudence, we reduce the award of moral damages
from P50,000 to P30,000 each to Llanillo, Dignadice, and Genaro since they only suffered
physical injuries brought about by the collision.56
In quasi-delicts, exemplary damages may be granted if the defendant acted with gross
negligence.57 While the amount of exemplary damages need not be proved, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded. 58 In this case,
Bedania was grossly negligent in suddenly making a U-turn in the highway without signal

41
lights. To serve as an example for the public good, we affirm the trial courts award of
exemplary damages in the amount of P50,000.
Finally, we affirm the trial courts award of attorneys fees in the amount of P100,000. Under
Article 2208 of the Civil Code, attorneys fees may be recovered when, as in this case,
exemplary damages are awarded.
WHEREFORE, we REVERSE the 3 June 2003 Decision and 23 March 2004 Resolution of the
Court of Appeals in CA-G.R. CV No. 69289. We REINSTATE with MODIFICATIONS the 5
December 2000 Decision of the Regional Trial Court, Branch 30, Manila. We ORDER Rodolfo
Bedania and Rodolfo de Silva, jointly and severally, to pay the following amounts:
1. Funeral and Burial Expenses of P135,000 to the heirs of Antero Guillang;
2. Hospitalization Expenses of P27,000.98 to the heirs of Antero Guillang, P10,881.60 to Alvin
Llanillo,P5,436.77 to Jose Dignadice, and P300 to Genaro Guillang; and
3. Moral damages of P30,000 each to Alvin Llanillo, Jose Dignadice, and Genaro Guillang.
SO ORDERED.

G.R. No. 190521

January 12, 2011
LETICIA TAN, MYRNA MEDINA, MARILOU SPOONER, ROSALINDA TAN, and MARY
JANE TAN, MARY LYN TAN, CELEDONIO TAN, JR., MARY JOY TAN, and MARK ALLAN
TAN, represented herein by their mother, LETICIA TAN, Petitioners,
vs.
OMC CARRIERS, INC. and BONIFACIO ARAMBALA, Respondents.
RESOLUTION

43
BRION, J.:
We resolve the motion for reconsideration1 filed by Leticia Tan, Myrna Medina, Marilou
Spooner, Rosalinda Tan, Mary Jane Tan, Mary Lyn Tan, Celedonio Tan, Jr., Mary Joy Tan, and
Mark Allan Tan (petitioners), all heirs of the late Celedonio Tan asking us to reverse and set
aside our Resolution of February 17, 2010.2 We denied in this Resolution their petition for
review on certiorari for failing to show any reversible error in the assailed Court of Appeals (CA)
decision of June 22, 20093 sufficient to warrant the exercise of our discretionary appellate
jurisdiction.
The CA decision, in turn, affirmed with modification the decision of the Regional Trial Court
(RTC) of Muntinlupa City in Civil Case No. 96-186, finding the respondents OMC Carriers,
Inc. (OMC) and Bonifacio Arambala guilty of gross negligence and awarding damages to the
petitioners.
THE FACTS
On September 27, 1996, the petitioners filed a complaint for damages with the RTC against
OMC and Bonifacio Arambala.4 The complaint states that on November 24, 1995, at around
6:15 a.m., Arambala was driving a truck5with a trailer6 owned by OMC, along Meralco Road,
Sucat, Muntinlupa City. When Arambala noticed that the truck had suddenly lost its brakes, he
told his companion to jump out. Soon thereafter, he also jumped out and abandoned the truck.
Driverless, the truck rammed into the house and tailoring shop owned by petitioner Leticia Tan
and her husband Celedonio Tan, instantly killing Celedonio who was standing at the doorway
of the house at the time.7
The petitioners alleged that the collision occurred due to OMCs gross negligence in not
properly maintaining the truck, and to Arambalas recklessness when he abandoned the
moving truck. Thus, they claimed that the respondents should be held jointly and severally
liable for the actual damages that they suffered, which include the damage to their properties,
the funeral expenses they incurred for Celedonio Tans burial, as well as the loss of his earning
capacity. The petitioners also asked for moral and exemplary damages, and attorneys fees. 8
The respondents denied any liability for the collision, essentially claiming that the damage to
the petitioners was caused by a fortuitous event, since the truck skidded due to the slippery
condition of the road caused by spilled motor oil. 9
THE RTC DECISION
After trial, the RTC found OMC and Arambala jointly and severally liable to the petitioners for
damages.10 Relying on the doctrine of res ipsa loquitur, the RTC held that it was unusual for a
truck to suddenly lose its brakes; the fact that the truck rammed into the petitioners house
raised the presumption of negligence on the part of the respondents. These, the respondents
failed to refute.11
The RTC did not agree with the respondents claim of a fortuitous event, pointing out that even
with oil on the road, Arambala did not slow down or take any precautionary measure to prevent
the truck from skidding off the road. The alleged oil on the road did not also explain why the
truck lost its brakes. Had OMC done a more rigid inspection of the truck before its use, the
defective brake could have been discovered. The RTC, thus, held OMC jointly and severally
liable with Arambala for the damage caused to the petitioners, based on the principle of
vicarious liability embodied in Article 218012 of the Civil Code.13

The dispositive portion of the decision stated:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiffs
and against the defendants ordering:
1. The defendants to pay the plaintiffs jointly and severally the amount of P50,000.00 for the
death of Celedonio Tan;
2. The defendants to pay the plaintiffs jointly and severally the amount of P500,000.00 for the
loss of earning capacity of Celedonio Tan, plus interest thereon from the date of death of
Celedonio Tan;
3. The defendants to pay the plaintiff Leticia Tan jointly and severally the amount
of P355,895.00 as actual damages;
4. The defendants to pay the plaintiffs jointly and severally the amount of P500,000.00 as
moral damages;
5. The defendants to pay the plaintiffs jointly and severally the amount of P500,000.00 as
exemplary damages; and
6. The defendants to pay the plaintiffs jointly and solidarily the amount of P500,000.00 as
attorneys fees.
Costs against the defendants.
SO ORDERED.14
THE COURT OF APPEALS DECISION
On appeal, the CA affirmed the RTCs findings on the issues of the respondents negligence
and liability for damages. However, the CA modified the damages awarded to the petitioners by
reducing the actual damages award from P355,895.00 to P72,295.00. The CA observed that
only the latter amount was duly supported by official receipts. 15
The CA also deleted the RTCs award for loss of earning capacity. The CA explained that the
petitioners failed to substantiate Celedonio Tans claimed earning capacity with reasonable
certainty; no documentary evidence was ever presented on this point. Instead, the RTC merely
relied on Leticia Tans testimony regarding Celedonio Tans income. The CA characterized this
testimony as self-serving.16
The CA further reduced the exemplary damages from P500,000.00 to P200,000.00, and
deleted the award of attorneys fees because the RTC merely included the award in the
dispositive portion of the decision without discussing its legal basis. 17
THE PETITION
In the petition for review on certiorari before us, 18 the petitioners assert that the CA erred when
it modified the RTCs awarded damages. The petitioners submit the reasons outlined below.
First, the CA erred when it reduced the RTCs award of actual damages from P355,895.00
to P72,295.00. The petitioners claim that they sought compensation for the damage done to
petitioner Leticia Tans house, tailoring shop, sewing machines, as well as other household
appliances. Since the damages primarily refer to the value of their destroyed property, and not
the cost of repairing or replacing them, the value cannot be evidenced by receipts. Accordingly,
the RTC correctly relied on petitioner Leticia Tans testimony and the documentary evidence
presented, consisting of pictures of the damaged property, to prove their right to recover actual
damages for the destroyed property.

45
Second, the petitioners are entitled to actual damages for the loss of Celedonio Tans earning
capacity. While they admit that they did not submit any documentary evidence to substantiate
this claim, the petitioners point out that Celedonio Tan was undisputably a self-employed tailor
who owned a small tailor shop; in his line of work, no documentary evidence is available.
Third, the petitioners maintain that they are entitled to exemplary damages in the amount
of P500,000.00 because the RTC and the CA consistently found that the collision was caused
by the respondents gross negligence. Moreover, the respondents acted with bad faith when
they fabricated the "oil slick on the road" story to avoid paying damages to the petitioners. As
observed by the CA, the Traffic Accident Investigation Report did not mention any motor oil on
the road at the time of the accident. SPO4 Armando Alambro, the Investigation Officer, likewise
testified that there was no oil on the road at the time of the accident. For the public good and to
serve as an example, the respondents should be made to pay P500,000.00 as exemplary
damages.
Lastly, the petitioners are entitled to attorneys fees based on Article 2208 of the Civil Code
which provides, among others, that attorneys fees can be recovered when exemplary
damages are awarded, and when the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiffs plainly valid, just and demandable claim.
We initially denied the petition in our Resolution of February 17, 2010, for the petitioners failure
to show any reversible error in the CA decision sufficient to warrant the exercise of our
discretionary appellate jurisdiction. In our Resolution of August 11, 2010, we reinstated the
petition on the basis of the petitioners motion for reconsideration.
OUR RULING
Finding merit in the petitioners arguments, we partly grant the petition.
Procedural Issue
As both the RTC and the CA found that the respondents gross negligence led to the death of
Celedonio Tan, as well as to the destruction of the petitioners home and tailoring shop, we see
no reason to disturb this factual finding. We, thus, concentrate on the sole issue of what
damages the petitioners are entitled to.
We are generally precluded from resolving a Rule 45 petition that solely raises the issue of
damages, an essentially factual question, because Section 1, Rule 45 of the Rules of Court,
expressly states that
Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional
Trial Court or other courts whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only questions of law which
must be distinctly set forth.
In light, however of the RTCs and the CAs conflicting findings on the kind and amount of
damages suffered which must be compensated, we are compelled to consider the case as one
of the recognized exceptions.19 We look into the parties presented evidence to resolve this
appeal.
Temperate damages in lieu of actual damages

We begin by discussing the petitioners claim for actual damages arising from the damage
inflicted on petitioner Leticia Tans house and tailoring shop, taking into account the sewing
machines and various household appliances affected. Our basic law tells us that to recover
damages there must be pleading and proof of actual damages suffered. 20 As we explained in
Viron Transportation Co., Inc. v. Delos Santos:21
Actual damages, to be recoverable, must not only be capable of proof, but must actually be
proved with a reasonable degree of certainty. Courts cannot simply rely on speculation,
conjecture or guesswork in determining the fact and amount of damages. To justify an award of
actual damages, there must be competent proof of the actual amount of loss, credence can be
given only to claims which are duly supported by receipts. 22
The petitioners do not deny that they did not submit any receipt to support their claim for actual
damages to prove the monetary value of the damage caused to the house and tailoring shop
when the truck rammed into them. Thus, no actual damages for the destruction to petitioner
Leticia Tans house and tailoring shop can be awarded.
Nonetheless, absent competent proof on the actual damages suffered, a party still has the
option of claiming temperate damages, which may be allowed in cases where, from the nature
of the case, definite proof of pecuniary loss cannot be adduced although the court is convinced
that the aggrieved party suffered some pecuniary loss.23As defined in Article 2224 of the Civil
Code:
Article 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has
been suffered but its amount can not, from the nature of the case, be proved with certainty.
In Canada v. All Commodities Marketing Corporation,24 we disallowed the award of actual
damages arising from breach of contract, where the respondent merely alleged that it was
entitled to actual damages and failed to adduce proof to support its plea. In its place, we
awarded temperate damages, in recognition of the pecuniary loss suffered.
The photographs the petitioners presented as evidence show the extent of the damage done to
the house, the tailoring shop and the petitioners appliances and equipment. 25 Irrefutably, this
damage was directly attributable to Arambalas gross negligence in handling OMCs truck.
Unfortunately, these photographs are not enough to establish the amount of the loss with
certainty. From the attendant circumstances and given the property destroyed, 26 we find the
amount of P200,000.00 as a fair and sufficient award by way of temperate damages.
Temperate damages in lieu of loss of earning capacity
Similarly, the CA was correct in disallowing the award of actual damages for loss of earning
capacity. Damages for loss of earning capacity are awarded pursuant to Article 2206 of the
Civil Code, which states that:
Article 2206. The amount of damages for death caused by a crime or quasi-delict shall be at
least three thousand pesos, even though there may have been mitigating circumstances. In
addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be
assessed and awarded by the court, unless the deceased on account of permanent physical
disability not caused by the defendant, had no earning capacity at the time of his death[.]

47
As a rule, documentary evidence should be presented to substantiate the claim for loss of
earning capacity.27 By way of exception, damages for loss of earning capacity may be awarded
despite the absence of documentary evidence when: (1) the deceased is self-employed and
earning less than the minimum wage under current labor laws, in which case, judicial notice
may be taken of the fact that in the deceased's line of work, no documentary evidence is
available; or (2) the deceased is employed as a daily wage worker earning less than the
minimum wage under current labor laws.28
According to the petitioners, prior to his death, Celedonio was a self-employed tailor who
earned approximatelyP156,000.00 a year, or P13,000.00 a month. At the time of his death in
1995, the prevailing daily minimum wage was P145.00,29 or P3,770.00 per month, provided the
wage earner had only one rest day per week. Even if we take judicial notice of the fact that a
small tailoring shop normally does not issue receipts to its customers, and would probably not
have any documentary evidence of the income it earns, Celedonios alleged monthly income
ofP13,000.00 greatly exceeded the prevailing monthly minimum wage; thus, the exception set
forth above does not apply.
In the past, we awarded temperate damages in lieu of actual damages for loss of earning
capacity where earning capacity is plainly established but no evidence was presented to
support the allegation of the injured partys actual income.
In Pleno v. Court of Appeals,30 we sustained the award of temperate damages in the amount
of P200,000.00 instead of actual damages for loss of earning capacity because the plaintiffs
income was not sufficiently proven.
We did the same in People v. Singh,31 and People v. Almedilla,32 granting temperate damages
in place of actual damages for the failure of the prosecution to present sufficient evidence of
the deceaseds income.
Similarly, in Victory Liner, Inc. v. Gammad,33 we deleted the award of damages for loss of
earning capacity for lack of evidentiary basis of the actual extent of the loss. Nevertheless,
because the income-earning capacity lost was clearly established, we awarded the
heirs P500,000.00 as temperate damages.
In the present case, the income-earning capacity of the deceased was never disputed.
Petitioners Mary Jane Tan, Mary Lyn Tan, Celedonio Tan, Jr., Mary Joy Tan and Mark Allan Tan
were all minors at the time the petition was filed on February 4, 2010, 34 and they all relied
mainly on the income earned by their father from his tailoring activities for their sustenance and
support. Under these facts and taking into account the unrebutted annual earnings of the
deceased, we hold that the petitioners are entitled to temperate damages in the amount
ofP300,000.00 [or roughly, the gross income for two (2) years] to compensate for damages for
loss of the earning capacity of the deceased.
Reduction of exemplary damages proper
Exemplary or corrective damages are imposed by way of example or correction for the public
good, in addition to moral, temperate, liquidated or compensatory damages. 35 In quasi-delicts,
exemplary damages may be granted if the defendant acted with gross negligence. 36
Celedonio Tans death and the destruction of the petitioners home and tailoring shop were
unquestionably caused by the respondents gross negligence. The law allows the grant of
exemplary damages in cases such as this to serve as a warning to the pubic and as a

deterrent against the repetition of this kind of deleterious actions. 37 The grant, however, should
be tempered, as it is not intended to enrich one party or to impoverish another. From this
perspective, we find the CAs reduction of the exemplary damages awarded to the petitioners
from P500,000.00 to P200,000.00 to be proper.
Attorneys fees in order
In view of the award of exemplary damages, we find it also proper to award the petitioners
attorney's fees, in consonance with Article 2208(1) of the Civil Code. 38 We find the award of
attorneys fees, equivalent to 10% of the total amount adjudged the petitioners, to be just and
reasonable under the circumstances.
Interests due
Finally, we impose legal interest on the amounts awarded, in keeping with our ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals,39 which held that:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions
under Title XVIII on "Damages" of the Civil Code govern in determining the measure of
recoverable damages.lavvphil
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been stipulated
in writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.
Accordingly, legal interest at the rate of 6% per annum on the amounts awarded starts to run
from May 14, 2003, when the trial court rendered judgment. From the time this judgment
becomes final and executory, the interest rate shall be 12% per annum on the judgment
amount and the interest earned up to that date, until the judgment is wholly satisfied.

49
WHEREFORE, premises considered, we PARTIALLY GRANT the petition. The June 22, 2009
decision of the Court of Appeals in CA-G.R. CV. No. 84733, which modified the decision of the
Regional Trial Court of Muntinlupa City, Branch 256, in Civil Case No. 96-186, is AFFIRMED
with MODIFICATION. As modified, respondents OMC Carriers, Inc. and Bonifacio Arambala
are ordered to jointly and severally pay the petitioners the following:
(1) P50,000.00 as indemnity for the death of Celedonio Tan;
(2) P72,295.00 as actual damages for funeral expenses;
(3) P200,000.00 as temperate damages for the damage done to petitioner Leticias house,
tailoring shop, household appliances and shop equipment;
(4) P300,000.00 as damages for the loss of Celedonio Tans earning capacity;
(5) P500,000.00 as moral damages;
(6) P200,000.00 as exemplary damages; and
(7) 10% of the total amount as attorneys fees; and costs of suit.
In addition, the total amount adjudged shall earn interest at the rate of 6% per annum from May
14, 2003, and at the rate of 12% per annum, from the finality of this Resolution on the balance
and interest due, until fully paid.
SO ORDERED.

51
unspecified sums representing items of alleged damages, may not be considered, under the
settled doctrines of this Honorable Court," and "the jurisdiction of courts of first instance when
the complaint in the present case was filed on Sept. 30, 1965" was limited to cases "in which
the demand, exclusive of interest, or the value of the property in controversy amounts to more
than ten thousand pesos" and "the mere fact that the complaint also prays for unspecified
moral damages and attorney's fees, does not bring the action within the jurisdiction of the lower
court."
We find no merit in this contention. To begin with, it is not true that "the unspecified sums
representing items or other alleged damages, may not be considered" for the purpose of
determining the jurisdiction of the court "under the settled doctrines of this Honorable Court."
In fact, not a single case has been cited in support of this allegation.
Secondly, it has been held that a clam for moral damages is one not susceptible of pecuniary
estimation. 1 In fact, Article 2217 of the Civil Code of the Philippines explicitly provides that
"(t)hough incapable of pecuniary computation, moral damages may be recovered if they are
the proximate result of the defendant's wrongful act or omission." Hence, "(n)o proof pecuniary
loss necessary" pursuant to Article 2216 of the same Code "in order that moral ...
damages may be adjudicated." And "(t)he assessment of such damages ... is left to the
discretion of the court" - said article adds - "according to the circumstances of each case."
Appellees' complaint is, therefore, within the original jurisdiction of courts of first instance,
which includes "all civil actions in which the subject of the litigation is not capable of pecuniary
estimation." 2
Thirdly, in its answer to plaintiffs' original and amended complainants, defendant had set up a
counterclaim in the aggregate sum of P12,000, which is, also, within the original jurisdiction of
said courts, thereby curing the alleged defect if any, in plaintiffs' complaint. 3

G.R. No. L-28589 January 8, 1973

RAFAEL ZULUETA, ET AL., plaintiffs-appellees,
vs.
PAN AMERICAN WORLD AIRWAYS, INC., defendant-appellant.
RESOLUTION
CONCEPCION, C.J.:
Both parties in this case have moved for the reconsideration of the decision of this Court
promulgated on February 29, 1972. Plaintiffs maintain that the decision appealed from should
be affirmed in toto. The defendant, in turn, prays that the decision of this Court be "set aside ...
with or without a new trial, ... and that the complaint be dismissed, with costs; or, in the
alternative, that the amount of the award embodied therein be considerably reduced." .
Subsequently to the filing of its motion for reconsideration, the defendant filed a "petition to
annul proceedings and/or to order the dismissal of plaintiffs-appellees' complaint" upon the
ground that "appellees' complaint actually seeks the recovery of only P5,502.85 as actual
damages, because, for the purpose of determining the jurisdiction of the lower court, the

We need not consider the jurisdictional controversy as to the amount the appellant sues to
recover because the counterclaim interposed establishes the jurisdiction of the District
Court. Merchants' Heat & Light Co. v. James B. Clow & Sons, 204 U.S. 286, 27 S. Ct. 285, 51
L. Ed. 488; O. J. Lewis Mercantile Co. v. Klepner, 176 F. 343 (C.C.A. 2), certiorari denied 216
U.S. 620, 30 S Ct. 575, 54 L. Ed. 641. ... . 4
... courts have said that "when the jurisdictional amount is in question, the tendering of a
counterclaim in an amount which in itself, or added to the amount claimed in the petition,
makes up a sum equal to the amount necessary to the jurisdiction of this court, jurisdiction is
established, whatever may be the state of the plaintiff's complaint." American Sheet & Tin Plate
Co. v. Winzeler (D.C.) 227 F. 321, 324. 5
Thus, in Ago v. Buslon, 6 We held:
... . Then, too, petitioner's counterclaim for P37,000.00 was, also, within the exclusive original
jurisdiction of the latter courts, and there are ample precedents to the effect that "although the
original claim involves less than the jurisdictional amount, ... jurisdiction can be sustained if the
counterclaim (of the compulsory type)" such as the one set up by petitioner herein, based
upon the damages allegedly suffered by him in consequence of the filing of said complaint
"exceeds the jurisdictional amount." (Moore Federal Practice, 2nd ed. [1948], Vol. 3, p. 41;
Ginsburg vs. Pacific Mutual Life Ins. Co. of California, 69 Fed. [2d] 97; Home Life Ins. Co. vs.

Sipp., 11 Fed. [2d]474; American Sheet & Tin Plate Co. vs. Winzeler [D.C.], 227 Fed. 321, 324;
Brix vs. People's Mutual Life Ins. Co., 41 P. 2d. 537, 2 Cal. 2d. 446; Emery vs. Pacific
Employees Ins. Co., 67 P. 2d. 1046, 8 Cal. 2d. 663).
Needless to say, having not only failed to question the jurisdiction of the trial court either in
that court or in this Court, before the rendition of the latter's decision, and even subsequently
thereto, by filing the aforementioned motion for reconsideration and seeking the reliefs therein
prayed for but, also, urged both courts to exercise jurisdiction over the merits of the case,
defendant is now estopped from impugning said jurisdiction. 7
Before taking up the specific questions raised in defendant's motion for reconsideration, it
should be noted that the same is mainly predicated upon the premise that plaintiffs' version is
inherently incredible, and that this Court should accept the theory of the defense to the effect
that petitioner was off-loaded because of a bomb-scare allegedly arising from his delay in
boarding the aircraft and subsequent refusal to open his bags for inspection. We need not
repeat here the reasons given in Our decision for rejecting defendant's contention and not
disturbing the findings of fact of His Honor, the Trial Judge, who had the decided advantage
denied to Us of observing the behaviour of the witnesses in the course of the trial and found
those of the plaintiffs worthy of credence, not the evidence for the defense.
It may not be amiss however, to stress the fact that, in his written report, made in transit from
Wake to Manila orimmediately after the occurrence and before the legal implications or
consequences thereof could have been the object of mature deliberation, so that it could, in a
way, be considered as part of the res gestae Capt. Zentner stated that Zulueta had been offloaded "due to drinking" and "belligerent attitude," thereby belying the story of the defense
about said alleged bomb-scare, and confirming the view that said agent of the defendant had
acted out of resentment because his ego had been hurt by Mr. Zulueta's adamant refusal to be
bullied by him. Indeed, had there been an iota of truth in said story of the defense, Capt.
Zentner would have caused every one of the passengers to be frisked or searched and the
luggage of all of them examined as it is done now before resuming the flight from Wake
Island. His failure to do so merely makes the artificious nature of defendant's version more
manifest. Indeed, the fact that Mrs. Zulueta and Miss Zulueta were on board the plane shows
beyond doubt that Mr. Zulueta could not possibly have intended to blow it up.
The defense tries to explain its failure to introduce any evidence to contradict the testimony of
Mr. Zulueta as to why he had gone to the beach and what he did there, alleging that, in the
very nature of things, nobody else could have witnessed it. Moreover, the defense insists, inter
alia, that the testimony of Mr. Zulueta is inherently incredible because he had no idea as to how
many toilets the plane had; it could not have taken him an hour to relieve himself in the beach;
there were eight (8) commodes at the terminal toilet for men ; if he felt the need of relieving
himself, he would have seen to it that the soldiers did not beat him to the terminal toilets; he did
not tell anybody about the reason for going to the beach, until after the plane had taken off
from Wake.
We find this pretense devoid of merit. Although Mr. Zulueta had to look for a secluded place in
the beach to relieve himself, beyond the view of others, defendant's airport manager, whom Mr.
Zulueta informed about it, soon afterthe departure of the plane, could have forthwith
checked the veracity of Mr. Zulueta's statement by asking him to indicate the specific place
where he had been in the beach and then proceeding thereto for purposes of verification.

53
Then, again, the passenger of a plane seldom knows how many toilets it has. As a general
rule, his knowledge is limited to the toilets for the class first class or tourist class in which
he is. Then, too, it takes several minutes for the passengers of big aircrafts, like those flying
from the U.S. to the Philippines, to deplane. Besides, the speed with which a given passenger
may do so depends, largely, upon the location of his seat in relation to the exit door. He cannot
go over the heads of those nearer than he thereto. Again, Mr. Zulueta may have stayed in the
toilet terminal for some time, expecting one of the commodes therein to be vacated soon
enough, before deciding to go elsewhere to look for a place suitable to his purpose. But he had
to walk, first, from the plane to the terminal building and, then, after vainly waiting therein for a
while, cover a distance of about 400 yards therefrom to the beach, and seek there a place not
visible by the people in the plane and in the terminal, inasmuch as the terrain at Wake Island is
flat. What is more, he must have had to takeoff part, at least, of his clothing, because, without
the facilities of a toilet, he had to wash himself and, then, dry himself up before he could be
properly attired and walk back the 400 yards that separated him from the terminal building
and/or the plane. Considering, in addition to the foregoing, the fact that he was not feeling well,
at that time, We are not prepared to hold that it could not have taken him around an hour to
perform the acts narrated by him.
But, why asks the defendant did he not reveal the same before the plane took off? The
record shows that, even before Mr. Zulueta had reached the ramp leading to the plane, Capt.
Zentner was already demonstrating at him in an intemperate and arrogant tone and attitude
("What do you think you are?), thereby impelling Mr. Zulueta to answer back in the same vein.
As a consequence, there immediately ensued an altercation in the course of which each
apparently tried to show that he could not be cowed by the other. Then came the order of Capt.
Zentner to off-load all of the Zuluetas, including Mrs. Zulueta and the minor Miss Zulueta, as
well as their luggage, their overcoats and other effects handcarried by them; but, Mr. Zulueta
requested that the ladies be allowed to continue the trip. Meanwhile, it had taken time to locate
his four (4) pieces of luggage. As a matter of fact, only three (3) of them were found, and the
fourth eventually remained in the plane. In short, the issue between Capt. Zentner and Mr.
Zulueta had been limited to determining whether the latter would allow himself to be
browbeaten by the former. In the heat of the altercation, nobody had inquired about the cause
of Mr. Zulueta's delay in returning to the plane, apart from the fact that it was rather
embarrassing for him to explain, in the presence and within the hearing of the passengers and
the crew, then assembled around them, why he had gone to the beach and why it had taken
him some time to answer there a call of nature, instead of doing so in the terminal building.
Defendant's motion for reconsideration assails: (1) the amount of damages awarded as
excessive; (2) the propriety of accepting as credible plaintiffs' theory; (3) plaintiffs' right to
recover either moral or exemplary damages; (4) plaintiffs' right to recover attorney's fees; and
(5) the non-enforcement of the compromise agreement between the defendant and plaintiff's
wife, Mrs. Zulueta. Upon the other hand, plaintiffs' motion for reconsideration contests the
decision of this Court reducing the amount of damages awarded by the trial court to
approximately one-half thereof, upon the ground, not only that, contrary to the findings of this
Court, in said decision, plaintiff had not contributed to the aggravation of his altercation or
incident with Capt. Zentner by reacting to his provocation with extreme belligerency thereby
allowing himself to be dragged down to the level on which said agent of the defendant had

placed himself, but, also, because the purchasing power of our local currency is now much
lower than when the trial court rendered its appealed decision, over five (5) years ago, on July
5, 1967, which is an undeniable and undisputed fact. Precisely, for this reason, defendant's
characterization as exorbitant of the aggregate award of over P700,000 by way of damages,
apart from attorney's fees in the sum of P75,000, is untenable. Indeed, said award is now
barely equivalent to around 100,000 U. S. dollars.
It further support of its contention, defendant cites the damages awarded in previous cases to
passengers of airlines, 8 as well as in several criminal cases, and some cases for libel and
slander. None of these cases is, however, in point. Said cases against airlines referred to
passengers who were merely constrained to take a tourist class accommodation, despite the
fact that they had first class tickets, and that although, in one of such cases, there was proof
that the airline involved had acted as it did to give preference to a "white" passenger, this
motive was not disclosed until the trial in court. In the case at bar, plaintiff Rafael Zulueta was
"off-loaded" at Wake Island, for having dared to retort to defendant's agent in a tone and
manner matching, if not befitting his intemperate language and arrogant attitude. As a
consequence, Capt. Zentner's attempt to humiliate Rafael Zulueta had boomeranged against
him (Zentner), in the presence of the other passengers and the crew. It was, also, in their
presence that defendant's agent had referred to the plaintiffs as "monkeys," a racial insult not
made openly and publicly in the abovementioned previous cases against airlines.
In other words, Mr. Zulueta was off-loaded, not to protect the safety of the aircraft and its
passengers, but to retaliate and punish him for the embarrassment and loss of face thus
suffered by defendant's agent. This vindictive motive is made more manifest by the note
delivered to Mr. Zulueta by defendant's airport manager at Wake Island, Mr. Sitton, stating that
the former's stay therein would be "for a minimum of one week," during which he would be
charged $13.30 per day. This reference to a "minimum of one week" revealed the intention to
keep him there stranded that long, for no other plane, headed for Manila, was expected within
said period of time, although Mr. Zulueta managed to board, days later, a plane that brought
him to Hawaii, whence he flew back to the Philippines, via Japan.
Neither may criminal cases, nor the cases for libel and slander cited in the defendant's motion
for reconsideration, be equated with the present case. Indeed, in ordinary criminal cases, the
award for damages is, in actual practice, of purely academic value, for the convicts generally
belong to the poorest class of society. There is, moreover, a fundamental difference between
said cases and the one at bar. The Zuluetas had a contract of carriage with the defendant, as a
common carrier, pursuant to which the latter was bound, for a substantial monetary
considerationpaid by the former, not merely to transport them to Manila, but, also, to do so with
"extraordinary diligence" or "utmost diligence." 9 The responsibility of the common carrier, under
said contract, as regards the passenger's safety, is of such a nature, affecting as it does public
interest, that it "cannot be dispensed with" or even "lessened by stipulation, by the posting of
notices, by statements on tickets, or otherwise." 10 In the present case, the defendant did not
only fail to comply with its obligation to transport Mr. Zulueta to Manila, but, also, acted in a
manner calculated to humiliate him, to chastise him, to make him suffer, to cause to him the
greatest possible inconvenience, by leaving him in a desolate island, in the expectation that he
would be stranded there for a "minimum of one week" and, in addition thereto, charged therefor
$13.30 a day.

55
It is urged by the defendant that exemplary damages are not recoverable in quasi-delicts,
pursuant to Article 2231 of our Civil Code, except when the defendant has acted with "gross
negligence," and that there is no specific finding that it had so acted. It is obvious, however,
that in off-loading plaintiff at Wake Island, under the circumstances heretofore adverted to,
defendant's agents had acted with malice aforethought and evident bad faith. If "gross
negligence" warrants the award of exemplary damages, with more reason is its imposition
justified when the act performed is deliberate, malicious and tainted with bad faith. Thus,
in Lopez v. PANAM, 11 We held:
The rationale behind exemplary or corrective damages is, as the name implies, to provide an
example or correction for public good. Defendant having breached its contracts in bad faith, the
court, as stated earlier, may award exemplary damages in addition to moral damages (Articles
2229, 2232, New Civil Code.)
Similarly, in NWA v. Cuenca, 12 this Court declared that an award for exemplary damages was
justified by the fact that the airline's "agent had acted in a wanton, reckless and oppressive
manner" in compelling Cuenca, upon arrival at Okinawa, to transfer, over his objection, from
the first class, where he was accommodated from Manila to Okinawa, to the tourist class, in his
trip to Japan, "under threat of otherwise leaving him in Okinawa," despite the fact that he had
paid in full the first class fare and was issued in Manila a first class ticket.
Defendant cites Rotea v. Halili, 13 in support of the proposition that a principal is not liable for
exemplary damages owing to acts of his agent unless the former has participated in said acts
or ratified the same. Said case involved, however, the subsidiary civil liability of an employer
arising from criminal acts of his employee, and "exemplary damages ... may be imposed when
the crime was committed with one or more aggravating circumstances." 14 Accordingly, the
Rotea case is not in point, for the case at bar involves a breach of contract, as well as a quasidelict.
Neither may the case of Palisoc v. Brillantes, 15 invoked by the defendant, be equated with the
case at bar. The Palisoc case dealt with the liability of school officials for damages arising from
the death of a student (Palisoc) due to fist blows given by another student (Daffon), in the
course of a quarrel between them, while in a laboratory room of the Manila Technical Institute.
In an action for damages, the head thereof and the teacher in charge of said laboratory were
held jointly and severally liable with the student who caused said death, for failure of the school
to provide "adequate supervision over the activities of the students in the school premises," to
protect them "from harm, whether at the hands of fellow students or other parties." Such
liability was predicated upon Article 2180 of our Civil Code, the pertinent part of which reads:
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.
xxx xxx xxx
Lastly, teachers or heads of establishments of arts and trades shall be liable for damages
caused by their pupils and students or apprentices, so long as they remain in their custody.
xxx xxx xxx

Obviously, the amount of damages warded in the Palisoc case is not and cannot serve as the
measure of the damages recoverable in the present case, the latter having been
caused directly and intentionally by an employee or agent of the defendant, whereas the
student who killed the young Palisoc was in no wise an agent of the school. Moreover, upon
her arrival in the Philippines, Mrs. Zulueta reported her husband's predicament to defendant's
local manager and asked him to forthwith have him (Mr. Zulueta) brought to Manila, which
defendant's aforementioned manager refused to do, thereby impliedly ratifying the off-loading
of Mr. Zulueta at Wake Island.

57
counsel appearing on record, apart from the nature of the case and the amount involved
therein, as well as his prestige as one of the most distinguished members of the legal
profession in the Philippines, of which judicial cognizance may be taken, amply justify said
award, which is a little over 10% of the damages (P700,000) collectible by plaintiffs herein.
Indeed, the attorney's fees in this case is proportionally much less than that adjudged in Lopez
v. PANAM 16 in which the judgment rendered for attorney's fees (P50,000) was almost 20% of
the damages (P275,000) recovered by the plaintiffs therein.

It is next urged that, under the contract of carriage with the defendant, Mr. Zulueta was bound
to be present at the time scheduled for the departure of defendant's plane and that he had,
consequently, violated said contract when he did not show up at such time. This argument
might have had some weight had defendant's plane taken offbefore Mr. Zulueta had shown up.
But the fact is that he was ready, willing and able to board the plane about two hours before it
actually took off, and that he was deliberately and maliciously off-loaded on account of his
altercation with Capt. Zentner. It should, also, be noted that, although Mr. Zulueta was delayed
some 20 to 30 minutes, the arrival or departure of planes is often delayed for much longer
periods of time. Followed to its logical conclusion, the argument adduced by the defense
suggests that airlines should be held liable for damages due to the inconvenience and anxiety,
aside from actual damages, suffered by many passengers either in their haste to arrive at the
airport on scheduled time just to find that their plane will not take off until later, or by reason of
the late arrival of the aircraft at its destination.

The defense assails the last part of the decision sought to be reconsidered, in which relying
upon Article 172 of our Civil Code, which provides that "(t)he wife cannot bind the conjugal
partnership without the husband's consent, except in cases provided by law," and it is not
claimed that this is one of such cases We denied a motion, filed by Mrs. Zulueta, for the
dismissal of this case, insofar as she is concerned - she having settled all her differences with
the defendant, which appears to have paid her the sum of P50,000 therefor - "without prejudice
to this sum being deducted from the award made in said decision." Defendant now alleges that
this is tantamount to holding that said compromise agreement is both effective and ineffective.

PANAM impugns the award of attorney's fees upon the ground that no penalty should be
imposed upon the right to litigate; that, by law, it may be awarded only in exceptional cases;
that the claim for attorney's fees has not been proven; and that said defendant was justified in
resisting plaintiff's claim "because it was patently exorbitant."
Nothing, however, can be farther from the truth. Indeed apart from plaintiff's claim for actual
damages, the amount of which is not contested, plaintiffs did not ask any specific sum by way
of exemplary and moral damages, as well as attorney's fees, and left the amount thereof to the
"sound discretion" of the lower court. This, precisely, is the reason why PANAM, now, alleges
without justification that the lower court had no jurisdiction over the subject matter of the
present case.
Moreover, Article 2208 of our Civil Code expressly authorizes the award of attorney's fees
"when exemplary damages are awarded," as they are in this case as well as "in any other
case where the court deems it just and equitable that attorney's fees ... be recovered," and We
so deem it just and equitable in the present case, considering the "exceptional" circumstances
obtaining therein, particularly the bad faith with which defendant's agent had acted, the place
where and the conditions under which Rafael Zulueta was left at Wake Island, the absolute
refusal of defendant's manager in Manila to take any step whatsoever to alleviate Mr. Zulueta's
predicament at Wake and have him brought to Manila which, under their contract of
carriage, was defendant's obligation to discharge with "extra-ordinary" or "utmost" diligence
and, the "racial" factor that had, likewise, tainted the decision of defendant's agent, Capt.
Zentner, to off-load him at Wake Island.
As regards the evidence necessary to justify the sum of P75,000 awarded as attorney's fees in
this case, suffice it to say that the quantity and quality of the services rendered by plaintiffs'

This, of course, is not true. The payment is effective, insofar as it is deductible from the award,
and, because it is due (or part of the amount due) from the defendant, with or without its
compromise agreement with Mrs. Zulueta. What is ineffective is the compromise agreement,
insofar as the conjugal partnership is concerned. Mrs. Zulueta's motion was for the dismissal of
the case insofar as she was concerned, and the defense cited in support thereof Article 113 of
said Code, pursuant to which "(t)he husband must be joined in all suits by or against the wife
except: ... (2) If they have in fact been separated for at least one year." This provision, We held,
however, refers to suits in which the wife is the principal or real party in interest, not to the case
at bar, "in which the husband is the main party in interest, both as the person principally
aggrieved and as administrator of the conjugal partnership ... he having acted in this capacity
in entering into the contract of carriage with PANAM and paid the amount due to the latter,
under the contract, with funds of the conjugal partnership," to which the amounts recoverable
for breach of said contract, accordingly, belong. The damages suffered by Mrs. Zulueta were
mainly an in accident of the humiliation to which her husband had been subjected. The Court
ordered that said sum of P50,00 paid by PANAM to Mrs. Zulueta be deducted from the
aggregate award in favor of the plaintiffs herein for the simple reason that upon liquidation of
the conjugal partnership, as provided by law, said amount would have to be reckoned with,
either as part of her share in the partnership, or as part of the support which might have been
or may be due to her as wife of Rafael Zulueta. It would surely be inane to sentence the
defendant to pay the P700,000 due to the plaintiffs and to direct Mrs. Zulueta to return said
P50,000 to the defendant.
In this connection, it is noteworthy that, for obvious reasons of public policy, she is not allowed
by law to waive her share in the conjugal partnership, before the dissolution thereof. 17 She
cannot even acquire any property by gratuitous title, without the husband's consent, except
from her ascendants, descendants, parents-in-law, and collateral relatives within the fourth
degree. 18
It is true that the law favors and encourages the settlement of litigations by compromise
agreement between the contending parties, but, it certainly does not favor a settlement

with one of the spouses, both of whom are plaintiffs or defendants in a common cause, such as
the defense of the rights of the conjugal partnership, when the effect, even if indirect, of the
compromise is to jeopardize "the solidarity of the family" which the
law 19 seeks to protect by creating an additional cause for the misunderstanding that had
arisen between such spouses during the litigation, and thus rendering more difficult a
reconciliation between them.
It is urged that there is no proof as to the purpose of the trip of the plaintiffs, that neither is
there any evidence that the money used to pay the plane tickets came from the conjugal funds
and that the award to Mrs. Zulueta was for her personal suffering or injuries. There was,
however, no individual or specific award in favor of Mrs. Zulueta or any of the plaintiffs. The
award was made in their favor collectively. Again, in the absence of said proof, the presumption
is that the purpose of the trip was for the common benefit of the plaintiffs and that the money
had come from the conjugal funds, for, unless there is proof to the contrary, it is presumed
"(t)hat things have happened according to the ordinary course of nature and the ordinary habits
of life." 20 In fact Manresa maintains 21that they are deemed conjugal, when the source of the
money used therefor is not established, even if the purchase had been made by the
wife. 22 And this is the rule obtaining in the Philippines. Even property registered, under the
Torrens system, in the name of one of the spouses, or in that of the wife only, if acquired during
the marriage, is presumed to belong to the conjugal partnership, unless there is competent
proof to the contrary. 23
PANAM maintains that the damages involved in the case at bar are not among those forming
part of the conjugal partnership pursuant to Article 153 of the Civil Code, reading:
ART. 153. The following are conjugal partnership property:
(1) That which is acquired by onerous title during the marriage at the expense of the common
fund, whether the acquisition be for the partnership, or for only one of the spouses;
(2) That which is obtained by the industry, or work, or as salary of the spouses, or of either of
them;
(3) The fruits, rents or interests received or due during the marriage, coming from the common
property or from the exclusive property of each spouse.
Considering that the damages in question have arisen from, inter alia, a breach of plaintiffs'
contract of carriage with the defendant, for which plaintiffs paid their fare with funds
presumably belonging to the conjugal partnership, We hold that said damages fall under
paragraph (1) of said Article 153, the right thereto having been "acquired byonerous title during
the marriage ... ." This conclusion is bolstered up by Article 148 of our Civil Code, according to
which:
ART. 148. The following shall be the exclusive property of each spouse:
(1) That which is brought to the marriage as his or her own;
(2) That which each acquires, during the marriage, by lucrative title;
(3) That which is acquired by right of redemption or by exchange with other property belonging
to only one of the spouses;
(4) That which is purchased with exclusive money of the wife or of the husband.

59
The damages involved in the case at bar do not come under any of these provisions or of the
other provisions forming part of Chapter 3, Title VI, of Book I of the Civil Code, which chapter is
entitled "Paraphernal Property." What is more, if "(t)hat which is acquired by right of redemption
or by exchange with other property belonging to only one of the spouses," and "(t)hat which is
purchased with exclusive money of the wife or of the husband," 24belong exclusively to such
wife or husband, it follows necessarily that that which is acquired with money of the conjugal
partnership belongs thereto or forms part thereof. The rulings in Maramba v.
Lozano 25 and Perez v. Lantin, 26 cited in defendant's motion for reconsideration, are, in effect,
adverse thereto. In both cases, it was merely held that the presumption under Article 160 of our
Civil Code to the effect that all property of the marriage belong to the conjugal
partnership does not apply unless it is shown that it was acquired during marriage. In the
present case, the contract of carriage was concededly entered into, and the damages claimed
by the plaintiffs were incurred, during marriage. Hence, the rights accruing from said contract,
including those resulting from breach thereof by the defendant, are presumed to belong to the
conjugal partnership of Mr. and Mrs. Zulueta. The fact that such breach of contract was
coupled, also, with a quasi-delict constitutes an aggravating circumstance and can not possibly
have the effect of depriving the conjugal partnership of such property rights.
Defendant insists that the use of conjugal funds to redeem property does not make the
property redeemed conjugal if the right of redemption pertained to the wife. In the absence,
however, of proof that such right of redemption pertains to the wife and there is no proof that
the contract of carriage with PANAM or the money paid therefor belongs to Mrs. Zulueta the
property involved, or the rights arising therefrom, must be presumed, therefore, to form part of
the conjugal partnership.
It is true that in Lilius v. Manila Railroad Co., 27 it was held that the "patrimonial and moral
damages" awarded to a young and beautiful woman by reason of a scar in consequence of
an injury resulting from an automobile accident which disfigured her face and fractured her
left leg, as well as caused a permanent deformity, are her paraphernal property. Defendant
cites, also, in support of its contention the following passage from Colin y Capitant:
No esta resuelta expresamente en la legislacion espaola la cuestion de si las
indemnizaciones debidas por accidentes del trabaho tienen la consideracion de gananciales, o
son bienes particulares de los conyuges.
Inclinan a la solucion de que estas indemnizaciones deben ser consideradas como
gananciales, el hecho de que la sociedad pierde la capacidad de trabajocon el accidente, que
a ella le pertenece, puesto que de la sociedad son losfrutos de ese trabajo; en cambio, la
consideracion de que igual manera que losbienes que sustituyen a los que cada conyuge lleva
al matrimonio como propiostienen el caracter de propios, hace pensar que las
indemnizaciones que vengana suplir la capacidad de trabajo aportada por cada conyuge a la
sociedad, debenser juridicamente reputadas como bienes propios del conyuge que haya
sufrido elaccidente. Asi se llega a la misma solucion aportada por la jurisprudencia
francesca. 28
This opinion is, however, undecisive, to say the least. It should be noted that Colin y Capitant
were commenting on the French Civil Code; that their comment referred to indemnities due in
consequence of "accidentes del trabajo "resulting in physical injuries sustained by one of the

spouses (which Mrs. Zulueta has not suffered); and that said commentators admit that the
question whether or not said damages are paraphernal property or belong to the conjugal
partnership is not settled under the Spanish law. 29 Besides, the French law and jurisprudence
to which the comments of Planiol and Ripert, likewise, refer are inapposite to the
question under consideration, because they differ basically from the Spanish law in the
treatment of the property relations between husband and wife. Indeed, our Civil Code, like the
Spanish Civil Code, favors the system of conjugal partnership of gains. Accordingly, the former
provides that, "(i)n the absence of marriage settlements, or when the same are void, the
system of relative community or conjugal partnership of gains ... shall govern the property
relations between" the spouses. 30 Hence, "(a)ll property of the marriage is presumed to belong
to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to
the wife." 31
No similar rules are found in the French Civil Code. What is more, under the provisions thereof,
the conjugal partnership exists only when so stipulated in the "capitulaciones matrimoniales" or
by way of exception. In the language of Manresa
Prescindimos de los preceptos de los Condigos de Francia, Italia, Holanda, Portugal, Alemania
y Suiza, porsue solo excepcionalmente, o cuando asi se pacta en las capitulaciones, admiten
el sistema de gananciales. 32
Again, Colin y Capitant, as well as the Lilius case, refer to damages recovered
for physical injuries suffered by the wife. In the case at bar, the party mainly injured, although
not physically, is the husband.

61

G.R. No. 185891

June 26, 2013
CATHAY PACIFIC AIRWAYS, Petitioner,
vs.
JUANITA REYES, WILFREDO REYES, MICHAEL ROY REYES, SIXTA LAPUZ, and
SAMPAGUITA TRAVEL CORP., Respondents.
DECISION
PEREZ, J.:
Assailed in this petition for review are the Decision1 dated 22 October 2008 in CA-G.R. CV. No.
86156 and the 6 January 2009 Resolution2 in the same case of the Court of Appeals.
This case started as a complaint for damages tiled by respondents against Cathay Pacific
Airways (Cathay Pacific) and Sampaguita Travel Corp. (Sampaguita Travel), now joined as a
respondent. The factual backdrop leading to the filing of the complaint is as follows:
Sometime in March 1997, respondent Wilfredo Reyes (Wilfredo) made a travel reservation with
Sampaguita Travel for his familys trip to Adelaide, Australia scheduled from 12 April 1997 to 4
May 1997. Upon booking and confirmation of their flight schedule, Wilfredo paid for the airfare
and was issued four (4) Cathay Pacific round-trip airplane tickets for Manila-HongKongAdelaide-HongKong-Manila with the following record locators:

1wphi1
Accordingly, the other Philippine cases 33 and those from Louisiana whose civil law is based
upon the French Civil Code cited by the defendant, which similarly refer to moral damages
Name of Passenger
due to physical injuries suffered by the wife, are, likewise, inapplicable to the case at bar.
Reyes, Wilfredo
We find, therefore, no plausible reason to disturb the views expressed in Our decision

PNR OR RECORD LOCATOR NOS.3

promulgated on February 29, 1972.

Reyes, Juanita

HDWC3

WHEREFORE, the motions for reconsideration above-referred to should be, as they are
hereby denied.

Reyes, Michael Roy

H9VZF

Makalintal, Zaldivar, Fernando, Makasiar, Antonio and Esguerra, JJ., concur.

Lapuz, Sixta

HTFMG4

J76TH

On 12 April 1997, Wilfredo, together with his wife Juanita Reyes (Juanita), son Michael Roy
Reyes (Michael) and mother-in-law Sixta Lapuz (Sixta), flew to Adelaide, Australia without a
hitch.
One week before they were scheduled to fly back home, Wilfredo reconfirmed his familys
return flight with the Cathay Pacific office in Adelaide. They were advised that the reservation
was "still okay as scheduled."
On the day of their scheduled departure from Adelaide, Wilfredo and his family arrived at the
airport on time. When the airport check-in counter opened, Wilfredo was informed by a staff
from Cathay Pacific that the Reyeses did not have confirmed reservations, and only Sixtas
flight booking was confirmed. Nevertheless, they were allowed to board the flight to HongKong
due to adamant pleas from Wilfredo. When they arrived in HongKong, they were again
informed of the same problem. Unfortunately this time, the Reyeses were not allowed to board
because the flight to Manila was fully booked. Only Sixta was allowed to proceed to Manila

63
from HongKong. On the following day, the Reyeses were finally allowed to board the next flight
Itinerary: CX900 & CX902 MNL/HKG 12 APR, CX105 HKG/ADL 12 APR, CX104/CX905
bound for Manila.
ADL/HKG/MNL 04 MAY & 07 MAY
Upon arriving in the Philippines, Wilfredo went to Sampaguita Travel to report the incident. He
The party was confirmed initially on CX900/12 Apr, CX105/12 Apr, CX104/CX9095 07 May and
was informed by Sampaguita Travel that it was actually Cathay Pacific which cancelled their
on waiting list for CX902/12 Apr, CX104/CX905 04 May.
bookings.
On 16 June 1997, respondents as passengers, through counsel, sent a letter to Cathay Pacific However, on 31 Mar., the booking was cancelled by the agent.
advising the latter of the incident and demanding payment of damages.
4. PNR No. J76TH
After a series of exchanges and with no resolution in sight, respondents filed a Complaint for
Agent: Sampaguita Travel Corp.
damages against Cathay Pacific and Sampaguita Travel and prayed for the following relief:
Party: Mr. W Reyes
a) P1,000,000.00 as moral damages; b)P300,000.00 as actual damages; c) P100,000.00 as
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
exemplary damages; and d) P100,000.00 as attorneys fees.5
The booking on the above itinerary was confirmed initially. When the agent was asked for the
In its Answer, Cathay Pacific alleged that based on its computerized booking system, several
ticket number as the flight CX905 04 May was very critical, the agent has inputted the ticket
and confusing bookings were purportedly made under the names of respondents through two
number on 10 Apr. but has removed the record on 11 April. Since the booking was reflected as
(2) travel agencies, namely: Sampaguita Travel and Rajah Travel Corporation. Cathay Pacific
not ticketed, the booking was cancelled on 18 Apr. accordingly.
explained that only the following Passenger Name Records (PNRs) appeared on its system:
This PNR was split from another PNR record, H9VSE.
PNR No. H9V15, PNR No. HTFMG, PNR No. J9R6E, PNR No. J76TH, and PNR No. H9VSE.
Cathay Pacific went on to detail each and every booking, to wit:
5. PNR No. H9VSE
1. PNR No. H9V15
Agent: Sampaguita Travel Corp.
Agent: Sampaguita Travel Corp.
Party: Ms. R Lapuz, Mr. R Lapuz, Mr. A Samson, originally Mr. W Reyes was included in this
party as well
Party: Ms. J Reyes, Mr. M R Reyes, Mr. W Reyes
Itinerary: CX104/CX905 ADL/HKG/MNL 04 MAY.
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR.
The booking was confirmed initially but were not ticketed by 11 Apr. and was cancelled
The itinerary listed above was confirmed booking. However, the itinerary did not include
accordingly. However, the PNR of Mr. W Reyes who was originally included in this party was
booking for the return flights. From information retrieved from ABACUS (the booking system
6
used by agents), the agent has, on 10 April, added segments CX104/CX905 ADL/HKG/MNL 04 split to a separate record of J76TH.
MAY on MK status, which was not a confirmed booking. MK function is used for synchronizing
Cathay Pacific asserted that in the case of Wilfredo with PNR No. J76TH, no valid ticket
records or for ticketing purposes only. It does not purport to be a real booking. As a result, no
number was inputted within a prescribed period which means that no ticket was sold. Thus,
booking was transmitted into CPAs system.
Cathay Pacific had the right to cancel the booking. Cathay Pacific found that Sampaguita
Travel initially inputted a ticket number for PNR No. J76TH and had it cancelled the following
2. PNR No. HTFMG
day, while the PNR Nos. HDWC3 and HTFMG of Juanita and Michael do not exist.
Agent: Sampaguita Travel Corp.
The Answer also contained a cross-claim against Sampaguita Travel and blamed the same for
Party: Mrs. Sixta Lapuz
the cancellation of respondents return flights. Cathay Pacific likewise counterclaimed for
Itinerary: CX902/CX105 MNL/HKG/ADL 12 APR, CX104/CX907 ADL/HKG/MNL 04/05 MAY.
payment of attorneys fees.
The above itinerary is the actual itinerary that the passenger has flown. However, for the return On the other hand, Sampaguita Travel, in its Answer, denied Cathay Pacifics claim that it was
sector, HKG/MNL, the original booking was on CX905 of 04 May. This original booking was
the cause of the cancellation of the bookings. Sampaguita Travel maintained that it made the
confirmed on 21 Mar. and ticketed on 11 Apr.
necessary reservation with Cathay Pacific for respondents trip to Adelaide. After getting
This booking was cancelled on 04 May at 9:03 p.m. when CX905 was almost scheduled to
confirmed bookings with Cathay Pacific, Sampaguita Travel issued the corresponding tickets to
leave at the behest of the passenger and she was re-booked on CX907 of 05 May at the same respondents. Their confirmed bookings were covered with the following PNRs:
time.
PASSENGER NAME
PNR No.
3. PNR No. J9R6E
Lapuz, Sixta
H9V15/ J76TH
Agent: Rajah Travel Corp.
Party: Mrs. Julieta Gaspar, Mrs. Sixta Lapuz, Mrs. Juanita Reyes,
Reyes, Wilfredo
H9V15/HDWC3
Mr. Michael Roy Reyes, Mr. Wilfredo Reyes.

Reyes, Michael Roy

H9V15/H9VZF

Reyes, Juanita

HTFMG7

Sampaguita Travel explained that the Reyeses had two (2) PNRs each because confirmation
from Cathay Pacific was made one flight segment at a time. Sampaguita Travel asserted that it
only issued the tickets after Cathay Pacific confirmed the bookings. Furthermore, Sampaguita
Travel exonerated itself from liability for damages because respondents were claiming for
damages arising from a breach of contract of carriage. Sampaguita Travel likewise filed a
cross-claim against Cathay Pacific and a counterclaim for damages.
During the pre-trial, the parties agreed on the following stipulation of facts:
1. That the plaintiffs did not deal directly with Cathay Pacific Airways;
2. That the plaintiffs did not make their bookings directly with Cathay Pacific Airways;
3. That the plaintiffs did not purchase and did not get their tickets from Cathay Pacific Airways;
4. That Cathay Pacific Airways has promptly replied to all communications sent by the plaintiffs
through their counsel;
5. That the plane tickets issued to plaintiffs were valid, which is why they were able to depart
from Manila to Adelaide, Australia and that the reason why they were not able to board their
return flight from Adelaide was because of the alleged cancellation of their booking by Cathay
Pacific Airways at Adelaide, save for that of Sixta Lapuz whose booking was confirmed by
Cathay Pacific Airways;
6. That several reservations and bookings for the plaintiffs were done by defendant
Sampaguita Travel Corporation through the computer reservation system and each of such
request was issued a PNR;
7. That, as a travel agent, defendant Sampaguita Travel Corporation merely acts as a
booking/sales/ticketing arm for airline companies and it has nothing to do with the airline
operations;
8. That in the travel industry, the practice of reconfirmation of return flights by passengers is
coursed or done directly with the airline company and not with the travel agent, which has no
participation, control or authority in making such reconfirmations.
9. That in the travel industry, the practice of cancellation of flights is within the control of the
airline and not of the travel agent, unless the travel agent is requested by the passengers to
make such cancellations; and,
10. That defendant Cathay Pacific Airways has advertised that "there is no need to confirm
your flight when travelling with us", although Cathay Pacific Airways qualifies the same to the
effect that in some cases there is a need for reconfirmations. 8
After trial on the merits, the Regional Trial Court (RTC) rendered a Decision, 9 the dispositive
part of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the defendants
and against the herein plaintiff. Accordingly, plaintiffs complaint is hereby ordered DISMISSED
for lack of merit. Defendants counterclaims and cross-claims are similarly ordered dismissed
for lack of merit. No pronouncement as to cost.10

65
The trial court found that respondents were in possession of valid tickets but did not have
confirmed reservations for their return trip to Manila. Additionally, the trial court observed that
the several PNRs opened by Sampaguita Travel created confusion in the bookings. The trial
court however did not find any basis to establish liability on the part of either Cathay Pacific or
Sampaguita Travel considering that the cancellation was not without any justified reason.
Finally, the trial court denied the claims for damages for being unsubstantiated.
Respondents appealed to the Court of Appeals. On 22 October 2008, the Court of Appeals
ordered Cathay Pacific to pay P25,000.00 each to respondents as nominal damages.
Upon denial of their motion for reconsideration, Cathay Pacific filed the instant petition for
review assigning the following as errors committed by the Court of Appeals:
A.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR IN HOLDING THAT CATHAY PACIFIC AIRWAYS IS LIABLE FOR NOMINAL
DAMAGES FOR ITS ALLEGED INITIAL BREACH OF CONTRACT WITH THE PASSENGERS
EVEN THOUGH CATHAY PACIFIC AIRWAYS WAS ABLE TO PROVE BEYOND
REASONABLE DOUBT THAT IT WAS NOT AT FAULT FOR THE PREDICAMENT OF THE
RESPONDENT PASSENGERS.
B.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR IN RELYING ON MATTERS NOT PROVED DURING THE TRIAL AND NOT
SUPPORTED BY THE EVIDENCE AS BASIS FOR HOLDING CATHAY PACIFIC AIRWAYS
LIABLE FOR NOMINAL DAMAGES.
C.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR IN HOLDING CATHAY PACIFIC AIRWAYS LIABLE FOR NOMINAL DAMAGES TO
RESPONDENT SIXTA LAPUZ.
D.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR AND REVERSIBLE
ERROR IN NOT HOLDING SAMPAGUITA TRAVEL CORP. LIABLE TO CATHAY PACIFIC
AIRWAYS FOR WHATEVER DAMAGES THAT THE AIRLINE COMPANY WOULD BE
ADJUDGED THE RESPONDENT PASSENGERS.
E.
ALTERNATIVELY, WHETHER OR NOT THE COURT OF APPEALS COMMITTED A CLEAR
AND REVERSIBLE ERROR WHEN IT FAILED TO APPLY THE DOCTRINE OF STARE
DECISIS IN FIXING THE AMOUNT OF NOMINAL DAMAGES TO BE AWARDED.11
Cathay Pacific assails the award of nominal damages in favor of respondents on the ground
that its action of cancelling the flight bookings was justifiable. Cathay Pacific reveals that upon
investigation, the respondents had no confirmed bookings for their return flights. Hence, it was
not obligated to transport the respondents. In fact, Cathay Pacific adds, it exhibited good faith
in accommodating the respondents despite holding unconfirmed bookings.

Cathay Pacific also scores the Court of Appeals in basing the award of nominal damages on
the alleged asthmatic condition of passenger Michael and old age of Sixta. Cathay Pacific
points out that the records, including the testimonies of the witnesses, did not make any
mention of Michaels asthma. And Sixta was in fact holding a confirmed booking but she
refused to take her confirmed seat and instead stayed in HongKong with the other
respondents.
Cathay Pacific blames Sampaguita Travel for negligence in not ensuring that respondents had
confirmed bookings for their return trips.
Lastly, assuming arguendo that the award of nominal damages is proper, Cathay Pacific
contends that the amount should be reduced to P5,000.00 for each passenger.
At the outset, it bears pointing out that respondent Sixta had no cause of action against Cathay
Pacific or Sampaguita Travel. The elements of a cause of action consist of: (1) a right existing
in favor of the plaintiff, (2) a duty on the part of the defendant to respect the plaintiffs right, and
(3) an act or omission of the defendant in violation of such right. 12 As culled from the records,
there has been no violation of any right or breach of any duty on the part of Cathay Pacific and
Sampaguita Travel. As a holder of a valid booking, Sixta had the right to expect that she would
fly on the flight and on the date specified on her airplane ticket. Cathay Pacific met her
expectations and Sixta was indeed able to complete her flight without any trouble. The
absence of any violation to Sixtas right as passenger effectively deprived her of any relief
against either Cathay Pacific or Sampaguita Travel.
With respect to the three remaining respondents, we rule as follows:
The determination of whether or not the award of damages is correct depends on the nature of
the respondents contractual relations with Cathay Pacific and Sampaguita Travel. It is beyond
dispute that respondents were holders of Cathay Pacific airplane tickets and they made the
booking through Sampaguita Travel.
Respondents cause of action against Cathay Pacific stemmed from a breach of contract of
carriage. A contract of carriage is defined as one whereby a certain person or association of
persons obligate themselves to transport persons, things, or news from one place to another
for a fixed price.13 Under Article 1732 of the Civil Code, this "persons, corporations, firms, or
associations engaged in the business of carrying or transporting passengers or goods or both,
by land, water, or air, for compensation, offering their services to the public" is called a common
carrier.
Respondents entered into a contract of carriage with Cathay Pacific. As far as respondents are
concerned, they were holding valid and confirmed airplane tickets. The ticket in itself is a valid
written contract of carriage whereby for a consideration, Cathay Pacific undertook to carry
respondents in its airplane for a round-trip flight from Manila to Adelaide, Australia and then
back to Manila. In fact, Wilfredo called the Cathay Pacific office in Adelaide one week before
his return flight to re-confirm his booking. He was even assured by a staff of Cathay Pacific that
he does not need to reconfirm his booking.
In its defense, Cathay Pacific posits that Wilfredos booking was cancelled because a ticket
number was not inputted by Sampaguita Travel, while bookings of Juanita and Michael were
not honored for being fictitious. Cathay Pacific clearly blames Sampaguita Travel for not
finalizing the bookings for the respondents return flights. Respondents are not privy to
whatever misunderstanding and confusion that may have transpired in their bookings. On its

67
face, the airplane ticket is a valid written contract of carriage. This Court has held that when an
airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a
contract of carriage arises, and the passenger has every right to expect that he would fly on
that flight and on that date. If he does not, then the carrier opens itself to a suit for breach of
contract of carriage.14
As further elucidated by the Court of Appeals:
Now, Article 1370 of the Civil Code mandates that "if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control." Under Section 9, Rule 130 of the Rules of Court, once the terms of
an agreement have been reduced to writing, it is deemed to contain all the terms agreed upon
by the parties and no evidence of such terms other than the contents of the written agreement
shall be admissible. The terms of the agreement of appellants and appellee Cathay Pacific
embodied in the tickets issued by the latter to the former are plain appellee Cathay Pacific
will transport appellants to Adelaide, Australia from Manila via Hongkong on 12 April 1991 and
back to Manila from Adelaide, Australia also via Hongkong on 4 May 1997. In addition, the
tickets reveal that all appellants have confirmed bookings for their flight to Adelaide, Australia
and back to Manila as manifested by the words "Ok" indicated therein. Arlene Ansay, appellee
Cathay Pacifics Reservation Supervisor, validated this fact in her testimony saying that the
return flights of all appellants to the Philippines on 4 May 1997 were confirmed as appearing on
the tickets. Indubitably, when appellee Cathay Pacific initially refused to transport appellants to
the Philippines on 4 May 1997 due to the latters lack of reservation, it has, in effect, breached
their contract of carriage. Appellants, however, were eventually accommodated and
transported by appellee Cathay Pacific to Manila.15
Cathay Pacific breached its contract of carriage with respondents when it disallowed them to
board the plane in Hong Kong going to Manila on the date reflected on their tickets. Thus,
Cathay Pacific opened itself to claims for compensatory, actual, moral and exemplary
damages, attorneys fees and costs of suit.
In contrast, the contractual relation between Sampaguita Travel and respondents is a contract
for services. The object of the contract is arranging and facilitating the latters booking and
ticketing. It was even Sampaguita Travel which issued the tickets.
Since the contract between the parties is an ordinary one for services, the standard of care
required of respondent is that of a good father of a family under Article 1173 of the Civil Code.
This connotes reasonable care consistent with that which an ordinarily prudent person would
have observed when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in doing the alleged
negligent act use that reasonable care and caution which an ordinarily prudent person would
have used in the same situation? If not, then he is guilty of negligence. 16
There was indeed failure on the part of Sampaguita Travel to exercise due diligence in
performing its obligations under the contract of services. It was established by Cathay Pacific,
through the generation of the PNRs, that Sampaguita Travel failed to input the correct ticket
number for Wilfredos ticket. Cathay Pacific even asserted that Sampaguita Travel made two
fictitious bookings for Juanita and Michael.
The negligence of Sampaguita Travel renders it also liable for damages.

For one to be entitled to actual damages, it is necessary to prove the actual amount of loss
with a reasonable degree of certainty, premised upon competent proof and the best evidence
obtainable by the injured party. To justify an award of actual damages, there must be
competent proof of the actual amount of loss. Credence can be given only to claims which are
duly supported by receipts.17
We echo the findings of the trial court that respondents failed to show proof of actual damages.
Wilfredo initially testified that he personally incurred losses amounting to P300,000.00 which
represents the amount of the contract that he was supposedly scheduled to sign had his return
trip not been cancelled. During the cross-examination however, it appears that the supposed
contract-signing was a mere formality and that an agreement had already been hatched
beforehand. Hence, we cannot fathom how said contract did not materialize because of
Wilfredos absence, and how Wilfredo incurred such losses when he himself admitted that he
entered into said contract on behalf of Parsons Engineering Consulting Firm, where he worked
as construction manager. Thus, if indeed there were losses, these were losses suffered by the
company and not by Wilfredo. Moreover, he did not present any documentary evidence, such
as the actual contract or affidavits from any of the parties to said contract, to substantiate his
claim of losses. With respect to the remaining passengers, they likewise failed to present proof
of the actual losses they suffered.
Under Article 2220 of the Civil Code of the Philippines, an award of moral damages, in
breaches of contract, is in order upon a showing that the defendant acted fraudulently or in bad
faith.18 What the law considers as bad faith which may furnish the ground for an award of moral
damages would be bad faith in securing the contract and in the execution thereof, as well as in
the enforcement of its terms, or any other kind of deceit. In the same vein, to warrant the award
of exemplary damages, defendant must have acted in wanton, fraudulent, reckless,
oppressive, or malevolent manner.19
In the instant case, it was proven by Cathay Pacific that first, it extended all possible
accommodations to respondents.1wphi1 They were promptly informed of the problem in their
bookings while they were still at the Adelaide airport. Despite the non-confirmation of their
bookings, respondents were still allowed to board the Adelaide to Hong Kong flight. Upon
arriving in Hong Kong, they were again informed that they could not be accommodated on the
next flight because it was already fully booked. They were however allowed to board the next
available flight on the following day. Second, upon receiving the complaint letter of
respondents, Cathay Pacific immediately addressed the complaint and gave an explanation on
the cancellation of their flight bookings.
The Court of Appeals is correct in stating that "what may be attributed to x x x Cathay Pacific is
negligence concerning the lapses in their process of confirming passenger bookings and
reservations, done through travel agencies. But this negligence is not so gross so as to amount
to bad faith."20 Cathay Pacific was not motivated by malice or bad faith in not allowing
respondents to board on their return flight to Manila. It is evident and was in fact proven by
Cathay Pacific that its refusal to honor the return flight bookings of respondents was due to the
cancellation of one booking and the two other bookings were not reflected on its computerized
booking system.
Likewise, Sampaguita Travel cannot be held liable for moral damages. True, Sampaguita
Travel was negligent in the conduct of its booking and ticketing which resulted in the
cancellation of flights. But its actions were not proven to have been tainted with malice or bad

69
faith. Under these circumstances, respondents are not entitled to moral and exemplary
damages.1wphi1 With respect to attorneys fees, we uphold the appellate courts finding on
lack of factual and legal justification to award attorneys fees.
We however sustain the award of nominal damages in the amount of P25,000.00 to only three
of the four respondents who were aggrieved by the last-minute cancellation of their flights.
Nominal damages are recoverable where a legal right is technically violated and must be
vindicated against an invasion that has produced no actual present loss of any kind or where
there has been a breach of contract and no substantial injury or actual damages whatsoever
have been or can be shown.21 Under Article 2221 of the Civil Code, nominal damages may be
awarded to a plaintiff whose right has been violated or invaded by the defendant, for the
purpose of vindicating or recognizing that right, not for indemnifying the plaintiff for any loss
suffered.
Considering that the three respondents were denied boarding their return flight from HongKong
to Manila and that they had to wait in the airport overnight for their return flight, they are
deemed to have technically suffered injury. Nonetheless, they failed to present proof of actual
damages. Consequently, they should be compensated in the form of nominal damages.
The amount to be awarded as nominal damages shall be equal or at least commensurate to
the injury sustained by respondents considering the concept and purpose of such damages.
The amount of nominal damages to be awarded may also depend on certain special reasons
extant in the case.22
The amount of such damages is addressed to the sound discretion of the court and taking into
account the relevant circumstances,23 such as the failure of some respondents to board the
flight on schedule and the slight breach in the legal obligations of the airline company to
comply with the terms of the contract, i.e., the airplane ticket and of the travel agency to make
the correct bookings. We find the award of P25,000.00 to the Reyeses correct and proper.
Cathay Pacific and Sampaguita Travel acted together in creating the confusion in the bookings
which led to the erroneous cancellation of respondents bookings. Their negligence is the
proximate cause of the technical injury sustained by respondents. Therefore, they have
become joint tortfeasors, whose responsibility for quasi-delict, under Article 2194 of the Civil
Code, is solidary.
Based on the foregoing, Cathay Pacific and Sampaguita Travel are jointly and solidarily liable
for nominal damages awarded to respondents Wilfredo, Juanita and Michael Roy.
WHEREFORE, the Petition is DENIED. The 22 October 2008 Decision of the Court of Appeals
is AFFIRMED with MODIFICATION that Sampaguita Travel is held to be solidarily liable with
Cathay Pacific in the payment of nominal damages of ~25,000.00 each for Wilfredo Reyes,
Juanita Reyes, and Michael Rox Reyes. The complaint of respondent Sixta
Lapuz is DISMISSED for lack of cause of action.
SO ORDERED.

G.R. No. 199650

June 26, 2013
J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner,
vs.
UTILITY ASSURANCE CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, assailing the Decision1 dated January 27,2011 and Resolution2 dated
December 8, 2011 of the Court of Appeals (CA) in CA-G.R. SP No. 112808.
The Facts
On December 24, 2007, petitioner J Plus Asia Development Corporation represented by its
Chairman, Joo Han Lee, and Martin E. Mabunay, doing business under the name and style of
Seven Shades of Blue Trading and Services, entered into a Construction Agreement 3 whereby

71
the latter undertook to build the former's 72-room condominium/hotel (Condotel Building 25)
located at the Fairways & Bluewaters Golf & Resort in Boracay Island, Malay, Aklan. The
project, costing P42,000,000.00, was to be completed within one year or 365 days reckoned
from the first calendar day after signing of the Notice of Award and Notice to Proceed and
receipt of down payment (20% of contract price). The P8,400,000.00 down payment was fully
paid on January 14, 2008.4 Payment of the balance of the contract price will be based on
actual work finished within 15 days from receipt of the monthly progress billings. Per the
agreed work schedule, the completion date of the project was December 2008. 5Mabuhay also
submitted the required Performance Bond6 issued by respondent Utility Assurance Corporation
(UTASSCO) in the amount equivalent to 20% down payment or P8.4 million.
Mabunay commenced work at the project site on January 7, 2008. Petitioner paid up to the 7th
monthly progress billing sent by Mabunay. As of September 16, 2008, petitioner had paid the
total amount of P15,979,472.03 inclusive of the 20% down payment. However, as of said date,
Mabunay had accomplished only 27.5% of the project.7
In the Joint Construction Evaluation Result and Status Report 8 signed by Mabunay assisted by
Arch. Elwin Olavario, and Joo Han Lee assisted by Roy V. Movido, the following findings were
accepted as true, accurate and correct:
III STATUS OF PROJECT AS OF 14 NOVEMBER 2008
1) After conducting a joint inspection and evaluation of the project to determine the actual
percentage of accomplishment, the contracting parties, assisted by their respective technical
groups, SSB assisted by Arch. Elwin Olavario and JPLUS assisted by Engrs. Joey Rojas and
Shiela Botardo, concluded and agreed that as of 14 November 2008, the project is only Thirty
One point Thirty Nine Percent (31.39%) complete.
2) Furthermore, the value of construction materials allocated for the completion of the project
and currently on site has been determined and agreed to be ONE MILLION FORTY NINE
THOUSAND THREE HUNDRED SIXTY FOUR PESOS AND FORTY FIVE CENTAVOS
(P1,049,364.45)
3) The additional accomplishment of SSB, reflected in its reconciled and consolidated 8th and
9th billings, is Three point Eighty Five Percent (3.85%) with a gross value of P1,563,553.34
amount creditable to SSB after deducting the withholding tax is P1,538,424.84
4) The unrecouped amount of the down payment is P2,379,441.53 after deducting the cost of
materials on site and the net billable amount reflected in the reconciled and consolidated 8th
and 9th billings. The uncompleted portion of the project is 68.61% with an estimated value per
construction agreement signed isP27,880,419.52.9 (Emphasis supplied.)
On November 19, 2008, petitioner terminated the contract and sent demand letters to Mabunay
and respondent surety. As its demands went unheeded, petitioner filed a Request for
Arbitration10 before the Construction Industry Arbitration Commission (CIAC). Petitioner prayed
that Mabunay and respondent be ordered to pay the sums of P8,980,575.89 as liquidated
damages and P2,379,441.53 corresponding to the unrecouped down payment or overpayment
petitioner made to Mabunay.11
In his Answer,12 Mabunay claimed that the delay was caused by retrofitting and other revision
works ordered by Joo Han Lee. He asserted that he actually had until April 30, 2009 to finish
the project since the 365 days period of completion started only on May 2, 2008 after clearing

the retrofitted old structure. Hence, the termination of the contract by petitioner was premature
and the filing of the complaint against him was baseless, malicious and in bad faith.
Respondent, on the other hand, filed a motion to dismiss on the ground that petitioner has no
cause of action and the complaint states no cause of action against it. The CIAC denied the
motion to dismiss. Respondents motion for reconsideration was likewise denied. 13
In its Answer Ex Abundante Ad Cautelam With Compulsory Counterclaims and Crossclaims,14 respondent argued that the performance bond merely guaranteed the 20% down
payment and not the entire obligation of Mabunay under the Construction Agreement. Since
the value of the projects accomplishment already exceeded the said amount, respondents
obligation under the performance bond had been fully extinguished. As to the claim for alleged
overpayment to Mabunay, respondent contended that it should not be credited against the 20%
down payment which was already exhausted and such application by petitioner is tantamount
to reviving an obligation that had been legally extinguished by payment. Respondent also set
up a cross-claim against Mabunay who executed in its favor an Indemnity Agreement whereby
Mabunay undertook to indemnify respondent for whatever amounts it may be adjudged liable
to pay petitioner under the surety bond.
Both petitioner and respondent submitted their respective documentary and testimonial
evidence. Mabunay failed to appear in the scheduled hearings and to present his evidence
despite due notice to his counsel of record. The CIAC thus declared that Mabunay is deemed
to have waived his right to present evidence.15
On February 2, 2010, the CIAC rendered its Decision 16 and made the following award:
Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby
adjudges, orders and directs:
1. Respondents Mabunay and Utassco to jointly and severally pay claimant the following:
a) P4,469,969.90, as liquidated damages, plus legal interest thereon at the rate of 6% per
annum computed from the date of this decision up to the time this decision becomes final, and
12% per annum computed from the date this decision becomes final until fully paid, and
b) P2,379,441.53 as unrecouped down payment plus interest thereon at the rate of 6% per
annum computed from the date of this decision up to the time this decision becomes final, and
12% per annum computed from the date this decision becomes final until fully paid.
It being understood that respondent Utasscos liability shall in no case exceed P8.4 million.
2. Respondent Mabunay to pay to claimant the amount of P98,435.89, which is respondent
Mabunays share in the arbitration cost claimant had advanced, with legal interest thereon from
January 8, 2010 until fully paid.
3. Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco
will have paid to claimant under this decision, plus interest thereon at the rate of 12% per
annum computed from the date he is notified of such payment made by respondent Utassco to
claimant until fully paid, and to pay Utassco P100,000.00 as attorneys fees.
SO ORDERED.17
Dissatisfied, respondent filed in the CA a petition for review under Rule 43 of the 1997 Rules of
Civil Procedure, as amended.

73
In the assailed decision, the CA agreed with the CIAC that the specific condition in the
Performance Bond did not clearly state the limitation of the suretys liability. Pursuant to Article
137718 of the Civil Code, the CA said that the provision should be construed in favor of
petitioner considering that the obscurely phrased provision was drawn up by respondent and
Mabunay. Further, the appellate court stated that respondent could not possibly guarantee the
down payment because it is not Mabunay who owed the down payment to petitioner but the
other way around. Consequently, the completion by Mabunay of 31.39% of the construction
would not lead to the extinguishment of respondents liability. The P8.4 million was a limit on
the amount of respondents liability and not a limitation as to the obligation or undertaking it
guaranteed.
However, the CA reversed the CIACs ruling that Mabunay had incurred delay which entitled
petitioner to the stipulated liquidated damages and unrecouped down payment. Citing
Aerospace Chemical Industries, Inc. v. Court of Appeals,19 the appellate court said that not all
requisites in order to consider the obligor or debtor in default were present in this case. It held
that it is only from December 24, 2008 (completion date) that we should reckon default
because the Construction Agreement provided only for delay in the completion of the project
and not delay on a monthly basis using the work schedule approved by petitioner as the
reference point. Hence, petitioners termination of the contract was premature since the delay
in this case was merely speculative; the obligation was not yet demandable.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the instant petition for review is GRANTED. The assailed
Decision dated 13 January 2010 rendered by the CIAC Arbitral Tribunal in CIAC Case No. 032009 is hereby REVERSED and SET ASIDE. Accordingly, the Writ of Execution dated 24
November 2010 issued by the same tribunal is hereby ANNULLED and SET ASIDE.
SO ORDERED.20
Petitioner moved for reconsideration of the CA decision while respondent filed a motion for
partial reconsideration. Both motions were denied.
The Issues
Before this Court petitioner seeks to reverse the CA insofar as it denied petitioners claims
under the Performance Bond and to reinstate in its entirety the February 2, 2010 CIAC
Decision. Specifically, petitioner alleged that
A. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT HOLDING THAT THE
ALTERNATIVE DISPUTE RESOLUTION ACT AND THE SPECIAL RULES ON ALTERNATIVE
DISPUTE RESOLUTION HAVE STRIPPED THE COURT OF APPEALS OF JURISDICTION
TO REVIEW ARBITRAL AWARDS.
B. THE COURT OF APPEALS SERIOUSLY ERRED IN REVERSING THE ARBITRAL AWARD
ON AN ISSUE THAT WAS NOT RAISED IN THE ANSWER. NOT IDENTIFIED IN THE TERMS
OF REFERENCE, NOT ASSIGNED AS ANERROR, AND NOT ARGUED IN ANY OF THE
PLEADINGS FILED BEFORE THE COURT.
C. THE COURT OF APPEALS SERIOUSLY ERRED IN RELYING ON THE CASE OF
AEROSPACE CHEMICAL INDUSTRIES, INC. v. COURT OF APPEALS, 315 SCRA 94,
WHICH HAS NOTHING TO DO WITH CONSTRUCTION AGREEMENTS.21

Our Ruling
On the procedural issues raised, we find no merit in petitioners contention that with the
institutionalization of alternative dispute resolution under Republic Act (R.A.) No.
9285,22 otherwise known as the Alternative Dispute Resolution Act of 2004, the CA was
divested of jurisdiction to review the decisions or awards of the CIAC. Petitioner erroneously
relied on the provision in said law allowing any party to a domestic arbitration to file in the
Regional Trial Court (RTC) a petition either to confirm, correct or vacate a domestic arbitral
award.
We hold that R.A. No. 9285 did not confer on regional trial courts jurisdiction to review awards
or decisions of the CIAC in construction disputes. On the contrary, Section 40 thereof expressly
declares that confirmation by the RTC is not required, thus:
SEC. 40. Confirmation of Award. The confirmation of a domestic arbitral award shall be
governed by Section 23 of R.A. 876.
A domestic arbitral award when confirmed shall be enforced in the same manner as final and
executory decisions of the Regional Trial Court.
The confirmation of a domestic award shall be made by the regional trial court in accordance
with the Rules of Procedure to be promulgated by the Supreme Court.
A CIAC arbitral award need not be confirmed by the regional trial court to be executory as
provided under E.O. No. 1008. (Emphasis supplied.)
Executive Order (EO) No. 1008 vests upon the CIAC original and exclusive jurisdiction over
disputes arising from, or connected with, contracts entered into by parties involved in
construction in the Philippines, whether the dispute arises before or after the completion of the
contract, or after the abandonment or breach thereof. By express provision of Section 19
thereof, the arbitral award of the CIAC is final and unappealable, except on questions of law,
which are appealable to the Supreme Court. With the amendments introduced by R.A. No.
7902 and promulgation of the 1997 Rules of Civil Procedure, as amended, the CIAC was
included in the enumeration of quasijudicial agencies whose decisions or awards may be
appealed to the CA in a petition for review under Rule 43. Such review of the CIAC award may
involve either questions of fact, of law, or of fact and law.23
Petitioner misread the provisions of A.M. No. 07-11-08-SC (Special ADR Rules) promulgated
by this Court and which took effect on October 30, 2009. Since R.A. No. 9285 explicitly
excluded CIAC awards from domestic arbitration awards that need to be confirmed to be
executory, said awards are therefore not covered by Rule 11 of the Special ADR Rules, 24 as
they continue to be governed by EO No. 1008, as amended and the rules of procedure of the
CIAC. The CIAC Revised Rules of Procedure Governing Construction Arbitration 25 provide for
the manner and mode of appeal from CIAC decisions or awards in Section 18 thereof, which
reads:
SECTION 18.2 Petition for review. A petition for review from a final award may be taken by
any of the parties within fifteen (15) days from receipt thereof in accordance with the provisions
of Rule 43 of the Rules of Court.
As to the alleged error committed by the CA in deciding the case upon an issue not raised or
litigated before the CIAC, this assertion has no basis. Whether or not Mabunay had incurred
delay in the performance of his obligations under the Construction Agreement was the very first

75
issue stipulated in the Terms of Reference26(TOR), which is distinct from the issue of the extent
of respondents liability under the Performance Bond.
Indeed, resolution of the issue of delay was crucial upon which depends petitioners right to the
liquidated damages pursuant to the Construction Agreement. Contrary to the CIACs findings,
the CA opined that delay should be reckoned only after the lapse of the one-year contract
period, and consequently Mabunays liability for liquidated damages arises only upon the
happening of such condition.
We reverse the CA.
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by
reason of a cause imputable to the former. It is the non-fulfillment of an obligation with respect
to time.27
Article 1169 of the Civil Code provides:
ART. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
xxxx
It is a general rule that one who contracts to complete certain work within a certain time is
liable for the damage for not completing it within such time, unless the delay is excused or
waived.28
The Construction Agreement provides in Article 10 thereof the following conditions as to
completion time for the project
1. The CONTRACTOR shall complete the works called for under this Agreement within ONE
(1) YEAR or 365 Days reckoned from the 1st calendar day after signing of the Notice of Award
and Notice to Proceed and receipt of down payment.
2. In this regard the CONTRACTOR shall submit a detailed work schedule for approval by
OWNER within Seven (7) days after signing of this Agreement and full payment of 20% of the
agreed contract price. Said detailed work schedule shall follow the general schedule of
activities and shall serve as basis for the evaluation of the progress of work by
CONTRACTOR.29
In this jurisdiction, the following requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance judicially or extrajudicially.30
In holding that Mabunay has not at all incurred delay, the CA pointed out that the obligation to
perform or complete the project was not yet demandable as of November 19, 2008 when
petitioner terminated the contract, because the agreed completion date was still more than one
month away (December 24, 2008). Since the parties contemplated delay in the completion of
the entire project, the CA concluded that the failure of the contractor to catch up with schedule
of work activities did not constitute delay giving rise to the contractors liability for damages.
We cannot sustain the appellate courts interpretation as it is inconsistent with the terms of the
Construction Agreement. Article 1374 of the Civil Code requires that the various stipulations of
a contract shall be interpreted together, attributing to the doubtful ones that sense which may
result from all of them taken jointly. Here, the work schedule approved by petitioner was
intended, not only to serve as its basis for the payment of monthly progress billings, but also for

evaluation of the progress of work by the contractor. Article 13.01 (g) (iii) of the Construction
Agreement provides that the contractor shall be deemed in default if, among others, it had
delayed without justifiable cause the completion of the project "by more than thirty (30)
calendar days based on official work schedule duly approved by the OWNER." 31
Records showed that as early as April 2008, or within four months after Mabunay commenced
work activities, the project was already behind schedule for reasons not attributable to
petitioner. In the succeeding months, Mabunay was still unable to catch up with his
accomplishment even as petitioner constantly advised him of the delays, as can be gleaned
from the following notices of delay sent by petitioners engineer and construction manager,
Engr. Sheila N. Botardo:
April 30, 2008
Seven Shades of Blue
Boracay Island
Malay, Aklan
1wphi1
Attention

: Mr. Martin Mabunay

General Manager

Thru

: Engr. Reynaldo Gapasin

Project

: Villa Beatriz

Subject

: Notice of Delay

Dear Mr. Mabunay:

This is to formalize our discussion with your Engineers during our meeting last April 23, 2008
regarding the delay in the implementation of major activities based on your submitted
construction schedule. Substantial delay was noted in concreting works that affects your roof
framing that should have been 40% completed as of this date. This delay will create major
impact on your over-all schedule as the finishing works will all be dependent on the enclosure
of the building.
In this regard, we recommend that you prepare a catch-up schedule and expedite the delivery
of critical materials on site. We would highly appreciate if you could attend our next regular
meeting so we could immediately address this matter. Thank you.
Very truly yours,
Engr. Sheila N. Botardo
Construction Manager LMI/FEPI32
October 15, 2008
xxxx
Dear Mr. Mabunay,
We have noticed continuous absence of all the Engineers that you have assigned on-site to
administer and supervise your contracted work. For the past two (2) weeks, your company
does not have a Technical Representative manning the jobsite considering the critical activities

77
that are in progress and the delays in schedule that you have already incurred. In this regard,
we would highly recommend the immediate replacement of your Project Engineer within the
week.
We would highly appreciate your usual attention on this matter.
x x x x33
November 5, 2008
xxxx
Dear Mr. Mabunay,
This is in reference to your discussion during the meeting with Mr. Joohan Lee last October 30,
2008 regarding the construction of the Field Office and Stock Room for Materials intended for
Villa Beatriz use only. We understand that you have committed to complete it November 5,
2008 but as of this date there is no improvement or any ongoing construction activity on the
said field office and stockroom.
We are expecting deliveries of Owner Supplied Materials very soon, therefore, this stockroom
is badly needed. We will highly appreciate if this matter will be given your immediate attention.
Thank you.
x x x x34
November 6, 2008
xxxx
Dear Mr. Mabunay,
We would like to call your attention regarding the decrease in your manpower assigned on site.
We have observed that for the past three (3) weeks instead of increasing your manpower to
catch up with the delay it was reduced to only 8 workers today from an average of 35 workers
in the previous months.
Please note that based on your submitted revised schedule you are already delayed by
approximately 57% and this will worsen should you not address this matter properly.
We are looking forward for [sic] your cooperation and continuous commitment in delivering this
project as per contract agreement.
x x x x35
Subsequently, a joint inspection and evaluation was conducted with the assistance of the
architects and engineers of petitioner and Mabunay and it was found that as of November 14,
2008, the project was only 31.39% complete and that the uncompleted portion was 68.61%
with an estimated value per Construction Agreement asP27,880,419.52. Instead of doubling
his efforts as the scheduled completion date approached, Mabunay did nothing to remedy the
delays and even reduced the deployment of workers at the project site. Neither did Mabunay,
at anytime, ask for an extension to complete the project. Thus, on November 19, 2008,
petitioner advised Mabunay of its decision to terminate the contract on account of the
tremendous delay the latter incurred. This was followed by the claim against the Performance
Bond upon the respondent on December 18, 2008.

Petitioners claim against the Performance Bond included the liquidated damages provided in
the Construction Agreement, as follows:
ARTICLE 12 LIQUIDATED DAMAGES:
12.01 Time is of the essence in this Agreement. Should the CONTRACTOR fail to complete the
PROJECT within the period stipulated herein or within the period of extension granted by the
OWNER, plus One (1) Week grace period, without any justifiable reason, the CONTRACTOR
hereby agrees
a. The CONTRACTOR shall pay the OWNER liquidated damages equivalent to One Tenth of
One Percent (1/10 of 1%) of the Contract Amount for each day of delay after any and all
extensions and the One (1) week Grace Period until completed by the CONTRACTOR.
b. The CONTRACTOR, even after paying for the liquidated damages due to unexecuted works
and/or delays shall not relieve it of the obligation to complete and finish the construction.
Any sum which maybe payable to the OWNER for such loss may be deducted from the
amounts retained under Article 9 or retained by the OWNER when the works called for under
this Agreement have been finished and completed.
Liquidated Damage[s] payable to the OWNER shall be automatically deducted from the
contractors collectibles without prior consent and concurrence by the CONTRACTOR.
12.02 To give full force and effect to the foregoing, the CONTRACTOR hereby, without
necessity of any further act and deed, authorizes the OWNER to deduct any amount that may
be due under Item (a) above, from any and all money or amounts due or which will become
due to the CONTRACTOR by virtue of this Agreement and/or to collect such amounts from the
Performance Bond filed by the CONTRACTOR in this Agreement. 36 (Emphasis supplied.)
Liability for liquidated damages is governed by Articles 2226 to 2228 of the Civil Code, which
provide:
ART. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid
in case of breach thereof.
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable.
ART. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall determine
the measure of damages, and not the stipulation.
A stipulation for liquidated damages is attached to an obligation in order to ensure performance
and has a double function: (1) to provide for liquidated damages, and (2) to strengthen the
coercive force of the obligation by the threat of greater responsibility in the event of
breach.37 The amount agreed upon answers for damages suffered by the owner due to delays
in the completion of the project.38 As a precondition to such award, however, there must be
proof of the fact of delay in the performance of the obligation. 39
Concededly, Article 12.01 of the Construction Agreement mentioned only the failure of the
contractor to complete the project within the stipulated period or the extension granted by the
owner. However, this will not defeat petitioners claim for damages nor respondents liability
under the Performance Bond. Mabunay was clearly in default considering the dismal
percentage of his accomplishment (32.38%) of the work he contracted on account of delays in

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executing the scheduled work activities and repeated failure to provide sufficient manpower to
expedite construction works. The events of default and remedies of the Owner are set forth in
Article 13, which reads:
ARTICLE 13 DEFAULT OF CONTRACTOR:
13.01 Any of the following shall constitute an Event of Default on the part of the
CONTRACTOR.
xxxx
g. In case the CONTRACTOR has done any of the following:
(i.) has abandoned the Project
(ii.) without reasonable cause, has failed to commence the construction or has suspended the
progress of the Project for twenty-eight days
(iii.) without justifiable cause, has delayed the completion of the Project by more than thirty (30)
calendar days based on official work schedule duly approved by the OWNER
(iv.) despite previous written warning by the OWNER, is not executing the construction works in
accordance with the Agreement or is persistently or flagrantly neglecting to carry out its
obligations under the Agreement.
(v.) has, to the detriment of good workmanship or in defiance of the Owners instructions to the
contrary, sublet any part of the Agreement.
13.02 If the CONTRACTOR has committed any of the above reasons cited in Item 13.01, the
OWNER may after giving fourteen (14) calendar days notice in writing to the CONTRACTOR,
enter upon the site and expel the CONTRACTOR therefrom without voiding this Agreement, or
releasing the CONTRACTOR from any of its obligations, and liabilities under this Agreement.
Also without diminishing or affecting the rights and powers conferred on the OWNER by this
Agreement and the OWNER may himself complete the work or may employ any other
contractor to complete the work. If the OWNER shall enter and expel the CONTRACTOR
under this clause, the OWNER shall be entitled to confiscate the performance bond of the
CONTRACTOR to compensate for all kinds of damages the OWNER may suffer. All expenses
incurred to finish the Project shall be charged to the CONTRACTOR and/or his bond. Further,
the OWNER shall not be liable to pay the CONTRACTOR until the cost of execution, damages
for the delay in the completion, if any, and all; other expenses incurred by the OWNER have
been ascertained which amount shall be deducted from any money due to the CONTRACTOR
on account of this Agreement. The CONTRACTOR will not be compensated for any loss of
profit, loss of goodwill, loss of use of any equipment or property, loss of business opportunity,
additional financing cost or overhead or opportunity losses related to the unaccomplished
portions of the work.40 (Emphasis supplied.)
As already demonstrated, the contractors default in this case pertains to his failure to
substantially perform the work on account of tremendous delays in executing the scheduled
work activities. Where a party to a building construction contract fails to comply with the duty
imposed by the terms of the contract, a breach results for which an action may be maintained
to recover the damages sustained thereby, and of course, a breach occurs where the
contractor inexcusably fails to perform substantially in accordance with the terms of the
contract.41

The plain and unambiguous terms of the Construction Agreement authorize petitioner to
confiscate the Performance Bond to answer for all kinds of damages it may suffer as a result of
the contractors failure to complete the building. Having elected to terminate the contract and
expel the contractor from the project site under Article 13 of the said Agreement, petitioner is
clearly entitled to the proceeds of the bond as indemnification for damages it sustained due to
the breach committed by Mabunay. Such stipulation allowing the confiscation of the
contractors performance bond partakes of the nature of a penalty clause. A penalty clause,
expressly recognized by law, is an accessory undertaking to assume greater liability on the part
of the obligor in case of breach of an obligation. It functions to strengthen the coercive force of
obligation and to provide, in effect, for what could be the liquidated damages resulting from
such a breach. The obligor would then be bound to pay the stipulated indemnity without the
necessity of proof on the existence and on the measure of damages caused by the breach. It is
well-settled that so long as such stipulation does not contravene law, morals, or public order, it
is strictly binding upon the obligor.42
Respondent, however, insists that it is not liable for the breach committed by Mabunay
because by the terms of the surety bond it issued, its liability is limited to the performance by
said contractor to the extent equivalent to 20% of the down payment. It stresses that with the
32.38% completion of the project by Mabunay, its liability was extinguished because the value
of such accomplishment already exceeded the sum equivalent to 20% down payment (P8.4
million).
The appellate court correctly rejected this theory of respondent when it ruled that the
Performance Bond guaranteed the full and faithful compliance of Mabunays obligations under
the Construction Agreement, and that nowhere in law or jurisprudence does it state that the
obligation or undertaking by a surety may be apportioned.
The pertinent portions of the Performance Bond provide:
The conditions of this obligation are as follows:
Whereas the JPLUS ASIA, requires the principal SEVEN SHADES OF BLUE
CONSTRUCTION AND DEVELOPMENT, INC. to post a bond of the abovestated sum to
guarantee 20% down payment for the construction of Building 25 (Villa Beatriz) 72-Room
Condotel, The Lodgings inside Fairways and Bluewater, Boracay Island, Malay, Aklan.
Whereas, said contract required said Principal to give a good and sufficient bond in the abovestated sum to secure the full and faithful performance on his part of said contract.
It is a special provision of this undertaking that the liability of the surety under this bond shall in
no case exceed the sum of P8,400,000.00 Philippine Currency.
Now, Therefore, if the Principal shall well and truly perform and fulfill all the undertakings,
covenants, terms, conditions and agreements stipulated in said contract, then this obligation
shall be null and void; otherwise to remain in full force and effect. 43 (Emphasis supplied.)
While the above condition or specific guarantee is unclear, the rest of the recitals in the bond
unequivocally declare that it secures the full and faithful performance of Mabunays obligations
under the Construction Agreement with petitioner. By its nature, a performance bond
guarantees that the contractor will perform the contract, and usually provides that if the
contractor defaults and fails to complete the contract, the surety can itself complete the
contract or pay damages up to the limit of the bond. 44 Moreover, the rule is that if the language

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of the bond is ambiguous or uncertain, it will be construed most strongly against a
compensated surety and in favor of the obligees or beneficiaries under the bond, in this case
petitioner as the Project Owner, for whose benefit it was ostensibly executed. 45
The imposition of interest on the claims of petitioner is likewise in order. As we held in
Commonwealth Insurance Corporation v. Court of Appeals46
Petitioner argues that it should not be made to pay interest because its issuance of the surety
bonds was made on the condition that its liability shall in no case exceed the amount of the
said bonds.
We are not persuaded. Petitioners argument is misplaced.
Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee
Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc.,
and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company,
Inc., we have sustained the principle that if a surety upon demand fails to pay, he can be held
liable for interest, even if in thus paying, its liability becomes more than the principal obligation.
The increased liability is not because of the contract but because of the default and the
necessity of judicial collection.
Petitioners liability under the suretyship contract is different from its liability under the
law.1wphi1 There is no question that as a surety, petitioner should not be made to pay more
than its assumed obligation under the surety bonds. However, it is clear from the above-cited
jurisprudence that petitioners liability for the payment of interest is not by reason of the
suretyship agreement itself but because of the delay in the payment of its obligation under the
said agreement.47 (Emphasis supplied; citations omitted.)
WHEREFORE, the petition for review on certiorari is GRANTED. The Decision dated January
27, 2011 and Resolution dated December 8, 2011 of the Court of Appeals in CA-G.R. SP No.
112808 are hereby REVERSED and SET ASIDE.
The Award made in the Decision dated February 2, 2010 of the Construction Industry
Arbitration Commission Is hereby REINSTATED with the following MODIFICATIONS:
"Accordingly, in view of our foregoing discussions and dispositions, the Tribunal hereby
adjudges, orders and directs:
1) Respondent Utassco to pay to petitioner J Plus Asia Development Corporation the full
amount of the Performance Bond, P8,400,000.00, pursuant to Art. 13 of the Construction
Agreement dated December 24, 2007, with interest at the rate of 6% per annum computed
from the date of the filing of the complaint until the finality of this decision, and 12% per annum
computed from the date this decision becomes final until fully paid; and
2) Respondent Mabunay to indemnify respondent Utassco of the amounts respondent Utassco
will have paid to claimant under this decision, plus interest thereon at the rate of 12% per
annum computed from the date he is notified of such payment made by respondent Utassco to
claimant until fully paid, and to pay Utassco P100,000.00 as attorney's fees.
SO ORDERED.
With the above modifications, the Writ of Execution dated November 24, 2010 issued by the
CIAC Arbitral Tribunal in CIAC Case No. 03-2009 is hereby REINSTATED and UPHELD.
No pronouncement as to costs.

SO ORDERED.

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