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ARELLANO

UNIVERSITY SCHOOL OF LAW


Taft Avenue Corner Menlo St. Pasay City, Philippines
S/Y 2016-2017, 2ND Semester


CIVIL LAW REVIEW 2
Atty. Crisostomo A. Uribe


January 20, 2017



CASE COMPILATION
PART 1: OBLICON


Contributors:
Glenn Chua
Katrina Ongoco
Hannah Matti Espinosa
Dominick Botor






OBLIGATIONS contracted is the same debt of the defendant's mother to the
(Art. 1156-1304) parents of the plaintiff.

1. G.R. No. L-47362 December 19, 1940 Although the action to recover the original debt has
already been prescribed when the claim was filed in this case, the
JUAN F. VILLARROEL, recurrente-apelante, question that arises in this appeal is mainly whether,
vs. notwithstanding such a requirement, the action filed. However,
BERNARDINO ESTRADA, recurrido-apelado. the present action is not based on the original obligation
contracted by the defendant's mother, which has already been
prescribed, but in which the defendant contracted on August 9,
AVANCEA, Pres.: 1930 (Exhibit B) upon assuming the fulfillment of that obligation,
Already prescribed. Since the defendant is the sole inheritor of
On May 9, 1912, Alejandro F. Callao, the mother of the the primitive debtor, with the right to succeed in his inheritance,
defendant Juan F. Villarroel, obtained from the spouses Mariano that debt, brought by his mother legally, although it has lost its
Estrada and Severina a loan of P1,000 payable after seven years effectiveness by prescription, is now, however, for a moral
(Exhibit A). Alejandra died, leaving as sole heir to the defendant. obligation, which is consideration Sufficient to create and render
The spouses Mariano Estrada and Severina also died, leaving as effective and enforceable its obligation voluntarily contracted on
sole heir the plaintiff Bernardino Estrada. On August 9, 1930, the August 9, 1930 in Exhibit B.
defendant signed a document (Exhibit B) by which it declares the
applicant to owe the amount of P1,000, with an interest of 12 The rule that a new promise to pay a pre-paid debt must
percent per year. This action deals with the collection of this be made by the same obligated person or by another legally
amount. authorized by it, is not applicable to the present case in which it
is not required to fulfill the obligation of the obligee originally,
The Court of First Instance of Laguna, in which this action but Of which he voluntarily wanted to assume this obligation.
was filed, ordered the defendant to pay the claimant the claimed
amount of P1,000 with his legal interests of 12 percent a year The judgment appealed against is upheld, with costs being
from August 9, 1930 until its full payment. This sentence is paid to the appellant. That is how it is commanded.
appealed.

It will be noted that the parties to the present case are,
respectively, the sole heirs of the original creditors and debtor.
This action is exercised by virtue of the obligation that the 2. G.R. No. L-13667 April 29, 1960
defendant as the only child of the original debtor contracted in
favor of the plaintiff, sole heir of the primitive creditors. It is PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
admitted that the amount of P1,000 to which this obligation is vs.

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THE BOARD OF DIRECTORS OF THE NATIONAL understands, it has no power to compel a party to comply
DEVELOPMENT COMPANY, ET AL., defendants- with a moral obligation (Art. 142, New Civil Code.).
appellees.
IN VIEW WHEREOF, dismissed. No pronouncement as to
PARAS, C. J.: costs.

On July 25, 1956, appellants filed against appellees in the A motion for reconsideration of the afore-quoted order was
Court of First Instance of Manila a complaint praying for a 20% denied. Hence this appeal.
Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss, issued the following order: Appellants contend that there exists a cause of action in their
complaint because their claim rests on moral grounds or what in
Considering the motion to dismiss filed on 15 August, brief is defined by law as a natural obligation.
1956, set for this morning; considering that at the hearing
thereof, only respondents appeared thru counsel and Since appellants admit that appellees are not under legal
there was no appearance for the plaintiffs although the obligation to give such claimed bonus; that the grant arises only
court waited for sometime for them; considering, from a moral obligation or the natural obligation that they
however, that petitioners have submitted an opposition discussed in their brief, this Court feels it urgent to reproduce at
which the court will consider together with the arguments this point, the definition and meaning of natural obligation.
presented by respondents and the Exhibits marked and
presented, namely, Exhibits 1 to 5, at the hearing of the Article 1423 of the New Civil Code classifies obligations into civil
motion to dismiss; considering that the action in brief is or natural. "Civil obligations are a right of action to compel their
one to compel respondents to declare a Christmas bonus performance. Natural obligations, not being based on positive
for petitioners workers in the National Development law but on equity and natural law, do not grant a right of action
Company; considering that the Court does not see how to enforce their performance, but after voluntary fulfillment by
petitioners may have a cause of action to secure such the obligor, they authorize the retention of what has been
bonus because: delivered or rendered by reason thereof".

(a) A bonus is an act of liberality and the court takes it It is thus readily seen that an element of natural obligation before
that it is not within its judicial powers to command it can be cognizable by the court is voluntary fulfillment by the
respondents to be liberal; obligor. Certainly retention can be ordered but only after there
has been voluntary performance. But here there has been no
(b) Petitioners admit that respondents are not under legal voluntary performance. In fact, the court cannot order the
duty to give such bonus but that they had only ask that performance.
such bonus be given to them because it is a moral
obligation of respondents to give that but as this Court At this point, we would like to reiterate what we said in the case
of Philippine Education Co. vs. CIR and the Union of Philippine

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Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) THE HONORABLE MIDPAINTAO L. ADIL, Judge of the
Second Branch of the Court of First Instance of Iloilo
and SPOUSES PATRICIO CONFESOR and JOVITA
x x x x x x x x x VILLAFUERTE, respondents.

From the legal point of view a bonus is not a demandable GANCAYCO, J.:
and enforceable obligation. It is so when it is made a part
of the wage or salary compensation.

And while it is true that the subsequent case of H. E. The issue posed in this petition for review on certiorari is the
Heacock vs. National Labor Union, et al., 95 Phil., 553; 50 Off. Gaz., validity of a promissory note which was executed in
4253, we stated that: consideration of a previous promissory note the enforcement of
which had been barred by prescription.
Even if a bonus is not demandable for not forming part of
the wage, salary or compensation of an employee, the On February 10, 1940 spouses Patricio Confesor and
same may nevertheless, be granted on equitable Jovita Villafuerte obtained an agricultural loan from the
consideration as when it was given in the past, though Agricultural and Industrial Bank (AIB), now the Development of
withheld in succeeding two years from low salaried the Philippines (DBP), in the sum of P2,000.00, Philippine
employees due to salary increases. Currency, as evidenced by a promissory note of said date
whereby they bound themselves jointly and severally to pay the
still the facts in said Heacock case are not the same as in the account in ten (10) equal yearly amortizations. As the obligation
instant one, and hence the ruling applied in said case cannot be remained outstanding and unpaid even after the lapse of the
considered in the present action. aforesaid ten-year period, Confesor, who was by then a member
of the Congress of the Philippines, executed a second promissory
Premises considered, the order appealed from is hereby affirmed, note on April 11, 1961 expressly acknowledging said loan and
without pronouncement as to costs. promising to pay the same on or before June 15, 1961. The new
promissory note reads as follows

I hereby promise to pay the amount covered by my
promissory note on or before June 15, 1961. Upon
my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if
3. G.R. No. L-48889 May 11, 1989 I can secure a certificate of indebtedness from the
government of my back pay I will be allowed to pay
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), the amount out of it.
petitioner, vs.

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Said spouses not having paid the obligation on the specified date, with merit. The right to prescription may be waived or
the DBP filed a complaint dated September 11, 1970 in the City renounced. Article 1112 of Civil Code provides:
Court of Iloilo City against the spouses for the payment of the
loan. Art. 1112. Persons with capacity to alienate
property may renounce prescription already
After trial on the merits a decision was rendered by the inferior obtained, but not the right to prescribe in the
court on December 27, 1976, the dispositive part of which reads future.
as follows:
Prescription is deemed to have been tacitly
WHEREFORE, premises considered, this Court renounced when the renunciation results from acts
renders judgment, ordering the defendants Patricio which imply the abandonment of the right
Confesor and Jovita Villafuerte Confesor to pay the acquired.
plaintiff Development Bank of the Philippines,
jointly and severally, (a) the sum of P5,760.96 plus There is no doubt that prescription has set in as to the first
additional daily interest of P l.04 from September promissory note of February 10, 1940. However, when
17, 1970, the date Complaint was filed, until said respondent Confesor executed the second promissory note on
amount is paid; (b) the sum of P576.00 equivalent April 11, 1961 whereby he promised to pay the amount covered
to ten (10%) of the total claim by way of attorney's by the previous promissory note on or before June 15, 1961, and
fees and incidental expenses plus interest at the upon failure to do so, agreed to the foreclosure of the mortgage,
legal rate as of September 17,1970, until fully paid; said respondent thereby effectively and expressly renounced and
and (c) the costs of the suit. waived his right to the prescription of the action covering the
first promissory note.
Defendants-spouses appealed therefrom to the Court of First
Instance of Iloilo wherein in due course a decision was rendered This Court had ruled in a similar case that
on April 28, 1978 reversing the appealed decision and dismissing
the complaint and counter-claim with costs against the plaintiff. ... when a debt is already barred by prescription, it
cannot be enforced by the creditor. But a new
A motion for reconsideration of said decision filed by plaintiff contract recognizing and assuming the prescribed
was denied in an order of August 10, 1978. Hence this petition debt would be valid and enforceable ... . 1
wherein petitioner alleges that the decision of respondent judge
is contrary to law and runs counter to decisions of this Court Thus, it has been held
when respondent judge (a) refused to recognize the law that the
right to prescription may be renounced or waived; and (b) that in Where, therefore, a party acknowledges the
signing the second promissory note respondent Patricio Confesor correctness of a debt and promises to pay it after
can bind the conjugal partnership; or otherwise said respondent the same has prescribed and with full knowledge of
became liable in his personal capacity. The petition is impressed

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the prescription he thereby waives the benefit of husband cannot alienate or encumber any real
prescription. 2 property of the conjugal partnership without, the
wife's consent. If she ay compel her to refuses
This is not a mere case of acknowledgment of a debt that has unreasonably to give her consent, the court m
prescribed but a new promise to pay the debt. The consideration grant the same.
of the new promissory note is the pre-existing obligation under
the first promissory note. The statutory limitation bars the We disagree. Under Article 165 of the Civil Code, the husband is
remedy but does not discharge the debt. the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the
A new express promise to pay a debt barred ... will husband for the benefit of the conjugal partnership, are
take the case from the operation of the statute of chargeable to the conjugal partnership. 5 No doubt, in this case,
limitations as this proceeds upon the ground that respondent Confesor signed the second promissory note for the
as a statutory limitation merely bars the remedy benefit of the conjugal partnership. Hence the conjugal
and does not discharge the debt, there is something partnership is liable for this obligation.
more than a mere moral obligation to support a
promise, to wit a pre-existing debt which is a WHEREFORE, the decision subject of the petition is reversed and
sufficient consideration for the new the new set aside and another decision is hereby rendered reinstating the
promise; upon this sufficient consideration decision of the City Court of Iloilo City of December 27, 1976,
constitutes, in fact, a new cause of action. 3 without pronouncement as to costs in this instance. This decision
is immediately executory and no motion for extension of time to
... It is this new promise, either made in express file motion for reconsideration shall be granted.
terms or deduced from an acknowledgement as a
legal implication, which is to be regarded as
reanimating the old promise, or as imparting
vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to
recover upon his original contract. 4 4. G.R. No. L-3756 June 30, 1952

However, the court a quo held that in signing the promissory note SAGRADA ORDEN DE PREDICADORES DEL SANTISMO
alone, respondent Confesor cannot thereby bind his wife, ROSARIO DE FILIPINAS, plaintiff-appellee,
respondent Jovita Villafuerte, citing Article 166 of the New Civil vs.
Code which provides: NATIONAL COCONUT CORPORATION, defendant-
appellant.
Art. 166. Unless the wife has been declared a non
compos mentis or a spend thrift, or is under civil First Assistant Corporate Counsel Federico C. Alikpala
interdiction or is confined in a leprosarium, the and Assistant Attorney Augusto Kalaw for appellant.

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Ramirez and Ortigas for appellee. del Santisimo Rosario de Filipinas," vs. Philippine Alien Property
Administrator, defendant, Republic of the Philippines,
LABRADOR, J.: intervenor) to annul the sale of property of Taiwan Tekkosho,
and recover its possession. The Republic of the Philippines was
This is an action to recover the possession of a piece of real allowed to intervene in the action. The case did not come for trial
property (land and warehouses) situated in Pandacan Manila, because the parties presented a joint petition in which it is
and the rentals for its occupation and use. The land belongs to the claimed by plaintiff that the sale in favor of the Taiwan Tekkosho
plaintiff, in whose name the title was registered before the war. was null and void because it was executed under threats, duress,
On January 4, 1943, during the Japanese military occupation, the and intimidation, and it was agreed that the title issued in the
land was acquired by a Japanese corporation by the name of name of the Taiwan Tekkosho be cancelled and the original title
Taiwan Tekkosho for the sum of P140,00, and thereupon title of plaintiff re-issued; that the claims, rights, title, and interest of
thereto issued in its name (transfer certificate of title No. 64330, the Alien Property Custodian be cancelled and held for naught;
Register of Deeds, Manila). After liberation, more specifically on that the occupant National Coconut Corporation has until
April 4, 1946, the Alien Property Custodian of the United States of February 28, 1949, to recover its equipment from the property
America took possession, control, and custody thereof under and vacate the premises; that plaintiff, upon entry of judgment,
section 12 of the Trading with the Enemy Act, 40 Stat., 411, for pay to the Philippine Alien Property Administration the sum of
the reason that it belonged to an enemy national. During the year P140,000; and that the Philippine Alien Property Administration
1946 the property was occupied by the Copra Export be free from responsibility or liability for any act of the National
Management Company under a custodianship agreement with Coconut Corporation, etc. Pursuant to the agreement the court
United States Alien Property Custodian (Exhibit G), and when it rendered judgment releasing the defendant and the intervenor
vacated the property it was occupied by the defendant herein. from liability, but reversing to the plaintiff the right to recover
The Philippine Government made representations with the Office from the National Coconut Corporation reasonable rentals for the
Alien Property Custodian for the use of property by the use and occupation of the premises. (Exhibit A-1.)
Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947,
the defendant was authorized to repair the warehouse on the The present action is to recover the reasonable rentals from
land, and actually spent thereon the repairs the sum of August, 1946, the date when the defendant began to occupy the
P26,898.27. In 1948, defendant leased one-third of the premises, to the date it vacated it. The defendant does not contest
warehouse to one Dioscoro Sarile at a monthly rental of P500, its liability for the rentals at the rate of P3,000 per month from
which was later raised to P1,000 a month. Sarile did not pay the February 28, 1949 (the date specified in the judgment in civil
rents, so action was brought against him. It is not shown, case No. 5007), but resists the claim therefor prior to this date. It
however, if the judgment was ever executed. interposes the defense that it occupied the property in good faith,
under no obligation whatsoever to pay rentals for the use and
Plaintiff made claim to the property before the Alien Property occupation of the warehouse. Judgment was rendered for the
Custodian of the United States, but as this was denied, it brought plaintiff to recover from the defendant the sum of P3,000 a
an action in court (Court of First Instance of Manila, civil case No. month, as reasonable rentals, from August, 1946, to the date the
5007, entitled "La Sagrada Orden Predicadores de la Provinicia defendant vacates the premises. The judgment declares that

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plaintiff has always been the owner, as the sale of Japanese 6. Defendant's possession in the nature of usufruct.
purchaser was void ab initio; that the Alien Property
Administration never acquired any right to the property, but that In reply, plaintiff-appellee's counsel contends that the Philippine
it held the same in trust until the determination as to whether or Allien Property Administration (PAPA) was a mere administrator
not the owner is an enemy citizen. The trial court further of the owner (who ultimately was decided to be plaintiff), and
declares that defendant can not claim any better rights than its that as defendant has used it for commercial purposes and has
predecessor, the Alien Property Administration, and that as leased portion of it, it should be responsible therefore to the
defendant has used the property and had subleased portion owner, who had been deprived of the possession for so many
thereof, it must pay reasonable rentals for its occupation. years. (Appellee's brief, pp. 20, 23.)

Against this judgment this appeal has been interposed, the We can not understand how the trial court, from the mere fact
following assignment of error having been made on defendant- that plaintiff-appellee was the owner of the property and the
appellant's behalf: defendant-appellant the occupant, which used for its own benefit
but by the express permission of the Alien Property Custodian of
The trial court erred in holding the defendant liable for rentals or the United States, so easily jumped to the conclusion that the
compensation for the use and occupation of the property from occupant is liable for the value of such use and occupation. If
the middle of August, 1946, to December 14, 1948. defendant-appellant is liable at all, its obligations, must arise
from any of the four sources of obligations, namley, law, contract
1. Want to "ownership rights" of the Philippine Alien Property or quasi-contract, crime, or negligence. (Article 1089, Spanish
Administration did not render illegal or invalidate its grant to the Civil Code.) Defendant-appellant is not guilty of any offense at all,
defendant of the free use of property. because it entered the premises and occupied it with the
permission of the entity which had the legal control and
2. the decision of the Court of First Instance of Manila declaring administration thereof, the Allien Property Administration.
the sale by the plaintiff to the Japanese purchaser null and void Neither was there any negligence on its part. There was also no
ab initio and that the plaintiff was and has remained as the legal privity (of contract or obligation) between the Alien Property
owner of the property, without legal interruption, is not Custodian and the Taiwan Tekkosho, which had secured the
conclusive. possession of the property from the plaintiff-appellee by the use
of duress, such that the Alien Property Custodian or its permittee
3. Reservation to the plaintiff of the right to recover from the (defendant-appellant) may be held responsible for the supposed
defendant corporation not binding on the later; illegality of the occupation of the property by the said Taiwan
Tekkosho. The Allien Property Administration had the control
4. Use of the property for commercial purposes in itself alone and administration of the property not as successor to the
does not justify payment of rentals. interests of the enemy holder of the title, the Taiwan Tekkosho,
but by express provision of law (Trading with the Enemy Act of
5. Defendant's possession was in good faith. the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a
trustee of the former owner, the plaintiff-appellee herein, but a

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trustee of then Government of the United States (32 Op. Atty. agreement that the defendant-appellant was to pay for the use
Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and occupation of the premises at all.
and against the claim or title of, the enemy owner. (Youghioheny
& Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; The above considerations show that plaintiff-appellee's claim for
U.S.C.A., 282-283.) From August, 1946, when defendant-appellant rentals before it obtained the judgment annulling the sale of the
took possession, to the late of judgment on February 28, 1948, Taiwan Tekkosho may not be predicated on any negligence or
Allien Property Administration had the absolute control of the offense of the defendant-appellant, or any contract, express or
property as trustee of the Government of the United States, with implied, because the Allien Property Administration was neither
power to dispose of it by sale or otherwise, as though it were the a trustee of plaintiff-appellee, nor a privy to the obligations of the
absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5 Taiwan Tekkosho, its title being based by legal provision of the
F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant- seizure of enemy property. We have also tried in vain to find a
appellant were liable to the Allien Property Administration for law or provision thereof, or any principle in quasi contracts or
rentals, these would not accrue to the benefit of the plaintiff- equity, upon which the claim can be supported. On the contrary,
appellee, the owner, but to the United States Government. as defendant-appellant entered into possession without any
expectation of liability for such use and occupation, it is only fair
But there is another ground why the claim or rentals can not be and just that it may not be held liable therefor. And as to the rents
made against defendant-appellant. There was no agreement it collected from its lessee, the same should accrue to it as a
between the Alien Property Custodian and the defendant- possessor in good faith, as this Court has already expressly held.
appellant for the latter to pay rentals on the property. The (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil.
existence of an implied agreement to that effect is contrary to the 467.)
circumstances. The copra Export Management Company, which
preceded the defendant-appellant, in the possession and use of Lastly, the reservation of this action may not be considered as
the property, does not appear to have paid rentals therefor, as it vesting a new right; if no right to claim for rentals existed at the
occupied it by what the parties denominated a "custodianship time of the reservation, no rights can arise or accrue from such
agreement," and there is no provision therein for the payment of reservation alone.
rentals or of any compensation for its custody and or occupation
and the use. The Trading with the Enemy Act, as originally Wherefore, the part of the judgment appealed from, which
enacted, was purely a measure of conversation, hence, it is very sentences defendant-appellant to pay rentals from August, 1946,
unlikely that rentals were demanded for the use of the property. to February 28, 1949, is hereby reversed. In all other respects the
When the National coconut Corporation succeeded the Copra judgment is affirmed. Costs of this appeal shall be against the
Export Management Company in the possession and use of the plaintiff-appellee.
property, it must have been also free from payment of rentals,
especially as it was Government corporation, and steps where
then being taken by the Philippine Government to secure the
property for the National Coconut Corporation. So that the
circumstances do not justify the finding that there was an implied 5. G.R. No. 183204 January 13, 2014

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required by the PLRA.13 Since Liu Chiu Fang could speak only in
THE METROPOLITAN BANK AND TRUST COMPANY, Mandarin, respondent Rosales acted as an interpreter for her.14
Petitioner,
vs. On March 3, 2003, respondents opened with petitioners Pritil-
ANA GRACE ROSALES AND YO YUK TO, Respondents. Tondo Branch a Joint Dollar Account15 with an initial deposit of
US$14,000.00.16
D E C I S I O N
On July 31, 2003, petitioner issued a "Hold Out" order against
DEL CASTILLO, J.: respondents accounts.17

Bank deposits, which are in the nature of a simple loan or On September 3, 2003, petitioner, through its Special Audit
mutuum,1 must be paid upon demand by the depositor.2 Department Head Antonio Ivan Aguirre, filed before the Office of
the Prosecutor of Manila a criminal case for Estafa through False
This Petition for Review on Certiorari3 under Rule 45 of the Pretences, Misrepresentation, Deceit, and Use of Falsified
Rules of Court assails the April 2, 2008 Decision4 and the May 30, Documents, docketed as I.S. No. 03I-25014,18 against respondent
2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. Rosales.19 Petitioner accused respondent Rosales and an
89086. unidentified woman as the ones responsible for the unauthorized
and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fangs
Factual Antecedents dollar account with petitioners Escolta Branch.20 Petitioner
alleged that on February 5, 2003, its branch in Escolta received
Petitioner Metropolitan Bank and Trust Company is a domestic from the PLRA a Withdrawal Clearance for the dollar account of
banking corporation duly organized and existing under the laws Liu Chiu Fang;21 that in the afternoon of the same day,
of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is respondent Rosales went to petitioners Escolta Branch to inform
the owner of China Golden Bridge Travel Services,7 a travel its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang
agency.8 Respondent Yo Yuk To is the mother of respondent was going to withdraw her dollar deposits in cash;22 that
Rosales.9 Gutierrez told respondent Rosales to come back the following
day because the bank did not have enough dollars;23 that on
In 2000, respondents opened a Joint Peso Account10 with February 6, 2003, respondent Rosales accompanied an
petitioners Pritil-Tondo Branch.11 As of August 4, 2004, unidentified impostor of Liu Chiu Fang to the bank;24 that the
respondents Joint Peso Account showed a balance of impostor was able to withdraw Liu Chiu Fangs dollar deposit in
P2,515,693.52.12 the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that
In May 2002, respondent Rosales accompanied her client Liu the bank later discovered that the serial numbers of the dollar
Chiu Fang, a Taiwanese National applying for a retirees visa from notes deposited by respondents in the amount of US$11,800.00
the Philippine Leisure and Retirement Authority (PLRA), to were the same as those withdrawn by the impostor.26
petitioners branch in Escolta to open a savings account, as

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Respondent Rosales, however, denied taking part in the On December 15, 2003, the Office of the City Prosecutor of Manila
fraudulent and unauthorized withdrawal from the dollar account issued a Resolution dismissing the criminal case for lack of
of Liu Chiu Fang.27 Respondent Rosales claimed that she did not probable cause.43 Unfazed, petitioner moved for
go to the bank on February 5, 2003.28 Neither did she inform reconsideration.
Gutierrez that Liu Chiu Fang was going to close her account.29
Respondent Rosales further claimed that after Liu Chiu Fang On September 10, 2004, respondents filed before the Regional
opened an account with petitioner, she lost track of her.30 Trial Court (RTC) of Manila a Complaint44 for Breach of
Respondent Rosales version of the events that transpired Obligation and Contract with Damages, docketed as Civil Case No.
thereafter is as follows: 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to
On February 6, 2003, she received a call from Gutierrez withdraw their deposits but were unable to because petitioner
informing her that Liu Chiu Fang was at the bank to close her had placed their accounts under "Hold Out" status.45 No
account.31 At noon of the same day, respondent Rosales went to explanation, however, was given by petitioner as to why it issued
the bank to make a transaction.32 While she was transacting the "Hold Out" order.46 Thus, they prayed that the "Hold Out"
with the teller, she caught a glimpse of a woman seated at the order be lifted and that they be allowed to withdraw their
desk of the Branch Operating Officer, Melinda Perez (Perez).33 deposits.47 They likewise prayed for actual, moral, and
After completing her transaction, respondent Rosales exemplary damages, as well as attorneys fees.48
approached Perez who informed her that Liu Chiu Fang had
closed her account and had already left.34 Perez then gave a copy Petitioner alleged that respondents have no cause of action
of the Withdrawal Clearance issued by the PLRA to respondent because it has a valid reason for issuing the "Hold Out" order.49
Rosales.35 On June 16, 2003, respondent Rosales received a call It averred that due to the fraudulent scheme of respondent
from Liu Chiu Fang inquiring about the extension of her PLRA Rosales, it was compelled to reimburse Liu Chiu Fang the amount
Visa and her dollar account.36 It was only then that Liu Chiu Fang of US$75,000.0050 and to file a criminal complaint for Estafa
found out that her account had been closed without her against respondent Rosales.51
knowledge.37 Respondent Rosales then went to the bank to
inform Gutierrez and Perez of the unauthorized withdrawal.38 While the case for breach of contract was being tried, the City
On June 23, 2003, respondent Rosales and Liu Chiu Fang went to Prosecutor of Manila issued a Resolution dated February 18,
the PLRA Office, where they were informed that the Withdrawal 2005, reversing the dismissal of the criminal complaint.52 An
Clearance was issued on the basis of a Special Power of Attorney Information, docketed as Criminal Case No. 05-236103,53 was
(SPA) executed by Liu Chiu Fang in favor of a certain Richard then filed charging respondent Rosales with Estafa before Branch
So.39 Liu Chiu Fang, however, denied executing the SPA.40 The 14 of the RTC of Manila.54
following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and
Perez met at the PLRA Office to discuss the unauthorized Ruling of the Regional Trial Court
withdrawal.41 During the conference, the bank officers assured
Liu Chiu Fang that the money would be returned to her.42 On January 15, 2007, the RTC rendered a Decision55 finding
petitioner liable for damages for breach of contract.56 The RTC

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ruled that it is the duty of petitioner to release the deposit to actual damages to [respondents] Rosales and Yo Yuk To is hereby
respondents as the act of withdrawal of a bank deposit is an act DELETED.
of demand by the creditor.57 The RTC also said that the recourse
of petitioner is against its negligent employees and not against SO ORDERED.61
respondents.58 The dispositive portion of the Decision reads:
Petitioner sought reconsideration but the same was denied by
WHEREFORE, premises considered, judgment is hereby rendered the CA in its May 30, 2008 Resolution.62
ordering [petitioner] METROPOLITAN BANK & TRUST COMPANY
to allow [respondents] ANA GRACE ROSALES and YO YUK TO to Issues
withdraw their Savings and Time Deposits with the agreed
interest, actual damages of P50,000.00, moral damages of Hence, this recourse by petitioner raising the following issues:
P50,000.00, exemplary damages of P30,000.00 and 10% of the
amount due [respondents] as and for attorneys fees plus the cost A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT"
of suit. PROVISION IN THE APPLICATION AND AGREEMENT FOR
DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
The counterclaim of [petitioner] is hereby DISMISSED for lack of
merit. B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANGS
SO ORDERED.59 FUNDS.

Ruling of the Court of Appeals C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEYS FEES.63
Aggrieved, petitioner appealed to the CA.
Petitioners Arguments
On April 2, 2008, the CA affirmed the ruling of the RTC but
deleted the award of actual damages because "the basis for Petitioner contends that the CA erred in not applying the "Hold
[respondents] claim for such damages is the professional fee that Out" clause stipulated in the Application and Agreement for
they paid to their legal counsel for [respondent] Rosales defense Deposit Account.64 It posits that the said clause applies to any
against the criminal complaint of [petitioner] for estafa before and all kinds of obligation as it does not distinguish between
the Office of the City Prosecutor of Manila and not this case."60 obligations arising ex contractu or ex delictu.65 Petitioner also
Thus, the CA disposed of the case in this wise: contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in issuing
WHEREFORE, premises considered, the Decision dated January the "Hold-Out" order.67 Petitioner likewise denies that its
15, 2007 of the RTC, Branch 21, Manila in Civil Case No. 04- employees were negligent in releasing the dollars.68 It claims
110895 is AFFIRMED with MODIFICATION that the award of that it was the deception employed by respondent Rosales that

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caused petitioners employees to release Liu Chiu Fangs funds to employees were negligent in allowing the withdrawal of Liu Chiu
the impostor.69 Fangs dollar deposits has no bearing in the resolution of this
case. Thus, we find no need to discuss the same.
Lastly, petitioner puts in issue the award of moral and exemplary
damages and attorneys fees. It insists that respondents failed to The "Hold Out" clause does not apply
prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner.70 to the instant case.

Respondents Arguments Petitioner claims that it did not breach its contract with
respondents because it has a valid reason for issuing the "Hold
Respondents, on the other hand, argue that there is no legal basis Out" order. Petitioner anchors its right to withhold respondents
for petitioner to withhold their deposits because they have no deposits on the Application and Agreement for Deposit Account,
monetary obligation to petitioner.71 They insist that petitioner which reads:
miserably failed to prove its accusations against respondent
Rosales.72 In fact, no documentary evidence was presented to Authority to Withhold, Sell and/or Set Off:
show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the The Bank is hereby authorized to withhold as security for any
serial numbers of the dollar notes fraudulently withdrawn on and all obligations with the Bank, all monies, properties or
February 6, 2003, was not signed or acknowledged by the alleged securities of the Depositor now in or which may hereafter come
impostor.74 Respondents likewise maintain that what was into the possession or under the control of the Bank, whether left
established during the trial was the negligence of petitioners with the Bank for safekeeping or otherwise, or coming into the
employees as they allowed the withdrawal of the funds without hands of the Bank in any way, for so much thereof as will be
properly verifying the identity of the depositor.75 Furthermore, sufficient to pay any or all obligations incurred by Depositor
respondents contend that their deposits are in the nature of a under the Account or by reason of any other transactions
loan; thus, petitioner had the obligation to return the deposits to between the same parties now existing or hereafter contracted,
them upon demand.76 Failing to do so makes petitioner liable to to sell in any public or private sale any of such properties or
pay respondents moral and exemplary damages, as well as securities of Depositor, and to apply the proceeds to the payment
attorneys fees.77 of any Depositors obligations heretofore mentioned.

Our Ruling x x x x

The Petition is bereft of merit. JOINT ACCOUNT

At the outset, the relevant issues in this case are (1) whether x x x x
petitioner breached its contract with respondents, and (2) if so,
whether it is liable for damages. The issue of whether petitioners

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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 Respondents are entitled to moral and
Account and apply all or any part thereof against any exemplary damages and attorneys fees.1wphi1
indebtedness, matured or unmatured, that may then be owing to
the Bank by any or all of the Depositors. It is understood that if In cases of breach of contract, moral damages may be recovered
said indebtedness is only owing from any of the Depositors, then only if the defendant acted fraudulently or in bad faith,80 or is
this provision constitutes the consent by all of the depositors to "guilty of gross negligence amounting to bad faith, or in wanton
have the Account answer for the said indebtedness to the extent disregard of his contractual obligations."81
of the equal share of the debtor in the amount credited to the
Account.78 In this case, a review of the circumstances surrounding the
issuance of the "Hold Out" order reveals that petitioner issued
Petitioners reliance on the "Hold Out" clause in the Application the "Hold Out" order in bad faith. First of all, the order was issued
and Agreement for Deposit Account is misplaced. without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out."82 Third, the order
The "Hold Out" clause applies only if there is a valid and existing was issued prior to the filing of the criminal complaint. Records
obligation arising from any of the sources of obligation show that the "Hold Out" order was issued on July 31, 2003,83
enumerated in Article 115779 of the Civil Code, to wit: law, while the criminal complaint was filed only on September 3,
contracts, quasi-contracts, delict, and quasi-delict. In this case, 2003.84 All these taken together lead us to conclude that
petitioner failed to show that respondents have an obligation to it petitioner acted in bad faith when it breached its contract with
under any law, contract, quasi-contract, delict, or quasi-delict. respondents. As we see it then, respondents are entitled to moral
And although a criminal case was filed by petitioner against damages.
respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final As to the award of exemplary damages, Article 222985 of the
judgment of conviction has been rendered against respondent Civil Code provides that exemplary damages may be imposed "by
Rosales. In fact, it is significant to note that at the time petitioner way of example or correction for the public good, in addition to
issued the "Hold Out" order, the criminal complaint had not yet the moral, temperate, liquidated or compensatory damages."
been filed. Thus, considering that respondent Rosales is not liable They are awarded only if the guilty party acted in a wanton,
under any of the five sources of obligation, there was no legal fraudulent, reckless, oppressive or malevolent manner.86
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" In this case, we find that petitioner indeed acted in a wanton,
clause does not apply in the instant case. fraudulent, reckless, oppressive or malevolent manner when it
refused to release the deposits of respondents without any legal
In view of the foregoing, we find that petitioner is guilty of breach basis. We need not belabor the fact that the banking industry is
of contract when it unjustifiably refused to release respondents impressed with public interest.87 As such, "the highest degree of
deposit despite demand. Having breached its contract with diligence is expected, and high standards of integrity and
respondents, petitioner is liable for damages. performance are even required of it."88 It must therefore "treat

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the accounts of its depositors with meticulous care and always to Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the
have in mind the fiduciary nature of its relationship with November 10, 2004 Decision3 of the Regional Trial Court of
them."89 For failing to do this, an award of exemplary damages is Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the
justified to set an example. complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5
The award of attorney's fees is likewise proper pursuant to
paragraph 1, Article 220890 of the Civil Code. The antecedent facts are as follows:

In closing, it must be stressed that while we recognize that Petitioner Joseph Saludaga was a sophomore law student of
petitioner has the right to protect itself from fraud or suspicions respondent Far Eastern University (FEU) when he was shot by
of fraud, the exercise of his right should be done within the Alejandro Rosete (Rosete), one of the security guards on duty at
bounds of the law and in accordance with due process, and not in the school premises on August 18, 1996. Petitioner was rushed to
bad faith or in a wanton disregard of its contractual obligation to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to
respondents. the wound he sustained.6 Meanwhile, Rosete was brought to the
police station where he explained that the shooting was
WHEREFORE, the Petition is hereby DENIED. The assailed April accidental. He was eventually released considering that no formal
2, 2008 Decision and the May 30, 2008 Resolution of the Court of complaint was filed against him.
Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED. Petitioner thereafter filed a complaint for damages against
respondents on the ground that they breached their obligation to
provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a
Third-Party Complaint7 against Galaxy Development and
6. G.R. No. 179337 April 30, 2008 Management Corporation (Galaxy), the agency contracted by
respondent FEU to provide security services within its premises
JOSEPH SALUDAGA, petitioner, and Mariano D. Imperial (Imperial), Galaxy's President, to
vs. indemnify them for whatever would be adjudged in favor of
FAR EASTERN UNIVERSITY and EDILBERTO C. DE petitioner, if any; and to pay attorney's fees and cost of the suit.
JESUS in his capacity as President of FEU, respondents. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8
D E C I S I O N
On November 10, 2004, the trial court rendered a decision in
YNARES-SANTIAGO, J.: favor of petitioner, the dispositive portion of which reads:

This Petition for Review on Certiorari1 under Rule 45 of the WHEREFORE, from the foregoing, judgment is hereby rendered
Rules of Court assails the June 29, 2007 Decision2 of the Court of ordering:

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1. FEU and Edilberto de Jesus, in his capacity as president of FEU 5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE
to pay jointly and severally Joseph Saludaga the amount of INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY
P35,298.25 for actual damages with 12% interest per annum THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
from the filing of the complaint until fully paid; moral damages of OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN
P300,000.00, exemplary damages of P500,000.00, attorney's fees CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR
of P100,000.00 and cost of the suit; LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE
AND SECURE EDUCATIONAL ENVIRONMENT;
2. Galaxy Management and Development Corp. and its president,
Col. Mariano Imperial to indemnify jointly and severally 3rd 5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT
party plaintiffs (FEU and Edilberto de Jesus in his capacity as PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE
President of FEU) for the above-mentioned amounts; LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE
BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES
3. And the 4th party complaint is dismissed for lack of cause of BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT
action. No pronouncement as to costs. THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND
BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF
SO ORDERED.9 CONTRACTS; and

Respondents appealed to the Court of Appeals which rendered 5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING
the assailed Decision, the decretal portion of which provides, viz: GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY
SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11
WHEREFORE, the appeal is hereby GRANTED. The Decision dated
November 10, 2004 is hereby REVERSED and SET ASIDE. The Petitioner is suing respondents for damages based on the alleged
complaint filed by Joseph Saludaga against appellant Far Eastern breach of student-school contract for a safe learning
University and its President in Civil Case No. 98-89483 is environment. The pertinent portions of petitioner's Complaint
DISMISSED. read:

SO ORDERED.10 6.0. At the time of plaintiff's confinement, the defendants or any
of their representative did not bother to visit and inquire about
Petitioner filed a Motion for Reconsideration which was denied; his condition. This abject indifference on the part of the
hence, the instant petition based on the following grounds: defendants continued even after plaintiff was discharged from
the hospital when not even a word of consolation was heard from
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER them. Plaintiff waited for more than one (1) year for the
CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT: defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of defendants
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT; served to exacerbate plaintiff's miserable condition.

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Institutions of learning must also meet the implicit or "built-in"
x x x x obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of
11.0. Defendants are responsible for ensuring the safety of its imparting knowledge. Certainly, no student can absorb the
students while the latter are within the University premises. And intricacies of physics or higher mathematics or explore the realm
that should anything untoward happens to any of its students of the arts and other sciences when bullets are flying or grenades
while they are within the University's premises shall be the exploding in the air or where there looms around the school
responsibility of the defendants. In this case, defendants, despite premises a constant threat to life and limb. Necessarily, the
being legally and morally bound, miserably failed to protect school must ensure that adequate steps are taken to maintain
plaintiff from injury and thereafter, to mitigate and compensate peace and order within the campus premises and to prevent the
plaintiff for said injury; breakdown thereof.14

12.0. When plaintiff enrolled with defendant FEU, a contract was It is undisputed that petitioner was enrolled as a sophomore law
entered into between them. Under this contract, defendants are student in respondent FEU. As such, there was created a
supposed to ensure that adequate steps are taken to provide an contractual obligation between the two parties. On petitioner's
atmosphere conducive to study and ensure the safety of the part, he was obliged to comply with the rules and regulations of
plaintiff while inside defendant FEU's premises. In the instant the school. On the other hand, respondent FEU, as a learning
case, the latter breached this contract when defendant allowed institution is mandated to impart knowledge and equip its
harm to befall upon the plaintiff when he was shot at by, of all students with the necessary skills to pursue higher education or a
people, their security guard who was tasked to maintain peace profession. At the same time, it is obliged to ensure and take
inside the campus.12 adequate steps to maintain peace and order within the campus.

In Philippine School of Business Administration v. Court of It is settled that in culpa contractual, the mere proof of the
Appeals,13 we held that: existence of the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief.15 In the instant case,
When an academic institution accepts students for enrollment, we find that, when petitioner was shot inside the campus by no
there is established a contract between them, resulting in less the security guard who was hired to maintain peace and
bilateral obligations which both parties are bound to comply secure the premises, there is a prima facie showing that
with. For its part, the school undertakes to provide the student respondents failed to comply with its obligation to provide a safe
with an education that would presumably suffice to equip him and secure environment to its students.
with the necessary tools and skills to pursue higher education or
a profession. On the other hand, the student covenants to abide In order to avoid liability, however, respondents aver that the
by the school's academic requirements and observe its rules and shooting incident was a fortuitous event because they could not
regulations. have reasonably foreseen nor avoided the accident caused by
Rosete as he was not their employee;16 and that they complied
with their obligation to ensure a safe learning environment for

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their students by having exercised due diligence in selecting the exempt one from liability. When the effect is found to be partly
security services of Galaxy. the result of a person's participation - whether by active
intervention, neglect or failure to act - the whole occurrence is
After a thorough review of the records, we find that respondents humanized and removed from the rules applicable to acts of
failed to discharge the burden of proving that they exercised due God.17
diligence in providing a safe learning environment for their
students. They failed to prove that they ensured that the guards Article 1170 of the Civil Code provides that those who are
assigned in the campus met the requirements stipulated in the negligent in the performance of their obligations are liable for
Security Service Agreement. Indeed, certain documents about damages. Accordingly, for breach of contract due to negligence in
Galaxy were presented during trial; however, no evidence as to providing a safe learning environment, respondent FEU is liable
the qualifications of Rosete as a security guard for the university to petitioner for damages. It is essential in the award of damages
was offered. that the claimant must have satisfactorily proven during the trial
the existence of the factual basis of the damages and its causal
Respondents also failed to show that they undertook steps to connection to defendant's acts.18
ascertain and confirm that the security guards assigned to them
actually possess the qualifications required in the Security In the instant case, it was established that petitioner spent
Service Agreement. It was not proven that they examined the P35,298.25 for his hospitalization and other medical expenses.19
clearances, psychiatric test results, 201 files, and other vital While the trial court correctly imposed interest on said amount,
documents enumerated in its contract with Galaxy. Total reliance however, the case at bar involves an obligation arising from a
on the security agency about these matters or failure to check the contract and not a loan or forbearance of money. As such, the
papers stating the qualifications of the guards is negligence on proper rate of legal interest is six percent (6%) per annum of the
the part of respondents. A learning institution should not be amount demanded. Such interest shall continue to run from the
allowed to completely relinquish or abdicate security matters in filing of the complaint until the finality of this Decision.20 After
its premises to the security agency it hired. To do so would result this Decision becomes final and executory, the applicable rate
to contracting away its inherent obligation to ensure a safe shall be twelve percent (12%) per annum until its satisfaction.
learning environment for its students.
The other expenses being claimed by petitioner, such as
Consequently, respondents' defense of force majeure must fail. In transportation expenses and those incurred in hiring a personal
order for force majeure to be considered, respondents must show assistant while recuperating were however not duly supported
that no negligence or misconduct was committed that may have by receipts.21 In the absence thereof, no actual damages may be
occasioned the loss. An act of God cannot be invoked to protect a awarded. Nonetheless, temperate damages under Art. 2224 of the
person who has failed to take steps to forestall the possible Civil Code may be recovered where it has been shown that the
adverse consequences of such a loss. One's negligence may have claimant suffered some pecuniary loss but the amount thereof
concurred with an act of God in producing damage and injury to cannot be proved with certainty. Hence, the amount of
another; nonetheless, showing that the immediate or proximate P20,000.00 as temperate damages is awarded to petitioner.
cause of the damage or injury was a fortuitous event would not

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As regards the award of moral damages, there is no hard and fast contracts in behalf of the corporation cannot be held personally
rule in the determination of what would be a fair amount of liable for the liabilities of the latter. Personal liability of a
moral damages since each case must be governed by its own corporate director, trustee or officer along (although not
peculiar circumstances.22 The testimony of petitioner about his necessarily) with the corporation may so validly attach, as a rule,
physical suffering, mental anguish, fright, serious anxiety, and only when - (1) he assents to a patently unlawful act of the
moral shock resulting from the shooting incident23 justify the corporation, or when he is guilty of bad faith or gross negligence
award of moral damages. However, moral damages are in the in directing its affairs, or when there is a conflict of interest
category of an award designed to compensate the claimant for resulting in damages to the corporation, its stockholders or other
actual injury suffered and not to impose a penalty on the persons; (2) he consents to the issuance of watered down stocks
wrongdoer. The award is not meant to enrich the complainant at or who, having knowledge thereof, does not forthwith file with
the expense of the defendant, but to enable the injured party to the corporate secretary his written objection thereto; (3) he
obtain means, diversion, or amusements that will serve to agrees to hold himself personally and solidarily liable with the
obviate the moral suffering he has undergone. It is aimed at the corporation; or (4) he is made by a specific provision of law
restoration, within the limits of the possible, of the spiritual personally answerable for his corporate action.27
status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of None of the foregoing exceptions was established in the instant
exorbitant damages; they should exercise balanced restrained case; hence, respondent De Jesus should not be held solidarily
and measured objectivity to avoid suspicion that it was due to liable with respondent FEU.
passion, prejudice, or corruption on the part of the trial court.24
We deem it just and reasonable under the circumstances to Incidentally, although the main cause of action in the instant case
award petitioner moral damages in the amount of P100,000.00. is the breach of the school-student contract, petitioner, in the
alternative, also holds respondents vicariously liable under
Likewise, attorney's fees and litigation expenses in the amount of Article 2180 of the Civil Code, which provides:
P50,000.00 as part of damages is reasonable in view of Article
2208 of the Civil Code.25 However, the award of exemplary Art. 2180. The obligation imposed by Article 2176 is demandable
damages is deleted considering the absence of proof that not only for one's own acts or omissions, but also for those of
respondents acted in a wanton, fraudulent, reckless, oppressive, persons for whom one is responsible.
or malevolent manner.
x x x x
We note that the trial court held respondent De Jesus solidarily
liable with respondent FEU. In Powton Conglomerate, Inc. v. Employers shall be liable for the damages caused by their
Agcolicol,26 we held that: employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
[A] corporation is invested by law with a personality separate business or industry.
and distinct from those of the persons composing it, such that,
save for certain exceptions, corporate officers who entered into x x x x

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the ordinary course of events, be demanded from the client
The responsibility treated of in this article shall cease when the whose premises or property are protected by the security guards.
persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. x x x x

We agree with the findings of the Court of Appeals that The fact that a client company may give instructions or directions
respondents cannot be held liable for damages under Art. 2180 of to the security guards assigned to it, does not, by itself, render the
the Civil Code because respondents are not the employers of client responsible as an employer of the security guards
Rosete. The latter was employed by Galaxy. The instructions concerned and liable for their wrongful acts or omissions.31
issued by respondents' Security Consultant to Galaxy and its
security guards are ordinarily no more than requests commonly We now come to respondents' Third Party Claim against Galaxy.
envisaged in the contract for services entered into by a principal In Firestone Tire and Rubber Company of the Philippines v.
and a security agency. They cannot be construed as the element Tempengko,32 we held that:
of control as to treat respondents as the employers of Rosete.28
The third-party complaint is, therefore, a procedural device
As held in Mercury Drug Corporation v. Libunao:29 whereby a 'third party' who is neither a party nor privy to the act
or deed complained of by the plaintiff, may be brought into the
In Soliman, Jr. v. Tuazon,30 we held that where the security case with leave of court, by the defendant, who acts as third-party
agency recruits, hires and assigns the works of its watchmen or plaintiff to enforce against such third-party defendant a right for
security guards to a client, the employer of such guards or contribution, indemnity, subrogation or any other relief, in
watchmen is such agency, and not the client, since the latter has respect of the plaintiff's claim. The third-party complaint is
no hand in selecting the security guards. Thus, the duty to actually independent of and separate and distinct from the
observe the diligence of a good father of a family cannot be plaintiff's complaint. Were it not for this provision of the Rules of
demanded from the said client: Court, it would have to be filed independently and separately
from the original complaint by the defendant against the third-
[I]t is settled in our jurisdiction that where the security agency, party. But the Rules permit defendant to bring in a third-party
as here, recruits, hires and assigns the work of its watchmen or defendant or so to speak, to litigate his separate cause of action in
security guards, the agency is the employer of such guards or respect of plaintiff's claim against a third-party in the original
watchmen. Liability for illegal or harmful acts committed by the and principal case with the object of avoiding circuitry of action
security guards attaches to the employer agency, and not to the and unnecessary proliferation of law suits and of disposing
clients or customers of such agency. As a general rule, a client or expeditiously in one litigation the entire subject matter arising
customer of a security agency has no hand in selecting who from one particular set of facts.33
among the pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the diligence of Respondents and Galaxy were able to litigate their respective
a good father of a family in the selection of the guards cannot, in claims and defenses in the course of the trial of petitioner's
complaint. Evidence duly supports the findings of the trial court

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that Galaxy is negligent not only in the selection of its employees a. respondent Far Eastern University (FEU) is ORDERED to pay
but also in their supervision. Indeed, no administrative sanction petitioner actual damages in the amount of P35,298.25, plus 6%
was imposed against Rosete despite the shooting incident; interest per annum from the filing of the complaint until the
moreover, he was even allowed to go on leave of absence which finality of this Decision. After this decision becomes final and
led eventually to his disappearance.34 Galaxy also failed to executory, the applicable rate shall be twelve percent (12%) per
monitor petitioner's condition or extend the necessary annum until its satisfaction;
assistance, other than the P5,000.00 initially given to petitioner.
Galaxy and Imperial failed to make good their pledge to b. respondent FEU is also ORDERED to pay petitioner temperate
reimburse petitioner's medical expenses. damages in the amount of P20,000.00; moral damages in the
amount of P100,000.00; and attorney's fees and litigation
For these acts of negligence and for having supplied respondent expenses in the amount of P50,000.00;
FEU with an unqualified security guard, which resulted to the
latter's breach of obligation to petitioner, it is proper to hold c. the award of exemplary damages is DELETED.
Galaxy liable to respondent FEU for such damages equivalent to
the above-mentioned amounts awarded to petitioner. The Complaint against respondent Edilberto C. De Jesus is
DISMISSED. The counterclaims of respondents are likewise
Unlike respondent De Jesus, we deem Imperial to be solidarily DISMISSED.
liable with Galaxy for being grossly negligent in directing the
affairs of the security agency. It was Imperial who assured Galaxy Development and Management Corporation (Galaxy) and
petitioner that his medical expenses will be shouldered by Galaxy its president, Mariano D. Imperial are ORDERED to jointly and
but said representations were not fulfilled because they severally pay respondent FEU damages equivalent to the above-
presumed that petitioner and his family were no longer mentioned amounts awarded to petitioner.
interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 87050
nullifying the Decision of the trial court and dismissing the 7. G.R. No. L-36840 May 22, 1973
complaint as well as the August 23, 2007 Resolution denying the
Motion for Reconsideration are REVERSED and SET ASIDE. The PEOPLE'S CAR INC., plaintiff-appellant,
Decision of the Regional Trial Court of Manila, Branch 2, in Civil vs.
Case No. 98-89483 finding respondent FEU liable for damages for COMMANDO SECURITY SERVICE AGENCY, defendant-
breach of its obligation to provide students with a safe and appellee.
secure learning atmosphere, is AFFIRMED with the following
MODIFICATIONS:
TEEHANKEE, J.:

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In this appeal from the adverse judgment of the Davao court of (plaintiff) from theft, pilferage, robbery, vandalism and all other
first instance limiting plaintiff-appellant's recovery under its unlawful acts of any person or person prejudicial to the interest
complaint to the sum of P1,000.00 instead of the actual damages of (plaintiff)." 4
of P8,489.10 claimed and suffered by it as a direct result of the
wrongful acts of defendant security agency's guard assigned at On April 5, 1970 at around 1:00 A.M., however, defendant's
plaintiff's premises in pursuance of their "Guard Service security guard on duty at plaintiff's premises, "without any
Contract", the Court finds merit in the appeal and accordingly authority, consent, approval, knowledge or orders of the plaintiff
reverses the trial court's judgment. and/or defendant brought out of the compound of the plaintiff a
car belonging to its customer, and drove said car for a place or
The appeal was certified to this Court by a special division of the places unknown, abandoning his post as such security guard on
Court of Appeals on a four-to-one vote as per its resolution of duty inside the plaintiff's compound, and while so driving said
April 14, 1973 that "Since the case was submitted to the court a car in one of the City streets lost control of said car, causing the
quo for decision on the strength of the stipulation of facts, only same to fall into a ditch along J.P. Laurel St., Davao City by reason
questions of law can be involved in the present appeal." of which the plaintiff's complaint for qualified theft against said
driver, was blottered in the office of the Davao City Police
The Court has accepted such certification and docketed this Department." 5
appeal on the strength of its own finding from the records that
plaintiff's notice of appeal was expressly to this Court (not to the As a result of these wrongful acts of defendant's security guard,
appellate court)" on pure questions of law" 1 and its record on the car of plaintiff's customer, Joseph Luy, which had been left
appeal accordingly prayed that" the corresponding records be with plaintiff for servicing and maintenance, "suffered extensive
certified and forwarded to the Honorable Supreme Court." 2 The damage in the total amount of P7,079." 6 besides the car rental
trial court so approved the same 3 on July 3, 1971 instead of value "chargeable to defendant" in the sum of P1,410.00 for a car
having required the filing of a petition for review of the judgment that plaintiff had to rent and make available to its said customer
sought to be appealed from directly with this Court, in to enable him to pursue his business and occupation for the
accordance with the provisions of Republic Act 5440. By some period of forty-seven (47) days (from April 25 to June 10, 1970)
unexplained and hitherto undiscovered error of the clerk of that it took plaintiff to repair the damaged car, 7 or total actual
court, furthermore, the record on appeal was erroneously damages incurred by plaintiff in the sum of P8,489.10.
forwarded to the appellate court rather than to this Court.
Plaintiff claimed that defendant was liable for the entire amount
The parties submitted the case for judgment on a stipulation of under paragraph 5 of their contract whereunder defendant
facts. There is thus no dispute as to the factual bases of plaintiff's assumed "sole responsibility for the acts done during their watch
complaint for recovery of actual damages against defendant, to hours" by its guards, whereas defendant contended, without
wit, that under the subsisting "Guard Service Contract" between questioning the amount of the actual damages incurred by
the parties, defendant-appellee as a duly licensed security service plaintiff, that its liability "shall not exceed one thousand
agency undertook in consideration of the payments made by (P1,000.00) pesos per guard post" under paragraph 4 of their
plaintiff to safeguard and protect the business premises of contract.

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The trial court, misreading the above-quoted contractual
The parties thus likewise stipulated on this sole issue submitted provisions, held that "the liability of the defendant in favor of the
by them for adjudication, as follows: plaintiff falls under paragraph 4 of the Guard Service Contract"
and rendered judgment "finding the defendant liable to the
Interpretation of the contract, as to the extent of the liability of plaintiff in the amount of P1,000.00 with costs."
the defendant to the plaintiff by reason of the acts of the
employees of the defendant is the only issue to be resolved. Hence, this appeal, which, as already indicated, is meritorious
and must be granted.
The defendant relies on Par. 4 of the contract to support its
contention while the plaintiff relies on Par. 5 of the same contract Paragraph 4 of the contract, which limits defendant's liability for
in support of its claims against the defendant. For ready the amount of loss or damage to any property of plaintiff to
reference they are quoted hereunder: "P1,000.00 per guard post," is by its own terms applicable only
for loss or damage 'through the negligence of its guards ... during
'Par. 4. Party of the Second Part (defendant) through the the watch hours" provided that the same is duly reported by
negligence of its guards, after an investigation has been plaintiff within 24 hours of the occurrence and the guard's
conducted by the Party of the First Part (plaintiff) wherein the negligence is verified after proper investigation with the
Party of the Second Part has been duly represented shall assume attendance of both contracting parties. Said paragraph is
full responsibilities for any loss or damages that may occur to any manifestly inapplicable to the stipulated facts of record, which
property of the Party of the First Part for which it is accountable, involve neither property of plaintiff that has been lost or
during the watch hours of the Party of the Second Part, provided damaged at its premises nor mere negligence of defendant's
the same is reported to the Party of the Second Part within security guard on duty.
twenty-four (24) hours of the occurrence, except where such loss
or damage is due to force majeure, provided however that after Here, instead of defendant, through its assigned security guards,
the proper investigation to be made thereof that the guard on complying with its contractual undertaking 'to safeguard and
post is found negligent and that the amount of the loss shall not protect the business premises of (plaintiff) from theft, robbery,
exceed ONE THOUSAND (P1,000.00) PESOS per guard post.' vandalism and all other unlawful acts of any person or persons,"
defendant's own guard on duty unlawfully and wrongfully drove
'Par. 5 The party of the Second Part assumes the responsibility out of plaintiffs premises a customer's car, lost control of it on the
for the proper performance by the guards employed, of their highway causing it to fall into a ditch, thereby directly causing
duties and (shall) be solely responsible for the acts done during plaintiff to incur actual damages in the total amount of P8,489.10.
their watch hours, the Party of the First Part being specifically
released from any and all liabilities to the former's employee or Defendant is therefore undoubtedly liable to indemnify plaintiff
to the third parties arising from the acts or omissions done by the for the entire damages thus incurred, since under paragraph 5 of
guard during their tour of their contract it "assumed the responsibility for the proper
duty.' ... 8 performance by the guards employed of their duties and
(contracted to) be solely responsible for the acts done during

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their watch hours" and "specifically released (plaintiff) from any the damage but the defendant" since the customer could not
and all liabilities ... to the third parties arising from the acts or hold defendant to account for the damages as he had no privity of
omissions done by the guards during their tour of duty." As contract with defendant. Such an approach of telling the adverse
plaintiff had duly discharged its liability to the third party, its party to go to court, notwithstanding his plainly valid claim, aside
customer, Joseph Luy, for the undisputed damages of P8,489.10 from its ethical deficiency among others, could hardly create any
caused said customer, due to the wanton and unlawful act of goodwill for plaintiff's business, in the same way that defendant's
defendant's guard, defendant in turn was clearly liable under the baseless attempt to evade fully discharging its contractual
terms of paragraph 5 of their contract to indemnify plaintiff in liability to plaintiff cannot be expected to have brought it more
the same amount. business. Worse, the administration of justice is prejudiced, since
the court dockets are unduly burdened with unnecessary
The trial court's approach that "had plaintiff understood the litigation.
liability of the defendant to fall under paragraph 5, it should have
told Joseph Luy, owner of the car, that under the Guard Service ACCORDINGLY, the judgment appealed from is hereby reversed
Contract, it was not liable for the damage but the defendant and and judgment is hereby rendered sentencing defendant-appellee
had Luy insisted on the liability of the plaintiff, the latter should to pay plaintiff-appellant the sum of P8,489.10 as and by way of
have challenged him to bring the matter to court. If Luy accepted reimbursement of the stipulated actual damages and expenses, as
the challenge and instituted an action against the plaintiff, it well as the costs of suit in both instances. It is so ordered.
should have filed a third-party complaint against the Commando
Security Service Agency. But if Luy instituted the action against
the plaintiff and the defendant, the plaintiff should have filed a
crossclaim against the latter," 9 was unduly technical and
unrealistic and untenable.
8. G.R. No. L-23749 April 29, 1977
Plaintiff was in law liable to its customer for the damages caused
the customer's car, which had been entrusted into its custody. FAUSTINO CRUZ, plaintiff-appellant,
Plaintiff therefore was in law justified in making good such vs.
damages and relying in turn on defendant to honor its contract J. M. TUASON & COMPANY, INC., and GREGORIO
and indemnify it for such undisputed damages, which had been ARANETA, INC., defendants-appellees.
caused directly by the unlawful and wrongful acts of defendant's
security guard in breach of their contract. As ordained in Article
1159, Civil Code, "obligations arising from contracts have the BARREDO, J.:
force of law between the contracting parties and should be
complied with in good faith." Appeal from the order dated August 13, 1964 of the Court of First
Instance of Quezon City in Civil Case No. Q-7751, Faustino Cruz
Plaintiff in law could not tell its customer, as per the trial court's vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing
view, that "under the Guard Service Contract it was not liable for the complaint of appellant Cruz for the recovery of improvements

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he has made on appellees' land and to compel appellees to 2142 of the Code on unjust enrichment is untenable; and (2)
convey to him 3,000 square meters of land on three grounds: (1) anent the alleged agreement about plaintiffs services as
failure of the complaint to state a cause of action; (2) the cause of intermediary in consideration of which, defendants promised to
action of plaintiff is unenforceable under the Statute of Frauds; convey to him 3,000 square meters of land, that the same is
and (3) the action of the plaintiff has already prescribed. unenforceable under the Statute of Frauds, there being nothing in
writing about it, and, in any event, (3) that the action of plaintiff
Actually, a perusal of plaintiff-appellant's complaint below shows to compel such conveyance has already prescribed.
that he alleged two separate causes of action, namely: (1) that
upon request of the Deudors (the family of Telesforo Deudor who Plaintiff opposed the motion, insisting that Article 2142 of the
laid claim on the land in question on the strength of an applicable to his case; that the Statute of Frauds cannot be
"informacion posesoria" ) plaintiff made permanent invoked by defendants, not only because Article 1403 of the Civil
improvements valued at P30,400.00 on said land having an area Code refers only to "sale of real property or of an interest
of more or less 20 quinones and for which he also incurred therein" and not to promises to convey real property like the one
expenses in the amount of P7,781.74, and since defendants- supposedly promised by defendants to him, but also because, he,
appellees are being benefited by said improvements, he is the plaintiff has already performed his part of the agreement,
entitled to reimbursement from them of said amounts and (2) hence the agreement has already been partly executed and not
that in 1952, defendants availed of plaintiff's services as an merely executory within the contemplation of the Statute; and
intermediary with the Deudors to work for the amicable that his action has not prescribed for the reason that defendants
settlement of Civil Case No. Q-135, then pending also in the Court had ten years to comply and only after the said ten years did his
of First Instance of Quezon City, and involving 50 quinones of cause of action accrue, that is, ten years after March 16, 1963, the
land, of Which the 20 quinones aforementioned form part, and date of the approval of the compromise agreement, and his
notwithstanding his having performed his services, as in fact, a complaint was filed on January 24, 1964.
compromise agreement entered into on March 16, 1963 between
the Deudors and the defendants was approved by the court, the Ruling on the motion to dismiss, the trial court issued the herein
latter have refused to convey to him the 3,000 square meters of impugned order of August 13, 1964:
land occupied by him, (a part of the 20 quinones above) which
said defendants had promised to do "within ten years from and In the motion, dated January 31, 1964, defendant Gregorio
after date of signing of the compromise agreement", as Araneta, Inc. prayed that the complaint against it be dismissed on
consideration for his services. the ground that (1) the claim on which the action is founded is
unenforceable under the provision of the Statute of Frauds; and
Within the Period allowed by the rules, the defendants filed (2) the plaintiff's action, if any has already prescribed. In the
separate motions to dismiss alleging three Identical grounds: (1) other motion of February 11, 1964, defendant J. M. Tuason & Co.,
As regards that improvements made by plaintiff, that the Inc. sought the dismissal of the plaintiffs complaint on the ground
complaint states no cause of action, the agreement regarding the that it states no cause of action and on the Identical grounds
same having been made by plaintiff with the Deudors and not stated in the motion to dismiss of defendant Gregorio Araneta,
with the defendants, hence the theory of plaintiff based on Article Inc. The said motions are duly opposed by the plaintiff.

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Tuason & Co., Inc. This fact is confirmed in the decision rendered
From the allegations of the complaint, it appears that, by virtue of by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079
an agreement arrived at in 1948 by the plaintiff and the Deudors, entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such
the former assisted the latter in clearing, improving, subdividing being the case, the plaintiff cannot claim good faith and mistake
and selling the large tract of land consisting of 50 quinones as to the title of the land.
covered by the informacion posesoria in the name of the late
Telesforo Deudor and incurred expenses, which are valued On the issue of statute of fraud, the Court believes that same is
approximately at P38,400.00 and P7,781.74, respectively; and, applicable to the instant case. The allegation in par. 12 of the
for the reasons that said improvements are being used and complaint states that the defendants promised and agreed to
enjoyed by the defendants, the plaintiff is seeking the cede, transfer and convey unto the plaintiff the 3,000 square
reimbursement for the services and expenses stated above from meters of land in consideration of certain services to be rendered
the defendants. then. it is clear that the alleged agreement involves an interest in
real property. Under the provisions of See. 2(e) of Article 1403 of
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the the Civil Code, such agreement is not enforceable as it is not in
plaintiffs claim for the reimbursement of the amounts of writing and subscribed by the party charged.
P38,400.00 and P7,781.74 is concerned, it is not a privy to the
plaintiff's agreement to assist the Deudors n improving the 50 On the issue of statute of limitations, the Court holds that the
quinones. On the other hand, the plaintiff countered that, by plaintiff's action has prescribed. It is alleged in par. 11 of the
holding and utilizing the improvements introduced by him, the complaint that, sometime in 1952, the defendants approached
defendants are unjustly enriching and benefiting at the expense the plaintiff to prevail upon the Deudors to enter to a
of the plaintiff; and that said improvements constitute a lien or compromise agreement in Civil Case No. Q-135 and allied cases.
charge of the property itself Furthermore, par. 13 and 14 of the complaint alleged that the
plaintiff acted as emissary of both parties in conveying their
On the issue that the complaint insofar as it claims the respective proposals and couter-proposals until the final
reimbursement for the services rendered and expenses incurred settlement was effected on March 16, 1953 and approved by
by the plaintiff, states no cause of action, the Court is of the Court on April 11, 1953. In the present action, which was
opinion that the same is well-founded. It is found that the instituted on January 24, 1964, the plaintiff is seeking to enforce
defendants are not parties to the supposed express contract the supposed agreement entered into between him and the
entered into by and between the plaintiff and the Deudors for the defendants in 1952, which was already prescribed.
clearing and improvement of the 50 quinones. Furthermore in
order that the alleged improvement may be considered a lien or WHEREFORE, the plaintiffs complaint is hereby ordered
charge on the property, the same should have been made in good DISMISSED without pronouncement as to costs.
faith and under the mistake as to the title. The Court can take
judicial notice of the fact that the tract of land supposedly SO ORDERED. (Pp. 65-69, Rec. on Appeal,)
improved by the plaintiff had been registered way back in 1914
in the name of the predecessors-in-interest of defendant J. M.

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On August 22, 1964, plaintiff's counsel filed a motion for
reconsideration dated August 20, 1964 as follows: Said this Honorable Court (at p. 2, Order):

Plaintiff through undersigned counsel and to this Honorable O R D E R
Court, respectfully moves to reconsider its Order bearing date of
13 August 1964, on the following grounds: xxx xxx xxx

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF On the issue that the complaint, in so far as it claims the
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S reimbursement for the services rendered and expenses incurred
CLAIM PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS by the plaintiff, states no cause of action, the Court is of the
EXPENSES, IS CONCERNED; opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. entered into by and between the plaintiff and the Deudors for the
MS., THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF clearing and improvement of the 50 quinones. Furthermore, in
FRAUDS IS NOT APPLICABLE THERETO; order that the alleged improvement may he considered a lien or
charge on the property, the same should have been made in good
A R G U M E N T faith and under the mistake as to title. The Court can take judicial
notice of the fact that the tract of land supposedly improved by
Plaintiff's complaint contains two (2) causes of action the first the plaintiff had been registered way back in 1914 in the name of
being an action for sum of money in the amount of P7,781.74 the predecessors-in-interest of defendant J. M. Tuason & Co., Inc.
representing actual expenses and P38,400.00 as reasonable This fact is confirmed in the decision rendered by the Supreme
compensation for services in improving the 50 quinones now in Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M.
the possession of defendants. The second cause of action deals Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the
with the 3,000 sq. ms. which defendants have agreed to transfer case, the plaintiff cannot claim good faith and mistake as to the
into Plaintiff for services rendered in effecting the compromise title of the land.
between the Deudors and defendants;
The position of this Honorable Court (supra) is that the complaint
Under its order of August 3, 1964, this Honorable Court does not state a cause of action in so far as the claim for services
dismissed the claim for sum of money on the ground that the and expenses is concerned because the contract for the
complaint does not state a cause of action against defendants. We improvement of the properties was solely between the Deudors
respectfully submit: and plaintiff, and defendants are not privies to it. Now, plaintiff's
theory is that defendants are nonetheless liable since they are
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF utilizing and enjoying the benefit's of said improvements. Thus
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S under paragraph 16 of "he complaint, it is alleged:
CLAIM FOR PAYMENT OF SERVICES AND REIMBURSEMENT OF
HIS EXPENSES IS CONCERNED.

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(16) That the services and personal expenses of plaintiff II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ.
mentioned in paragraph 7 hereof were rendered and in fact paid MS. THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF
by him to improve, as they in fact resulted in considerable FRAUDS IS NOT APPLICABLE THERETO.
improvement of the 50 quinones, and defendants being now in
possession of and utilizing said improvements should reimburse The Statute of Frauds is CLEARLY inapplicable to this case:
and pay plaintiff for such services and expenses.
At page 2 of this Honorable Court's order dated 13 August 1964,
Plaintiff's cause of action is premised inter alia, on the theory of the Court ruled as follows:
unjust enrichment under Article 2142 of the civil Code:
O R D E R
ART. 2142. Certain lawful voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one xxx xxx xxx
shill be unjustly enriched or benefited at the expense of another.
On the issue of statute of fraud, the Court believes that same is
In like vein, Article 19 of the same Code enjoins that: applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to cede,
ART. 19. Every person must, in the exercise of his rights and in transfer and convey unto the plaintiff, 3,000 square meters of
the performance of his duties, act with justice, give every-one his land in consideration of certain services to be rendered then. It is
due and observe honesty and good faith. clear that the alleged agreement involves an interest in real
property. Under the provisions of Sec. 2(e) of Article 1403 of the
We respectfully draw the attention of this Honorable Court to the Civil Code, such agreement is not enforceable as it is not in
fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASI- writing and subscribed by the party charged.
CONTRACTS or situations WHERE THERE IS NO CONTRACT
BETWEEN THE PARTIES TO THE ACTION. Further, as we can To bring this issue in sharper focus, shall reproduce not only
readily see from the title thereof (Title XVII), that the Same bears paragraph 12 of the complaint but also the other pertinent
the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or paragraphs therein contained. Paragraph 12 states thus:
obligations which do not arise from contracts. While it is true
that there was no agreement between plaintiff and defendants C O M P L A I N T
herein for the improvement of the 50 quinones since the latter
are presently enjoying and utilizing the benefits brought about xxx xxx xxx
through plaintiff's labor and expenses, defendants should pay
and reimburse him therefor under the principle that 'no one may 12). That plaintiff conferred with the aforesaid representatives of
enrich himself at the expense of another.' In this posture, the defendants several times and on these occasions, the latter
complaint states a cause of action against the defendants. promised and agreed to cede, transfer and convey unto plaintiff
the 3,000 sq. ms. (now known as Lots 16-B, 17 and 18) which

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plaintiff was then occupying and continues to occupy as of this area was totally cleared and the houses transferred to another
writing, for and in consideration of the following conditions: area designated by the defendants as 'Capt. Cruz Block' in
Masambong, Quezon City. (Pars. 12, 13 and 14, Complaint;
(a) That plaintiff succeed in convincing the DEUDORS to enter Emphasis supplied)
into a compromise agreement and that such agreement be
actually entered into by and between the DEUDORS and From the foregoing, it is clear then the agreement between the
defendant companies; parties mentioned in paragraph 12 (supra) of the complaint has
already been fully EXECUTED ON ONE PART, namely by the
(b) That as of date of signing the compromise agreement, plaintiff plaintiff. Regarding the applicability of the statute of frauds (Art.
shall be the owner of the 3,000 sq. ms. but the documents 1403, Civil Code), it has been uniformly held that the statute of
evidencing his title over this property shall be executed and frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT
delivered by defendants to plaintiff within ten (10) years from NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:
and after date of signing of the compromise agreement;
SAME ACTION TO ENFORCE. The statute of frauds has been
(c) That plaintiff shall, without any monetary expense of his uniformly interpreted to be applicable to executory and not to
part, assist in clearing the 20 quinones of its occupants; completed or contracts. Performance of the contracts takes it out
of the operation of the statute. ...
13). That in order to effect a compromise between the parties.
plaintiff not only as well acted as emissary of both parties in The statute of the frauds is not applicable to contracts which are
conveying their respective proposals and counter- proposals either totally or partially performed, on the theory that there is a
until succeeded in convinzing the DEUDORS to settle with wide field for the commission of frauds in executory contracts
defendants amicably. Thus, on March 16, 1953, a Compromise which can only be prevented by requiring them to be in writing, a
Agreement was entered into by and between the DEUDORS and facts which is reduced to a minimum in executed contracts
the defendant companies; and on April 11, 1953, this agreement because the intention of the parties becomes apparent buy their
was approved by this Honorable Court; execution and execution, in mots cases, concluded the right the
parties. ... The partial performance may be proved by either
14). That in order to comply with his other obligations under his documentary or oral evidence. (At pp. 564-565, Tolentino's Civil
agreement with defendant companies, plaintiff had to confer with Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis supplied).
the occupants of the property, exposing himself to physical harm,
convincing said occupants to leave the premises and to refrain Authorities in support of the foregoing rule are legion. Thus Mr.
from resorting to physical violence in resisting defendants' Justice Moran in his 'Comments on the Rules of Court', Vol. III,
demands to vacate; 1974 Ed., at p. 167, states:

That plaintiff further assisted defendants' employees in the 2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO
actual demolition and transfer of all the houses within the EXECUTORY CONTRACTS: CONTRACTS WHICH ARE EITHER
perimeter of the 20 quinones until the end of 1955, when said TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE

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STATUE. The statute of frauds is applicable only to executory With all due respect to this Honorable court, we also submit that
contracts. It is neither applicable to executed contracts nor to the Court committed error in holding that this action has
contracts partially performed. The reason is simple. In executory prescribed:
contracts there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of the O R D E R
contracting parties. The statute has been enacted to prevent
fraud. On the other hand the commission of fraud in executed xxx xxx xxx
contracts is reduced to minimum in executed contracts because
(1) the intention of the parties is made apparent by the execution On the issue of the statute of limitations, the Court holds that the
and (2) execution concludes, in most cases, the rights of the plaintiff's action has prescribed. It is alleged in par. III of the
parties. (Emphasis supplied) complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter into a
Under paragraphs 13 and 14 of the complaint (supra) one can compromise agreement in Civil Case No. Q-135 and allied cases.
readily see that the plaintiff has fulfilled ALL his obligation under Furthermore, pars. 13 and 14 of the complaint alleged that
the agreement between him defendants concerning the 3,000 sq. plaintiff acted as emissary of both parties in conveying their
ms. over which the latter had agreed to execute the proper respective proposals and counter-proposals until the final
documents of transfer. This fact is further projected in paragraph settlement was affected on March 16, 1953 and approved by the
15 of the complaint where plaintiff states; Court on April 11, 1953. In the present actin, which was
instituted on January 24, 1964, the plaintiff is seeking to enforce
15). That in or about the middle of 1963, after all the conditions the supposed agreement entered into between him and the
stated in paragraph 12 hereof had been fulfilled and fully defendants in 1952, which has already proscribed. (at p. 3,
complied with, plaintiff demanded of said defendants that they Order).
execute the Deed of Conveyance in his favor and deliver the title
certificate in his name, over the 3,000 sq. ms. but defendants The present action has not prescribed, especially when we
failed and refused and continue to fail and refuse to heed his consider carefully the terms of the agreement between plaintiff
demands. (par. 15, complaint; Emphasis supplied). and the defendants. First, we must draw the attention of this
Honorable Court to the fact that this is an action to compel
In view of the foregoing, we respectfully submit that this defendants to execute a Deed of Conveyance over the 3,000 sq.
Honorable court erred in holding that the statute of frauds is ms. subject of their agreement. In paragraph 12 of the complaint,
applicable to plaintiff's claim over the 3,000 sq. ms. There having the terms and conditions of the contract between the parties are
been full performance of the contract on plaintiff's part, the same spelled out. Paragraph 12 (b) of the complaint states:
takes this case out of the context of said statute.
(b) That as of date of signing the compromise agreement, plaintiff
Plaintiff's Cause of Action had NOT Prescribed: shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from

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and after date of signing of the compromise agreement. which have not only been refuted in herein defendant's Motion to
(Emphasis supplied). Dismiss and Reply but already passed upon by this Honorable
Court."
The compromise agreement between defendants and the
Deudors which was conclude through the efforts of plaintiff, was On September 7, 1964, the trial court denied the motion for
signed on 16 March 1953. Therefore, the defendants had ten (10) reconsiderations thus:
years signed on 16 March 1953. Therefore, the defendants had
ten (10) years from said date within which to execute the deed of After considering the plaintiff's Motion for Reconsideration of
conveyance in favor of plaintiff over the 3,000 sq. ms. As long as August 20, 1964 and it appearing that the grounds relied upon in
the 10 years period has not expired, plaintiff had no right to said motion are mere repetition of those already resolved and
compel defendants to execute the document and the latter were discussed by this Court in the order of August 13, 1964, the
under no obligation to do so. Now, this 10-year period elapsed on instant motion is hereby denied and the findings and conclusions
March 16, 1963. THEN and ONLY THEN does plaintiff's cause of arrived at by the Court in its order of August 13, 1964 are hereby
action plaintiff on March 17, 1963. Thus, under paragraph 15, of reiterated and affirmed.
the complaint (supra) plaintiff made demands upon defendants
for the execution of the deed 'in or about the middle of 1963. SO ORDERED. (Page 90, Rec. on Appeal.)

Since the contract now sought to be enforced was not reduced to Under date of September 24, 1964, plaintiff filed his record on
writing, plaintiff's cause of action expires on March 16, 1969 or appeal.
six years from March 16, 1963 WHEN THE CAUSE OF ACTION
ACCRUED (Art. 1145, Civil Code). In his brief, appellant poses and discusses the following
assignments of error:
In this posture, we gain respectfully submit that this Honorable
Court erred in holding that plaintiff's action has prescribed. I. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT APPELLANT'S CLAIM OVER
P R A Y E R THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE UNDER THE
STATUTE OF FRAUDS;
WHEREFORE, it is respectfully prayed that " Honorable Court
reconsider its Order dated August 13, 1964; and issue another II. THAT THE COURT A QUO FURTHER COMMITTED ERROR
order denying the motions to dismiss of defendants G. Araneta, IN DISMISSING APPELLANT'S COMPLAINT ON THE GROUND
Inc. and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-85, Record THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
on Appeal.) BARRED BY THE STATUTE OF LIMITATIONS; and

Defendants filed an opposition on the main ground that "the III. THAT THE LOWER COURT ERRED IN DISMISSING THE
arguments adduced by the plaintiff are merely reiterations of his COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION IN SO
arguments contained in his Rejoinder to Reply and Opposition, FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF

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EXPENSES AND FOR SERVICES RENDERED IN THE at the time of the sale, of the amount and kind of property sold,
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED. terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum:
We agree with appellant that the Statute of Frauds was
erroneously applied by the trial court. It is elementary that the (e) An agreement for the leasing for a longer period than one
Statute refers to specific kinds of transactions and that it cannot year, or for the sale of real property or of an interest therein:
apply to any that is not enumerated therein. And the only
agreements or contracts covered thereby are the following: (f) a representation as to the credit of a third person.

(1) Those entered into in the name of another person by one who (3) Those where both parties are incapable of giving consent to a
has been given no authority or legal representation, or who has contract. (Art. 1403, civil Code.)
acted beyond his powers;
In the instant case, what appellant is trying to enforce is the
(2) Those do not comply with the Statute of Frauds as set forth in delivery to him of 3,000 square meters of land which he claims
this number, In the following cases an agreement hereafter made defendants promised to do in consideration of his services as
shall be unenforceable by action, unless the same, or some note mediator or intermediary in effecting a compromise of the civil
or memorandum thereof, be in writing, and subscribed by the action, Civil Case No. 135, between the defendants and the
party charged, or by his agent; evidence, therefore, of the Deudors. In no sense may such alleged contract be considered as
agreement cannot be received without the writing, or a being a "sale of real property or of any interest therein." Indeed,
secondary evidence of its contents: not all dealings involving interest in real property come under
the Statute.
(a) An agreement that by its terms is not to be performed within
a year from the making thereof; Moreover, appellant's complaint clearly alleges that he has
already fulfilled his part of the bargains to induce the Deudors to
(b) A special promise to answer for the debt, default, or amicably settle their differences with defendants as, in fact, on
miscarriage of another; March 16, 1963, through his efforts, a compromise agreement
between these parties was approved by the court. In other words,
(c) An agreement made in consideration of marriage, other than a the agreement in question has already been partially
mutual promise to marry; consummated, and is no longer merely executory. And it is
likewise a fundamental principle governing the application of the
(d) An agreement for the sale of goods, chattels or things in Statute that the contract in dispute should be purely executory on
action, at a price not less than five hundred pesos, unless the the part of both parties thereto.
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them of such things in action, or pay at the We cannot, however, escape taking judicial notice, in relation to
time some part of the purchase money; but when a sale is made the compromise agreement relied upon by appellant, that in
by auction and entry is made by the auctioneer in his sales book, several cases We have decided, We have declared the same

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rescinded and of no effect. In J. M. Tuason & Co., Inc. vs. one should be allowed to unjustly enrich himself at the expense
Bienvenido Sanvictores, 4 SCRA 123, the Court held: of another, Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any actual
It is also worthy of note that the compromise between Deudors agreement between the parties concerned. Corollarily, if the one
and Tuason, upon which Sanvictores predicates his right to buy who claims having enriched somebody has done so pursuant to a
the lot he occupies, has been validly rescinded and set aside, as contract with a third party, his cause of action should be against
recognized by this Court in its decision in G.R. No. L-13768, the latter, who in turn may, if there is any ground therefor, seek
Deudor vs. Tuason, promulgated on May 30, 1961. relief against the party benefited. It is essential that the act by
which the defendant is benefited must have been voluntary and
We repeated this observation in J.M. Tuason & Co., Inc. vs. unilateral on the part of the plaintiff. As one distinguished civilian
Teodosio Macalindong, 6 SCRA 938. Thus, viewed from what puts it, "The act is voluntary. because the actor in quasi-contracts
would be the ultimate conclusion of appellant's case, We is not bound by any pre-existing obligation to act. It is unilateral,
entertain grave doubts as to whether or not he can successfully because it arises from the sole will of the actor who is not
maintain his alleged cause of action against defendants, previously bound by any reciprocal or bilateral agreement. The
considering that the compromise agreement that he invokes did reason why the law creates a juridical relations and imposes
not actually materialize and defendants have not benefited certain obligation is to prevent a situation where a person is able
therefrom, not to mention the undisputed fact that, as pointed to benefit or take advantage of such lawful, voluntary and
out by appellees, appellant's other attempt to secure the same unilateral acts at the expense of said actor." (Ambrosio Padilla,
3,000 square meters via the judicial enforcement of the Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since
compromise agreement in which they were supposed to be appellant has a clearer and more direct recourse against the
reserved for him has already been repudiated by the courts. (pp. Deudors with whom he had entered into an agreement regarding
5-7. Brief of Appellee Gregorio Araneta, Inc.) the improvements and expenditures made by him on the land of
appellees. it Cannot be said, in the sense contemplated in Article
As regards appellant's third assignment of error, We hold that the 2142, that appellees have been enriched at the expense of
allegations in his complaint do not sufficiently Appellants' appellant.
reliance. on Article 2142 of Civil Code is misplaced. Said article
provides: In the ultimate. therefore, Our holding above that appellant's first
two assignments of error are well taken cannot save the day for
Certain lawful, voluntary and unilateral acts give rise to the him. Aside from his having no cause of action against appellees,
juridical relation of quasi-contract to the end that no one shall be there is one plain error of omission. We have found in the order
unjustly enriched or benefited at the expense of another. of the trial court which is as good a ground as any other for Us to
terminate this case favorably to appellees. In said order Which
From the very language of this provision, it is obvious that a We have quoted in full earlier in this opinion, the trial court ruled
presumed qauasi-contract cannot emerge as against one party that "the grounds relied upon in said motion are mere repetitions
when the subject mater thereof is already covered by an existing of those already resolved and discussed by this Court in the order
contract with another party. Predicated on the principle that no of August 13, 1964", an observation which We fully share.

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Virtually, therefore. appellant's motion for reconsideration was
ruled to be pro-forma. Indeed, a cursory reading of the record on 9. G.R. No. L-9188 December 4, 1914
appeal reveals that appellant's motion for reconsideration above-
quoted contained exactly the same arguments and manner of GUTIERREZ HERMANOS, plaintiff-appellee,
discussion as his February 6, 1964 "Opposition to Motion to vs.
Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on ENGRACIO ORENSE, defendant-appellant.
Appeal) as well as his February 17, 1964 "Opposition to Motion
to Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on William A. Kincaid, Thos. L. Hartigan, and Ceferino M.
Appeal and his February 29, 1964 "Rejoinder to Reply Oil Villareal for appellant.
Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We Rafael de la Sierra for appellee.
cannot see anything in said motion for reconsideration that is
substantially different from the above oppositions and rejoinder TORRES, J.:
he had previously submitted and which the trial court had
already considered when it rendered its main order of dismissal. Appeal through bill of exceptions filed by counsel for the
Consequently, appellant's motion for reconsideration did not appellant from the judgment on April 14, 1913, by the Honorable
suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 P. M. Moir, judge, wherein he sentenced the defendant to make
SCRA 890, 905-6.) And as this point was covered by appellees' immediate delivery of the property in question, through a public
"Opposition to Motion for Reconsideration" (pp. 8689), hence, instrument, by transferring and conveying to the plaintiff all his
within the frame of the issues below, it is within the ambit of Our rights in the property described in the complaint and to pay it the
authority as the Supreme Court to consider the same here even if sum of P780, as damages, and the costs of the suit.
it is not discussed in the briefs of the parties. (Insular Life
Assurance Co., Ltd. Employees Association-NATU vs. Insular Life On March 5, 1913, counsel for Gutierrez Hermanos filed a
Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. complaint, afterwards amended, in the Court of First Instance of
No. L-25291). Albay against Engacio Orense, in which he set forth that on and
before February 14, 1907, the defendant Orense had been the
Now, the impugned main order was issued on August 13, 1964, owner of a parcel of land, with the buildings and improvements
while the appeal was made on September 24, 1964 or 42 days thereon, situated in the pueblo of Guinobatan, Albay, the location,
later. Clearly, this is beyond the 30-day reglementary period for area and boundaries of which were specified in the complaint;
appeal. Hence, the subject order of dismissal was already final that the said property has up to date been recorded in the new
and executory when appellant filed his appeal. property registry in the name of the said Orense, according to
certificate No. 5, with the boundaries therein given; that, on
WHEREFORE, the appeal of Faustino Cruz in this case is February 14, 1907, Jose Duran, a nephew of the defendant, with
dismissed. No costs. the latter's knowledge and consent, executed before a notary a
public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor
Duran reserving to himself the right to repurchase it for the same

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price within a period of four years from the date of the said for damages and rental of the property from February 14, 1911,
instrument; that the plaintiff company had not entered into and that, in case these remedies were not granted to the plaintiff,
possession of the purchased property, owing to its continued the defendant be sentenced to pay to it the sum of P3,000 as
occupancy by the defendant and his nephew, Jose Duran, by damages, together with interest thereon since the date of the
virtue of a contract of lease executed by the plaintiff to Duran, institution of this suit, and to pay the costs and other legal
which contract was in force up to February 14, 1911; that the expenses.
said instrument of sale of the property, executed by Jose Duran,
was publicly and freely confirmed and ratified by the defendant The demurrer filed to the amended complaint was overruled,
Orense; that, in order to perfect the title to the said property, but with exception on the part of the defendant, whose counsel made
that the defendant Orense refused to do so, without any a general denial of the allegations contained in the complaint,
justifiable cause or reason, wherefore he should be compelled to excepting those that were admitted, and specifically denied
execute the said deed by an express order of the court, for Jose paragraph 4 thereof to the effect that on February 14, 1907, Jose
Duran is notoriously insolvent and cannot reimburse the plaintiff Duran executed the deed of sale of the property in favor of the
company for the price of the sale which he received, nor pay any plaintiff with the defendant's knowledge and consent.1awphil.net
sum whatever for the losses and damages occasioned by the said
sale, aside from the fact that the plaintiff had suffered damage by As the first special defense, counsel for the defendant alleged that
losing the present value of the property, which was worth the facts set forth in the complaint with respect to the execution
P3,000; that, unless such deed of final conveyance were executed of the deed did not constitute a cause of action, nor did those
in behalf of the plaintiff company, it would be injured by the alleged in the other form of action for the collection of P3,000, the
fraud perpetrated by the vendor, Duran, in connivance with the value of the realty.
defendant; that the latter had been occupying the said property
since February 14, 1911, and refused to pay the rental thereof, As the second special defense, he alleged that the defendant was
notwithstanding the demand made upon him for its payment at the lawful owner of the property claimed in the complaint, as his
the rate of P30 per month, the just and reasonable value for the ownership was recorded in the property registry, and that, since
occupancy of the said property, the possession of which the his title had been registered under the proceedings in rem
defendant likewise refused to deliver to the plaintiff company, in prescribed by Act No. 496, it was conclusive against the plaintiff
spite of the continuous demands made upon him, the defendant, and the pretended rights alleged to have been acquired by Jose
with bad faith and to the prejudice of the firm of Gutierrez Duran prior to such registration could not now prevail; that the
Hermanos, claiming to have rights of ownership and possession defendant had not executed any written power of attorney nor
in the said property. Therefore it was prayed that judgment be given any verbal authority to Jose Duran in order that the latter
rendered by holding that the land and improvements in question might, in his name and representation, sell the said property to
belong legitimately and exclusively to the plaintiff, and ordering the plaintiff company; that the defendant's knowledge of the said
the defendant to execute in the plaintiff's behalf the said sale was acquired long after the execution of the contract of sale
instrument of transfer and conveyance of the property and of all between Duran and Gutierrez Hermanos, and that prior thereto
the right, interest, title and share which the defendant has the defendant did not intentionally and deliberately perform any
therein; that the defendant be sentenced to pay P30 per month act such as might have induced the plaintiff to believe that Duran

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was empowered and authorized by the defendant and which
would warrant him in acting to his own detriment, under the The plaintiff firm, therefore, charged Jose Duran, in the Court of
influence of that belief. Counsel therefore prayed that the First Instance of the said province, with estafa, for having
defendant be absolved from the complaint and that the plaintiff represented himself in the said deed of sale to be the absolute
be sentenced to pay the costs and to hold his peace forever. owner of the aforesaid land and improvements, whereas in
reality they did not belong to him, but to the defendant Orense.
After the hearing of the case and an examination of the evidence However, at the trial of the case Engracio Orense, called as a
introduced by both parties, the court rendered the judgment witness, being interrogated by the fiscal as to whether he and
aforementioned, to which counsel for the defendant excepted and consented to Duran's selling the said property under right of
moved for a new trial. This motion was denied, an exception was redemption to the firm of Gutierrez Hermanos, replied that he
taken by the defendant and, upon presentation of the proper bill had. In view of this statement by the defendant, the court
of exceptions, the same was approved, certified and forwarded to acquitted Jose Duran of the charge of estafa.
the clerk of his court.
As a result of the acquittal of Jose Duran, based on the explicit
This suit involves the validity and efficacy of the sale under right testimony of his uncle, Engacio Orense, the owner of the
of redemption of a parcel of land and a masonry house with the property, to the effect that he had consented to his nephew
nipa roof erected thereon, effected by Jose Duran, a nephew of Duran's selling the property under right of repurchase to
the owner of the property, Engracio Orense, for the sum of Gutierrez Hermanos, counsel for this firm filed a complainant
P1,500 by means of a notarial instrument executed and ratified praying, among other remedies, that the defendant Orense be
on February 14, 1907. compelled to execute a deed for the transfer and conveyance to
the plaintiff company of all the right, title and interest with
After the lapse of the four years stipulated for the redemption, Orense had in the property sold, and to pay to the same the rental
the defendant refused to deliver the property to the purchaser, of the property due from February 14, 1911.itc-alf
the firm of Gutierrez Hermanos, and to pay the rental thereof at
the rate of P30 per month for its use and occupation since Notwithstanding the allegations of the defendant, the record in
February 14, 1911, when the period for its repurchase this case shows that he did give his consent in order that his
terminated. His refusal was based on the allegations that he had nephew, Jose Duran, might sell the property in question to
been and was then the owner of the said property, which was Gutierrez Hermanos, and that he did thereafter confirm and
registered in his name in the property registry; that he had not ratify the sale by means of a public instrument executed before a
executed any written power of attorney to Jose Duran, nor had he notary.
given the latter any verbal authorization to sell the said property
to the plaintiff firm in his name; and that, prior to the execution It having been proven at the trial that he gave his consent to the
of the deed of sale, the defendant performed no act such as might said sale, it follows that the defendant conferred verbal, or at
have induced the plaintiff to believe that Jose Duran was least implied, power of agency upon his nephew Duran, who
empowered and authorized by the defendant to effect the said accepted it in the same way by selling the said property. The
sale. principal must therefore fulfill all the obligations contracted by

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the agent, who acted within the scope of his authority. (Civil confirmed and ratified, and, in the present case, it is
Code, arts. 1709, 1710 and 1727.) unquestionable that the defendant did confirm the said contract
of sale and consent to its execution.
Even should it be held that the said consent was granted
subsequently to the sale, it is unquestionable that the defendant, On the testimony given by Engacio Orense at the trial of Duran
the owner of the property, approved the action of his nephew, for estafa, the latter was acquitted, and it would not be just that
who in this case acted as the manager of his uncle's business, and the said testimony, expressive of his consent to the sale of his
Orense'r ratification produced the effect of an express property, which determined the acquittal of his nephew, Jose
authorization to make the said sale. (Civil Code, arts. 1888 and Duran, who then acted as his business manager, and which
1892.) testimony wiped out the deception that in the beginning
appeared to have been practiced by the said Duran, should not
Article 1259 of the Civil Code prescribes: "No one can contract in now serve in passing upon the conduct of Engracio Orense in
the name of another without being authorized by him or without relation to the firm of Gutierrez Hermanos in order to prove his
his legal representation according to law. consent to the sale of his property, for, had it not been for the
consent admitted by the defendant Orense, the plaintiff would
A contract executed in the name of another by one who has have been the victim of estafa.
neither his authorization nor legal representation shall be void,
unless it should be ratified by the person in whose name it was If the defendant Orense acknowledged and admitted under oath
executed before being revoked by the other contracting party. that he had consented to Jose Duran's selling the property in
litigation to Gutierrez Hermanos, it is not just nor is it
The sworn statement made by the defendant, Orense, while permissible for him afterward to deny that admission, to the
testifying as a witness at the trial of Duran for estafa, virtually prejudice of the purchaser, who gave P1,500 for the said
confirms and ratifies the sale of his property effected by his property.
nephew, Duran, and, pursuant to article 1313 of the Civil Code,
remedies all defects which the contract may have contained from The contract of sale of the said property contained in the notarial
the moment of its execution. instrument of February 14, 1907, is alleged to be invalid, null and
void under the provisions of paragraph 5 of section 335 of the
The sale of the said property made by Duran to Gutierrez Code of Civil Procedure, because the authority which Orense may
Hermanos was indeed null and void in the beginning, but have given to Duran to make the said contract of sale is not
afterwards became perfectly valid and cured of the defect of shown to have been in writing and signed by Orense, but the
nullity it bore at its execution by the confirmation solemnly made record discloses satisfactory and conclusive proof that the
by the said owner upon his stating under oath to the judge that defendant Orense gave his consent to the contract of sale
he himself consented to his nephew Jose Duran's making the said executed in a public instrument by his nephew Jose Duran. Such
sale. Moreover, pursuant to article 1309 of the Code, the right of consent was proven in a criminal action by the sworn testimony
action for nullification that could have been brought became of the principal and presented in this civil suit by other sworn
legally extinguished from the moment the contract was validly testimony of the same principal and by other evidence to which

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the defendant made no objection. Therefore the principal is has led not only to protracted legal entanglements but to even
bound to abide by the consequences of his agency as though it more bitter consequences, like strained relationships and even
had actually been given in writing (Conlu vs. Araneta and the forfeiture of lives. It is a question that likewise reflects a
Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., tragic commentary on prevailing social and cultural values and
241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.) institutions, where, as one observer notes, wealth and its
accumulation are the basis of self-fulfillment and where property
The repeated and successive statements made by the defendant is held as sacred as life itself. "It is in the defense of his property,"
Orense in two actions, wherein he affirmed that he had given his says this modern thinker, that one "will mobilize his deepest
consent to the sale of his property, meet the requirements of the protective devices, and anybody that threatens his possessions
law and legally excuse the lack of written authority, and, as they will arouse his most passionate enmity." 1
are a full ratification of the acts executed by his nephew Jose
Duran, they produce the effects of an express power of agency. The task of this Court, however, is not to judge the wisdom of
values; the burden of reconstructing the social order is
The judgment appealed from in harmony with the law and the shouldered by the political leadership-and the people
merits of the case, and the errors assigned thereto have been themselves.
duly refuted by the foregoing considerations, so it should be
affirmed. The parties have come to this Court for relief and accordingly,
our responsibility is to give them that relief pursuant to the
The judgment appealed from is hereby affirmed, with the costs decree of law.
against the appellant.
The antecedent facts are quoted from the decision 2 appealed
from:

xxx xxx xxx
10. G.R. No. L-44546 January 29, 1988
... [T]he land in question Lot 14694 of Cadastral Survey of Albay
RUSTICO ADILLE, petitioner, located in Legaspi City with an area of some 11,325 sq. m.
vs. originally belonged to one Felisa Alzul as her own private
THE HONORABLE COURT OF APPEALS, EMETERIA property; she married twice in her lifetime; the first, with one
ASEJO, TEODORICA ASEJO, DOMINGO ASEJO, JOSEFA Bernabe Adille, with whom she had as an only child, herein
ASEJO and SANTIAGO ASEJO, respondents. defendant Rustico Adille; in her second marriage with one
Procopio Asejo, her children were herein plaintiffs, now,
SARMIENTO, J.: sometime in 1939, said Felisa sold the property in pacto de retro
to certain 3rd persons, period of repurchase being 3 years, but
In issue herein are property and property rights, a familiar she died in 1942 without being able to redeem and after her
subject of controversy and a wellspring of enormous conflict that death, but during the period of redemption, herein defendant

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repurchased, by himself alone, and after that, he executed a deed herein. The petitioner now appeals, by way of certiorari, from the
of extra-judicial partition representing himself to be the only heir Court's decision.
and child of his mother Felisa with the consequence that he was
able to secure title in his name alone also, so that OCT. No. 21137 We required the private respondents to file a comment and
in the name of his mother was transferred to his name, that was thereafter, having given due course to the petition, directed the
in 1955; that was why after some efforts of compromise had parties to file their briefs. Only the petitioner, however, filed a
failed, his half-brothers and sisters, herein plaintiffs, filed present brief, and the private respondents having failed to file one, we
case for partition with accounting on the position that he was declared the case submitted for decision.
only a trustee on an implied trust when he redeemed,-and this is
the evidence, but as it also turned out that one of plaintiffs, The petition raises a purely legal issue: May a co-owner acquire
Emeteria Asejo was occupying a portion, defendant exclusive ownership over the property held in common?
counterclaimed for her to vacate that,
Essentially, it is the petitioner's contention that the property
Well then, after hearing the evidence, trial Judge sustained subject of dispute devolved upon him upon the failure of his co-
defendant in his position that he was and became absolute heirs to join him in its redemption within the period required by
owner, he was not a trustee, and therefore, dismissed case and law. He relies on the provisions of Article 1515 of the old Civil
also condemned plaintiff occupant, Emeteria to vacate; it is Article 1613 of the present Code, giving the vendee a retro the
because of this that plaintiffs have come here and contend that right to demand redemption of the entire property.
trial court erred in:
There is no merit in this petition.
I. ... declaring the defendant absolute owner of the property;
The right of repurchase may be exercised by a co-owner with
II. ... not ordering the partition of the property; and aspect to his share alone. 5 While the records show that the
petitioner redeemed the property in its entirety, shouldering the
III. ... ordering one of the plaintiffs who is in possession of the expenses therefor, that did not make him the owner of all of it. In
portion of the property to vacate the land, p. 1 Appellant's brief. other words, it did not put to end the existing state of co-
ownership.
which can be reduced to simple question of whether or not on the
basis of evidence and law, judgment appealed from should be Necessary expenses may be incurred by one co-owner, subject to
maintained. 3 his right to collect reimbursement from the remaining co-owners.
6 There is no doubt that redemption of property entails a
xxx xxx xxx necessary expense. Under the Civil Code:

The respondent Court of appeals reversed the trial Court, 4 and ART. 488. Each co-owner shall have a right to compel the other
ruled for the plaintiffs-appellants, the private respondents co-owners to contribute to the expenses of preservation of the
thing or right owned in common and to the taxes. Any one of the

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latter may exempt himself from this obligation by renouncing so extrajudicial settlement he executed preliminary to the
much of his undivided interest as may be equivalent to his share registration thereof betrays a clear effort on his part to defraud
of the expenses and taxes. No such waiver shall be made if it is his brothers and sisters and to exercise sole dominion over the
prejudicial to the co-ownership. property. The aforequoted provision therefore applies.

The result is that the property remains to be in a condition of co- It is the view of the respondent Court that the petitioner, in
ownership. While a vendee a retro, under Article 1613 of the taking over the property, did so either on behalf of his co-heirs, in
Code, "may not be compelled to consent to a partial redemption," which event, he had constituted himself a negotiorum gestor
the redemption by one co-heir or co-owner of the property in its under Article 2144 of the Civil Code, or for his exclusive benefit,
totality does not vest in him ownership over it. Failure on the in which case, he is guilty of fraud, and must act as trustee, the
part of all the co-owners to redeem it entitles the vendee a retro private respondents being the beneficiaries, under the Article
to retain the property and consolidate title thereto in his name. 7 1456. The evidence, of course, points to the second alternative
But the provision does not give to the redeeming co-owner the the petitioner having asserted claims of exclusive ownership over
right to the entire property. It does not provide for a mode of the property and having acted in fraud of his co-heirs. He cannot
terminating a co-ownership. therefore be said to have assume the mere management of the
property abandoned by his co-heirs, the situation Article 2144 of
Neither does the fact that the petitioner had succeeded in the Code contemplates. In any case, as the respondent Court itself
securing title over the parcel in his name terminate the existing affirms, the result would be the same whether it is one or the
co-ownership. While his half-brothers and sisters are, as we said, other. The petitioner would remain liable to the Private
liable to him for reimbursement as and for their shares in respondents, his co-heirs.
redemption expenses, he cannot claim exclusive right to the
property owned in common. Registration of property is not a This Court is not unaware of the well-established principle that
means of acquiring ownership. It operates as a mere notice of prescription bars any demand on property (owned in common)
existing title, that is, if there is one. held by another (co-owner) following the required number of
years. In that event, the party in possession acquires title to the
The petitioner must then be said to be a trustee of the property property and the state of co-ownership is ended . 8 In the case at
on behalf of the private respondents. The Civil Code states: bar, the property was registered in 1955 by the petitioner, solely
in his name, while the claim of the private respondents was
ART. 1456. If property is acquired through mistake or fraud, the presented in 1974. Has prescription then, set in?
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the We hold in the negative. Prescription, as a mode of terminating a
property comes. relation of co-ownership, must have been preceded by
repudiation (of the co-ownership). The act of repudiation, in turn
We agree with the respondent Court of Appeals that fraud is subject to certain conditions: (1) a co-owner repudiates the co-
attended the registration of the property. The petitioner's ownership; (2) such an act of repudiation is clearly made known
pretension that he was the sole heir to the land in the affidavit of to the other co-owners; (3) the evidence thereon is clear and

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conclusive, and (4) he has been in possession through open, right of the private respondents commenced from the time they
continuous, exclusive, and notorious possession of the property actually discovered the petitioner's act of defraudation. 15
for the period required by law. 9 According to the respondent Court of Appeals, they "came to
know [of it] apparently only during the progress of the litigation."
The instant case shows that the petitioner had not complied with 16 Hence, prescription is not a bar.
these requisites. We are not convinced that he had repudiated the
co-ownership; on the contrary, he had deliberately kept the Moreover, and as a rule, prescription is an affirmative defense
private respondents in the dark by feigning sole heirship over the that must be pleaded either in a motion to dismiss or in the
estate under dispute. He cannot therefore be said to have "made answer otherwise it is deemed waived, 17 and here, the
known" his efforts to deny the co-ownership. Moreover, one of petitioner never raised that defense. 18 There are recognized
the private respondents, Emeteria Asejo, is occupying a portion exceptions to this rule, but the petitioner has not shown why they
of the land up to the present, yet, the petitioner has not taken apply.
pains to eject her therefrom. As a matter of fact, he sought to
recover possession of that portion Emeteria is occupying only as WHEREFORE, there being no reversible error committed by the
a counterclaim, and only after the private respondents had first respondent Court of Appeals, the petition is DENIED. The
sought judicial relief. Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.
It is true that registration under the Torrens system is
constructive notice of title, 10 but it has likewise been our
holding that the Torrens title does not furnish a shield for fraud.
11 It is therefore no argument to say that the act of registration is
equivalent to notice of repudiation, assuming there was one, 11. G.R. No. 82670 September 15, 1989
notwithstanding the long-standing rule that registration operates
as a universal notice of title. DOMETILA M. ANDRES, doing business under the
name and style "IRENE'S WEARING APPAREL,"
For the same reason, we cannot dismiss the private respondents' petitioner,
claims commenced in 1974 over the estate registered in 1955. vs.
While actions to enforce a constructive trust prescribes in ten MANUFACTURERS HANOVER & TRUST CORPORATION
years, 12 reckoned from the date of the registration of the and COURT OF APPEALS, respondents.
property, 13 we, as we said, are not prepared to count the period
from such a date in this case. We note the petitioner's sub rosa Roque A. Tamayo for petitioner.
efforts to get hold of the property exclusively for himself
beginning with his fraudulent misrepresentation in his unilateral Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
affidavit of extrajudicial settlement that he is "the only heir and private respondent.
child of his mother Feliza with the consequence that he was able
to secure title in his name also." 14 Accordingly, we hold that the

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CORTES, J.: Meanwhile, on August 25, 1980, after learning about the delay in
the remittance of the money to petitioner, FACETS informed
Assailed in this petition for review on certiorari is the judgment FNSB about the situation. On September 8, 1980, unaware that
of the Court of Appeals, which, applying the doctrine of solutio petitioner had already received the remittance, FACETS informed
indebiti, reversed the decision of the Regional Trial Court, Branch private respondent about the delay and at the same time
CV, Quezon City by deciding in favor of private respondent. amended its instruction by asking it to effect the payment
through the Philippine Commercial and Industrial Bank
Petitioner, using the business name "Irene's Wearing Apparel," (hereinafter referred to as PCIB) instead of PNB.
was engaged in the manufacture of ladies garments, children's
wear, men's apparel and linens for local and foreign buyers. Accordingly, private respondent, which was also unaware that
Among its foreign buyers was Facets Funwear, Inc. (hereinafter petitioner had already received the remittance of $10,000.00
referred to as FACETS) of the United States. from PNB instructed the PCIB to pay $10,000.00 to petitioner.
Hence, on September 11, 1980, petitioner received a second
In the course of the business transaction between the two, $10,000.00 remittance.
FACETS from time to time remitted certain amounts of money to
petitioner in payment for the items it had purchased. Sometime Private respondent debited the account of FNSB for the second
in August 1980, FACETS instructed the First National State Bank $10,000.00 remittance effected through PCIB. However, when
of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to FNSB discovered that private respondent had made a duplication
as FNSB) to transfer $10,000.00 to petitioner via Philippine of the remittance, it asked for a recredit of its account in the
National Bank, Sta. Cruz Branch, Manila (hereinafter referred to amount of $10,000.00. Private respondent complied with the
as PNB). request.

Acting on said instruction, FNSB instructed private respondent Private respondent asked petitioner for the return of the second
Manufacturers Hanover and Trust Corporation to effect the remittance of $10,000.00 but the latter refused to pay. On May
above- mentioned transfer through its facilities and to charge the 12, 1982 a complaint was filed with the Regional Trial Court,
amount to the account of FNSB with private respondent. Branch CV, Quezon City which was decided in favor of petitioner
Although private respondent was able to send a telex to PNB to as defendant. The trial court ruled that Art. 2154 of the New Civil
pay petitioner $10,000.00 through the Pilipinas Bank, where Code is not applicable to the case because the second remittance
petitioner had an account, the payment was not effected was made not by mistake but by negligence and petitioner was
immediately because the payee designated in the telex was only not unjustly enriched by virtue thereof [Record, p. 234]. On
"Wearing Apparel." Upon query by PNB, private respondent sent appeal, the Court of Appeals held that Art. 2154 is applicable and
PNB another telex dated August 27, 1980 stating that the reversed the RTC decision. The dispositive portion of the Court of
payment was to be made to "Irene's Wearing Apparel." On August Appeals' decision reads as follows:
28, 1980, petitioner received the remittance of $10,000.00
through Demand Draft No. 225654 of the PNB. WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE and another one entered in favor of plaintiff-appellant

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and against defendant-appellee Domelita (sic) M. Andres, doing manifestations of the ancient principle that no one shall enrich
business under the name and style "Irene's Wearing Apparel" to himself unjustly at the expense of another. In the Roman Law
reimburse and/or return to plaintiff-appellant the amount of Digest the maxim was formulated thus: "Jure naturae acquum est,
$10,000.00, its equivalent in Philippine currency, with interests neminem cum alterius detrimento et injuria fieri locupletiorem."
at the legal rate from the filing of the complaint on May 12, 1982 And the Partidas declared: "Ninguno non deue enriquecerse
until the whole amount is fully paid, plus twenty percent (20%) tortizeramente con dano de otro." Such axiom has grown through
of the amount due as attomey's fees; and to pay the costs. the centuries in legislation, in the science of law and in court
decisions. The lawmaker has found it one of the helpful guides in
With costs against defendant-appellee. framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles,
SO ORDERED. [Rollo, pp. 29-30.] 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893
and 1895, Civil Code.) This time-honored aphorism has also been
Thereafter, this petition was filed. The sole issue in this case is adopted by jurists in their study of the conflict of rights. It has
whether or not the private respondent has the right to recover been accepted by the courts, which have not hesitated to apply it
the second $10,000.00 remittance it had delivered to petitioner. when the exigencies of right and equity demanded its assertion.
The resolution of this issue would hinge on the applicability of It is a part of that affluent reservoir of justice upon which judicial
Art. 2154 of the New Civil Code which provides that: discretion draws whenever the statutory laws are inadequate
because they do not speak or do so with a confused voice. [at p.
Art. 2154. If something received when there is no right to 632.]
demand it, and it was unduly delivered through mistake, the
obligation to return it arises. For this article to apply the following requisites must concur: "(1)
that he who paid was not under obligation to do so; and, (2) that
This provision is taken from Art. 1895 of the Spanish Civil Code payment was made by reason of an essential mistake of fact"
which provided that: [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].

Art. 1895. If a thing is received when there was no right to claim It is undisputed that private respondent delivered the second
it and which, through an error, has been unduly delivered, an $10,000.00 remittance. However, petitioner contends that the
obligation to restore it arises. doctrine of solutio indebiti, does not apply because its requisites
are absent.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking
through Mr. Justice Bocobo explained the nature of this article First, it is argued that petitioner had the right to demand and
thus: therefore to retain the second $10,000.00 remittance. It is alleged
that even after the two $10,000.00 remittances are credited to
Article 1895 [now Article 2154] of the Civil Code abovequoted, is petitioner's receivables from FACETS, the latter allegedly still had
therefore applicable. This legal provision, which determines the a balance of $49,324.00. Hence, it is argued that the last
quasi-contract of solution indebiti, is one of the concrete

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$10,000.00 remittance being in payment of a pre-existing debt, That there was a mistake in the second remittance of US
petitioner was not thereby unjustly enriched. $10,000.00 is borne out by the fact that both remittances have
the same reference invoice number which is 263 80. (Exhibits "A-
The contention is without merit. 1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").
The contract of petitioner, as regards the sale of garments and
other textile products, was with FACETS. It was the latter and not Plaintiff-appellant made the second remittance on the wrong
private respondent which was indebted to petitioner. On the assumption that defendant-appellee did not receive the first
other hand, the contract for the transmittal of dollars from the remittance of US $10,000.00. [Rollo, pp. 26-27.]
United States to petitioner was entered into by private
respondent with FNSB. Petitioner, although named as the payee It is evident that the claim of petitioner is anchored on the
was not privy to the contract of remittance of dollars. Neither appreciation of the attendant facts which petitioner would have
was private respondent a party to the contract of sale between this Court review. The Court holds that the finding by the Court of
petitioner and FACETS. There being no contractual relation Appeals that the second $10,000.00 remittance was made by
between them, petitioner has no right to apply the second mistake, being based on substantial evidence, is final and
$10,000.00 remittance delivered by mistake by private conclusive. The rule regarding questions of fact being raised with
respondent to the outstanding account of FACETS. this Court in a petition for certiorari under Rule 45 of the Revised
Rules of Court has been stated in Remalante v. Tibe, G.R. No.
Petitioner next contends that the payment by respondent bank of 59514, February 25, 1988, 158 SCRA 138, thus:
the second $10,000.00 remittance was not made by mistake but
was the result of negligence of its employees. In connection with The rule in this jurisdiction is that only questions of law may be
this the Court of Appeals made the following finding of facts: raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. "The jurisdiction of the Supreme Court in cases
The fact that Facets sent only one remittance of $10,000.00 is not brought to it from the Court of Appeals is limited to reviewing
disputed. In the written interrogatories sent to the First National and revising the errors of law imputed to it, its findings of fact
State Bank of New Jersey through the Consulate General of the being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
Philippines in New York, Adelaide C. Schachel, the investigation June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
and reconciliation clerk in the said bank testified that a request to This Court has emphatically declared that "it is not the function
remit a payment for Facet Funwear Inc. was made in August, of the Supreme Court to analyze or weigh such evidence all over
1980. The total amount which the First National State Bank of again, its jurisdiction being limited to reviewing errors of law
New Jersey actually requested the plaintiff-appellant that might have been committed by the lower court" [Tiongco v.
Manufacturers Hanover & Trust Corporation to remit to Irene's De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
Wearing Apparel was US $10,000.00. Only one remittance was Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121
requested by First National State Bank of New Jersey as per SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-47531,
instruction of Facets Funwear (Exhibit "J", pp. 4-5). February 20, 1984, 127 SCRA 596]. "Barring, therefore, a
showing that the findings complained of are totally devoid of

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support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must Finally, in her attempt to defeat private respondent's claim,
stand, for this Court is not expected or required to examine or petitioner makes much of the fact that from the time the second
contrast the oral and documentary evidence submitted by the $10,000.00 remittance was made, five hundred and ten days had
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December elapsed before private respondent demanded the return thereof.
17, 1966, 18 SCRA 9731. [at pp. 144-145.] Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six
Petitioner invokes the equitable principle that when one of two years prescriptive period for actions based upon a quasi-contract
innocent persons must suffer by the wrongful act of a third [Art. 1145 of the New Civil Code].
person, the loss must be borne by the one whose negligence was
the proximate cause of the loss. WHEREFORE, the petition is DENIED and the decision of the
Court of Appeals is hereby AFFIRMED.
The rule is that principles of equity cannot be applied if there is a
provision of law specifically applicable to a case [Phil. Rabbit Bus
Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA
433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10, 1986,
142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. 12. G.R. No. L-17447 April 30, 1963
No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil.
788 (1956)]. Hence, the Court in the case of De Garcia v. Court of GONZALO PUYAT & SONS, INC., plaintiff-appelle,
Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing vs.
Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA CITY OF MANILA AND MARCELO SARMIENTO, as City
486, held: Treasurer of Manila, defendants-appellants

... The common law principle that where one of two innocent Feria, Manglapus & Associates for plainttiff-
persons must suffer by a fraud perpetrated by another, the law appelle.Asst. City Fiscal Manuel T. Reyes for defendants-
imposes the loss upon the party who, by his misplaced appellants.
confidence, has enabled the fraud to be committed, cannot be
applied in a case which is covered by an express provision of the PAREDES, J.:
new Civil Code, specifically Article 559. Between a common law
principle and a statutory provision, the latter must prevail in this This is an appeal from the judgment of the CFI of Manila, the
jurisdiction. [at p. 135.] dispostive portion of which reads:

Having shown that Art. 2154 of the Civil Code, which embodies "xxx Of the payments made by the plaintiff, only that made on
the doctrine of solutio indebiti, applies in the case at bar, the October 25, 1950 in the amount of P1,250.00 has prescribed
Court must reject the common law principle invoked by Payments made in 1951 and thereafter are still recoverable since
petitioner.

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the extra-judicial demand made on October 30, 1956 was well without protest in the erroneous belief that it was liable therefor,
within the six-year prescriptive period of the New CivilCode. on the dates and in the amount enumerated herein below:
In view of the foregoing considerations, judgment is hereby
Amount
rendered in favor of the plaintiff, ordering the defendants to Date
Period O.R. No. Assessed
refund the amount of P29,824.00, without interest. No costs. Paid
and Paid.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable Jan.
Court, without prejudice to the parties adducing other evidence First Quarter 1950 25, 436271X P1,255.00
to prove their case not covered by this stipulation of 1950
facts. 1wph1.t
Defendants' counterclaim is hereby dismissed for not having Apr.
been substantiated." Second Quarter 1950 25, 215895X 1,250.00
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed 1950
an action for refund of Retail Dealerls Taxes paid by it,
corresponding to the first Quarter of 1950 up to the third Quarter Jul.
of 1956, amounting to P33,785.00, against the City of Manila and Third Quarter 1950 25, 243321X 1,250.00
its City Treasurer. The case was submitted on the following 1950
stipulation of facts, to wit--
"1. That the plaintiff is a corporation duly organized and existing Oct.
according to the laws of the Philippines, with offices at Manila; Fourth Quarter 1950 25, 271165X 1,250.00
while defendant City Manila is a Municipal Corporation duly 1950
organized in accordance with the laws of the Philippines, and
(Follows the assessment for different quarters in 1951, 1952,
defendant Marcelino Sarmiento is the dulyqualified incumbent
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
City Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing and Jan.
selling all kinds of furniture at its factory at 190 Rodriguez-Arias, First Quarter 1956 25, 823047X 1,250.00
San Miguel, Manila, and has a display room located at 604-606 1956
Rizal Avenue, Manila, wherein it displays the various kind of
furniture manufactured by it and sells some goods imported by it, Apr.
such as billiard balls, bowling balls and other accessories; Second Quarter 1956 25, 855949X 1,250.00
"3. That acting pursuant to the provisions of Sec. 1. group II, of 1956
Ordinance No. 3364, defendant City Treasurer of Manila assessed
from plaintiff retail dealer's tax corresponding to the quarters Jul.
hereunder stated on the sales of furniture manufactured and sold Third Quarter 1956 25, 880789X 1,250.00
by it at its factory site, all of which assessments plaintiff paid 1956

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protest, are refundable;(2) Assuming arguendo, that plaintiff-
appellee is entitled to the refund of the retail taxes in question,
T O T A L . . . . . . . . . . . . . P33,785.00
=========== whether or not the claim for refund filed in October 1956, in so
far as said claim refers to taxes paid from 1950 to 1952 has
"4. That plaintiff, being a manufacturer of various kinds of already prescribed. .
furniture, is exempt from the payment of taxes imposed under Under the first issue, defendants-appellants contend tht the taxes
the provisions of Sec. 1, Group II, of Ordinance No. 3364,which in question were voluntarily paid by appellee company and since,
took effect on September 24, 1956, on the sale of the various in this jurisdiction, in order that a legal basis arise for claim of
kinds of furniture manufactured by it pursuant to the provisions refund of taxes erroneously assessed, payment thereof must be
of Sec. 18(n) of Republic Act No. 409 (Revised Charter of Manila), made under protest, and this being a condition sine qua non, and
as restated in Section 1 of Ordinance No.3816. no protest having been made, -- verbally or in writing, thereby
"5. That, however, plaintiff, is liable for the payment of taxes indicating that the payment was voluntary, the action must fail.
prescribed in Section 1, Group II or Ordinance No. 3364mas Cited in support of the above contention, are the cases of
amended by Sec. 1, Group II of Ordinance No. 3816, which took Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v. Municipality
effect on September 24, 1956, on the sales of imported billiard of Calapan, 71 Phil. 438..
balls, bowling balls and other accessories at its display room. The In refutation of the above stand of appellants, appellee avers tht
taxes paid by the plaintiff on the sales of said article are as the payments could not have been voluntary. At most, they were
follows: paid "mistakenly and in good faith" and "without protest in the
x x x x x x x x x erroneous belief that it was liable thereof." Voluntariness is
"6. That on October 30, 1956, the plaintiff filed with defendant incompatible with protest and mistake. It submits that this is a
City Treasurer of Manila, a formal request for refund of the retail simple case of "solutio indebiti"..
dealer's taxes unduly paid by it as aforestated in paragraph 3, Appellants do not dispute the fact that appellee-company is
hereof. exempted from the payment of the tax in question. This is
"7. That on July 24, 1958, the defendant City Treasurer of Manila manifest from the reply of appellant City Treasurer stating that
definitely denied said request for refund. sales of manufactured products at the factory site are not taxable
"8. Hence on August 21, 1958, plaintiff filed the present either under the Wholesalers Ordinance or under the Retailers'
complaint. Ordinance. With this admission, it would seem clear that the
"9. Based on the above stipulation of facts, the legal issues to be taxes collected from appellee were paid, thru an error or mistake,
resolved by this Honorable Court are: (1) the period of which places said act of payment within the pale of the new Civil
prescription applicable in matters of refund of municipal taxes Code provision on solutio indebiti. The appellant City of Manila,
erroneously paid by a taxpayer and (2) refund of taxes not paid at the very start, notwithstanding the Ordinance imposing the
under protest. x x x." Retailer's Tax, had no right to demand payment thereof..
Said judgment was directly appealed to this Court on two "If something is received when there is no right to demand it, and
dominant issues to wit: (1) Whether or not the amounts paid by it was unduly delivered through mistake, the obligation to return
plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as it arises" (Art. 2154, NCC)..
amended by Ordinance No. 3364of the City of Manila, without

46 | P a g e G l e n n C h u a . K a t r i n a O n g o c o . H a n n a h M a t t i E s p i n o s a . D o m i n i c k B o t o r C o l l a b o r a t i o n

Appelle categorically stated that the payment was not voluntarily taxation. The taxpayer has no voice in the imposition of the
made, (a fact found also by the lower court),but on the erroneous burden. He has the right to presume that the taxing power has
belief, that they were due. Under this circumstance, the amount been lawfully exercised. He should not be required to know more
paid, even without protest is recoverable. "If the payer was in than those in authority over him, nor should he suffer loss by
doubt whether the debt was due, he may recover if he proves that complying with what he bona fide believe to be his duty as a good
it was not due" (Art. 2156, NCC). Appellee had duly proved that citizen. Upon the contrary, he should be promoted to its ready
taxes were not lawfully due. There is, therefore, no doubt that the performance by refunding to him any legal exaction paid by him
provisions of solutio indebtiti, the new Civil Code, apply to the in ignorance of its illegality; and, certainly, in such a case, if be
admitted facts of the case.. subject to a penalty for nonpayment, his compliance under belief
of its legality, and without awaiting a resort to judicial
With all, appellant quoted Manresa as saying: "x x x Of the same proceedings should not be regarded in law as so far voluntary as
opinion are Mr. Sanchez Roman and Mr. Galcon, and which states to affect his right of recovery.".
that if the payment was made by mistake of law, nor does the
quasi-contract exist nor is it bound to the refund that I collect, "Every person who through an act or performance by another, or
although it should not be What was paid" (Manresa, Tomo 12, any other means, acquires or comes into possession of something
paginas 611-612). This opinion, however, has already lost its at the expense of the latter without just or legal grounds, shall
persuasiveness, in view of the provisions of the Civil Code, return the same to him"(Art. 22, Civil Code). It would seems
recognizing "error de derecho" as a basis for the quasi-contract, unedifying for the government, (here the City of Manila), that
of solutio indebiti. . knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the
"Payment by reason of a mistake in the contruction or application same. No one should enrich itself unjustly at the expense of
of a doubtful or difficult question of law may come within the another (Art. 2125, Civil Code)..
scope of the preceding article" (Art. 21555)..
Admittedly, plaintiff-appellee paid the tax without
There is no gainsaying the fact that the payments made by protest.Equally admitted is the fact that section 76 of the Charter
appellee was due to a mistake in the construction of a doubtful of Manila provides that "No court shall entertain any suit
question of law. The reason underlying similar provisions, as assailing the validity of tax assessed under this article until the
applied to illegal taxation, in the United States, is expressed in the taxpayer shall have paid, under protest the taxes assessed against
case of Newport v. Ringo, 37 Ky. 635, 636; 10 S.W. 2, in the him, xx". It should be noted, however, that the article referred to
following manner:. in said section is Article XXI, entitled Department of Assessment
"It is too well settled in this state to need the citation of authority and the sections thereunder manifestly show that said article and
that if money be paid through a clear mistake of law or fact, its sections relate to asseessment, collection and recovery of real
essentially affecting the rights of the parties, and which in law or estate taxes only. Said section 76, therefor, is not applicable to
conscience was not payable, and should not be retained by the the case at bar, which relates to the recover of retail dealer taxes..
party receiving it, it may be recovered. Both law and sound In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in
morality so dictate. Especially should this be the rule as to illegal a question similar to the case at bar, it was held that the

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requiredment of protest refers only to the payment of taxes for a period of six (6) years (upon quasi-contracts like solutio
which are directly imposed by the charter itself, that is, real indebiti). Even if the provisionsof Act No. 190 should apply to
estate taxes, which view was sustained by judicial and those payments made before the effectivity of the new Civil Code,
administrative precedents, one of which is the case of Medina, et because "prescription already runnig before the effectivity of this
al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other Code shall be governed by laws previously in force x x x" (art.
words, protest is not necessary for the recovery of retail dealer's 1116, NCC), for payments made after said effectivity,providing
taxes, like the present, because they are not directly imposed by for a period of six (6) years (upon quasi-contracts like solutio
the charter. In the Medina case, the Charter of Baguio (Chap. 61, indebiti). Even if the provisions of Act No. 190should apply to
Revised Adm. Code), provides that "no court shall entertain any those payments made before the effectivity of the new Civil Code,
suit assailing the validity of a tax assessed unde this charter until because "prescription already running before the effectivity of of
the tax-payer shall have paid, under protest, the taxes assessed this Code shall be govern by laws previously in force xxx " (Art.
against him (sec.25474[b], Rev. Adm. Code), a proviso similar to 1116, NCC), Still payments made before August 30, 1950 are no
section 76 of the Manila Charter. The refund of specific taxes paid longer recoverable in view of the second paragraph of said article
under a void ordinance was ordered, although it did not appear (1116), which provides:"but if since the time this Code took effect
that payment thereof was made under protest.. the entire period herein required for prescription should elapse
the present Code shall be applicable even though by the former
In a recent case, We said: "The appellants argue that the sum the laws a longer period might be required". Anent the payments
refund of which is sought by the appellee, was not paid under made after August 30, 1950, it is abvious that the action has
protest and hence is not refundable. Again, the trial court prescribed with respect to those made before October 30, 1950
correctly held that being unauthorized, it is not a tax assessed only, considering the fact that the prescription of action is
under the Charter of the Appellant City of Davao and for that interrupted xxx when is a writteen extra-judicial demand x x x"
reason, no protest is necessary for a claim or demand for its (Art. 1155, NCC), and the written demand in the case at bar was
refund" (Citing the Medina case, supra; East Asiatic Co., Ltd. v. made on October 30, 1956 (Stipulation of Facts).MODIFIED in the
City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a sense that only payments made on or after October 30, 1950
case of solutio indebiti, protest is not required as a condition sine should be refunded, the decision appealed from is affirmed, in all
qua non for its application.. other respects. No costs. .

The next issue in discussion is that of prescription. Appellants
maintain that article 1146 (NCC), which provides for a period of
four (4) years (upon injury to the rights of the plaintiff), apply to
the case. On the other hand, appellee contends that provisions of
Act 190 (Code of Civ. Procedure) should apply, insofar as 13. G.R. Nos. 198729-30 January 15, 2014
payments made before the effectivity of the New Civil Code on
August 30, 1950, the period of which is ten (10) years, (Sec. CBK POWER COMPANY LIMITED, Petitioner,
40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article vs.
1145 (NCC), for payments made after said effectivity, providing COMMISSIONER OF INTERNAL REVENUE, Respondent.

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D E C I S I O N Petitioner filed its administrative claims for the issuance of tax
credit certificates for its alleged unutilized input taxes on its
SERENO, CJ: purchase of capital goods and alleged unutilized input taxes on
its local purchases and/or importation of goods and services,
This is a Petition for Review on Certiorari1 under Rule 45 of the other than capital goods, pursuant to Sections 112(A) and (B) of
1997 Rules of Civil Procedure filed by CBK Power Company the NIRC of 1997, as amended, with BIR Revenue District Office
Limited (petitioner). The Petition assails the Decision2 dated 27 (RDO) No. 55 of Laguna, as follows:8
June 2011 and Resolution3 dated 16 September 2011 of the Court
of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos. 658 and
Period Covered Date Of Filing
659. The assailed Decision and Resolution reversed and set aside
the Decision4 dated 3 March 2010 and Resolution5 dated 6 July 1st quarter of 2005 30-Jun-05
2010 rendered by the CTA Special Second Division in C.T.A. Case
No. 7621, which partly granted the claim of petitioner for the 2nd quarter of 2005 15-Sep-05
issuance of a tax credit certificate representing the latter's
alleged unutilized input taxes on local purchases of goods and 3rd quarter of 2005 28-Oct-05
services attributable to effectively zero-rated sales to National
Power Corporation (NPC) for the second and third quarters of Alleging inaction of the Commissioner of Internal Revenue (CIR),
2005. petitioner filed a Petition for Review with the CTA on 18 April
2007.
The Facts
THE CTA SPECIAL SECOND DIVISION RULING
Petitioner is engaged, among others, in the operation,
maintenance, and management of the Kalayaan II pumped- After trial on the merits, the CTA Special Second Division
storage hydroelectric power plant, the new Caliraya Spillway, rendered a Decision on 3 March 2010. Applying Commissioner of
Caliraya, Botocan; and the Kalayaan I hydroelectric power plants Internal Revenue v. Mirant Pagbilao Corporation (Mirant),9 the
and their related facilities located in the Province of Laguna.6 court
On 29 December 2004, petitioner filed an Application for VAT a quo ruled that petitioner had until the following dates within
Zero-Rate with the Bureau of Internal Revenue (BIR) in which to file both administrative and judicial claims:
accordance with Section 108(B)(3) of the National Internal
Revenue Code (NIRC) of 1997, as amended. The application was
duly approved by the BIR. Thus, petitioner s sale of electr icity to Taxable Quarter Last Day to
the NPC from 1 January 2005 to 31 October 2005 was declared to File Claim for
be entitled to the benefit of effectively zero-rated value added tax 2005 Close of the quarter Refund
(VAT).7
1st quarter 31-Mar-05 31-Mar-07

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THE COURTS RULING
2nd quarter 30-Jun-05 30-Jun-07

3rd quarter 30-Sep-05 30-Sep-07 The pertinent provision of the NIRC at the time when petitioner
filed its claim for refund provides:

Accordingly, petitioner timely filed its administrative claims for SEC. 112. Refunds or Tax Credits of Input Tax.
the three quarters of 2005. However, considering that the judicial
claim was filed on 18 April 2007, the CTA Division denied the (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
claim for the first quarter of 2005 for having been filed out of registered person, whose sales are zero-rated or
time. effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
After an evaluation of petitioners claim for the second and third apply for the issuance of a tax credit certificate or refund
quarters of 2005, the court a quo partly granted the claim and of creditable input tax due or paid attributable to such
ordered the issuance of a tax credit certificate in favor of sales, except transitional input tax, to the extent that such
petitioner in the reduced amount of P27,170,123.36. input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales
The parties filed their respective Motions for Partial under Section 106(A)(2)(a)(1),(2) and (B) and Section
Reconsideration, which were both denied by the CTA Division. 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in
THE CTA EN BANC RULING accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where
On appeal, relying on Commissioner of Internal Revenue v. Aichi the taxpayer is engaged in zero-rated or effectively zero-
Forging Company of Asia, Inc. (Aichi),10 the CTA En Banc ruled rated sale and also in taxable or exempt sale of goods or
that petitioners judicial claim for the first, second, and third properties or services, and the amount of creditable input
quarters of 2005 were belatedly filed. tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated
The CTA Special Second Division Decision and Resolution were proportionately on the basis of the volume of sales.
reversed and set aside, and the Petition for Review filed in CTA
Case No. 7621 was dismissed. Petitioners Motion for x x x x
Reconsideration was likewise denied for lack of merit.
(D) Period within which Refund or Tax Credit of Input
Hence, this Petition.ISSUE Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for
Petitioners assigned errors boil down to the principal issue of creditable input taxes within one hundred twenty (120)
the applicable prescriptive period on its claim for refund of days from the date of submission of complete documents
unutilized input VAT for the first to third quarters of 2005.11

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in support of the application filed in accordance with or effectively zero-rated transactions or from the acquisition of
Subsections (A) and (B) hereof. capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the The crux of the controversy arose from the proper application of
application within the period prescribed above, the taxpayer the prescriptive periods set forth in Section 112 of the NIRC of
affected may, within thirty (30) days from the receipt of the 1997, as amended, and the interpretation of the applicable
decision denying the claim or after the expiration of the one jurisprudence.
hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals. Although the ponente in this case expressed a different view on
the mandatory application of the 120+30 day period as
Petitioners sales to NPC are effectively zero-rated prescribed in Section 112, with the finality of the Courts
pronouncement on the consolidated tax cases Commissioner of
As aptly ruled by the CTA Special Second Division, petitioners Internal Revenue v. San Roque Power Corporation, Taganito
sales to NPC are effectively subject to zero percent (0%) VAT. The Mining Corporation v. Commissioner of Internal Revenue, and
NPC is an entity with a special charter, which categorically Philex Mining Corporation v. Commissioner of Internal
exempts it from the payment of any tax, whether direct or Revenue14 (hereby collectively referred as San Roque), we are
indirect, including VAT. Thus, services rendered to NPC by a VAT- constrained to apply the dispositions therein to the facts herein
registered entity are effectively zero-rated. In fact, the BIR itself which are similar.
approved the application for zero-rating on 29 December 2004,
filed by petitioner for its sales to NPC covering January to Administrative Claim
October 2005.12 As a consequence, petitioner claims for the
refund of the alleged excess input tax attributable to its Section 112(A) provides that after the close of the taxable quarter
effectively zero-rated sales to NPC. when the sales were made, there is a two-year prescriptive
period within which a VAT-registered person whose sales are
In Panasonic Communications Imaging Corporation of the zero-rated or effectively zero-rated may apply for the issuance of
Philippines v. Commissioner of Internal Revenue,13 this Court a tax credit certificate or refund of creditable input tax.
ruled:
Our VAT Law provides for a mechanism that would allow VAT-
Under the 1997 NIRC, if at the end of a taxable quarter the seller registered persons to recover the excess input taxes over the
charges output taxes equal to the input taxes that his suppliers output taxes they had paid in relation to their sales. For the
passed on to him, no payment is required of him. It is when his refund or credit of excess or unutilized input tax, Section 112 is
output taxes exceed his input taxes that he has to pay the excess the governing law. Given the distinctive nature of creditable
to the BIR. If the input taxes exceed the output taxes, however, input tax, the law under Section 112 (A) provides for a different
the excess payment shall be carried over to the succeeding reckoning point for the two-year prescriptive period, specifically
quarter or quarters. Should the input taxes result from zero-rated for the refund or credit of that tax only.

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We agree with petitioner that Mirant was not yet in existence
2nd quarter 30-Jun- 30-Jun-07 15-Sep-05
when their administrative claim was filed in 2005; thus, it should
2005 05
not retroactively be applied to the instant case.
3rd quarter 30-Sep- 30-Sep-07 28-Oct-05
However, the fact remains that Section 112 is the controlling 2005 05
provision for the refund or credit of input tax during the time
that petitioner filed its claim with which they ought to comply. It
must be emphasized that the Court merely clarified in Mirant that Judicial Claim
Sections 204 and 229, which prescribed a different starting point
for the two-year prescriptive limit for filing a claim for a refund Section 112(D) further provides that the CIR has to decide on an
or credit of excess input tax, were not applicable. Input tax is administrative claim within one hundred twenty (120) days from
neither an erroneously paid nor an illegally collected internal the date of submission of complete documents in support thereof.
revenue tax.15
Bearing in mind that the burden to prove entitlement to a tax
Section 112(A) is clear that for VAT-registered persons whose refund is on the taxpayer, it is presumed that in order to
sales are zero-rated or effectively zero-rated, a claim for the discharge its burden, petitioner had attached complete
refund or credit of creditable input tax that is due or paid, and supporting documents necessary to prove its entitlement to a
that is attributable to zero-rated or effectively zero-rated sales, refund in its application, absent any evidence to the contrary.
must be filed within two years after the close of the taxable
quarter when such sales were made. The reckoning frame would Thereafter, the taxpayer affected by the CIRs decision or inaction
always be the end of the quarter when the pertinent sale or may appeal to the CTA within 30 days from the receipt of the
transactions were made, regardless of when the input VAT was decision or from the expiration of the 120-day period within
paid.16 which the claim has not been acted upon.

Pursuant to Section 112(A), petitioners administrative claims Considering further that the 30-day period to appeal to the CTA
were filed well within the two-year period from the close of the is dependent on the 120-day period, compliance with both
taxable quarter when the effectively zero-rated sales were made, periods is jurisdictional. The period of 120 days is a prerequisite
to wit: for the commencement of the 30-day period to appeal to the CTA.

Prescinding from San Roque in the consolidated case Mindanao II


Period Close of Last day to File Date of Geothermal Partnership v. Commissioner of Internal Revenue
Covered the Administrative Filing and Mindanao I Geothermal Partnership v. Commissioner of
Taxable Claim Internal Revenue,17 this Court has ruled thus:
Quarter
Notwithstanding a strict construction of any claim for tax
1st quarter 31-Mar- 31-Mar-07 30-Jun-05
exemption or refund, the Court in San Roque recognized that BIR
2005 05
Ruling No. DA-489-03 constitutes equitable estoppel in favor of
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taxpayers. BIR Ruling No. DA-489-03 expressly states that the claim of Lazi Bay Resources Development, Inc., where the
"taxpayer-claimant need not wait for the lapse of the 120-day taxpayer did not wait for the lapse of the 120-day period.
period before it could seek judicial relief with the CTA by way of
Petition for Review." This Court discussed BIR Ruling No. DA- Clearly, BIR Ruling No. DA-489-03 is a general interpretative
489-03 and its effect on taxpayers, thus: rule.1wphi1 Thus, all taxpayers can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December 2003 up to
Taxpayers should not be prejudiced by an erroneous its reversal by this Court in Aichi on 6 October 2010, where this
interpretation by the Commissioner, particularly on a difficult Court held that the 120+30 day periods are mandatory and
question of law. The abandonment of the Atlas doctrine by Mirant jurisdictional. (Emphasis supplied)
and Aichi is proof that the reckoning of the prescriptive periods
for input VAT tax refund or credit is a difficult question of law. In applying the foregoing to the instant case, we consider the
The abandonment of the Atlas doctrine did not result in Atlas, or following pertinent dates:
other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas 1wphi1
prior to its abandonment. This Court is applying Mirant and Aichi
Period Administrative Expiration Last day Judicial
prospectively. Absent fraud, bad faith or misrepresentation, the
Covered Claim Filed of 120- to file Claim
reversal by this Court of a general interpretative rule issued by
days Judicial Filed
the Commissioner, like the reversal of a specific BIR ruling under
Claim
Section 246, should also apply prospectively. x x x.
1st 30-Jun-05 28-Oct-05 27-Nov- 18-Apr-
x x x x quarter 05 07
2005
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
general interpretative rule applicable to all taxpayers or a 2nd 15-Sep-05 13-Jan-06 13-Feb-
specific ruling applicable only to a particular taxpayer. BIR Ruling quarter 06
No. DA-489-03 is a general interpretative rule because it was a 2005
response to a query made, not by a particular taxpayer, but by a
government agency asked with processing tax refunds and 3rd 28-Oct-05 26-Feb-06 28-Mar-
credits, that is, the One Stop Shop Inter-Agency Tax Credit and quarter 06
Drawback Center of the Department of Finance. This government 2005
agency is also the addressee, or the entity responded to, in BIR
Ruling No. DA-489-03. Thus, while this government agency It must be emphasized that this is not a case of premature filing
mentions in its query to the Commissioner the administrative of a judicial claim. Although petitioner did not file its judicial
claim of Lazi Bay Resources Development, Inc., the agency was in claim with the CTA prior to the expiration of the 120-day waiting
fact asking the Commissioner what to do in cases like the tax period, it failed to observe the 30-day prescriptive period to
appeal to the CTA counted from the lapse of the 120-day period.
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Petitioner is similarly situated as Philex in the same case, San 489-03, it cannot claim the benefit of the exception period as it
Roque,18 in which this Court ruled: did not file its judicial claim prematurely, but did so long after the
lapse of the 30-day period following the expiration of the 120-
Unlike San Roque and Taganito, Philexs case is not one of day period. Again, BIR Ruling No. DA-489-03 allowed premature
premature filing but of late filing. Philex did not file any petition filing of a judicial claim, which means non-exhaustion of the 120-
with the CTA within the 120-day period. Philex did not also file day period for the Commissioner to act on an administrative
any petition with the CTA within 30 days after the expiration of claim,19 but not its late filing.
the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the lapse As this Court enunciated in San Roque , petitioner cannot rely on
of the 120-day period. In any event, whether governed by Atlas either, since the latter case was promulgated only on 8 June
jurisprudence before, during, or after the Atlas case, Philexs 2007. Moreover, the doctrine in Atlas which reckons the two-
judicial claim will have to be rejected because of late filing. year period from the date of filing of the return and payment of
Whether the two-year prescriptive period is counted from the the tax, does not interpret expressly or impliedly the 120+30
date of payment of the output VAT following the Atlas doctrine, day periods.20 Simply stated, Atlas referred only to the reckoning
or from the close of the taxable quarter when the sales of the prescriptive period for filing an administrative claim.
attributable to the input VAT were made following the Mirant
and Aichi doctrines, Philexs judicial claim was indisputably filed For failure of petitioner to comply with the 120+30 day
late. mandatory and jurisdictional period, petitioner lost its right to
claim a refund or credit of its alleged excess input VAT.
The Atlas doctrine cannot save Philex from the late filing of its
judicial claim. The inaction of the Commissioner on Philexs claim With regard to petitioners argument that Aichi should not be
during the 120-day period is, by express provision of law, applied retroactively, we reiterate that even without that ruling,
"deemed a denial" of Philexs claim. Philex had 30 days from the the law is explicit on the mandatory and jurisdictional nature of
expiration of the 120-day period to file its judicial claim with the the 120+30 day period.
CTA. Philexs failure to do so rendered the "deemed a denial"
decision of the Commissioner final and inappealable. The right to Also devoid of merit is the applicability of the principle of solutio
appeal to the CTA from a decision or "deemed a denial" decision indebiti to the present case. According to this principle, if
of the Commissioner is merely a statutory privilege, not a something is received when there is no right to demand it, and it
constitutional right. The exercise of such statutory privilege was unduly delivered through mistake, the obligation to return it
requires strict compliance with the conditions attached by the arises. In that situation, a creditor-debtor relationship is created
statute for its exercise. Philex failed to comply with the statutory under a quasi-contract, whereby the payor becomes the creditor
conditions and must thus bear the consequences. (Emphases in who then has the right to demand the return of payment made by
the original) mistake, and the person who has no right to receive the payment
becomes obligated to return it.21 The quasi-contract of solutio
Likewise, while petitioner filed its administrative and judicial indebiti is based on the ancient principle that no one shall enrich
claims during the period of applicability of BIR Ruling No. DA- oneself unjustly at the expense of another.22

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There is solutio indebiti when:

(1) Payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the
person who received the payment; and 14. G.R. No. L-12191 October 14, 1918

(2) Payment is made through mistake, and not through JOSE CANGCO, plaintiff-appellant,
liberality or some other cause.23 vs.
MANILA RAILROAD CO., defendant-appellee.
Though the principle of solutio indebiti may be applicable to
some instances of claims for a refund, the elements thereof are Ramon Sotelo for appellant.
wanting in this case. Kincaid & Hartigan for appellee.

First, there exists a binding relation between petitioner and the
CIR, the former being a taxpayer obligated to pay VAT. FISHER, J.:

Second, the payment of input tax was not made through mistake, At the time of the occurrence which gave rise to this litigation the
since petitioner was legally obligated to pay for that liability. The plaintiff, Jose Cangco, was in the employment of Manila Railroad
entitlement to a refund or credit of excess input tax is solely Company in the capacity of clerk, with a monthly wage of P25. He
based on the distinctive nature of the VAT system. At the time of lived in the pueblo of San Mateo, in the province of Rizal, which is
payment of the input VAT, the amount paid was correct and located upon the line of the defendant railroad company; and in
proper.24 coming daily by train to the company's office in the city of Manila
where he worked, he used a pass, supplied by the company,
Finally, equity, which has been aptly described as "a justice which entitled him to ride upon the company's trains free of
outside legality," is applied only in the absence of, and never charge. Upon the occasion in question, January 20, 1915, the
against, statutory law or judicial rules of procedure.25 Section 112 plaintiff arose from his seat in the second class-car where he was
is a positive rule that should preempt and prevail over all riding and, making, his exit through the door, took his position
abstract arguments based only on equity. Well-settled is the rule upon the steps of the coach, seizing the upright guardrail with his
that tax refunds or credits, just like tax exemptions, are strictly right hand for support.
construed against the taxpayer.26 The burden is on the taxpayer
to show strict compliance with the conditions for the grant of the On the side of the train where passengers alight at the San Mateo
tax refund or credit.27 station there is a cement platform which begins to rise with a
moderate gradient some distance away from the company's
WHEREFORE, premises considered, the instant Petition is office and extends along in front of said office for a distance
DENIED. sufficient to cover the length of several coaches. As the train
slowed down another passenger, named Emilio Zuiga, also an

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employee of the railroad company, got off the same car, alighting unsatisfactory, and the plaintiff was then carried to another
safely at the point where the platform begins to rise from the hospital where a second operation was performed and the
level of the ground. When the train had proceeded a little farther member was again amputated higher up near the shoulder. It
the plaintiff Jose Cangco stepped off also, but one or both of his appears in evidence that the plaintiff expended the sum of
feet came in contact with a sack of watermelons with the result P790.25 in the form of medical and surgical fees and for other
that his feet slipped from under him and he fell violently on the expenses in connection with the process of his curation.
platform. His body at once rolled from the platform and was
drawn under the moving car, where his right arm was badly Upon August 31, 1915, he instituted this proceeding in the Court
crushed and lacerated. It appears that after the plaintiff alighted of First Instance of the city of Manila to recover damages of the
from the train the car moved forward possibly six meters before defendant company, founding his action upon the negligence of
it came to a full stop. the servants and employees of the defendant in placing the sacks
of melons upon the platform and leaving them so placed as to be
The accident occurred between 7 and 8 o'clock on a dark night, a menace to the security of passenger alighting from the
and as the railroad station was lighted dimly by a single light company's trains. At the hearing in the Court of First Instance, his
located some distance away, objects on the platform where the Honor, the trial judge, found the facts substantially as above
accident occurred were difficult to discern especially to a person stated, and drew therefrom his conclusion to the effect that,
emerging from a lighted car. although negligence was attributable to the defendant by reason
of the fact that the sacks of melons were so placed as to obstruct
The explanation of the presence of a sack of melons on the passengers passing to and from the cars, nevertheless, the
platform where the plaintiff alighted is found in the fact that it plaintiff himself had failed to use due caution in alighting from
was the customary season for harvesting these melons and a the coach and was therefore precluded form recovering.
large lot had been brought to the station for the shipment to the Judgment was accordingly entered in favor of the defendant
market. They were contained in numerous sacks which has been company, and the plaintiff appealed.
piled on the platform in a row one upon another. The testimony
shows that this row of sacks was so placed of melons and the It can not be doubted that the employees of the railroad company
edge of platform; and it is clear that the fall of the plaintiff was were guilty of negligence in piling these sacks on the platform in
due to the fact that his foot alighted upon one of these melons at the manner above stated; that their presence caused the plaintiff
the moment he stepped upon the platform. His statement that he to fall as he alighted from the train; and that they therefore
failed to see these objects in the darkness is readily to be constituted an effective legal cause of the injuries sustained by
credited. the plaintiff. It necessarily follows that the defendant company is
liable for the damage thereby occasioned unless recovery is
The plaintiff was drawn from under the car in an unconscious barred by the plaintiff's own contributory negligence. In
condition, and it appeared that the injuries which he had received resolving this problem it is necessary that each of these
were very serious. He was therefore brought at once to a certain conceptions of liability, to-wit, the primary responsibility of the
hospital in the city of Manila where an examination was made defendant company and the contributory negligence of the
and his arm was amputated. The result of this operation was plaintiff should be separately examined.

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existing duties of the parties to one another. But where relations
It is important to note that the foundation of the legal liability of already formed give rise to duties, whether springing from
the defendant is the contract of carriage, and that the obligation contract or quasi-contract, then breaches of those duties are
to respond for the damage which plaintiff has suffered arises, if at subject to article 1101, 1103, and 1104 of the same code. (Rakes
all, from the breach of that contract by reason of the failure of vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
defendant to exercise due care in its performance. That is to say,
its liability is direct and immediate, differing essentially, in legal This distinction is of the utmost importance. The liability, which,
viewpoint from that presumptive responsibility for the under the Spanish law, is, in certain cases imposed upon
negligence of its servants, imposed by article 1903 of the Civil employers with respect to damages occasioned by the negligence
Code, which can be rebutted by proof of the exercise of due care of their employees to persons to whom they are not bound by
in their selection and supervision. Article 1903 of the Civil Code contract, is not based, as in the English Common Law, upon the
is not applicable to obligations arising ex contractu, but only to principle of respondeat superior if it were, the master would
extra-contractual obligations or to use the technical form of be liable in every case and unconditionally but upon the
expression, that article relates only to culpa aquiliana and not to principle announced in article 1902 of the Civil Code, which
culpa contractual. imposes upon all persons who by their fault or negligence, do
injury to another, the obligation of making good the damage
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 caused. One who places a powerful automobile in the hands of a
and 1104 of the Civil Code, clearly points out this distinction, servant whom he knows to be ignorant of the method of
which was also recognized by this Court in its decision in the case managing such a vehicle, is himself guilty of an act of negligence
of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In which makes him liable for all the consequences of his
commenting upon article 1093 Manresa clearly points out the imprudence. The obligation to make good the damage arises at
difference between "culpa, substantive and independent, which the very instant that the unskillful servant, while acting within
of itself constitutes the source of an obligation between persons the scope of his employment causes the injury. The liability of the
not formerly connected by any legal tie" and culpa considered as master is personal and direct. But, if the master has not been
an accident in the performance of an obligation already existing . . guilty of any negligence whatever in the selection and direction of
. ." the servant, he is not liable for the acts of the latter, whatever
done within the scope of his employment or not, if the damage
In the Rakes case (supra) the decision of this court was made to done by the servant does not amount to a breach of the contract
rest squarely upon the proposition that article 1903 of the Civil between the master and the person injured.
Code is not applicable to acts of negligence which constitute the
breach of a contract. It is not accurate to say that proof of diligence and care in the
selection and control of the servant relieves the master from
Upon this point the Court said: liability for the latter's acts on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol. 8,
The acts to which these articles [1902 and 1903 of the Civil Code] p. 68) the liability arising from extra-contractual culpa is always
are applicable are understood to be those not growing out of pre- based upon a voluntary act or omission which, without willful

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intent, but by mere negligence or inattention, has caused damage of the court that in selection and supervision he has exercised the
to another. A master who exercises all possible care in the care and diligence of a good father of a family, the presumption is
selection of his servant, taking into consideration the overcome and he is relieved from liability.
qualifications they should possess for the discharge of the duties
which it is his purpose to confide to them, and directs them with This theory bases the responsibility of the master ultimately on
equal diligence, thereby performs his duty to third persons to his own negligence and not on that of his servant. This is the
whom he is bound by no contractual ties, and he incurs no notable peculiarity of the Spanish law of negligence. It is, of
liability whatever if, by reason of the negligence of his servants, course, in striking contrast to the American doctrine that, in
even within the scope of their employment, such third person relations with strangers, the negligence of the servant in
suffer damage. True it is that under article 1903 of the Civil Code conclusively the negligence of the master.
the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is The opinion there expressed by this Court, to the effect that in
rebuttable and yield to proof of due care and diligence in this case of extra-contractual culpa based upon negligence, it is
respect. necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
The supreme court of Porto Rico, in interpreting identical 1903 merely establishes a rebuttable presumption, is in complete
provisions, as found in the Porto Rico Code, has held that these accord with the authoritative opinion of Manresa, who says (vol.
articles are applicable to cases of extra-contractual culpa 12, p. 611) that the liability created by article 1903 is imposed by
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.) reason of the breach of the duties inherent in the special relations
of authority or superiority existing between the person called
This distinction was again made patent by this Court in its upon to repair the damage and the one who, by his act or
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. omission, was the cause of it.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the On the other hand, the liability of masters and employers for the
damage caused by the carelessness of his employee while acting negligent acts or omissions of their servants or agents, when such
within the scope of his employment. The Court, after citing the acts or omissions cause damages which amount to the breach of a
last paragraph of article 1903 of the Civil Code, said: contact, is not based upon a mere presumption of the master's
negligence in their selection or control, and proof of exercise of
From this article two things are apparent: (1) That when an the utmost diligence and care in this regard does not relieve the
injury is caused by the negligence of a servant or employee there master of his liability for the breach of his contract.
instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the Every legal obligation must of necessity be extra-contractual or
servant or employee, or in supervision over him after the contractual. Extra-contractual obligation has its source in the
selection, or both; and (2) that that presumption is juris tantum breach or omission of those mutual duties which civilized society
and not juris et de jure, and consequently, may be rebutted. It imposes upon it members, or which arise from these relations,
follows necessarily that if the employer shows to the satisfaction other than contractual, of certain members of society to others,

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generally embraced in the concept of status. The legal rights of obligation upon which plaintiff's cause of action depends is a
each member of society constitute the measure of the negligent act or omission, the burden of proof rests upon plaintiff
corresponding legal duties, mainly negative in character, which to prove the negligence if he does not his action fails. But when
the existence of those rights imposes upon all other members of the facts averred show a contractual undertaking by defendant
society. The breach of these general duties whether due to willful for the benefit of plaintiff, and it is alleged that plaintiff has failed
intent or to mere inattention, if productive of injury, give rise to or refused to perform the contract, it is not necessary for plaintiff
an obligation to indemnify the injured party. The fundamental to specify in his pleadings whether the breach of the contract is
distinction between obligations of this character and those which due to willful fault or to negligence on the part of the defendant,
arise from contract, rests upon the fact that in cases of non- or of his servants or agents. Proof of the contract and of its
contractual obligation it is the wrongful or negligent act or nonperformance is sufficient prima facie to warrant a recovery.
omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the As a general rule . . . it is logical that in case of extra-contractual
breach of the voluntary duty assumed by the parties when culpa, a suing creditor should assume the burden of proof of its
entering into the contractual relation. existence, as the only fact upon which his action is based; while
on the contrary, in a case of negligence which presupposes the
With respect to extra-contractual obligation arising from existence of a contractual obligation, if the creditor shows that it
negligence, whether of act or omission, it is competent for the exists and that it has been broken, it is not necessary for him to
legislature to elect and our Legislature has so elected whom prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
such an obligation is imposed is morally culpable, or, on the
contrary, for reasons of public policy, to extend that liability, As it is not necessary for the plaintiff in an action for the breach
without regard to the lack of moral culpability, so as to include of a contract to show that the breach was due to the negligent
responsibility for the negligence of those person who acts or conduct of defendant or of his servants, even though such be in
mission are imputable, by a legal fiction, to others who are in a fact the actual cause of the breach, it is obvious that proof on the
position to exercise an absolute or limited control over them. The part of defendant that the negligence or omission of his servants
legislature which adopted our Civil Code has elected to limit or agents caused the breach of the contract would not constitute
extra-contractual liability with certain well-defined exceptions a defense to the action. If the negligence of servants or agents
to cases in which moral culpability can be directly imputed to could be invoked as a means of discharging the liability arising
the persons to be charged. This moral responsibility may consist from contract, the anomalous result would be that person acting
in having failed to exercise due care in the selection and control through the medium of agents or servants in the performance of
of one's agents or servants, or in the control of persons who, by their contracts, would be in a better position than those acting in
reason of their status, occupy a position of dependency with person. If one delivers a valuable watch to watchmaker who
respect to the person made liable for their conduct. contract to repair it, and the bailee, by a personal negligent act
causes its destruction, he is unquestionably liable. Would it be
The position of a natural or juridical person who has undertaken logical to free him from his liability for the breach of his contract,
by contract to render service to another, is wholly different from which involves the duty to exercise due care in the preservation
that to which article 1903 relates. When the sources of the of the watch, if he shows that it was his servant whose negligence

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caused the injury? If such a theory could be accepted, juridical
persons would enjoy practically complete immunity from In the case of Johnson vs. David (5 Phil. Rep., 663), the court held
damages arising from the breach of their contracts if caused by that the owner of a carriage was not liable for the damages
negligent acts as such juridical persons can of necessity only act caused by the negligence of his driver. In that case the court
through agents or servants, and it would no doubt be true in most commented on the fact that no evidence had been adduced in the
instances that reasonable care had been taken in selection and trial court that the defendant had been negligent in the
direction of such servants. If one delivers securities to a banking employment of the driver, or that he had any knowledge of his
corporation as collateral, and they are lost by reason of the lack of skill or carefulness.
negligence of some clerk employed by the bank, would it be just
and reasonable to permit the bank to relieve itself of liability for In the case of Baer Senior & Co's Successors vs. Compania
the breach of its contract to return the collateral upon the Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for
payment of the debt by proving that due care had been exercised damages caused by the loss of a barge belonging to plaintiff
in the selection and direction of the clerk? which was allowed to get adrift by the negligence of defendant's
servants in the course of the performance of a contract of towage.
This distinction between culpa aquiliana, as the source of an The court held, citing Manresa (vol. 8, pp. 29, 69) that if the
obligation, and culpa contractual as a mere incident to the "obligation of the defendant grew out of a contract made between
performance of a contract has frequently been recognized by the it and the plaintiff . . . we do not think that the provisions of
supreme court of Spain. (Sentencias of June 27, 1894; November articles 1902 and 1903 are applicable to the case."
20, 1896; and December 13, 1896.) In the decisions of November
20, 1896, it appeared that plaintiff's action arose ex contractu, In the case of Chapman vs. Underwood (27 Phil. Rep., 374),
but that defendant sought to avail himself of the provisions of plaintiff sued the defendant to recover damages for the personal
article 1902 of the Civil Code as a defense. The Spanish Supreme injuries caused by the negligence of defendant's chauffeur while
Court rejected defendant's contention, saying: driving defendant's automobile in which defendant was riding at
the time. The court found that the damages were caused by the
These are not cases of injury caused, without any pre-existing negligence of the driver of the automobile, but held that the
obligation, by fault or negligence, such as those to which article master was not liable, although he was present at the time,
1902 of the Civil Code relates, but of damages caused by the saying:
defendant's failure to carry out the undertakings imposed by the
contracts . . . . . . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
A brief review of the earlier decision of this court involving the observe them and to direct the driver to desist therefrom. . . . The
liability of employers for damage done by the negligent acts of act complained of must be continued in the presence of the
their servants will show that in no case has the court ever owner for such length of time that the owner by his acquiescence,
decided that the negligence of the defendant's servants has been makes the driver's acts his own.
held to constitute a defense to an action for damages for breach
of contract.

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In the case of Yamada vs. Manila Railroad Co. and Bachrach care, either directly, or in failing to exercise proper care in the
Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court selection and direction of his servants, the practical result is
rested its conclusion as to the liability of the defendant upon identical in either case. Therefore, it follows that it is not to be
article 1903, although the facts disclosed that the injury inferred, because the court held in the Yamada case that
complaint of by plaintiff constituted a breach of the duty to him defendant was liable for the damages negligently caused by its
arising out of the contract of transportation. The express ground servants to a person to whom it was bound by contract, and
of the decision in this case was that article 1903, in dealing with made reference to the fact that the defendant was negligent in
the liability of a master for the negligent acts of his servants the selection and control of its servants, that in such a case the
"makes the distinction between private individuals and public court would have held that it would have been a good defense to
enterprise;" that as to the latter the law creates a rebuttable the action, if presented squarely upon the theory of the breach of
presumption of negligence in the selection or direction of the contract, for defendant to have proved that it did in fact
servants; and that in the particular case the presumption of exercise care in the selection and control of the servant.
negligence had not been overcome.
The true explanation of such cases is to be found by directing the
It is evident, therefore that in its decision Yamada case, the court attention to the relative spheres of contractual and extra-
treated plaintiff's action as though founded in tort rather than as contractual obligations. The field of non- contractual obligation is
based upon the breach of the contract of carriage, and an much more broader than that of contractual obligations,
examination of the pleadings and of the briefs shows that the comprising, as it does, the whole extent of juridical human
questions of law were in fact discussed upon this theory. Viewed relations. These two fields, figuratively speaking, concentric; that
from the standpoint of the defendant the practical result must is to say, the mere fact that a person is bound to another by
have been the same in any event. The proof disclosed beyond contract does not relieve him from extra-contractual liability to
doubt that the defendant's servant was grossly negligent and that such person. When such a contractual relation exists the obligor
his negligence was the proximate cause of plaintiff's injury. It also may break the contract under such conditions that the same act
affirmatively appeared that defendant had been guilty of which constitutes the source of an extra-contractual obligation
negligence in its failure to exercise proper discretion in the had no contract existed between the parties.
direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were The contract of defendant to transport plaintiff carried with it, by
to be regarded as constituting culpa aquiliana or culpa implication, the duty to carry him in safety and to provide safe
contractual. As Manresa points out (vol. 8, pp. 29 and 69) means of entering and leaving its trains (civil code, article 1258).
whether negligence occurs an incident in the course of the That duty, being contractual, was direct and immediate, and its
performance of a contractual undertaking or its itself the source non-performance could not be excused by proof that the fault
of an extra-contractual undertaking obligation, its essential was morally imputable to defendant's servants.
characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the The railroad company's defense involves the assumption that
part of the defendant. Consequently, when the court holds that a even granting that the negligent conduct of its servants in placing
defendant is liable in damages for having failed to exercise due an obstruction upon the platform was a breach of its contractual

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obligation to maintain safe means of approaching and leaving its train, is that of ordinary or reasonable care. It is to be considered
trains, the direct and proximate cause of the injury suffered by whether an ordinarily prudent person, of the age, sex and
plaintiff was his own contributory negligence in failing to wait condition of the passenger, would have acted as the passenger
until the train had come to a complete stop before alighting. acted under the circumstances disclosed by the evidence. This
Under the doctrine of comparative negligence announced in the care has been defined to be, not the care which may or should be
Rakes case (supra), if the accident was caused by plaintiff's own used by the prudent man generally, but the care which a man of
negligence, no liability is imposed upon defendant's negligence ordinary prudence would use under similar circumstances, to
and plaintiff's negligence merely contributed to his injury, the avoid injury." (Thompson, Commentaries on Negligence, vol. 3,
damages should be apportioned. It is, therefore, important to sec. 3010.)
ascertain if defendant was in fact guilty of negligence.
Or, it we prefer to adopt the mode of exposition used by this
It may be admitted that had plaintiff waited until the train had court in Picart vs. Smith (37 Phil. rep., 809), we may say that the
come to a full stop before alighting, the particular injury suffered test is this; Was there anything in the circumstances surrounding
by him could not have occurred. Defendant contends, and cites the plaintiff at the time he alighted from the train which would
many authorities in support of the contention, that it is have admonished a person of average prudence that to get off the
negligence per se for a passenger to alight from a moving train. train under the conditions then existing was dangerous? If so, the
We are not disposed to subscribe to this doctrine in its absolute plaintiff should have desisted from alighting; and his failure so to
form. We are of the opinion that this proposition is too badly desist was contributory negligence.1awph!l.net
stated and is at variance with the experience of every-day life. In
this particular instance, that the train was barely moving when As the case now before us presents itself, the only fact from
plaintiff alighted is shown conclusively by the fact that it came to which a conclusion can be drawn to the effect that plaintiff was
stop within six meters from the place where he stepped from it. guilty of contributory negligence is that he stepped off the car
Thousands of person alight from trains under these conditions without being able to discern clearly the condition of the
every day of the year, and sustain no injury where the company platform and while the train was yet slowly moving. In
has kept its platform free from dangerous obstructions. There is considering the situation thus presented, it should not be
no reason to believe that plaintiff would have suffered any injury overlooked that the plaintiff was, as we find, ignorant of the fact
whatever in alighting as he did had it not been for defendant's that the obstruction which was caused by the sacks of melons
negligent failure to perform its duty to provide a safe alighting piled on the platform existed; and as the defendant was bound by
place. reason of its duty as a public carrier to afford to its passengers
facilities for safe egress from its trains, the plaintiff had a right to
We are of the opinion that the correct doctrine relating to this assume, in the absence of some circumstance to warn him to the
subject is that expressed in Thompson's work on Negligence (vol. contrary, that the platform was clear. The place, as we have
3, sec. 3010) as follows: already stated, was dark, or dimly lighted, and this also is proof of
a failure upon the part of the defendant in the performance of a
The test by which to determine whether the passenger has been duty owing by it to the plaintiff; for if it were by any possibility
guilty of negligence in attempting to alight from a moving railway concede that it had right to pile these sacks in the path of

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alighting passengers, the placing of them adequately so that their he has suffered have permanently disabled him from continuing
presence would be revealed. that employment. Defendant has not shown that any other
gainful occupation is open to plaintiff. His expectancy of life,
As pertinent to the question of contributory negligence on the according to the standard mortality tables, is approximately
part of the plaintiff in this case the following circumstances are to thirty-three years. We are of the opinion that a fair compensation
be noted: The company's platform was constructed upon a level for the damage suffered by him for his permanent disability is the
higher than that of the roadbed and the surrounding ground. The sum of P2,500, and that he is also entitled to recover of defendant
distance from the steps of the car to the spot where the alighting the additional sum of P790.25 for medical attention, hospital
passenger would place his feet on the platform was thus reduced, services, and other incidental expenditures connected with the
thereby decreasing the risk incident to stepping off. The nature of treatment of his injuries.
the platform, constructed as it was of cement material, also
assured to the passenger a stable and even surface on which to The decision of lower court is reversed, and judgment is hereby
alight. Furthermore, the plaintiff was possessed of the vigor and rendered plaintiff for the sum of P3,290.25, and for the costs of
agility of young manhood, and it was by no means so risky for both instances. So ordered.
him to get off while the train was yet moving as the same act
would have been in an aged or feeble person. In determining the
question of contributory negligence in performing such act
that is to say, whether the passenger acted prudently or
recklessly the age, sex, and physical condition of the passenger 15. G.R. No. 34840 September 23, 1931
are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been NARCISO GUTIERREZ, plaintiff-appellee,
observed, as a general rule are less capable than men of alighting vs.
with safety under such conditions, as the nature of their wearing BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ,
apparel obstructs the free movement of the limbs. Again, it may MANUEL GUTIERREZ, ABELARDO VELASCO, and
be noted that the place was perfectly familiar to the plaintiff as it SATURNINO CORTEZ, defendants-appellants.
was his daily custom to get on and of the train at this station.
There could, therefore, be no uncertainty in his mind with regard L.D. Lockwood for appellants Velasco and Cortez.
either to the length of the step which he was required to take or San Agustin and Roxas for other appellants.
the character of the platform where he was alighting. Our Ramon Diokno for appellee.
conclusion is that the conduct of the plaintiff in undertaking to
alight while the train was yet slightly under way was not MALCOLM, J.:
characterized by imprudence and that therefore he was not guilty
of contributory negligence. This is an action brought by the plaintiff in the Court of First
Instance of Manila against the five defendants, to recover
The evidence shows that the plaintiff, at the time of the accident, damages in the amount of P10,000, for physical injuries suffered
was earning P25 a month as a copyist clerk, and that the injuries as a result of an automobile accident. On judgment being

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rendered as prayed for by the plaintiff, both sets of defendants excessive rate of speed, and that, on approaching the bridge and
appealed. the truck, he lost his head and so contributed by his negligence to
the accident. The guaranty given by the father at the time the son
On February 2, 1930, a passenger truck and an automobile of was granted a license to operate motor vehicles made the father
private ownership collided while attempting to pass each other responsible for the acts of his son. Based on these facts, pursuant
on the Talon bridge on the Manila South Road in the municipality to the provisions of article 1903 of the Civil Code, the father alone
of Las Pias, Province of Rizal. The truck was driven by the and not the minor or the mother, would be liable for the damages
chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. caused by the minor.
The automobile was being operated by Bonifacio Gutierrez, a lad
18 years of age, and was owned by Bonifacio's father and mother, We are dealing with the civil law liability of parties for
Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the obligations which arise from fault or negligence. At the same
father was not in the car, but the mother, together will several time, we believe that, as has been done in other cases, we can
other members of the Gutierrez family, seven in all, were take cognizance of the common law rule on the same subject. In
accommodated therein. A passenger in the autobus, by the name the United States, it is uniformly held that the head of a house, the
of Narciso Gutierrez, was en route from San Pablo, Laguna, to owner of an automobile, who maintains it for the general use of
Manila. The collision between the bus and the automobile his family is liable for its negligent operation by one of his
resulted in Narciso Gutierrez suffering a fracture right leg which children, whom he designates or permits to run it, where the car
required medical attendance for a considerable period of time, is occupied and being used at the time of the injury for the
and which even at the date of the trial appears not to have healed pleasure of other members of the owner's family than the child
properly. driving it. The theory of the law is that the running of the
machine by a child to carry other members of the family is within
It is conceded that the collision was caused by negligence pure the scope of the owner's business, so that he is liable for the
and simple. The difference between the parties is that, while the negligence of the child because of the relationship of master and
plaintiff blames both sets of defendants, the owner of the servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs.
passenger truck blames the automobile, and the owner of the Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the
automobile, in turn, blames the truck. We have given close owner of the truck, and of his chauffeur Abelardo Velasco rests
attention to these highly debatable points, and having done so, a on a different basis, namely, that of contract which, we think, has
majority of the court are of the opinion that the findings of the been sufficiently demonstrated by the allegations of the
trial judge on all controversial questions of fact find sufficient complaint, not controverted, and the evidence. The reason for
support in the record, and so should be maintained. With this this conclusion reaches to the findings of the trial court
general statement set down, we turn to consider the respective concerning the position of the truck on the bridge, the speed in
legal obligations of the defendants. operating the machine, and the lack of care employed by the
chauffeur. While these facts are not as clearly evidenced as are
In amplification of so much of the above pronouncement as those which convict the other defendant, we nevertheless
concerns the Gutierrez family, it may be explained that the youth hesitate to disregard the points emphasized by the trial judge. In
Bonifacio was in incompetent chauffeur, that he was driving at an its broader aspects, the case is one of two drivers approaching a

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narrow bridge from opposite directions, with neither being
willing to slow up and give the right of way to the other, with the
inevitable result of a collision and an accident. 16. G.R. No. 178610 November 17, 2010

The defendants Velasco and Cortez further contend that there HONGKONG AND SHANGHAI BANKING CORP., LTD.
existed contributory negligence on the part of the plaintiff, STAFF RETIREMENT PLAN, Retirement Trust Fund,
consisting principally of his keeping his foot outside the truck, Inc.) Petitioner,
which occasioned his injury. In this connection, it is sufficient to vs.
state that, aside from the fact that the defense of contributory SPOUSES BIENVENIDO AND EDITHA BROQUEZA,
negligence was not pleaded, the evidence bearing out this theory Respondents.
of the case is contradictory in the extreme and leads us far afield
into speculative matters. D E C I S I O N

The last subject for consideration relates to the amount of the CARPIO, J.:
award. The appellee suggests that the amount could justly be
raised to P16,517, but naturally is not serious in asking for this G.R. No. 178610 is a petition for review1 assailing the Decision2
sum, since no appeal was taken by him from the judgment. The promulgated on 30 March 2006 by the Court of Appeals (CA) in
other parties unite in challenging the award of P10,000, as CA-G.R. SP No. 62685. The appellate court granted the petition
excessive. All facts considered, including actual expenditures and filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha
damages for the injury to the leg of the plaintiff, which may cause Broqueza (spouses Broqueza) and dismissed the consolidated
him permanent lameness, in connection with other adjudications complaints filed by Hongkong and Shanghai Banking
of this court, lead us to conclude that a total sum for the plaintiff Corporation, Ltd. - Staff Retirement Plan (HSBCL-SRP) for
of P5,000 would be fair and reasonable. The difficulty in recovery of sum of money. The appellate court reversed and set
approximating the damages by monetary compensation is well aside the Decision3 of Branch 139 of the Regional Trial Court of
elucidated by the divergence of opinion among the members of Makati City (RTC) in Civil Case No. 00-787 dated 11 December
the court, three of whom have inclined to the view that P3,000 2000, as well as its Order4 dated 5 September 2000. The RTCs
would be amply sufficient, while a fourth member has argued decision affirmed the Decision5 dated 28 December 1999 of
that P7,500 would be none too much. Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City
in Civil Case No. 52400 for Recovery of a Sum of Money.
In consonance with the foregoing rulings, the judgment appealed
from will be modified, and the plaintiff will have judgment in his The Facts
favor against the defendants Manuel Gutierrez, Abelardo Velasco,
and Saturnino Cortez, jointly and severally, for the sum of P5,000, The appellate court narrated the facts as follows:
and the costs of both instances.
Petitioners Gerong and [Editha] Broqueza (defendants below)
are employees of Hongkong and Shanghai Banking Corporation

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(HSBC). They are also members of respondent Hongkong The Metropolitan Trial Courts Ruling
Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement On 28 December 1999, the MeTC promulgated its Decision7 in
plan established by HSBC through its Board of Trustees for the favor of HSBCL-SRP. The MeTC ruled that the nature of HSBCL-
benefit of the employees. SRPs demands for payment is civil and has no connection to the
ongoing labor dispute. Gerong and Editha Broquezas termination
On October 1, 1990, petitioner [Editha] Broqueza obtained a car from employment resulted in the loss of continued benefits
loan in the amount of Php175,000.00. On December 12, 1991, she under their retirement plans. Thus, the loans secured by their
again applied and was granted an appliance loan in the amount of future retirement benefits to which they are no longer entitled
Php24,000.00. On the other hand, petitioner Gerong applied and are reduced to unsecured and pure civil obligations. As
was granted an emergency loan in the amount of Php35,780.00 unsecured and pure obligations, the loans are immediately
on June 2, 1993. These loans are paid through automatic salary demandable.
deduction.
The dispositive portion of the MeTCs decision reads:
Meanwhile [in 1993], a labor dispute arose between HSBC and its
employees. Majority of HSBCs employees were terminated, WHEREFORE, premises considered and in view of the foregoing,
among whom are petitioners Editha Broqueza and Fe Gerong. the Court finds that the plaintiff was able to prove by a
The employees then filed an illegal dismissal case before the preponderance of evidence the existence and immediate
National Labor Relations Commission (NLRC) against HSBC. The demandability of the defendants loan obligations as judgment is
legality or illegality of such termination is now pending before hereby rendered in favor of the plaintiff and against the
this appellate Court in CA G.R. CV No. 56797, entitled Hongkong defendants in both cases, ordering the latter:
Shanghai Banking Corp. Employees Union, et al. vs. National
Labor Relations Commission, et al. 1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at
six percent interest per annum from the time of demand and in
Because of their dismissal, petitioners were not able to pay the Civil Case No. 52911, to pay the amount of Php25,344.12 at six
monthly amortizations of their respective loans. Thus, percent per annum from the time of the filing of these cases, until
respondent HSBCL-SRP considered the accounts of petitioners the amount is fully paid;
delinquent. Demands to pay the respective obligations were
made upon petitioners, but they failed to pay.6 2. To pay the amount of Php20,000.00 each as reasonable
attorneys fees;
HSBCL-SRP, acting through its Board of Trustees and represented
by Alejandro L. Custodio, filed Civil Case No. 52400 against the 3. Cost of suit.
spouses Broqueza on 31 July 1996. On 19 September 1996,
HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits SO ORDERED.8
were civil actions for recovery and collection of sums of money.

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Gerong and the spouses Broqueza filed a joint appeal of the as the loan obligations have not yet matured. Thus, no cause of
MeTCs decision before the RTC. Gerongs case was docketed Civil action accrued in favor of HSBCL-SRP. The dispositive portion of
Case No. 00-786, while the spouses Broquezas case was the appellate courts Decision reads as follows:
docketed as Civil Case No. 00-787.
WHEREFORE, the assailed Decision of the RTC is REVERSED and
The Regional Trial Courts Ruling SET ASIDE. A new one is hereby rendered DISMISSING the
consolidated complaints for recovery of sum of money.
The RTC initially denied the joint appeal because of the belated
filing of Gerong and the spouses Broquezas memorandum. The SO ORDERED.11
RTC later reconsidered the order of denial and resolved the
issues in the interest of justice. HSBCL-SRP filed a motion for reconsideration which the CA
denied for lack of merit in its Resolution12 promulgated on 19
On 11 December 2000, the RTC affirmed the MeTCs decision in June 2007.
toto.9
On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing
The RTC ruled that Gerong and Editha Broquezas termination the petition against Gerong because she already settled her
from employment disqualified them from availing of benefits obligations. In a Resolution13 of this Court dated 10 September
under their retirement plans. As a consequence, there is no 2007, this Court treated the manifestation as a motion to
longer any security for the loans. HSBCL-SRP has a legal right to withdraw the petition against Gerong, granted the motion, and
demand immediate settlement of the unpaid balance because of considered the case against Gerong closed and terminated.
Gerong and Editha Broquezas continued default in payment and
their failure to provide new security for their loans. Moreover, Issues
the absence of a period within which to pay the loan allows
HSBCL-SRP to demand immediate payment. The loan obligations HSBCL-SRP enumerated the following grounds to support its
are considered pure obligations, the fulfillment of which are Petition:
demandable at once.
I. The Court of Appeals has decided a question of substance in a
Gerong and the spouses Broqueza then filed a Petition for Review way not in accord with law and applicable decisions of this
under Rule 42 before the CA. Honorable Court; and

The Ruling of the Court of Appeals II. The Court of Appeals has departed from the accepted and
usual course of judicial proceedings in reversing the decision of
On 30 March 2006, the CA rendered its Decision10 which the Regional Trial Court and the Metropolitan Trial Court.14
reversed the 11 December 2000 Decision of the RTC. The CA
ruled that the HSBCL-SRPs complaints for recovery of sum of The Courts Ruling
money against Gerong and the spouses Broqueza are premature

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The petition is meritorious. We agree with the rulings of the
MeTC and the RTC. Art. 1179. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown
The Promissory Notes uniformly provide: to the parties, is demandable at once.

PROMISSORY NOTE x x x. (Emphasis supplied.)

P_____ Makati, M.M. ____ 19__ We affirm the findings of the MeTC and the RTC that there is no
date of payment indicated in the Promissory Notes. The RTC is
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise correct in ruling that since the Promissory Notes do not contain a
to pay to THE HSBC RETIREMENT PLAN (hereinafter called the period, HSBCL-SRP has the right to demand immediate payment.
"PLAN") at its office in the Municipality of Makati, Metro Manila, Article 1179 of the Civil Code applies. The spouses Broquezas
on or before until fully paid the sum of PESOS ___ (P___) Philippine obligation to pay HSBCL-SRP is a pure obligation. The fact that
Currency without discount, with interest from date hereof at the HSBCL-SRP was content with the prior monthly check-off from
rate of Six per cent (6%) per annum, payable monthly. Editha Broquezas salary is of no moment. Once Editha Broqueza
defaulted in her monthly payment, HSBCL-SRP made a demand to
I/WE agree that the PLAN may, upon written notice, increase the enforce a pure obligation.
interest rate stipulated in this note at any time depending on
prevailing conditions. In their Answer, the spouses Broqueza admitted that prior to
Editha Broquezas dismissal from HSBC in December 1993, she
I/WE hereby expressly consent to any extensions or renewals "religiously paid the loan amortizations, which HSBC collected
hereof for a portion or whole of the principal without notice to through payroll check-off."16 A definite amount is paid to HSBCL-
the other(s), and in such a case our liability shall remain joint and SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to
several.1avvphi1 make deductions from her payroll until her loans are fully paid.
Editha Broqueza, however, defaulted in her monthly loan
In case collection is made by or through an attorney, I/WE jointly payment due to her dismissal. Despite the spouses Broquezas
and severally agree to pay ten percent (10%) of the amount due protestations, the payroll deduction is merely a convenient mode
on this note (but in no case less than P200.00) as and for of payment and not the sole source of payment for the loans.
attorneys fees in addition to expenses and costs of suit. HSBCL-SRP never agreed that the loans will be paid only through
salary deductions. Neither did HSBCL-SRP agree that if Editha
In case of judicial execution, I/WE hereby jointly and severally Broqueza ceases to be an employee of HSBC, her obligation to pay
waive our rights under the provisions of Rule 39, Section 12 of the loans will be suspended. HSBCL-SRP can immediately
the Rules of Court.15 demand payment of the loans at anytime because the obligation
to pay has no period. Moreover, the spouses Broqueza have
In ruling for HSBCL-SRP, we apply the first paragraph of Article already incurred in default in paying the monthly installments.
1179 of the Civil Code:

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Finally, the enforcement of a loan agreement involves "debtor- the decisive issue is whether a creditor is barred by prescription
creditor relations founded on contract and does not in any way in his attempt to collect on a promissory note executed more
concern employee relations. As such it should be enforced than fifteen years earlier with the debtor sued promising to pay
through a separate civil action in the regular courts and not either upon receipt by him of his share from a certain estate or
before the Labor Arbiter."17 upon demand, the basis for the action being the latter alternative.
The lower court held that the ten-year period of limitation of
WHEREFORE, we GRANT the petition. The Decision of the Court actions did apply, the note being immediately due and
of Appeals in CA-G.R. SP No. 62685 promulgated on 30 March demandable, the creditor admitting expressly that he was relying
2006 is REVERSED and SET ASIDE. The decision of Branch 139 of on the wording "upon demand." On the above facts as found, and
the Regional Trial Court of Makati City in Civil Case No. 00-787, as with the law being as it is, it cannot be said that its decision is
well as the decision of Branch 61 of the Metropolitan Trial Court infected with error. We affirm.
of Makati City in Civil Case No. 52400 against the spouses
Bienvenido and Editha Broqueza, are AFFIRMED. Costs against From the appealed decision, the following appears: "The parties
respondents. in this case agreed to submit the matter for resolution on the
basis of their pleadings and annexes and their respective
memoranda submitted. Petitioner George Pay is a creditor of the
Late Justo Palanca who died in Manila on July 3, 1963. The claim
of the petitioner is based on a promissory note dated January 30,
17. G.R. No. L-29900 June 28, 1974 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de
Carlos Palanca promised to pay George Pay the amount of
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO P26,900.00, with interest thereon at the rate of 12% per annum.
PALANCA, Deceased, GEORGE PAY, petitioner- George Pay is now before this Court, asking that Segundina Chua
appellant, vda. de Palanca, surviving spouse of the late Justo Palanca, he
vs. appointed as administratrix of a certain piece of property which
SEGUNDINA CHUA VDA. DE PALANCA, oppositor- is a residential dwelling located at 2656 Taft Avenue, Manila,
appellee. covered by Tax Declaration No. 3114 in the name of Justo
Palanca, assessed at P41,800.00. The idea is that once said
Florentino B. del Rosario for petitioner-appellant. property is brought under administration, George Pay, as
creditor, can file his claim against the administratrix." 1 It then
Manuel V. San Jose for oppositor-appellee. stated that the petition could not prosper as there was a refusal
on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no
FERNANDO, J.:p longer belonged to the debtor, the late Justo Palanca; and that the
rights of petitioner-creditor had already prescribed. The
There is no difficulty attending the disposition of this appeal by promissory note, dated January 30, 1962, is worded thus: " `For
petitioner on questions of law. While several points were raised, value received from time to time since 1947, we [jointly and

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severally promise to] pay to Mr. [George Pay] at his office at the presumptively as one of the heirs, or, as expressed therein, "upon
China Banking Corporation the sum of [Twenty Six Thousand demand." There is nothing in the record that would indicate
Nine Hundred Pesos] (P26,900.00), with interest thereon at the whether or not the first alternative was fulfilled. What is
rate of 12% per annum upon receipt by either of the undersigned undeniable is that on August 26, 1967, more than fifteen years
of cash payment from the Estate of the late Don Carlos Palanca or after the execution of the promissory note on January 30, 1952,
upon demand'. . . . As stated, this promissory note is signed by this petition was filed. The defense interposed was prescription.
Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then Its merit is rather obvious. Article 1179 of the Civil Code
came this paragraph: "The Court has inquired whether any cash provides: "Every obligation whose performance does not depend
payment has been received by either of the signers of this upon a future or uncertain event, or upon a past event unknown
promissory note from the Estate of the late Carlos Palanca. to the parties, is demandable at once." This used to be Article
Petitioner informed that he does not insist on this provision but 1113 of the Spanish Civil Code of 1889. As far back as Floriano v.
that petitioner is only claiming on his right under the promissory Delgado, 5 a 1908 decision, it has been applied according to its
note ." 3 After which, came the ruling that the wording of the express language. The well-known Spanish commentator,
promissory note being "upon demand," the obligation was Manresa, on this point, states: "Dejando con acierto, el caracter
immediately due. Since it was dated January 30, 1952, it was mas teorico y grafico del acto, o sea la perfeccion de este, se fija,
clear that more "than ten (10) years has already transpired from para determinar el concepto de la obligacion pura, en el
that time until to date. The action, therefore, of the creditor has distinctive de esta, y que es consecuencia de aquel: la exigibilidad
definitely prescribed." 4 The result, as above noted, was the immediata." 6
dismissal of the petition.
The obligation being due and demandable, it would appear that
In an exhaustive brief prepared by Attorney Florentino B. del the filing of the suit after fifteen years was much too late. For
Rosario, petitioner did assail the correctness of the rulings of the again, according to the Civil Code, which is based on Section 43 of
lower court as to the effect of the refusal of the surviving spouse Act No. 190, the prescriptive period for a written contract is that
of the late Justo Palanca to be appointed as administratrix, as to of ten years. 7 This is another instance where this Court has
the property sought to be administered no longer belonging to consistently adhered to the express language of the applicable
the debtor, the late Justo Palanca, and as to the rights of norm. 8 There is no necessity therefore of passing upon the other
petitioner-creditor having already prescribed. As noted at the legal questions as to whether or not it did suffice for the petition
outset, only the question of prescription need detain us in the to fail just because the surviving spouse refuses to be made
disposition of this appeal. Likewise, as intimated, the decision administratrix, or just because the estate was left with no other
must be affirmed, considering the clear tenor of the promissory property. The decision of the lower court cannot be overturned.
note.
WHEREFORE, the lower court decision of July 24, 1968 is
From the manner in which the promissory note was executed, it affirmed. Costs against George Pay.
would appear that petitioner was hopeful that the satisfaction of
his credit could he realized either through the debtor sued
receiving cash payment from the estate of the late Carlos Palanca

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immediately notified the defendant of the arrival of the goods,
18. G.R. No. L-16570 March 9, 1922 and asked instructions from him as to the delivery thereof, and
that the defendant refused to receive any of them and to pay their
SMITH, BELL & CO., LTD., plaintiff-appellant, price. The plaintiff, further, alleged that the expellers and the
vs. motors were in good condition. (Amended complaint, pages 16-
VICENTE SOTELO MATTI, defendant-appellant. 30, Bill of Exceptions.)

Ross and Lawrence and Ewald E. Selph for plaintiff- In their answer, the defendant, Mr. Sotelo, and the intervenor, the
appellant. Manila Oil Refining and By-Products Co., Inc., denied the
Ramon Sotelo for defendant-appellant. plaintiff's allegations as to the shipment of these goods and their
arrival at Manila, the notification to the defendant, Mr. Sotelo, the
ROMUALDEZ, J.: latter's refusal to receive them and pay their price, and the good
condition of the expellers and the motors, alleging as special
In August, 1918, the plaintiff corporation and the defendant, Mr. defense that Mr. Sotelo had made the contracts in question as
Vicente Sotelo, entered into contracts whereby the former manager of the intervenor, the Manila Oil Refining and By-
obligated itself to sell, and the latter to purchase from it, two steel Products Co., Inc which fact was known to the plaintiff, and that
tanks, for the total price of twenty-one thousand pesos "it was only in May, 1919, that it notified the intervenor that said
(P21,000), the same to be shipped from New York and delivered tanks had arrived, the motors and the expellers having arrived
at Manila "within three or four months;" two expellers at the incomplete and long after the date stipulated." As a counterclaim
price of twenty five thousand pesos (P25,000) each, which were or set-off, they also allege that, as a consequence of the plaintiff's
to be shipped from San Francisco in the month of September, delay in making delivery of the goods, which the intervenor
1918, or as soon as possible; and two electric motors at the price intended to use in the manufacture of cocoanut oil, the intervenor
of two thousand pesos (P2,000) each, as to the delivery of which suffered damages in the sums of one hundred sixteen thousand
stipulation was made, couched in these words: "Approximate seven hundred eighty-three pesos and ninety-one centavos
delivery within ninety days. This is not guaranteed." (P116,783.91) for the nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos (P21,250) on account of
The tanks arrived at Manila on the 27th of April, 1919: the the expellers and the motors not having arrived in due time.
expellers on the 26th of October, 1918; and the motors on the
27th of February, 1919. The case having been tried, the court below absolved the
defendants from the complaint insofar as the tanks and the
The plaintiff corporation notified the defendant, Mr. Sotelo, of the electric motors were concerned, but rendered judgment against
arrival of these goods, but Mr. Sotelo refused to receive them and them, ordering them to "receive the aforesaid expellers and pay
to pay the prices stipulated. the plaintiff the sum of fifty thousand pesos (P50,00), the price of
the said goods, with legal interest thereon from July 26, 1919,
The plaintiff brought suit against the defendant, based on four and costs."
separate causes of action, alleging, among other facts, that it

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Both parties appeal from this judgment, each assigning several Approximate delivery within ninety days. This is not
errors in the findings of the lower court. guaranteed. This sale is subject to our being able to obtain
Priority Certificate, subject to the United States Government
The principal point at issue in this case is whether or not, under requirements and also subject to confirmation of manufactures.
the contracts entered into and the circumstances established in
the record, the plaintiff has fulfilled, in due time, its obligation to In all these contracts, there is a final clause as follows:
bring the goods in question to Manila. If it has, then it is entitled
to the relief prayed for; otherwise, it must be held guilty of delay The sellers are not responsible for delays caused by fires, riots on
and liable for the consequences thereof. land or on the sea, strikes or other causes known as "Force
Majeure" entirely beyond the control of the sellers or their
To solve this question, it is necessary to determine what period representatives.
was fixed for the delivery of the goods.
Under these stipulations, it cannot be said that any definite date
As regards the tanks, the contracts A and B (pages 61 and 62 of was fixed for the delivery of the goods. As to the tanks, the
the record) are similar, and in both of them we find this clause: agreement was that the delivery was to be made "within 3 or 4
months," but that period was subject to the contingencies
To be delivered within 3 or 4 months The promise or referred to in a subsequent clause. With regard to the expellers,
indication of shipment carries with it absolutely no obligation on the contract says "within the month of September, 1918," but to
our part Government regulations, railroad embargoes, lack of this is added "or as soon as possible." And with reference to the
vessel space, the exigencies of the requirement of the United motors, the contract contains this expression, "Approximate
States Government, or a number of causes may act to entirely delivery within ninety days," but right after this, it is noted that
vitiate the indication of shipment as stated. In other words, the "this is not guaranteed."
order is accepted on the basis of shipment at Mill's convenience,
time of shipment being merely an indication of what we hope to The oral evidence falls short of fixing such period.
accomplish.
From the record it appears that these contracts were executed at
In the contract Exhibit C (page 63 of the record), with reference the time of the world war when there existed rigid restrictions on
to the expellers, the following stipulation appears: the export from the United States of articles like the machinery in
question, and maritime, as well as railroad, transportation was
The following articles, hereinbelow more particularly described, difficult, which fact was known to the parties; hence clauses were
to be shipped at San Francisco within the month of September inserted in the contracts, regarding "Government regulations,
/18, or as soon as possible. Two Anderson oil expellers . . . . railroad embargoes, lack of vessel space, the exigencies of the
requirements of the United States Government," in connection
And in the contract relative to the motors (Exhibit D, page 64, with the tanks and "Priority Certificate, subject to the United
rec.) the following appears: State Government requirements," with respect to the motors. At
the time of the execution of the contracts, the parties were not

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unmindful of the contingency of the United States Government In such cases, the decisions prior to the Civil Code have held that
not allowing the export of the goods, nor of the fact that the other the obligee having done all that was in his power, was entitled to
foreseen circumstances therein stated might prevent it. enforce performance of the obligation. This performance, which
is fictitious not real is not expressly authorized by the Code,
Considering these contracts in the light of the civil law, we cannot which limits itself only to declare valid those conditions and the
but conclude that the term which the parties attempted to fix is obligation thereby affected; but it is neither disallowed, and the
so uncertain that one cannot tell just whether, as a matter of fact, Code being thus silent, the old view can be maintained as a
those articles could be brought to Manila or not. If that is the doctrine. (Manresa's commentaries on the Civil Code [1907], vol.
case, as we think it is, the obligations must be regarded as 8, page 132.)
conditional.
The decisions referred to by Mr. Manresa are those rendered by
Obligations for the performance of which a day certain has been the supreme court of Spain on November 19, 1896, and February
fixed shall be demandable only when the day arrives. 23, 1871.

A day certain is understood to be one which must necessarily In the former it is held:
arrive, even though its date be unknown.
First. That when the fulfillment of the conditions does not depend
If the uncertainty should consist in the arrival or non-arrival of on the will of the obligor, but on that of a third person who can in
the day, the obligation is conditional and shall be governed by the no way be compelled to carry it out, and it is found by the lower
rules of the next preceding section. (referring to pure and court that the obligor has done all in his power to comply with
conditional obligations). (Art. 1125, Civ. Code.) the obligation, the judgment of the said court, ordering the other
party to comply with his part of the contract, is not contrary to
And as the export of the machinery in question was, as stated in the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima
the contract, contingent upon the sellers obtaining certificate of Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said
priority and permission of the United States Government, subject finding of the lower court, no law or precedent is alleged to have
to the rules and regulations, as well as to railroad embargoes, been violated. (Jurisprudencia Civil published by the directors of
then the delivery was subject to a condition the fulfillment of the Revista General de Legislacion y Jurisprudencia [1866], vol.
which depended not only upon the effort of the herein plaintiff, 14, page 656.)
but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not In the second decision, the following doctrine is laid down:
expressly provided for, but impliedly covered, by the Civil Code,
the obligor will be deemed to have sufficiently performed his part Second. That when the fulfillment of the condition does not
of the obligation, if he has done all that was in his power, even if depend on the will of the obligor, but on that of a third person,
the condition has not been fulfilled in reality. who can in no way be compelled to carry it out, the obligor's part
of the contract is complied withalf Belisario not having exercised
his right of repurchase reserved in the sale of Basilio Borja

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mentioned in paragraph (13) hereof, the affidavit of Basilio Borja municipality or city where the sale is to take place, for such time
for the consolidacion de dominio was presented for record in the as may be reasonable, considering the character and condition of
registry of deeds and recorded in the registry on the same date. the property;

(32) The Maximo Belisario left a widow, the opponent Adelina 2. * * * * * * *
Ferrer and three minor children, Vitaliana, Eugenio, and Aureno
Belisario as his only heirs. 3. In cases of real property, by posting a similar notice
particularly describing the property, for twenty days in three
(33) That in the execution and sales thereunder, in which C. H. public places of the municipality or city where the property is
McClure appears as the judgment creditor, he was represented situated, and also where the property is to be sold, and
by the opponent Peter W. Addison, who prepared and had charge publishing a copy thereof once a week, for the same period, in
of publication of the notices of the various sales and that in none some newspaper published or having general circulation in the
of the sales was the notice published more than twice in a province, if there be one. If there are newspaper published in the
newspaper. province in both the Spanish and English languages, then a like
publication for a like period shall be made in one newspaper
The claims of the opponent-appellant Addison have been very published in the Spanish language, and in one published in the
fully and ably argued by his counsel but may, we think, be English language: Provided, however, That such publication in a
disposed of in comparatively few words. As will be seen from the newspaper will not be required when the assessed valuation of
foregoing statement of facts, he rest his title (1) on the sales the property does not exceed four hundred pesos;
under the executions issued in cases Nos. 435, 450, 454, and 499
of the court of the justice of the peace of Dagupan with the 4. * * * * * * *
priority of inscription of the last two sales in the registry of
deeds, and (2) on a purchase from the Director of Lands after the Examining the record, we find that in cases Nos. 435 and 450 the
land in question had been forfeited to the Government for non- sales took place on October 14, 1916; the notice first published
payment of taxes under Act No. 1791. gave the date of the sale as October 15th, but upon discovering
that October 15th was a Sunday, the date was changed to October
The sheriff's sales under the execution mentioned are fatally 14th. The correct notice was published twice in a local
defective for what of sufficient publication of the notice of sale. newspaper, the first publication was made on October 7th and
Section 454 of the Code of civil Procedure reads in part as the second and last on October 14th, the date of the sale itself.
follows: The newspaper is a weekly periodical published every Saturday
afternoon.
SEC. 454. Before the sale of property on execution, notice thereof
must be given, as follows: In case No. 454 there were only two publications of the notice in
a newspaper, the first publication being made only fourteen days
1. In case of perishable property, by posing written notice of the before the date of the sale. In case No. 499, there were also only
time and place of the sale in three public places of the two publications, the first of which was made thirteen days

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before the sale. In the last case the sale was advertised for the expiration of the said ninety days, if redemption be not made, the
hours of from 8:30 in the morning until 4:30 in the afternoon, in provincial treasurer shall immediately notify the Director of
violation of section 457 of the Code of Civil Procedure. In cases Lands of the forfeiture and furnish him with a description of the
Nos. 435 and 450 the hours advertised were from 9:00 in the property, and said Director of Lands shall have full control and
morning until 4.30 in the afternoon. In all of the cases the notices custody thereof to lease or sell the same or any portion thereof in
of the sale were prepared by the judgment creditor or his agent, the same manner as other public lands are leased or sold:
who also took charged of the publication of such notices. Provided, That the original owner, or his legal representative,
shall have the right to repurchase the entire amount of his said
In the case of Campomanes vs. Bartolome and Germann & Co. (38 real property, at any time before a sale or contract of sale has
Phil., 808), this court held that if a sheriff sells without the notice been made by the director of Lands to a third party, by paying
prescribe by the Code of Civil Procedure induced thereto by the therefore the whole sum due thereon at the time of ejectment
judgment creditor and the purchaser at the sale is the judgment together with a penalty of ten per centum . . . .
creditor, the sale is absolutely void and not title passes. This must
now be regarded as the settled doctrine in this jurisdiction The appellant Addison repurchased under the final proviso of the
whatever the rule may be elsewhere. section quoted and was allowed to do so as the successor in
interest of the original owner under the execution sale above
It appears affirmatively from the evidence in the present case discussed. As we have seen, he acquired no rights under these
that there is a newspaper published in the province where the sales, was therefore not the successor of the original owner and
sale in question took place and that the assessed valuation of the could only have obtained a valid conveyance of such titles as the
property disposed of at each sale exceeded P400. Comparing the Government might have by following the procedure prescribed
requirements of section 454, supra, with what was actually done, by the Public Land Act for the sale of public lands. he is entitled to
it is self-evident that notices of the sales mentioned were not reimbursement for the money paid for the redemption of the
given as prescribed by the statute and taking into consideration land, with interest, but has acquired no title through the
that in connection with these sales the appellant Addison was redemption.
either the judgment creditor or else occupied a position
analogous to that of a judgment creditor, the sales must be held The question of the priority of the record of the sheriff's sales
invalid. over that of the sale from Belisario to Borja is extensively argued
in the briefs, but from our point of view is of no importance; void
The conveyance or reconveyance of the land from the Director of sheriff's or execution sales cannot be validated through
Lands is equally invalid. The provisions of Act No. 1791 pertinent inscription in the Mortgage Law registry.
to the purchase or repurchase of land confiscated for non-
payment of taxes are found in section 19 of the Act and read: The opposition of Adelina Ferrer must also be overruled. She
maintained that the land in question was community property of
. . . In case such redemption be not made within the time above the marriage of Eulalio Belisario and Paula Ira: that upon the
specified the Government of the Philippine Islands shall have an death of Paula Ira inealed from is modified, and the defendant Mr.
absolute, indefeasible title to said real property. Upon the Vicente Sotelo Matti, sentenced to accept and receive from the

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plaintiff the tanks, the expellers and the motors in question, and from the plaintiff the sum of P6.00 for the purchase of spare
to pay the plaintiff the sum of ninety-six thousand pesos parts, which amount the plaintiff gave to the defendant. On
(P96,000), with legal interest thereon from July 17, 1919, the October 26, 1963, after getting exasperated with the delay of the
date of the filing of the complaint, until fully paid, and the costs of repair of the typewriter, the plaintiff went to the house of the
both instances. So ordered. defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to
him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws
19. [G.R. No. L-27454. April 30, 1970.] missing. On October 29, 1963. the plaintiff sent a letter to the
defendant formally demanding the return of the missing parts,
ROSENDO O. CHAVES, Plaintiff-Appellant, v. the interior cover and the sum of P6.00 (Exhibit D). The following
FRUCTUOSO GONZALES, Defendant-Appellee. day, the defendant returned to the plaintiff some of the missing
parts, the interior cover and the P6.00.
Chaves, Elio, Chaves & Associates, for Plaintiff-
Appellant. "On August 29, 1964, the plaintiff had his typewriter repaired by
Freixas Business Machines, and the repair job cost him a total of
Sulpicio E. Platon, for Defendant-Appellee. P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before
This is a direct appeal by the party who prevailed in a suit for the City Court of Manila, demanding from the defendant the
breach of oral contract and recovery of damages but was payment of P90.00 as actual and compensatory damages,
unsatisfied with the decision rendered by the Court of First P100.00 for temperate damages, P500.00 for moral damages, and
Instance of Manila, in its Civil Case No. 65138, because it awarded P500.00 as attorneys fees.
him only P31.10 out of his total claim of P690 00 for actual,
temperate and moral damages and attorneys fees. "In his answer as well as in his testimony given before this court,
the defendant made no denials of the facts narrated above, except
The appealed judgment, which is brief, is hereunder quoted in the claim of the plaintiff that the typewriter was delivered to the
full:jgc:chanrobles.com.ph defendant through a certain Julio Bocalin, which the defendant
denied allegedly because the typewriter was delivered to him
"In the early part of July, 1963, the plaintiff delivered to the personally by the plaintiff.
defendant, who is a typewriter repairer, a portable typewriter for
routine cleaning and servicing. The defendant was not able to "The repair done on the typewriter by Freixas Business Machines
finish the job after some time despite repeated reminders made with the total cost of P89.85 should not, however, be fully
by the plaintiff. The defendant merely gave assurances, but failed chargeable against the defendant. The repair invoice, Exhibit C,
to comply with the same. In October, 1963, the defendant asked shows that the missing parts had a total value of only P31.10.

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servicing" ; that the defendant was not able to finish the job after
"WHEREFORE, judgment is hereby rendered ordering the some time despite repeated reminders made by the plaintiff" ;
defendant to pay the plaintiff the sum of P31.10, and the costs of that the "defendant merely gave assurances, but failed to comply
suit. with the same" ; and that "after getting exasperated with the
delay of the repair of the typewriter", the plaintiff went to the
"SO ORDERED."cralaw virtua1aw library house of the defendant and asked for its return, which was done.
The inferences derivable from these findings of fact are that the
The error of the court a quo, according to the plaintiff-appellant, appellant and the appellee had a perfected contract for cleaning
Rosendo O. Chaves, is that it awarded only the value of the and servicing a typewriter; that they intended that the defendant
missing parts of the typewriter, instead of the whole cost of labor was to finish it at some future time although such time was not
and materials that went into the repair of the machine, as specified; and that such time had passed without the work having
provided for in Article 1167 of the Civil Code, reading as been accomplished, far the defendant returned the typewriter
follows:jgc:chanrobles.com.ph cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time
"ART. 1167. If a person obliged to do something fails to do it, the to finish the job, or compensation for the work he had already
same shall be executed at his cost. done. The time for compliance having evidently expired, and
there being a breach of contract by non-performance, it was
This same rule shall be observed if he does it in contravention of academic for the plaintiff to have first petitioned the court to fix a
the tenor of the obligation. Furthermore it may be decreed that period for the performance of the contract before filing his
what has been poorly done he undone."cralaw virtua1aw library complaint in this case. Defendant cannot invoke Article 1197 of
the Civil Code for he virtually admitted non-performance by
On the other hand, the position of the defendant-appellee, returning the typewriter that he was obliged to repair in a non-
Fructuoso Gonzales, is that he is not liable at all, not even for the working condition, with essential parts missing. The fixing of a
sum of P31.10, because his contract with plaintiff-appellant did period would thus be a mere formality and would serve no
not contain a period, so that plaintiff-appellant should have first purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98
filed a petition for the court to fix the period, under Article 1197 Phil. 18l).
of the Civil Code, within which the defendant appellee was to
comply with the contract before said defendant-appellee could be It is clear that the defendant-appellee contravened the tenor of
held liable for breach of contract. his obligation because he not only did not repair the typewriter
but returned it "in shambles", according to the appealed decision.
Because the plaintiff appealed directly to the Supreme Court and For such contravention, as appellant contends, he is liable under
the appellee did not interpose any appeal, the facts, as found by Article 1167 of the Civil Code. jam quot, for the cost of executing
the trial court, are now conclusive and non-reviewable. 1 the obligation in a proper manner. The cost of the execution of
the obligation in this case should be the cost of the labor or
The appealed judgment states that the "plaintiff delivered to the service expended in the repair of the typewriter, which is in the
defendant . . . a portable typewriter for routine cleaning and

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amount of P58.75. because the obligation or contract was to JACINTA BALDOMAR, ET AL., defendants-appellants.
repair it.
Bausa and Ampil for appellants.
In addition, the defendant-appellee is likewise liable, under Tolentino and Aguas for appellee.
Article 1170 of the Code, for the cost of the missing parts, in the
amount of P31.10, for in his obligation to repair the typewriter he
was bound, but failed or neglected, to return it in the same HILADO, J.:
condition it was when he received it.
Vicente Singson Encarnacion, owner of the house numbered 589
Appellants claims for moral and temperate damages and Legarda Street, Manila, some six years ago leased said house to
attorneys fees were, however, correctly rejected by the trial Jacinto Baldomar and her son, Lefrado Fernando, upon a month-
court, for these were not alleged in his complaint (Record on to-month basis for the monthly rental of P35. After Manila was
Appeal, pages 1-5). Claims for damages and attorneys fees must liberated in the last war, specifically on March 16, 1945, and on
be pleaded, and the existence of the actual basis thereof must be April 7, of the same year, plaintiff Singson Encarnacion notified
proved. 2 The appealed judgment thus made no findings on these defendants, the said mother and son, to vacate the house above-
claims, nor on the fraud or malice charged to the appellee. As no mentioned on or before April 15, 1945, because plaintiff needed
findings of fact were made on the claims for damages and it for his offices as a result of the destruction of the building
attorneys fees, there is no factual basis upon which to make an where said plaintiff had said offices before. Despite this demand,
award therefor. Appellant is bound by such judgment of the defendants insisted on continuing their occupancy. When the
court, a quo, by reason of his having resorted directly to the original action was lodged with the Municipal Court of Manila on
Supreme Court on questions of law. April 20, 1945, defendants were in arrears in the payment of the
rental corresponding to said month, the agrees rental being
IN VIEW OF THE FOREGOING REASONS, the appealed judgment payable within the first five days of each month. That rental was
is hereby modified, by ordering the defendant-appellee to pay, as paid prior to the hearing of the case in the municipal court, as a
he is hereby ordered to pay, the plaintiff-appellant the sum of consequence of which said court entered judgment for restitution
P89.85, with interest at the legal rate from the filing of the and payment of rentals at the rate of P35 a month from May 1,
complaint. Costs in all instances against appellee Fructuoso 1945, until defendants completely vacate the premises. Although
Gonzales. plaintiff included in said original complaint a claim for P500
damages per month, that claim was waived by him before the
hearing in the municipal court, on account of which nothing was
said regarding said damages in the municipal court's decision.

20. G.R. No. L-264 October 4, 1946 When the case reached the Court of First Instance of Manila upon
appeal, defendants filed therein a motion to dismiss (which was
VICENTE SINGSON ENCARNACION, plaintiff-appellee, similar to a motion to dismiss filed by them in the municipal
vs. court) based upon the ground that the municipal court had no

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jurisdiction over the subject matter due to the aforesaid claim for owner would never be able to discontinue it; conversely,
damages and that, therefore, the Court of First Instance had no although the owner should desire the lease to continue, the
appellate jurisdiction over the subject matter of the action. That lessees could effectively thwart his purpose if they should prefer
motion to dismiss was denied by His Honor, Judge Mamerto to terminate the contract by the simple expedient of stopping
Roxas, by order dated July 21, 1945, on the ground that in the payment of the rentals. This, of course, is prohibited by the
municipal court plaintiff had waived said claim for damages and aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626,
that, therefore, the same waiver was understood also to have 627; Cuyugan vs. Santos, 34 Phil., 100.)
been made in the Court of First Instance.lawphil.net
During the pendency of the appeal in the Court of First Instance
In the Court of First Instance the graveman of the defense and before the judgment appealed from was rendered on October
interposed by defendants, as it was expressed defendant Lefrado 31, 1945, the rentals in areas were those pertaining to the month
Fernando during the trial, was that the contract which they had of August, 1945, to the date of said judgment at the rate of P35 a
celebrated with plaintiff since the beginning authorized them to month. During the pendency of the appeal in that court, certain
continue occupying the house indefinetly and while they should deposits were made by defendants on account of rentals with the
faithfully fulfill their obligations as respects the payment of the clerk of said court, and in said judgment it is disposed that the
rentals, and that this agreement had been ratified when another amounts thus deposited should be delivered to plaintiff.
ejectment case between the parties filed during the Japanese
regime concerning the same house was allegedly compounded in Upon the whole, we are clearly of opinion that the judgment
the municipal court. The Court of First Instance gave more credit appealed from should be, as it is hereby, affirmed, with the costs
to plaintiff's witness, Vicente Singson Encarnacion, jr., who of the three instances to appellants. So ordered.
testified that the lease had always and since the beginning been
upon a month-to-month basis. The court added in its decision
that this defense which was put up by defendant's answer, for
which reason the Court considered it as indicative of an eleventh-
hour theory. We think that the Court of First Instance was right in 21. G.R. No. 967 May 19, 1903
so declaring. Furthermore, carried to its logical conclusion, the
defense thus set up by defendant Lefrado Fernando would leave DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-
to the sole and exclusive will of one of the contracting parties appellees,
(defendants in this case) the validity and fulfillment of the vs.
contract of lease, within the meaning of article 1256 of the Civil THE MANILA LAWN TENNIS CLUB, defendant-
Code, since the continuance and fulfillment of the contract would appellant.
then depend solely and exclusively upon their free and
uncontrolled choice between continuing paying the rentals or Pillsburry and Sutro for appellant.
not, completely depriving the owner of all say in the matter. If Manuel Torres Vergara for appellee.
this defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the ARELLANO, C. J.:

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In accordance with such a theory, the plaintiffs might have
This suit concerns the lease of a piece of land for a fixed terminated the lease the month following the making of the
consideration and to endure at the will of the lessee. By the contract at any time after the first month, which, strictly
contract of lease the lessee is expressly authorized to make speaking, would be the only month with respect to which they
improvements upon the land, by erecting buildings of both were expressly bound, they not being bound for each successive
permanent and temporary character, by making fills, laying month except by a tacit renewal (art. 1566) an effect which
pipes, and making such other improvements as might be they might prevent by giving the required notice.
considered desirable for the comfort and amusement of the
members. Although the relief asked for in the complaint, drawn in
accordance with the new form of procedure established by the
With respect to the term of the lease the present question has prevailing Code, is the restitution of the land to the plaintiffs (a
arisen. In its decision three theories have been presented: One formula common to various actions), nevertheless the action
which makes the duration depend upon the will of the lessor, which is maintained can be no other than that of desahucio, in
who, upon one month's notice given to the lessee, may terminate accordance with the substantive law governing the contract. The
the lease so stipulated; another which, on the contrary, makes it lessor says article 1569 of the Civil Code may judicially
dependent upon the will of the lessee, as stipulated; and the dispossess the lessee upon the expiration of the conventional
third, in accordance with which the right is reversed to the courts term or of the legal term; the conventional term that is, the
to fix the duration of the term. one agreed upon by the parties; the legal term, in defect of the
conventional, fixed for leases by articles 1577 and 1581. We have
The first theory is that which has prevailed in the judgment already seen what this legal term is with respect to urban
below, as appears from the language in which the basis of the properties, in accordance with article 1581.
decision is expressed: "The court is of the opinion that the
contract of lease was terminated by the notice given by the Hence, it follows that the judge has only to determine whether
plaintiff on August 28 of last year . . . ." And such is the theory there is or is not conventional term. If there be a conventional
maintained by the plaintiffs, which expressly rests upon article term, he can not apply the legal term fixed in subsidium to cover
1581 of the Civil Code, the law which was in force at the time the a case in which the parties have made no agreement whatsoever
contract was entered into (January 25, 1890). The judge, in giving with respect to the duration of the lease. In this case the law
to this notice the effect of terminating the lease, undoubtedly interprets the presumptive intention of the parties, they having
considers that it is governed by the article relied upon by the said nothing in the contract with respect to its duration.
plaintiffs, which is of the following tenor: "When the term has not "Obligations arising from contracts have the force of law between
been fixed for the lease, it is understood to be for years when an the contracting parties and must be complied with according to
annual rental has been fixed, for months when the rent is the tenor of the contracts." (Art. 1091 of the Civil Code.)
monthly. . . ." The second clause of the contract provides as
follows: "The rent of the said land is fixed at 25 pesos per month." The obligations which, with the force of law, the lessors assumed
(P. 11, Bill of Exceptions.) by the contract entered into, so far as pertaining to the issues, are
the following: "First. . . . They lease the above-described land to

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Mr. Williamson, who takes it on lease, . . . for all the time the secretary of said club, may terminate this lease whenever desired
members of the said club may desire to use it . . . Third. . . . the without other formality than that of giving a month's notice. The
owners of the land undertake to maintain the club as tenant as owners of the land undertake to maintain the club as tenant as
long as the latter shall see fit, without altering in the slightest long as the latter shall see fit." The right of the one and the
degree the conditions of this contract, even though the estate be obligation of the others being thus placed in antithesis, there is
sold." something more, much more, than the inclusio unius, exclusio
alterius. It is evident that the lessors did not intend to reserve to
It is necessary, therefore, to answer the first question: Was there, themselves the right to rescind that which they expressly
or was there not, a conventional term, a duration, agreed upon in conferred upon the lessee by establishing it exclusively in favor
the contract in question? If there was an agreed duration, a of the latter.
conventional term, then the legal term the term fixed in article
1581 has no application; the contract is the supreme law of It would be the greatest absurdity to conclude that in a contract
the contracting parties. Over and above the general law is the by which the lessor has left the termination of the lease to the
special law, expressly imposed upon themselves by the will of the lessee, such a lease can or should be terminated at the
contracting parties. Without these clauses 1 and 3, the contract will of the lessor.
would contain no stipulation with respect to the duration of the
lease, and then article 1581, in connection with article 1569, It would appear to follow, from the foregoing, that, if such is the
would necessarily be applicable. In view of these clauses, force of the agreement, there can be no other mode of
however, it can not be said that there is no stipulation with terminating the lease than by the will of the lessee, as stipulated
respect to the duration of the lease, or that, notwithstanding in this case. Such is the conclusion maintained by the defendant
these clauses, article 1581, in connection with article 1569, can in the demonstration of the first error of law in the judgment, as
be applied. If this were so, it would be necessary to hold that the alleged by him. He goes so far, under this theory, as to maintain
lessors spoke in vain that their words are to be disregarded the possibility of a perpetual lease, either as such lease, if the
a claim which can not be advanced by the plaintiffs nor upheld by name can be applied, or else as an innominate contract, or under
any court without citing the law which detracts all legal force any other denomination, in accordance with the agreement of the
from such words or despoils them of their literal sense. parties, which is, in fine, the law of the contract, superior to all
other law, provided that there be no agreement against any
It having been demonstrated that the legal term can not be prohibitive statute, morals, or public policy.
applied, there being a conventional term, this destroys the
assumption that the contract of lease was wholly terminated by It is unnecessary here to enter into a discussion of a perpetual
the notice given by the plaintiffs, this notice being necessary only lease in accordance with the law and doctrine prior to the Civil
when it becomes necessary to have recourse to the legal term. Code now in force, and which has been operative since 1889.
Nor had the plaintiffs, under the contract, any right to give such Hence the judgment of the supreme court of Spain of January 2,
notice. It is evident that they had no intention of stipulating that 1891, with respect to a lease made in 1887, cited by the
they reserved the right to give such notice. Clause 3 begins as defendant, and a decision stated by him to have been rendered by
follows: "Mr. Williamson, or whoever may succeed him as the Audiencia of Pamplona in 1885 (it appears to be rather a

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decision by the head office of land registration of July 1, 1885), "Being in the full enjoyment of the necessary legal capacity to
and any other decision which might be cited based upon the enter into this contract of lease . . . they have agreed upon the
constitutions of Cataluna, according to which a lease of more than lease of said estate . . . They lease to Mr. Williamson, who receives
ten years is understood to create a life tenancy, or even a it as such. . . . The rental is fixed at 25 pesos a month. . . . The
perpetual tenancy, are entirely out of point in this case, in which owners bind themselves to maintain the club as tenant. . . . Upon
the subject-matter is a lease entered into under the provisions of the foregoing conditions they make the present contract of lease.
the present Civil Code, in accordance with the principles of which . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it
alone can this doctrine be examined. must be for a determinate period. (Art. 1543.) By its very nature
it must be temporary, just as by reason of its nature an
It is not to be understood that we admit that the lease entered emphyteusis must be perpetual, or for an unlimited period. (Art.
into was stipulated as a life tenancy, and still less as a perpetual 1608.)
lease. The terms of the contract express nothing to this effect.
They do, whatever, imply this idea. If the lease could last during On the other hand, it can not be concluded that the termination of
such time as the lessee might see fit, because it has been so the contract is to be left completely at the will of the lessee,
stipulated by the lessor, it would last, first, as long as the will of because it has been stipulated that its duration is to be left to his
the lessee that is, all his life; second, during all the time that he will.
may have succession, inasmuch as he who contracts does so for
himself and his heirs. (Art. 1257 of the Civil Code.) The lease in The Civil Code has made provision for such a case in all kinds of
question does not fall within any of the cases in which the rights obligations. In speaking in general of obligations with a term it
and obligations arising from a contract can not be transmitted to has supplied the deficiency of the former law with respect to the
heirs, either by its nature, by agreement, or by provision of law. "duration of the term when it has been left to the will of the
Furthermore, the lessee is an English association. debtor," and provides that in this case the term shall be fixed by
the courts. (Art. 1128, sec. 2.) In every contract, as laid down by
Usufruct is a right of superior degree to that which arises from a the authorities, there is always a creditor who is entitled to
lease. It is a real right and includes all the jus utendi and jus demand the performance, and a debtor upon whom rests the
fruendi. Nevertheless, the utmost period for which a usufruct can obligation to perform the undertaking. In bilateral contracts the
endure, if constituted in favor a natural person, is the lifetime of contracting parties are mutually creditors and debtors. Thus, in
the usufructuary (art. 513, sec. 1); and if in favor of juridical this contract of lease, the lessee is the creditor with respect to the
person, it can not be created for more than thirty years. (Art. rights enumerated in article 1554, and is the debtor with respect
515.) If the lease might be perpetual, in what would it be to the obligations imposed by articles 1555 and 1561. The term
distinguished from an emphyteusis? Why should the lessee have within which performance of the latter obligation is due is what
a greater right than the usufructuary, as great as that of an has been left to the will of the debtor. This term it is which must
emphyteuta, with respect to the duration of the enjoyment of the be fixed by the courts.
property of another? Why did they not contract for a usufruct or
an emphyteusis? It was repeatedly stated in the document that it The only action which can be maintained under the terms of the
was a lease, and nothing but a lease, which was agreed upon: contract is that by which it is sought to obtain from the judge the

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determination of this period, and not the unlawful detainer general, such general provisions would be wholly without
action which has been brought an action which presupposes application. The system of the Code is that of establishing general
the expiration of the term and makes it the duty of the judge to rules applicable to all obligations and contracts, and then special
simply decree an eviction. To maintain the latter action it is provisions peculiar to each species of contract. In no part of Title
sufficient to show the expiration of the term of the contract, VI of Book IV, which treats of the contract of lease, are there any
whether conventional or legal; in order to decree the relief to be special rules concerning pure of conditional obligations which
granted in the former action it is necessary for the judge to look may be stipulated in a lease, because, with respect to these
into the character and conditions of the mutual undertakings matters, the provisions of section 1, chapter 3, Title I, on the
with a view to supplying the lacking element of a time at which subject of obligations are wholly sufficient. With equal reason
the lease is to expire. In the case of a loan of money or a should we refer to section 2, which deals with obligations with a
commodatum of furniture, the payment or return to be made term, in the same chapter and title, if a question concerning the
when the borrower "can conveniently do so" does not mean that term arises out of a contract of lease, as in the present case, and
he is to be allowed to enjoy the money or to make use of the thing within this section we find article 1128, which decides the
indefinitely or perpetually. The courts will fix in each case, question.
according to the circumstances, the time for the payment or
return. This is the theory also maintained by the defendant in his The judgment was entered below upon the theory of the
demonstration of the fifth assignment of error. "Under article expiration of a legal term which does not exist, as the case
1128 of the Civil Code," thus his proposition concludes, requires that a term be fixed by the courts under the provisions
"contracts whose term is left to the will of one of the contracting of article 1128 with respect to obligations which, as is the
parties must be fixed by the courts, . . . the conditions as to the present, are terminable at the will of the obligee. It follows,
term of this lease has a direct legislative sanction," and he cites therefore, that the judgment below is erroneous.
articles 1128. "In place of the ruthless method of annihilating a
solemn obligation, which the plaintiffs in this case have sought to The judgment is reversed and the case will be remanded to the
pursue, the Code has provided a legitimate and easily available court below with directions to enter a judgment of dismissal of
remedy. . . . The Code has provided for the proper disposition of the action in favor of the defendant, the Manila Lawn Tennis Club,
those covenants, and a case can hardly arise more clearly without special allowance as to the recovery of costs. So ordered.
demonstrating the usefulness of that provision than the case at
bar." (Pp. 52 and 53 of appellant's brief.)

The plaintiffs, with respect to this conclusion on the part of their
opponents, only say that article 1128 "expressly refers to 22. G.R. No. L-17587 September 12, 1967
obligations in contracts in general, and that it is well known that
a lease is included among special contracts." But they do not PHILIPPINE BANKING CORPORATION, representing
observe that if contracts, simply because special rules are the estate of JUSTINA SANTOS Y CANON FAUSTINO,
provided for them, could be excepted from the provisions of the deceased, plaintiff-appellant,
articles of the Code relative to obligations and contracts in vs.

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LUI SHE in her own behalf and as administratrix of the
intestate estate of Wong Heng, deceased, defendant- "In grateful acknowledgment of the personal services of the
appellant. lessee to her," Justina Santos executed on November 15, 1957 a
contract of lease (Plff Exh. 3) in favor of Wong, covering the
Nicanor S. Sison for plaintiff-appellant. portion then already leased to him and another portion fronting
Ozaeta, Gibbs & Ozaeta for defendant-appellant. Florentino Torres street. The lease was for 50 years, although the
lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120. The contract covered
CASTRO, J.: an area of 1,124 square meters. Ten days later (November 25),
the contract was amended (Plff Exh. 4) so as to make it cover the
Justina Santos y Canon Faustino and her sister Lorenzo were the entire property, including the portion on which the house of
owners in common of a piece of land in Manila. This parcel, with Justina Santos stood, at an additional monthly rental of P360. For
an area of 2,582.30 square meters, is located on Rizal Avenue and his part Wong undertook to pay, out of the rental due from him,
opens into Florentino Torres street at the back and Katubusan an amount not exceeding P1,000 a month for the food of her dogs
street on one side. In it are two residential houses with entrance and the salaries of her maids.
on Florentino Torres street and the Hen Wah Restaurant with
entrance on Rizal Avenue. The sisters lived in one of the houses, On December 21 she executed another contract (Plff Exh. 7)
while Wong Heng, a Chinese, lived with his family in the giving Wong the option to buy the leased premises for P120,000,
restaurant. Wong had been a long-time lessee of a portion of the payable within ten years at a monthly installment of P1,000. The
property, paying a monthly rental of P2,620. option, written in Tagalog, imposed on him the obligation to pay
for the food of the dogs and the salaries of the maids in her
On September 22, 1957 Justina Santos became the owner of the household, the charge not to exceed P1,800 a month. The option
entire property as her sister died with no other heir. Then was conditioned on his obtaining Philippine citizenship, a
already well advanced in years, being at the time 90 years old, petition for which was then pending in the Court of First Instance
blind, crippled and an invalid, she was left with no other relative of Rizal. It appears, however, that this application for
to live with. Her only companions in the house were her 17 dogs naturalization was withdrawn when it was discovered that he
and 8 maids. Her otherwise dreary existence was brightened now was not a resident of Rizal. On October 28, 1958 she filed a
and then by the visits of Wong's four children who had become petition to adopt him and his children on the erroneous belief
the joy of her life. Wong himself was the trusted man to whom that adoption would confer on them Philippine citizenship. The
she delivered various amounts for safekeeping, including rentals error was discovered and the proceedings were abandoned.
from her property at the corner of Ongpin and Salazar streets and
the rentals which Wong himself paid as lessee of a part of the On November 18, 1958 she executed two other contracts, one
Rizal Avenue property. Wong also took care of the payment; in (Plff Exh. 5) extending the term of the lease to 99 years, and
her behalf, of taxes, lawyers' fees, funeral expenses, masses, another (Plff Exh. 6) fixing the term of the option of 50 years.
salaries of maids and security guard, and her household Both contracts are written in Tagalog.
expenses.

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In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 These amounts and the dates of their delivery are P33,724.27
& 279), she bade her legatees to respect the contracts she had (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957);
entered into with Wong, but in a codicil (Plff Exh. 17) of a later P22,000 and P3,000 (as admitted in his answer). An accounting
date (November 4, 1959) she appears to have a change of heart. of the rentals from the Ongpin and Rizal Avenue properties was
Claiming that the various contracts were made by her because of also demanded.
machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts. In the meantime as a result of a petition for guardianship filed in
the Juvenile and Domestic Relations Court, the Security Bank &
On November 18 the present action was filed in the Court of First Trust Co. was appointed guardian of the properties of Justina
Instance of Manila. The complaint alleged that the contracts were Santos, while Ephraim G. Gochangco was appointed guardian of
obtained by Wong "through fraud, misrepresentation, inequitable her person.
conduct, undue influence and abuse of confidence and trust of
and (by) taking advantage of the helplessness of the plaintiff and In his answer, Wong insisted that the various contracts were
were made to circumvent the constitutional provision freely and voluntarily entered into by the parties. He likewise
prohibiting aliens from acquiring lands in the Philippines and disclaimed knowledge of the sum of P33,724.27, admitted receipt
also of the Philippine Naturalization Laws." The court was asked of P7,344.42 and P10,000, but contended that these amounts had
to direct the Register of Deeds of Manila to cancel the registration been spent in accordance with the instructions of Justina Santos;
of the contracts and to order Wong to pay Justina Santos the he expressed readiness to comply with any order that the court
additional rent of P3,120 a month from November 15, 1957 on might make with respect to the sums of P22,000 in the bank and
the allegation that the reasonable rental of the leased premises P3,000 in his possession.
was P6,240 a month.
The case was heard, after which the lower court rendered
In his answer, Wong admitted that he enjoyed her trust and judgment as follows:
confidence as proof of which he volunteered the information that,
in addition to the sum of P3,000 which he said she had delivered [A]ll the documents mentioned in the first cause of action, with
to him for safekeeping, another sum of P22,000 had been the exception of the first which is the lease contract of 15
deposited in a joint account which he had with one of her maids. November 1957, are declared null and void; Wong Heng is
But he denied having taken advantage of her trust in order to condemned to pay unto plaintiff thru guardian of her property
secure the execution of the contracts in question. As counterclaim the sum of P55,554.25 with legal interest from the date of the
he sought the recovery of P9,210.49 which he said she owed him filing of the amended complaint; he is also ordered to pay the
for advances. sum of P3,120.00 for every month of his occupation as lessee
under the document of lease herein sustained, from 15
Wong's admission of the receipt of P22,000 and P3,000 was the November 1959, and the moneys he has consigned since then
cue for the filing of an amended complaint. Thus on June 9, 1960, shall be imputed to that; costs against Wong Heng.
aside from the nullity of the contracts, the collection of various
amounts allegedly delivered on different occasions was sought.

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From this judgment both parties appealed directly to this Court. other act which may have been the subject of agreement. Indeed,
After the case was submitted for decision, both parties died, the cancellation of a contract in accordance with conditions
Wong Heng on October 21, 1962 and Justina Santos on December agreed upon beforehand is fulfillment.2
28, 1964. Wong was substituted by his wife, Lui She, the other
defendant in this case, while Justina Santos was substituted by And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision
the Philippine Banking Corporation. in a lease contract that the lessee, at any time before he erected
any building on the land, might rescind the lease, can hardly be
Justina Santos maintained now reiterated by the Philippine regarded as a violation of article 1256 [now art. 1308] of the Civil
Banking Corporation that the lease contract (Plff Exh. 3) Code."
should have been annulled along with the four other contracts
(Plff Exhs. 4-7) because it lacks mutuality; because it included a The case of Singson Encarnacion v. Baldomar 4 cannot be cited in
portion which, at the time, was in custodia legis; because the support of the claim of want of mutuality, because of a difference
contract was obtained in violation of the fiduciary relations of the in factual setting. In that case, the lessees argued that they could
parties; because her consent was obtained through undue occupy the premises as long as they paid the rent. This is of
influence, fraud and misrepresentation; and because the lease course untenable, for as this Court said, "If this defense were to
contract, like the rest of the contracts, is absolutely simulated. be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be
Paragraph 5 of the lease contract states that "The lessee may at able to discontinue it; conversely, although the owner should
any time withdraw from this agreement." It is claimed that this desire the lease to continue the lessees could effectively thwart
stipulation offends article 1308 of the Civil Code which provides his purpose if they should prefer to terminate the contract by the
that "the contract must bind both contracting parties; its validity simple expedient of stopping payment of the rentals." Here, in
or compliance cannot be left to the will of one of them." contrast, the right of the lessee to continue the lease or to
terminate it is so circumscribed by the term of the contract that it
We have had occasion to delineate the scope and application of cannot be said that the continuance of the lease depends upon his
article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We said will. At any rate, even if no term had been fixed in the agreement,
in that case: this case would at most justify the fixing of a period5 but not the
annulment of the contract.
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for personal Nor is there merit in the claim that as the portion of the property
service of a resolutory condition permitting the cancellation of formerly owned by the sister of Justina Santos was still in the
the contract by one of the parties. Such a stipulation, as can be process of settlement in the probate court at the time it was
readily seen, does not make either the validity or the fulfillment leased, the lease is invalid as to such portion. Justina Santos
of the contract dependent upon the will of the party to whom is became the owner of the entire property upon the death of her
conceded the privilege of cancellation; for where the contracting sister Lorenzo on September 22, 1957 by force of article 777 of
parties have agreed that such option shall exist, the exercise of the Civil Code. Hence, when she leased the property on
the option is as much in the fulfillment of the contract as any November 15, she did so already as owner thereof. As this Court

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explained in upholding the sale made by an heir of a property
under judicial administration: A I explained to her each and every one of these conditions and I
also told her these conditions were quite onerous for her, I don't
That the land could not ordinarily be levied upon while in really know if I have expressed my opinion, but I told her that we
custodia legis does not mean that one of the heirs may not sell would rather not execute any contract anymore, but to hold it as
the right, interest or participation which he has or might have in it was before, on a verbal month to month contract of lease.
the lands under administration. The ordinary execution of
property in custodia legis is prohibited in order to avoid Q But, she did not follow your advice, and she went with the
interference with the possession by the court. But the sale made contract just the same?
by an heir of his share in an inheritance, subject to the result of
the pending administration, in no wise stands in the way of such A She agreed first . . .
administration.6
Q Agreed what?
It is next contended that the lease contract was obtained by
Wong in violation of his fiduciary relationship with Justina A Agreed with my objectives that it is really onerous and that I
Santos, contrary to article 1646, in relation to article 1941 of the was really right, but after that, I was called again by her and she
Civil Code, which disqualifies "agents (from leasing) the property told me to follow the wishes of Mr. Wong Heng.
whose administration or sale may have been entrusted to them."
But Wong was never an agent of Justina Santos. The relationship x x x x x x x x x
of the parties, although admittedly close and confidential, did not
amount to an agency so as to bring the case within the Q So, as far as consent is concerned, you were satisfied that
prohibition of the law. this document was perfectly proper?

Just the same, it is argued that Wong so completely dominated x x x x x x x x x
her life and affairs that the contracts express not her will but only
his. Counsel for Justina Santos cites the testimony of Atty. Tomas A Your Honor, if I have to express my personal opinion, I
S. Yumol who said that he prepared the lease contract on the would say she is not, because, as I said before, she told me
basis of data given to him by Wong and that she told him that "Whatever Mr. Wong wants must be followed."8
"whatever Mr. Wong wants must be followed."7
Wong might indeed have supplied the data which Atty. Yumol
The testimony of Atty. Yumol cannot be read out of context in embodied in the lease contract, but to say this is not to detract
order to warrant a finding that Wong practically dictated the from the binding force of the contract. For the contract was fully
terms of the contract. What this witness said was: explained to Justina Santos by her own lawyer. One incident,
related by the same witness, makes clear that she voluntarily
Q Did you explain carefully to your client, Doa Justina, the consented to the lease contract. This witness said that the
contents of this document before she signed it? original term fixed for the lease was 99 years but that as he

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doubted the validity of a lease to an alien for that length of time, destroyed their house during the liberation of Manila. For while a
he tried to persuade her to enter instead into a lease on a month- witness claimed that the sisters were saved by other persons (the
to-month basis. She was, however, firm and unyielding. Instead of brothers Edilberto and Mariano Sta. Ana)13 it was Justina Santos
heeding the advice of the lawyer, she ordered him, "Just follow herself who, according to her own witness, Benjamin C. Alonzo,
Mr. Wong Heng."9 Recounting the incident, Atty. Yumol declared said "very emphatically" that she and her sister would have
on cross examination: perished in the fire had it not been for Wong.14 Hence the recital
in the deed of conditional option (Plff Exh. 7) that "[I]tong si
Considering her age, ninety (90) years old at the time and her Wong Heng ang siyang nagligtas sa aming dalawang magkapatid
condition, she is a wealthy woman, it is just natural when she sa halos ay tiyak na kamatayan", and the equally emphatic
said "This is what I want and this will be done." In particular avowal of gratitude in the lease contract (Plff Exh. 3).
reference to this contract of lease, when I said "This is not
proper," she said "You just go ahead, you prepare that, I am As it was with the lease contract (Plff Exh. 3), so it was with the
the owner, and if there is any illegality, I am the only one that can rest of the contracts (Plff Exhs. 4-7) the consent of Justina
question the illegality."10 Santos was given freely and voluntarily. As Atty. Alonzo,
testifying for her, said:
Atty. Yumol further testified that she signed the lease contract in
the presence of her close friend, Hermenegilda Lao, and her maid, [I]n nearly all documents, it was either Mr. Wong Heng or Judge
Natividad Luna, who was constantly by her side.11 Any of them Torres and/or both. When we had conferences, they used to tell
could have testified on the undue influence that Wong me what the documents should contain. But, as I said, I would
supposedly wielded over Justina Santos, but neither of them was always ask the old woman about them and invariably the old
presented as a witness. The truth is that even after giving his woman used to tell me: "That's okay. It's all right."15
client time to think the matter over, the lawyer could not make
her change her mind. This persuaded the lower court to uphold But the lower court set aside all the contracts, with the exception
the validity of the lease contract against the claim that it was of the lease contract of November 15, 1957, on the ground that
procured through undue influence. they are contrary to the expressed wish of Justina Santos and that
their considerations are fictitious. Wong stated in his deposition
Indeed, the charge of undue influence in this case rests on a mere that he did not pay P360 a month for the additional premises
inference12 drawn from the fact that Justina Santos could not leased to him, because she did not want him to, but the trial court
read (as she was blind) and did not understand the English did not believe him. Neither did it believe his statement that he
language in which the contract is written, but that inference has paid P1,000 as consideration for each of the contracts (namely,
been overcome by her own evidence. the option to buy the leased premises, the extension of the lease
to 99 years, and the fixing of the term of the option at 50 years),
Nor is there merit in the claim that her consent to the lease but that the amount was returned to him by her for safekeeping.
contract, as well as to the rest of the contracts in question, was Instead, the court relied on the testimony of Atty. Alonzo in
given out of a mistaken sense of gratitude to Wong who, she was reaching the conclusion that the contracts are void for want of
made to believe, had saved her and her sister from a fire that consideration.

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prohibition against the transfer of lands to aliens. "The illicit
Atty. Alonzo declared that he saw no money paid at the time of purpose then becomes the illegal causa"19 rendering the
the execution of the documents, but his negative testimony does contracts void.
not rule out the possibility that the considerations were paid at
some other time as the contracts in fact recite. What is more, the Taken singly, the contracts show nothing that is necessarily
consideration need not pass from one party to the other at the illegal, but considered collectively, they reveal an insidious
time a contract is executed because the promise of one is the pattern to subvert by indirection what the Constitution directly
consideration for the other.16 prohibits. To be sure, a lease to an alien for a reasonable period is
valid. So is an option giving an alien the right to buy real property
With respect to the lower court's finding that in all probability on condition that he is granted Philippine citizenship. As this
Justina Santos could not have intended to part with her property Court said in Krivenko v. Register of Deeds:20
while she was alive nor even to lease it in its entirety as her
house was built on it, suffice it to quote the testimony of her own [A]liens are not completely excluded by the Constitution from the
witness and lawyer who prepared the contracts (Plff Exhs. 4-7) in use of lands for residential purposes. Since their residence in the
question, Atty. Alonzo: Philippines is temporary, they may be granted temporary rights
such as a lease contract which is not forbidden by the
The ambition of the old woman, before her death, according to Constitution. Should they desire to remain here forever and share
her revelation to me, was to see to it that these properties be our fortunes and misfortunes, Filipino citizenship is not
enjoyed, even to own them, by Wong Heng because Doa Justina impossible to acquire.
told me that she did not have any relatives, near or far, and she
considered Wong Heng as a son and his children her But if an alien is given not only a lease of, but also an option to
grandchildren; especially her consolation in life was when she buy, a piece of land, by virtue of which the Filipino owner cannot
would hear the children reciting prayers in Tagalog.17 sell or otherwise dispose of his property,21 this to last for 50
years, then it becomes clear that the arrangement is a virtual
She was very emphatic in the care of the seventeen (17) dogs and transfer of ownership whereby the owner divests himself in
of the maids who helped her much, and she told me to see to it stages not only of the right to enjoy the land ( jus possidendi, jus
that no one could disturb Wong Heng from those properties. That utendi, jus fruendi and jus abutendi) but also of the right to
is why we thought of the ninety-nine (99) years lease; we thought dispose of it ( jus disponendi) rights the sum total of which
of adoption, believing that thru adoption Wong Heng might make up ownership. It is just as if today the possession is
acquire Filipino citizenship; being the adopted child of a Filipino transferred, tomorrow, the use, the next day, the disposition, and
citizen.18 so on, until ultimately all the rights of which ownership is made
up are consolidated in an alien. And yet this is just exactly what
This is not to say, however, that the contracts (Plff Exhs. 3-7) are the parties in this case did within the space of one year, with the
valid. For the testimony just quoted, while dispelling doubt as to result that Justina Santos' ownership of her property was
the intention of Justina Santos, at the same time gives the clue to reduced to a hollow concept. If this can be done, then the
what we view as a scheme to circumvent the Constitutional Constitutional ban against alien landholding in the Philippines, as

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announced in Krivenko v. Register of Deeds,22 is indeed in grave That policy would be defeated and its continued violation
peril. sanctioned if, instead of setting the contracts aside and ordering
the restoration of the land to the estate of the deceased Justina
It does not follow from what has been said, however, that Santos, this Court should apply the general rule of pari delicto. To
because the parties are in pari delicto they will be left where they the extent that our ruling in this case conflicts with that laid
are, without relief. For one thing, the original parties who were down in Rellosa v. Gaw Chee Hun 26 and subsequent similar
guilty of a violation of the fundamental charter have died and cases, the latter must be considered as pro tanto qualified.
have since been substituted by their administrators to whom it
would be unjust to impute their guilt.23 For another thing, and The claim for increased rentals and attorney's fees, made in
this is not only cogent but also important, article 1416 of the Civil behalf of Justina Santos, must be denied for lack of merit.
Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely And what of the various amounts which Wong received in trust
prohibited, and the prohibition by law is designed for the from her? It appears that he kept two classes of accounts, one
protection of the plaintiff, he may, if public policy is thereby pertaining to amount which she entrusted to him from time to
enhanced, recover what he has paid or delivered." The time, and another pertaining to rentals from the Ongpin property
Constitutional provision that "Save in cases of hereditary and from the Rizal Avenue property, which he himself was
succession, no private agricultural land shall be transferred or leasing.
assigned except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain in the With respect to the first account, the evidence shows that he
Philippines"24 is an expression of public policy to conserve lands received P33,724.27 on November 8, 1957 (Plff Exh. 16);
for the Filipinos. As this Court said in Krivenko: P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on
December 6, 1957 (Plff Exh. 14) ; and P18,928.50 on August 26,
It is well to note at this juncture that in the present case we have 1959 (Def. Exh. 246), or a total of P70,007.19. He claims,
no choice. We are construing the Constitution as it is and not as however, that he settled his accounts and that the last amount of
we may desire it to be. Perhaps the effect of our construction is to P18,928.50 was in fact payment to him of what in the liquidation
preclude aliens admitted freely into the Philippines from owning was found to be due to him.
sites where they may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt to compromise He made disbursements from this account to discharge Justina
it even in the name of amity or equity . . . . Santos' obligations for taxes, attorneys' fees, funeral services and
security guard services, but the checks (Def Exhs. 247-278)
For all the foregoing, we hold that under the Constitution aliens drawn by him for this purpose amount to only P38,442.84.27
may not acquire private or public agricultural lands, including Besides, if he had really settled his accounts with her on August
residential lands, and, accordingly, judgment is affirmed, without 26, 1959, we cannot understand why he still had P22,000 in the
costs.25 bank and P3,000 in his possession, or a total of P25,000. In his
answer, he offered to pay this amount if the court so directed

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him. On these two grounds, therefore, his claim of liquidation and this Court must concede that daily expenses are not easy to
settlement of accounts must be rejected. compute, for this reason, the Court faced with the choice of the
two alternatives will choose the middle course which after all is
After subtracting P38,442.84 (expenditures) from P70,007.19 permitted by the rules of proof, Sec. 69, Rule 123 for in the
(receipts), there is a difference of P31,564 which, added to the ordinary course of things, a person will live within his income so
amount of P25,000, leaves a balance of P56,564.3528 in favor of that the conclusion of the Court will be that there is neither
Justina Santos. deficit nor superavit and will let the matter rest here.

As to the second account, the evidence shows that the monthly Both parties on appeal reiterate their respective claims but we
income from the Ongpin property until its sale in Rizal Avenue agree with the lower court that both claims should be denied.
July, 1959 was P1,000, and that from the Rizal Avenue property, Aside from the reasons given by the court, we think that the claim
of which Wong was the lessee, was P3,120. Against this account of Justina Santos totalling P37,235, as rentals due to her after
the household expenses and disbursements for the care of the 17 deducting various expenses, should be rejected as the evidence is
dogs and the salaries of the 8 maids of Justina Santos were none too clear about the amounts spent by Wong for food29
charged. This account is contained in a notebook (Def. Exh. 6) masses30 and salaries of her maids.31 His claim for P9,210.49
which shows a balance of P9,210.49 in favor of Wong. But it is must likewise be rejected as his averment of liquidation is belied
claimed that the rental from both the Ongpin and Rizal Avenue by his own admission that even as late as 1960 he still had
properties was more than enough to pay for her monthly P22,000 in the bank and P3,000 in his possession.
expenses and that, as a matter of fact, there should be a balance
in her favor. The lower court did not allow either party to recover ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are
against the other. Said the court: annulled and set aside; the land subject-matter of the contracts is
ordered returned to the estate of Justina Santos as represented
[T]he documents bear the earmarks of genuineness; the trouble by the Philippine Banking Corporation; Wong Heng (as
is that they were made only by Francisco Wong and Antonia substituted by the defendant-appellant Lui She) is ordered to pay
Matias, nick-named Toning, which was the way she signed the the Philippine Banking Corporation the sum of P56,564.35, with
loose sheets, and there is no clear proof that Doa Justina had legal interest from the date of the filing of the amended
authorized these two to act for her in such liquidation; on the complaint; and the amounts consigned in court by Wong Heng
contrary if the result of that was a deficit as alleged and sought to shall be applied to the payment of rental from November 15,
be there shown, of P9,210.49, that was not what Doa Justina 1959 until the premises shall have been vacated by his heirs.
apparently understood for as the Court understands her Costs against the defendant-appellant.
statement to the Honorable Judge of the Juvenile Court . . . the
reason why she preferred to stay in her home was because there
she did not incur in any debts . . . this being the case, . . . the Court
will not adjudicate in favor of Wong Heng on his counterclaim; on
the other hand, while it is claimed that the expenses were much 23. G.R. No. L-34338 November 21, 1984
less than the rentals and there in fact should be a superavit, . . .

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LOURDES VALERIO LIM, petitioner,
vs. To Whom It May Concern:
PEOPLE OF THE PHILIPPINES, respondent.
This is to certify that I have received from Mrs. Maria de Guzman
Petitioner Lourdes Valerio Lim was found guilty of the crime of Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of
estafa and was sentenced "to suffer an imprisonment of four (4) leaf tobacco to be sold at Pl.30 per kilo. The proceed in the
months and one (1) day as minimum to two (2) years and four amount of Seven Hundred Ninety Nine Pesos and 50/100 (P
(4) months as maximum, to indemnify the offended party in the 799.50) will be given to her as soon as it was sold.
amount of P559.50, with subsidize imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo) This was signed by the appellant and witnessed by the
complainant's sister, Salud Bantug, and the latter's maid,
From this judgment, appeal was taken to the then Court of Genoveva Ruiz. The appellant at that time was bringing a jeep,
Appeals which affirmed the decision of the lower court but and the tobacco was loaded in the jeep and brought by the
modified the penalty imposed by sentencing her "to suffer an appellant. Of the total value of P799.50, the appellant had paid to
indeterminate penalty of one (1) month and one (1) day of Ayroso only P240.00, and this was paid on three different times.
arresto mayor as minimum to one (1) year and one (1) day of Demands for the payment of the balance of the value of the
prision correccional as maximum, to indemnify the complainant tobacco were made upon the appellant by Ayroso, and
in the amount of P550.50 without subsidiary imprisonment, and particularly by her sister, Salud Bantug. Salud Bantug further
to pay the costs of suit." (p. 24, Rollo) testified that she had gone to the house of the appellant several
times, but the appellant often eluded her; and that the "camarin"
The question involved in this case is whether the receipt, Exhibit the appellant was empty. Although the appellant denied that
"A", is a contract of agency to sell or a contract of sale of the demands for payment were made upon her, it is a fact that on
subject tobacco between petitioner and the complainant, Maria October 19, 1966, she wrote a letter to Salud Bantug which reads
de Guzman Vda. de Ayroso, thereby precluding criminal liability as follows:
of petitioner for the crime charged.
Dear Salud,
The findings of facts of the appellate court are as follows:
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil
... The appellant is a businesswoman. On January 10, 1966, the kokonte pa ang nasisingil kong pera, magintay ka hanggang dito
appellant went to the house of Maria Ayroso and proposed to sell sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
Ayroso's tobacco. Ayroso agreed to the proposition of the makapagbigay man lang ako ng marami para hindi masiadong
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
kilo. The appellant was to receive the overprice for which she bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon.
could sell the tobacco. This agreement was made in the presence Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng
of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the pera.
document, Exh. A, dated January 10, 1966, which reads:

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Medio mahirap ang maningil sa palengke ng Cabanatuan dahil 3. Whether or not the honorable Court of Appeals was legally
nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at right in holding that the foregoing receipt is a contract of agency
tiyak na babayaran kita. to sell as against the theory of the petitioner that it is a contract
of sale. (pp. 3-4, Rollo)
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
It is clear in the agreement, Exhibit "A", that the proceeds of the
Ludy sale of the tobacco should be turned over to the complainant as
soon as the same was sold, or, that the obligation was
Pursuant to this letter, the appellant sent a money order for immediately demandable as soon as the tobacco was disposed of.
P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on Hence, Article 1197 of the New Civil Code, which provides that
March 8, 1967; and she paid P90.00 on April 18, 1967 as the courts may fix the duration of the obligation if it does not fix a
evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of period, does not apply.
P240.00. As no further amount was paid, the complainant filed a
complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) Anent the argument that petitioner was not an agent because
Exhibit "A" does not say that she would be paid the commission if
In this petition for review by certiorari, Lourdes Valerio Lim the goods were sold, the Court of Appeals correctly resolved the
poses the following questions of law, to wit: matter as follows:

1. Whether or not the Honorable Court of Appeals was legally ... Aside from the fact that Maria Ayroso testified that the
right in holding that the foregoing document (Exhibit "A") "fixed appellant asked her to be her agent in selling Ayroso's tobacco,
a period" and "the obligation was therefore, immediately the appellant herself admitted that there was an agreement that
demandable as soon as the tobacco was sold" (Decision, p. 6) as upon the sale of the tobacco she would be given something. The
against the theory of the petitioner that the obligation does not appellant is a businesswoman, and it is unbelievable that she
fix a period, but from its nature and the circumstances it can be would go to the extent of going to Ayroso's house and take the
inferred that a period was intended in which case the only action tobacco with a jeep which she had brought if she did not intend
that can be maintained is a petition to ask the court to fix the to make a profit out of the transaction. Certainly, if she was doing
duration thereof; a favor to Maria Ayroso and it was Ayroso who had requested her
to sell her tobacco, it would not have been the appellant who
2. Whether or not the Honorable Court of Appeals was legally would have gone to the house of Ayroso, but it would have been
right in holding that "Art. 1197 of the New Civil Code does not Ayroso who would have gone to the house of the appellant and
apply" as against the alternative theory of the petitioner that the deliver the tobacco to the appellant. (p. 19, Rollo)
fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the The fact that appellant received the tobacco to be sold at P1.30
debtor in which case the only action that can be maintained is a per kilo and the proceeds to be given to complainant as soon as it
petition to ask the court to fix the duration of the period; and was sold, strongly negates transfer of ownership of the goods to
the petitioner. The agreement (Exhibit "A') constituted her as an

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agent with the obligation to return the tobacco if the same was Development Co., Ltd. The parties stipulated, among in the
not sold. contract of purchase and sale with mortgage, that the buyer will
ACCORDINGLY, the petition for review on certiorari is dismissed
for lack of merit. With costs.
Build on the said parcel land the Sto. Domingo Church and
Convent

while the seller for its part will
24. G.R. No. L-22558 May 31, 1967
Construct streets on the NE and NW and SW sides of the land
GREGORIO ARANETA, INC., petitioner, herein sold so that the latter will be a block surrounded by
vs. streets on all four sides; and the street on the NE side shall be
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., named "Sto. Domingo Avenue;"
LTD., respondent.
The buyer, Philippine Sugar Estates Development Co., Ltd.,
Araneta and Araneta for petitioner. finished the construction of Sto. Domingo Church and Convent,
Rosauro Alvarez and Ernani Cruz Pao for but the seller, Gregorio Araneta, Inc., which began constructing
respondent. the streets, is unable to finish the construction of the street in the
Northeast side named (Sto. Domingo Avenue) because a certain
REYES, J.B.L., J.: third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the
Petition for certiorari to review a judgment of the Court of same; hence, on May 7, 1958, Philippine Sugar Estates
Appeals, in its CA-G.R. No. 28249-R, affirming with modification, Development Co., Lt. filed its complaint against J. M. Tuason & Co.,
an amendatory decision of the Court of First Instance of Manila, Inc., and instance, seeking to compel the latter to comply with
in its Civil Case No. 36303, entitled "Philippine Sugar Estates their obligation, as stipulated in the above-mentioned deed of
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and sale, and/or to pay damages in the event they failed or refused to
Gregorio Araneta, Inc., defendants." perform said obligation.

As found by the Court of Appeals, the facts of this case are: Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc.
answered the complaint, the latter particularly setting up the
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in principal defense that the action was premature since its
Quezon City, otherwise known as the Sta. Mesa Heights obligation to construct the streets in question was without a
Subdivision, and covered by a Torrens title in its name. On July definite period which needs to he fixed first by the court in a
28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a proper suit for that purpose before a complaint for specific
portion thereof with an area of 43,034.4 square meters, more or performance will prosper.
less, for the sum of P430,514.00, to Philippine Sugar Estates

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The issues having been joined, the lower court proceeded with In said appellate court, defendant-appellant Gregorio Araneta,
the trial, and upon its termination, it dismissed plaintiff's Inc. contended mainly that the relief granted, i.e., fixing of a
complaint (in a decision dated May 31, 1960), upholding the period, under the amendatory decision of July 16, 1960, was not
defenses interposed by defendant Gregorio Araneta, justified by the pleadings and not supported by the facts
Inc.1wph1.t submitted at the trial of the case in the court below and that the
relief granted in effect allowed a change of theory after the
Plaintiff moved to reconsider and modify the above decision, submission of the case for decision.
praying that the court fix a period within which defendants will
comply with their obligation to construct the streets in question. Ruling on the above contention, the appellate court declared that
the fixing of a period was within the pleadings and that there was
Defendant Gregorio Araneta, Inc. opposed said motion, no true change of theory after the submission of the case for
maintaining that plaintiff's complaint did not expressly or decision since defendant-appellant Gregorio Araneta, Inc. itself
impliedly allege and pray for the fixing of a period to comply with squarely placed said issue by alleging in paragraph 7 of the
its obligation and that the evidence presented at the trial was affirmative defenses contained in its answer which reads
insufficient to warrant the fixing of such a period.
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein
On July 16, 1960, the lower court, after finding that "the proven defendant has a reasonable time within which to comply with its
facts precisely warrants the fixing of such a period," issued an obligations to construct and complete the streets on the NE, NW
order granting plaintiff's motion for reconsideration and and SW sides of the lot in question; that under the circumstances,
amending the dispositive portion of the decision of May 31, 1960, said reasonable time has not elapsed;
to read as follows:
Disposing of the other issues raised by appellant which were
WHEREFORE, judgment is hereby rendered giving defendant ruled as not meritorious and which are not decisive in the
Gregorio Araneta, Inc., a period of two (2) years from notice resolution of the legal issues posed in the instant appeal before
hereof, within which to comply with its obligation under the us, said appellate court rendered its decision dated December 27,
contract, Annex "A". 1963, the dispositive part of which reads

Defendant Gregorio Araneta, Inc. presented a motion to IN VIEW WHEREOF, judgment affirmed and modified; as a
reconsider the above quoted order, which motion, plaintiff consequence, defendant is given two (2) years from the date of
opposed. finality of this decision to comply with the obligation to construct
streets on the NE, NW and SW sides of the land sold to plaintiff so
On August 16, 1960, the lower court denied defendant Gregorio that the same would be a block surrounded by streets on all four
Araneta, Inc's. motion; and the latter perfected its appeal Court of sides.
Appeals.

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Unsuccessful in having the above decision reconsidered, in as first amended; for the original decision is clear that the
defendant-appellant Gregorio Araneta, Inc. resorted to a petition complaint proceeded on the theory that the period for
for review by certiorari to this Court. We gave it due course. performance had already elapsed, that the contract had been
breached and defendant was already answerable in damages.
We agree with the petitioner that the decision of the Court of
Appeals, affirming that of the Court of First Instance is legally Granting, however, that it lay within the Court's power to fix the
untenable. The fixing of a period by the courts under Article 1197 period of performance, still the amended decision is defective in
of the Civil Code of the Philippines is sought to be justified on the that no basis is stated to support the conclusion that the period
basis that petitioner (defendant below) placed the absence of a should be set at two years after finality of the judgment. The list
period in issue by pleading in its answer that the contract with paragraph of Article 1197 is clear that the period can not be set
respondent Philippine Sugar Estates Development Co., Ltd. gave arbitrarily. The law expressly prescribes that
petitioner Gregorio Araneta, Inc. "reasonable time within which
to comply with its obligation to construct and complete the the Court shall determine such period as may under the
streets." Neither of the courts below seems to have noticed that, circumstances been probably contemplated by the parties.
on the hypothesis stated, what the answer put in issue was not
whether the court should fix the time of performance, but All that the trial court's amended decision (Rec. on Appeal, p.
whether or not the parties agreed that the petitioner should have 124) says in this respect is that "the proven facts precisely
reasonable time to perform its part of the bargain. If the contract warrant the fixing of such a period," a statement manifestly
so provided, then there was a period fixed, a "reasonable time;" insufficient to explain how the two period given to petitioner
and all that the court should have done was to determine if that herein was arrived at.
reasonable time had already elapsed when suit was filed if it had
passed, then the court should declare that petitioner had It must be recalled that Article 1197 of the Civil Code involves a
breached the contract, as averred in the complaint, and fix the two-step process. The Court must first determine that "the
resulting damages. On the other hand, if the reasonable time had obligation does not fix a period" (or that the period is made to
not yet elapsed, the court perforce was bound to dismiss the depend upon the will of the debtor)," but from the nature and the
action for being premature. But in no case can it be logically held circumstances it can be inferred that a period was intended" (Art.
that under the plea above quoted, the intervention of the court to 1197, pars. 1 and 2). This preliminary point settled, the Court
fix the period for performance was warranted, for Article 1197 is must then proceed to the second step, and decide what period
precisely predicated on the absence of any period fixed by the was "probably contemplated by the parties" (Do., par. 3). So that,
parties. ultimately, the Court can not fix a period merely because in its
opinion it is or should be reasonable, but must set the time that
Even on the assumption that the court should have found that no the parties are shown to have intended. As the record stands, the
reasonable time or no period at all had been fixed (and the trial trial Court appears to have pulled the two-year period set in its
court's amended decision nowhere declared any such fact) still, decision out of thin air, since no circumstances are mentioned to
the complaint not having sought that the Court should set a support it. Plainly, this is not warranted by the Civil Code.
period, the court could not proceed to do so unless the complaint

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In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land described
therein was occupied by squatters, because the fact is expressly
mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 25. G.R. No. L-55480
12-13). As the parties must have known that they could not take
the law into their own hands, but must resort to legal processes PACIFICA MILLARE, petitioner,
in evicting the squatters, they must have realized that the vs.
duration of the suits to be brought would not be under their HON. HAROLD M. HERNANDO, In his capacity as
control nor could the same be determined in advance. The Presiding Judge, Court of Instance of Abra, Second
conclusion is thus forced that the parties must have intended to Judicial District, Branch I, ANTONIO CO and ELSA CO,
defer the performance of the obligations under the contract until respondents.
the squatters were duly evicted, as contended by the petitioner
Gregorio Araneta, Inc.
FELICIANO, J.:
The Court of Appeals objected to this conclusion that it would
render the date of performance indefinite. Yet, the circumstances On 17 June 1975, a five-year Contract of Lease 1 was executed
admit no other reasonable view; and this very indefiniteness is between petitioner Pacifica Millare as lessor and private
what explains why the agreement did not specify any exact respondent Elsa Co, married to Antonio Co, as lessee. Under the
periods or dates of performance. written agreement, which was scheduled to expire on 31 May
1980, the lessor-petitioner agreed to rent out to thelessee at a
It follows that there is no justification in law for the setting the monthly rate of P350.00 the "People's Restaurant", a commercial
date of performance at any other time than that of the eviction of establishment located at the corner of McKinley and Pratt Streets
the squatters occupying the land in question; and in not so in Bangued, Abra.
holding, both the trial Court and the Court of Appeals committed
reversible error. It is not denied that the case against one of the The present dispute arose from events which transpired during
squatters, Abundo, was still pending in the Court of Appeals the months of May and July in 1980. According to the Co spouses,
when its decision in this case was rendered. sometime during the last week of May 1980, the lessor informed
them that they could continue leasing the People's Restaurant so
In view of the foregoing, the decision appealed from is reversed, long as they were amenable to paying creased rentals of
and the time for the performance of the obligations of petitioner P1,200.00 a month. In response, a counteroffer of P700.00 a
Gregorio Araneta, Inc. is hereby fixed at the date that all the month was made by the Co spouses. At this point, the lessor
squatters on affected areas are finally evicted therefrom. allegedly stated that the amount of monthly rentals could be
resolved at a later time since "the matter is simple among us",
Costs against respondent Philippine Sugar Estates Development, which alleged remark was supposedly taken by the spouses Co to
Co., Ltd. So ordered. mean that the Contract of Lease had been renewed, prompting
them to continue occupying the subject premises and to forego

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their search for a substitute place to rent. 2 In contrast, the lessor action due to plaintiffs' failure to establish a valid renewal of the
flatly denied ever having considered, much less offered, a Contract of Lease, and (b) lack of jurisdiction by the trial court
renewal of the Contract of Lease. over the complaint for failure of plaintiffs to secure a certification
from the Lupong Tagapayapa of the barangay wherein both
The variance in versions notwithstanding, the record shows that disputants reside attesting that no amicable settlement between
on 22 July 1980, Mrs. Millare wrote the Co spouses requesting them had been reached despite efforts to arrive at one, as
them to vacate the leased premises as she had no intention of required by Section 6 of Presidential Decree No. 1508. The Co
renewing the Contract of Lease which had, in the meantime, spouses opposed the motion to dismiss. 7
already expirecl. 3 In reply, the Co spouses reiterated their
unwillingness to pay the Pl,200.00 monthly rentals supposedly In an Order dated 15 October 1980, respondent judge denied the
sought bv Mrs. Millare which they considered "highly excessive, motion to dismiss and ordered the renewal of the Contract of
oppressive and contrary to existing laws". They also signified Lease. Furthermore plaintiffs were allowed to deposit all
their intention to deposit the amount of rentals in court, in view accruing monthly rentals in court, while defendant Millare was
of Mrs. Millare's refusal to accept their counter-offer.4 Another directed to submit her answer to the complaint. 8 A motion for
letter of demand from Mrs. Millare was received on 28 July 1980 reconsideration 9 was subsequently filed which, however, was
by the Co spouses, who responded by depositing the rentals for likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare
June and July (at 700.00 a month) in court. filed the instant Petition for Certiorari, Prohibition and
Mandamus, seeking injunctive relief from the abovementioned
On 30 August 1980, a Saturday, the Co spouses jumped the gun, orders. This Court issued a temporary restraining order on 21
as it were, and filed a Complaint 5 (docketed as Civil Case No. November 1980 enjoining respondent, judge from conducting
1434) with the then Court of First Instance of Abra against Mrs. further proceedings in Civil Case No. 1434. 11 Apparently, before
Millare and seeking judgment (a) ordering the renewal of the the temporary restraining order could be served on the
Contract of Lease at a rental rate of P700.00 a nionth and for a respondent judge, he rendered a "Judgment by Default" dated 26
period of ten years, (b) ordering the defendant to collect the sum November 1980 ordering the renewal of the lease contract for a
of P1,400.00 deposited by plaintiffs with the court, and (c) term of 5 years counted from the expiration date of the original
ordering the defendant to pay damages in the amount of lease contract, and fixing monthly rentals thereunder at P700.00
P50,000.00. The following Monday, on 1 September 1980, Mrs. a month, payable in arrears. On18 March 1981, this Court gave
Millare filed an ejectment case against the Co spouses in the due course to the Petition for Certiorari, Prohibition and
Municipal Court of Bangued, Abra, docketed as Civil Case No. 661. Mandamus. 12
The spouses Co, defendants therein, sut)sequently set up lis
pendens as a Civil Case No. 661. The spouses Co, defendants Two issues are presented for resolution: (1) whether or not the
therein, subsequently set up lis pendens as a defense against the trial court acquired jurisdiction over Civil Case No. 1434; and (2)
complaint for ejectment. whether or not private respondents have a valid cause of action
against petitioner.
Mrs. Millare, defendant in Civil Case No. 1434, countered with an
Omnibus Motion to Dismiss6 rounded on (a) lack of cause of

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Turning to the first issue, petitioner's attack on the jurisdiction of 13. This contract of lease is subject to the laws and
the trial court must fail, though for reasons different from those regulations ofthe goverrunent; and that this contract of lease may
cited by the respondent judge. 13 We would note firstly that the be renewed after a period of five (5) years under the terms and
conciliation procedure required under P.D. 1508 is not a conditions as will be mutually agreed upon by the parties at the
jurisdictional requirement in the sense that failure to have prior time of renewal; ... (Emphasis supplied.)
recourse to such procedure would not deprive a court of its
jurisdiction either over the subject matter or over the person of The respondent judge, in his Answer and Comment to the
the defendant.14 Secondly, the acord shows that two complaints Petition, urges that under paragraph 13 quoted above.
were submitted to the barangay authorities for conciliation
one by petitioner for ejectment and the other by private there was already a consummated and finished mutual
respondents for renewal of the Contract of Lease. It appears agreement of the parties to renew the contract of lease after five
further that both complaints were, in fact, heard by the Lupong years; what is only left unsettled between the parties to the
Tagapayapa in the afternoon of 30 August 1980. After attempts at contract of lease is the amount of the monthly rental; the lessor
conciliation had proven fruitless, Certifications to File Action insists Pl,200 a month, while the lessee is begging P700 a month
authorizing the parties to pursue their respective claims in court which doubled the P350 monthly rental under the original
were then issued at 5:20 p.m. of that same aftemoon, as attested contract .... In short, the lease contract has never expired because
to by the Barangay Captain in a Certification presented in paragraph 13 thereof had expressly mandated that it is
evidence by petitioner herself. 15 renewable. ...16

Petitioner would, nonetheless, assail the proceedings in the trial In the "Judgment by Default" he rendered, the respondent Judge
court on a technicaety, i.e., private respondents allegedly filed elaborated his views obviously highly emotional in character
their complaint at 4:00 p.m. of 30 August 1980, or one hour and in the following extraordinary tatements:
twenty minutes before the issuance of the requisite certification
by the Lupng Tagapayapa. The defect in procedure admittedly However, it is now the negative posture of the defendant-lessor
initially present at that particular moment when private to block, reject and refuse to renew said lease contract. It is the
respondents first filed the complaint in the trial court, was cured defendant-lessor's assertion and position that she can at the
by the subsequent issuance of the Certifications to File Action by mere click of her fingers, just throw-out the plaintiffs-lessees
the barangay Lupong Tagapayapa Such certifications in any event from the leased premises and any time after the original term of
constituted substantial comphance with the requirement of P.D. the lease contract had already expired; This negative position of
1508. the defendantlessor, to the mind of this Court does not conform
to the principles and correct application of the philosophy
We turn to the second issue, that is, whether or not the complaint underlying the law of lease; for indeed, the law of lease is
in Civil Case No. 1434 filed by the respondent Co spouses impressed with public interest, social justice and equity; reason
claiming renewal of the contract of lease stated a valid cause of for which, this Court cannot sanction lot owner's business and
action. Paragraph 13 of the Contract of Lease reads as follows: commercial speculations by allowing them with "unbridled
discretion" to raise rentals even to the extent of "extraordinary

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gargantuan proportions, and calculated to unreasonably and years and the lessee is not required before hand to give express
unjustly eject the helpless lessee because he cannot afford said notice of this fact to the lessor because it was expressly stipulated
inflated monthly rental and thereby said lessee is placed without in the original lease contract to be renewed; Wherefore, the bare
any alternative, except to surrender and vacate the premises refusal of the lessor to renew the lease contract unless the
mediately,-" Many business establishments would be closed and monthly rental is P1,200.00 is contrary to law, morals, good
the public would directly suffer the direct consequences; customs, public policy, justice and equity because no one should
Nonetheless, this is not the correct concept or perspective the unjustly enrich herself at the expense of another. Article 1197
law of lease, that is, to place the lessee always at the mercy of the and 1670 of the New Civil Code must therefore govern the case at
lessor's "Merchant of Venice" and to agit the latter's personal bar and whereby this Court is authorized to fix the period thereof
whims and caprices; the defendant-lessor's hostile attitude by by ordering the renewal of the lease contract to another fixed
imposing upon the lessee herein an "unreasonable and term of five (5) years.17
extraordinary gargantuan monthly rental of P1,200.00", to the
mind of this Court, is "fly-by night unjust enrichment" at the Clearly, the respondent judge's grasp of both the law and the
expense of said lessees; but, no Man should unjustly enrich Enghsh language is tenuous at best. We are otherwise unable to
himself at the expense of another; under these facts and comprehend how he arrived at the reading set forth above.
circumstances surrounding this case, the action therefore to Paragraph 13 of the Contract of Lease can only mean that the
renew the lease contract! is "tenable" because it falls squarely lessor and lessee may agree to renew the contract upon their
within the coverage and command of Articles 1197 and 1670 of reaching agreement on the terms and conditions to be embodied
the New Civil Code, to wit: in such renewal contract. Failure to reach agreement on the
terms and conditions of the renewal contract will of course
x x x x x x x x x prevent the contract from being renewed at all. In the instant
case, the lessor and the lessee conspicuously failed to reach
The term "to be renewed" as expressly stipulated by the herein agreement both on the amount of the rental to be payable during
parties in the original contract of lease means that the lease may the renewal term, and on the term of the renewed contract.
be renewed for another term of five (5) years; its equivalent to a
promise made by the lessor to the lessee, and as a unilateral The respondent judge cited Articles 1197 and 1670 of the Civil
stipulation, obliges the lessor to fulfill her promise; of course the Code to sustain the "Judgment by Default" by which he ordered
lessor is free to comply and honor her commitment or back-out the renewal of the lease for another term of five years and fixed
from her promise to renew the lease contract; but, once expressly monthly rentals thereunder at P700.00 a month. Article 1197 of
stipulated, the lessor shall not be allowed to evade or violate the the Civil Code provides as follows:
obligation to renew the lease because, certainly, the lessor may
be held hable for damages caused to the lessee as a consequence If the obligation does not fix a period, but from its nature and the
of the unjustifiable termination of the lease or renewal of the circumstances it can be inferred that a period was intended, the
same; In other words, the lessor is guilty of breach of contract: courts may fix the duration thereof.
Since the original lease was fixed for five (5) years, it follows,
therefore, that the lease contract is renewable for another five (5)

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The courts shall also fix the duration of the period when it possibly have a period of five years, but rather would have been a
depends upon the will of the debtor. month-to-month lease since the rentals (under the original
contract) were payable on a monthly basis. At the latest, an
In every case, the courts shall determine such period as may, implied new lease (had one arisen) would have expired as of the
under the circumstances, have been probably contemplated by end of July 1980 in view of the written demands served by the
the parties. Once fixed by the courts, the period cannot be petitioner upon the private respondents to vacate the previously
changed by them. (Emphasis supplied.) leased premises.

The first paragraph of Article 1197 is clearly inapplicable, since It follows that the respondent judge's decision requiring renewal
the Contract of Lease did in fact fix an original period of five of the lease has no basis in law or in fact. Save in the limited and
years, which had expired. It is also clear from paragraph 13 of the exceptional situations envisaged inArticles ll97 and 1670 of the
Contract of Lease that the parties reserved to themselves the Civil Code, which do not obtain here, courts have no authority to
faculty of agreeing upon the period of the renewal contract. The prescribe the terms and conditions of a contract for the parties.
second paragraph of Article 1197 is equally clearly inapplicable As pointed out by Mr. Justice J.B.L. Reyes in Republic vs.
since the duration of the renewal period was not left to the wiu of Philippine Long Distance Telephone,Co.,[[18
the lessee alone, but rather to the will of both the lessor and the
lessee. Most importantly, Article 1197 applies only where a [P]arties cannot be coerced to enter into a contract where no
contract of lease clearly exists. Here, the contract was not agreement is had between them as to the principal terms and
renewed at all, there was in fact no contract at all the period of conditions of the contract. Freedom to stipulate such terms and
which could have been fixed. conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if
Article 1670 of the Civil Code reads thus: tainted by violence, intimidation or undue influence (Article
1306, 1336, 1337, Civil Code of the Philippines).
If at the end of the contract the lessee should continue enjoying
the thing left for 15 days with the acquiescence of the lessor and Contractual terms and conditions created by a court for two
unless a notice to the contrary by either party has previously parties are a contradiction in terms. If they are imposed by a
been given. It is understood that there is an implied new lease, judge who draws upon his own private notions of what morals,
not for the period of the original contract but for the time good customs, justice, equity and public policy" demand, the
established in Articles 1682 and 1687. The ther terms of the resulting "agreement" cannot, by definition, be consensual or
original contract shall be revived. (Emphasis suplied.) contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties
The respondents themselves, public and private, do not pretend themselves. Contracts spring from the volition of the parties. That
that the continued occupancy of the leased premises after 31 May volition cannot be supplied by a judge and a judge who pretends
1980, the date of expiration of the contract, was with the to do so, acts tyrannically, arbitrarily and in excess of his
acquiescence of the lessor. Even if it be assumed that tacite jurisdiction. 19
reconduccion had occurred, the implied new lease could not

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WHEREFORE, the Petition for Certiorari, Prohibition and
mandamus is granted. The Orders of the respondent judge in The facts are as follows:
Civil Case No. 1434 dated 26 September 1980 (denying
petitioner's motion to dismiss) and 4 November 1980 (denying Dan T. Lim works in the business of supplying scrap papers,
petitioner's motion for reconsideration), and the "Judgment by cartons, and other raw materials, under the name Quality Paper
Default" rendered by the respondent judge dated 26 November and Plastic Products, Enterprises, to factories engaged in the
1980, are hereby annulled and set aside and Civil Case No. 1434 paper mill business.4 From February 2007 to March 2007, he
is hereby dismissed. The temporary restraining order dated 21 delivered scrap papers worth 7,220,968.31 to Arco Pulp and
November 1980 issued by this ourt, is hereby made permanent. Paper Company, Inc. (Arco Pulp and Paper) through its Chief
No pronouncement as to costs. Executive Officer and President, Candida A. Santos.5 The parties
allegedly agreed that Arco Pulp and Paper would either pay Dan
T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value.6

26.(also 103) G.R. No. 206806 June 25, 2014 Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a post-dated check dated April 18,
ARCO PULP AND PAPER CO., INC. and CANDIDA A. 20077 in the amount of 1,487,766.68 as partial payment, with the
SANTOS, Petitioners, assurance that the check would not bounce.8 When he deposited
vs. the check on April 18, 2007, it was dishonored for being drawn
DAN T. LIM, doing business under the name and style against a closed account.9
of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent. On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and
D E C I S I O N Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his
LEONEN, J.: account. According to the memorandum, the raw materials would
be supplied by Dan T. Lim, through his company, Quality Paper
Novation must be stated in clear and unequivocal terms to and Plastic Products. The memorandum of agreement reads as
extinguish an obligation. It cannot be presumed and may be follows:
implied only if the old and new contracts are incompatible on
every point. Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO
Before us is a petition for review on certiorari1 assailing the will deliver 600 tons Test Liner 150/175 GSM, full width 76
Court of Appeals decision2 in CA-G.R. CV No. 95709, which inches at the price of P18.50 per kg. to Megapack Container for
stemmed from a complaint3 filed in the Regional Trial Court of Mr. Eric Sys account. Schedule of deliveries are as follows:
Valenzuela City, Branch 171, for collection of sum of money.

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. . . . On January 11, 2013, the Court of Appeals20 rendered a
decision21 reversing and setting aside the judgment dated
It has been agreed further that the Local OCC materials to be used September 19, 2008 and ordering Arco Pulp and Paper to jointly
for the production of the above Test Liners will be supplied by and severally pay Dan T. Lim the amount of P7,220,968.31 with
Quality Paper & Plastic Products Ent., total of 600 Metric Tons at interest at 12% per annum from the time of demand; P50,000.00
P6.50 per kg. (price subject to change per advance notice). moral damages; P50,000.00 exemplary damages; and P50,000.00
Quantity of Local OCC delivery will be based on the quantity of attorneys fees.22
Test Liner delivered to Megapack Container Corp. based on the
above production schedule.11 The appellate court ruled that the facts and circumstances in this
case clearly showed the existence of an alternative obligation.23
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper It also ruled that Dan T. Lim was entitled to damages and
demanding payment of the amount of 7,220,968.31, but no attorneys fees due to the bad faith exhibited by Arco Pulp and
payment was made to him.13 Paper in not honoring its undertaking.24

Dan T. Lim filed a complaint14 for collection of sum of money Its motion for reconsideration25 having been denied,26 Arco
with prayer for attachment with the Regional Trial Court, Branch Pulp and Paper and its President and Chief Executive Officer,
171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed Candida A. Santos, bring this petition for review on certiorari.
its answer15 but failed to have its representatives attend the pre-
trial hearing. Hence, the trial court allowed Dan T. Lim to present On one hand, petitioners argue that the execution of the
his evidence ex parte.16 memorandum of agreement constituted a novation of the original
obligation since Eric Sy became the new debtor of respondent.
On September 19, 2008, the trial court rendered a judgment in They also argue that there is no legal basis to hold petitioner
favor of Arco Pulp and Paper and dismissed the complaint, Candida A. Santos personally liable for the transaction that
holding that when Arco Pulp and Paper and Eric Sy entered into petitioner corporation entered into with respondent. The Court
the memorandum of agreement, novation took place, which of Appeals, they allege, also erred in awarding moral and
extinguished Arco Pulp and Papers obligation to Dan T. Lim.17 exemplary damages and attorneys fees to respondent who did
not show proof that he was entitled to damages.27
Dan T. Lim appealed18 the judgment with the Court of Appeals.
According to him, novation did not take place since the Respondent, on the other hand, argues that the Court of Appeals
memorandum of agreement between Arco Pulp and Paper and was correct in ruling that there was no proper novation in this
Eric Sy was an exclusive and private agreement between them. case. He argues that the Court of Appeals was correct in ordering
He argued that if his name was mentioned in the contract, it was the payment of 7,220,968.31 with damages since the debt of
only for supplying the parties their required scrap papers, where petitioners remains unpaid.28 He also argues that the Court of
his conformity through a separate contract was indispensable.19 Appeals was correct in holding petitioners solidarily liable since
petitioner Candida A. Santos was "the prime mover for such
outstanding corporate liability."29 In their reply, petitioners

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reiterate that novation took place since there was nothing in the "In an alternative obligation, there is more than one object, and
memorandum of agreement showing that the obligation was the fulfillment of one is sufficient, determined by the choice of the
alternative. They also argue that when respondent allowed them debtor who generally has the right of election."32 The right of
to deliver the finished products to Eric Sy, the original obligation election is extinguished when the party who may exercise that
was novated.30 option categorically and unequivocally makes his or her choice
known.33
A rejoinder was submitted by respondent, but it was noted
without action in view of A.M. No. 99-2-04-SC dated November The choice of the debtor must also be communicated to the
21, 2000.31 creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his
The issues to be resolved by this court are as follows: consent, or to impugn the election made by the debtor, and only
after said notice shall the election take legal effect when
1. Whether the obligation between the parties was extinguished consented by the creditor, or if impugned by the latter, when
by novation declared proper by a competent court.34

2. Whether Candida A. Santos was solidarily liable with Arco Pulp According to the factual findings of the trial court and the
and Paper Co., Inc. appellate court, the original contract between the parties was for
respondent to deliver scrap papers worth P7,220,968.31 to
3. Whether moral damages, exemplary damages, and attorneys petitioner Arco Pulp and Paper. The payment for this delivery
fees can be awarded became petitioner Arco Pulp and Papers obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had the
The petition is denied. option to either (1) pay the price or(2) deliver the finished
products of equivalent value to respondent.35
The obligation between the
parties was an alternative The appellate court, therefore, correctly identified the obligation
obligation between the parties as an alternative obligation, whereby
petitioner Arco Pulp and Paper, after receiving the raw materials
The rule on alternative obligations is governed by Article 1199 of from respondent, would either pay him the price of the raw
the Civil Code, which states: materials or, in the alternative, deliver to him the finished
products of equivalent value.
Article 1199. A person alternatively bound by different
prestations shall completely perform one of them. When petitioner Arco Pulp and Paper tendered a check to
respondent in partial payment for the scrap papers, they
The creditor cannot be compelled to receive part of one and part exercised their option to pay the price. Respondents receipt of
of the other undertaking. the check and his subsequent act of depositing it constituted his
notice of petitioner Arco Pulp and Papers option to pay.

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This choice was also shown by the terms of the memorandum of Article 1293. Novation which consists in substituting a new
agreement, which was executed on the same day. The debtor in the place of the original one, may be made even without
memorandum declared in clear terms that the delivery of the knowledge or against the will of the latter, but not without
petitioner Arco Pulp and Papers finished products would be to a the consent of the creditor. Payment by the new debtor gives him
third person, thereby extinguishing the option to deliver the the rights mentioned in Articles 1236 and 1237. (1205a)
finished products of equivalent value to respondent.
Novation extinguishes an obligation between two parties when
The memorandum of there is a substitution of objects or debtors or when there is
agreement did not constitute subrogation of the creditor. It occurs only when the new contract
a novation of the original declares so "in unequivocal terms" or that "the old and the new
contract obligations be on every point incompatible with each other."36

The trial court erroneously ruled that the execution of the Novation was extensively discussed by this court in Garcia v.
memorandum of agreement constituted a novation of the Llamas:37
contract between the parties. When petitioner Arco Pulp and
Paper opted instead to deliver the finished products to a third Novation is a mode of extinguishing an obligation by changing its
person, it did not novate the original obligation between the objects or principal obligations, by substituting a new debtor in
parties. place of the old one, or by subrogating a third person to the rights
of the creditor. Article 1293 of the Civil Code defines novation as
The rules on novation are outlined in the Civil Code, thus: follows:

Article 1291. Obligations may be modified by: "Art. 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
(1) Changing their object or principal conditions; knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
(2) Substituting the person of the debtor; rights mentioned in articles 1236 and 1237."

(3) Subrogating a third person in the rights of the creditor. In general, there are two modes of substituting the person of the
(1203) debtor: (1) expromision and (2) delegacion. In expromision, the
initiative for the change does not come from and may even be
Article 1292. In order that an obligation may be extinguished by made without the knowledge of the debtor, since it consists of
another which substitute the same, it is imperative that it be so a third persons assumption of the obligation. As such, it logically
declared in unequivocal terms, or that the old and the new requires the consent of the third person and the creditor. In
obligations be on every point incompatible with each other. delegacion, the debtor offers, and the creditor accepts, a third
(1204) person who consents to the substitution and assumes the

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obligation; thus, the consent of these three persons are In the civil law setting, novatio is literally construed as to make
necessary. Both modes of substitution by the debtor require the new. So it is deeply rooted in the Roman Law jurisprudence, the
consent of the creditor. principle novatio non praesumitur that novation is never
presumed.At bottom, for novation tobe a jural reality, its animus
Novation may also be extinctive or modificatory. It is extinctive must be ever present, debitum pro debito basically
when an old obligation is terminated by the creation of a new one extinguishing the old obligation for the new one.39 (Emphasis
that takes the place of the former. It is merely modificatory when supplied) There is nothing in the memorandum of agreement
the old obligation subsists to the extent that it remains that states that with its execution, the obligation of petitioner
compatible with the amendatory agreement. Whether extinctive Arco Pulp and Paper to respondent would be extinguished. It also
or modificatory, novation is made either by changing the object does not state that Eric Sy somehow substituted petitioner Arco
or the principal conditions, referred to as objective or real Pulp and Paper as respondents debtor. It merely shows that
novation; or by substituting the person of the debtor or petitioner Arco Pulp and Paper opted to deliver the finished
subrogating a third person to the rights of the creditor, an act products to a third person instead.
known as subjective or personal novation. For novation to take
place, the following requisites must concur: The consent of the creditor must also be secured for the novation
to be valid:
1) There must be a previous valid obligation.
Novation must be expressly consented to. Moreover, the
2) The parties concerned must agree to a new contract. conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which to
3) The old contract must be extinguished. deduce a clear and unequivocal intent by the parties to novate
the old agreement.40 (Emphasis supplied)
4) There must be a valid new contract.
In this case, respondent was not privy to the memorandum of
Novation may also be express or implied. It is express when the agreement, thus, his conformity to the contract need not be
new obligation declares in unequivocal terms that the old secured. This is clear from the first line of the memorandum,
obligation is extinguished. It is implied when the new obligation which states:
is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand Per meeting held at ARCO, April 18, 2007, it has been mutually
together, each one with its own independent existence.38 agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41
(Emphasis supplied)
If the memorandum of agreement was intended to novate the
Because novation requires that it be clear and unequivocal, it is original agreement between the parties, respondent must have
never presumed, thus: first agreed to the substitution of Eric Sy as his new debtor. The
memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of

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petitioner Arco Pulp and Paper to respondent. Neither of these wanton, reckless, malicious or in bad faith, and oppressive or
circumstances is present in this case. abusive.42

Petitioner Arco Pulp and Papers act of tendering partial payment Further, the following requisites must be proven for the recovery
to respondent also conflicts with their alleged intent to pass on of moral damages:
their obligation to Eric Sy. When respondent sent his letter of
demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it An award of moral damages would require certain conditions to
showed that the former neither acknowledged nor consented to be met, to wit: (1)first, there must be an injury, whether physical,
the latter as his new debtor. These acts, when taken together, mental or psychological, clearly sustained by the claimant; (2)
clearly show that novation did not take place. Since there was no second, there must be culpable act or omission factually
novation, petitioner Arco Pulp and Papers obligation to established; (3) third, the wrongful act or omission of the
respondent remains valid and existing. Petitioner Arco Pulp and defendant is the proximate cause of the injury sustained by the
Paper, therefore, must still pay respondent the full amount of claimant; and (4) fourth, the award of damages is predicated on
P7,220,968.31. any of the cases stated in Article 2219 of the Civil Code.43

Petitioners are liable for Here, the injury suffered by respondent is the loss of
damages P7,220,968.31 from his business. This has remained unpaid since
2007. This injury undoubtedly was caused by petitioner Arco
Under Article 2220 of the Civil Code, moral damages may be Pulp and Papers act of refusing to pay its obligations.
awarded in case of breach of contract where the breach is due to
fraud or bad faith: When the obligation became due and demandable, petitioner
Arco Pulp and Paper not only issued an unfunded check but also
Art. 2220. Willfull injury to property may be a legal ground for entered into a contract with a third person in an effort to evade
awarding moral damages if the court should find that, under the its liability. This proves the third requirement.
circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted As to the fourth requisite, Article 2219 of the Civil Code provides
fraudulently or in bad faith. (Emphasis supplied) that moral damages may be awarded in the following instances:

Moral damages are not awarded as a matter of right but only Article 2219. Moral damages may be recovered in the following
after the party claiming it proved that the breach was due to and analogous cases:
fraud or bad faith. As this court stated:
(1) A criminal offense resulting in physical injuries;
Moral damages are not recoverable simply because a contract has
been breached. They are recoverable only if the party from whom (2) Quasi-delicts causing physical injuries;
it is claimed acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be (3) Seduction, abduction, rape, or other lascivious acts;

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(4) Adultery or concubinage; Article 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter
(5) Illegal or arbitrary detention or arrest; for the same.

(6) Illegal search; Article 21.Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
(7) Libel, slander or any other form of defamation; public policy shall compensate the latter for the damage.

(8) Malicious prosecution; To be actionable, Article 20 requires a violation of law, while
Article 21 only concerns with lawful acts that are contrary to
(9) Acts mentioned in Article 309; morals, good customs, and public policy:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, Article 20 concerns violations of existing law as basis for an
32, 34, and 35. injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and the
Breaches of contract done in bad faith, however, are not specified desire to achieve the outcome which is considered by the plaintiff
within this enumeration. When a party breaches a contract, he or in tort action as injurious. Negligence may refer to a situation
she goes against Article 19 of the Civil Code, which states: Article where the act was consciously done but without intending the
19. Every person must, in the exercise of his rights and in the result which the plaintiff considers as injurious.
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. Article 21, on the other hand, concerns injuries that may be
caused by acts which are not necessarily proscribed by law. This
Persons who have the right to enter into contractual relations article requires that the act be willful, that is, that there was an
must exercise that right with honesty and good faith. Failure to intention to do the act and a desire to achieve the outcome. In
do so results in an abuse of that right, which may become the cases under Article 21, the legal issues revolve around whether
basis of an action for damages. Article 19, however, cannot be its such outcome should be considered a legal injury on the part of
sole basis: the plaintiff or whether the commission of the act was done in
violation of the standards of care required in Article 19.45
Article 19 is the general rule which governs the conduct of
human relations. By itself, it is not the basis of an actionable tort. When parties act in bad faith and do not faithfully comply with
Article 19 describes the degree of care required so that an their obligations under contract, they run the risk of violating
actionable tort may arise when it is alleged together with Article Article 1159 of the Civil Code:
20 or Article 21.44

Article 20 and 21 of the Civil Code are as follows:

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Article 1159. Obligations arising from contracts have the force of When petitioner Arco Pulp and Paper issued a check in partial
law between the contracting parties and should be complied with payment of its obligation to respondent, it was presumably with
in good faith. the knowledge that it was being drawn against a closed account.
Worse, it attempted to shift their obligations to a third person
Article 2219, therefore, is not an exhaustive list of the instances without the consent of respondent.
where moral damages may be recovered since it only specifies,
among others, Article 21. When a party reneges on his or her Petitioner Arco Pulp and Papers actions clearly show "a
obligations arising from contracts in bad faith, the act is not only dishonest purpose or some moral obliquity and conscious doing
contrary to morals, good customs, and public policy; it is also a of a wrong, a breach of known duty through some motive or
violation of Article 1159. Breaches of contract become the basis interest or ill will that partakes of the nature of fraud."48 Moral
of moral damages, not only under Article 2220, but also under damages may, therefore, be awarded.
Articles 19 and 20 in relation to Article 1159.
Exemplary damages may also be awarded. Under the Civil Code,
Moral damages, however, are not recoverable on the mere breach exemplary damages are due in the following circumstances:
of the contract. Article 2220 requires that the breach be done
fraudulently or in bad faith. In Adriano v. Lasala:46 Article 2232. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
To recover moral damages in an action for breach of contract, the fraudulent, reckless, oppressive, or malevolent manner.
breach must be palpably wanton, reckless and malicious, in bad
faith, oppressive, or abusive. Hence, the person claiming bad faith Article 2233. Exemplary damages cannot be recovered as a
must prove its existence by clear and convincing evidence for the matter of right; the court will decide whether or not they should
law always presumes good faith. be adjudicated.

Bad faith does not simply connote bad judgment or negligence. It Article 2234. While the amount of the exemplary damages need
imports a dishonest purpose or some moral obliquity and not be proven, the plaintiff must show that he is entitled to moral,
conscious doing of a wrong, a breach of known duty through temperate or compensatory damages before the court may
some motive or interest or ill will that partakes of the nature of consider the question of whether or not exemplary damages
fraud. It is, therefore, a question of intention, which can be should be awarded.
inferred from ones conduct and/or contemporaneous
statements.47 (Emphasis supplied) In Tankeh v. Development Bank of the Philippines,49 we stated
that:
Since a finding of bad faith is generally premised on the intent of
the doer, it requires an examination of the circumstances in each The purpose of exemplary damages is to serve as a deterrent to
case. future and subsequent parties from the commission of a similar
offense. The case of People v. Ranteciting People v. Dalisay held
that:

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Also known as punitive or vindictive damages, exemplary or Business owners must always be forthright in their dealings.
corrective damages are intended to serve as a deterrent to They cannot be allowed to renege on their obligations,
serious wrong doings, and as a vindication of undue sufferings considering that these obligations were freely entered into by
and wanton invasion of the rights of an injured or a punishment them. Exemplary damages may also be awarded in this case to
for those guilty of outrageous conduct. These terms are generally, serve as a deterrent to those who use fraudulent means to evade
but not always, used interchangeably. In common law, there is their liabilities.
preference in the use of exemplary damages when the award is to
account for injury to feelings and for the sense of indignity and Since the award of exemplary damages is proper, attorneys fees
humiliation suffered by a person as a result of an injury that has and cost of the suit may also be recovered.
been maliciously and wantonly inflicted, the theory being that
there should be compensation for the hurt caused by the highly Article 2208 of the Civil Code states:
reprehensible conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross Article 2208. In the absence of stipulation, attorney's fees and
negligence or recklessness, oppression, insult or fraud or gross expenses of litigation, other than judicial costs, cannot be
fraudthat intensifies the injury. The terms punitive or recovered, except:
vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish him for (1) When exemplary damages are awarded[.]
his outrageous conduct. In either case, these damages are Petitioner Candida A. Santos
intended in good measure to deter the wrongdoer and others like is solidarily liable with
him from similar conduct in the future.50 (Emphasis supplied; petitioner corporation
citations omitted)
Petitioners argue that the finding of solidary liability was
The requisites for the award of exemplary damages are as erroneous since no evidence was adduced to prove that the
follows: transaction was also a personal undertaking of petitioner Santos.
We disagree.
(1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to In Heirs of Fe Tan Uy v. International Exchange Bank,52 we
them has been established; stated that:

(2) that they cannot be recovered as a matter of right, their Basic is the rule in corporation law that a corporation is a
determination depending upon the amount of compensatory juridical entity which is vested with a legal personality separate
damages that may be awarded to the claimant; and and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Following this principle,
(3) the act must be accompanied by bad faith or done in a obligations incurred by the corporation, acting through its
wanton, fraudulent, oppressive or malevolent manner.51 directors, officers and employees, are its sole liabilities. A

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director, officer or employee of a corporation is generally not Arco Pulp and Paper. She also issued the check in partial payment
held personally liable for obligations incurred by the corporation. of petitioner corporations obligations to respondent on behalf of
Nevertheless, this legal fiction may be disregarded if it is used as petitioner Arco Pulp and Paper. This is clear on the face of the
a means to perpetrate fraud or an illegal act, or as a vehicle for check bearing the account name, "Arco Pulp & Paper, Co., Inc."54
the evasion of an existing obligation, the circumvention of Any obligation arising from these acts would not, ordinarily, be
statutes, or to confuse legitimate issues. petitioner Santos personal undertaking for which she would be
solidarily liable with petitioner Arco Pulp and Paper.
. . . .
We find, however, that the corporate veil must be pierced. In
Before a director or officer of a corporation can be held Livesey v. Binswanger Philippines:55
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must Piercing the veil of corporate fiction is an equitable doctrine
allege in the complaint that the director or officer assented to developed to address situations where the separate corporate
patently unlawful acts of the corporation, or that the officer was personality of a corporation is abused or used for wrongful
guilty of gross negligence or bad faith; and (2) the complainant purposes. Under the doctrine, the corporate existence may be
must clearly and convincingly prove such unlawful acts, disregarded where the entity is formed or used for non-
negligence or bad faith. legitimate purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to carry out
While it is true that the determination of the existence of any of similar or inequitable considerations, other unjustifiable aims or
the circumstances that would warrant the piercing of the veil of intentions, in which case, the fiction will be disregarded and the
corporate fiction is a question of fact which cannot be the subject individuals composing it and the two corporations will be treated
of a petition for review on certiorari under Rule 45, this Court as identical.56 (Emphasis supplied)
can take cognizance of factual issues if the findings of the lower
court are not supported by the evidence on record or are based According to the Court of Appeals, petitioner Santos was
on a misapprehension of facts.53 (Emphasis supplied) solidarily liable with petitioner Arco Pulp and Paper, stating that:

As a general rule, directors, officers, or employees of a In the present case, We find bad faith on the part of the
corporation cannot be held personally liable for obligations [petitioners] when they unjustifiably refused to honor their
incurred by the corporation. However, this veil of corporate undertaking in favor of the [respondent]. After the check in the
fiction may be pierced if complainant is able to prove, as in this amount of 1,487,766.68 issued by [petitioner] Santos was
case, that (1) the officer is guilty of negligence or bad faith, and dishonored for being drawn against a closed account, [petitioner]
(2) such negligence or bad faith was clearly and convincingly corporation denied any privity with [respondent]. These acts
proven. prompted the [respondent] to avail of the remedies provided by
law in order to protect his rights.57
Here, petitioner Santos entered into a contract with respondent
in her capacity as the President and Chief Executive Officer of

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We agree with the Court of Appeals. Petitioner Santos cannot be II. With regard particularly to an award of interest in the concept
allowed to hide behind the corporate veil.1wphi1 When of actual and compensatory damages, the rate of interest, as well
petitioner Arco Pulp and Papers obligation to respondent as the accrual thereof, is imposed, as follows:
became due and demandable, she not only issued an unfunded
check but also contracted with a third party in an effort to shift 1. When the obligation is breached, and it consists in the payment
petitioner Arco Pulp and Papers liability. She unjustifiably of a sum of money, i.e., a loan or forbearance of money, the
refused to honor petitioner corporations obligations to interest due should be that which may have been stipulated in
respondent. These acts clearly amount to bad faith. In this writing. Furthermore, the interest due shall itself earn legal
instance, the corporate veil may be pierced, and petitioner Santos interest from the time it is judicially demanded. In the absence of
may be held solidarily liable with petitioner Arco Pulp and Paper. stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
The rate of interest due on under and subject to the provisions of Article 1169 of the Civil
the obligation must be Code.
reduced in view of Nacar v.
Gallery Frames58 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
In view, however, of the promulgation by this court of the awarded may be imposed at the discretion of the court at the rate
decision dated August 13, 2013 in Nacar v. Gallery Frames,59 the of 6% per annum. No interest, however, shall be adjudged on
rate of interest due on the obligation must be modified from 12% unliquidated claims or damages, except when or until the
per annum to 6% per annum from the time of demand. demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
Nacar effectively amended the guidelines stated in Eastern certainty, the interest shall begin to run from the time the claim is
Shipping v. Court of Appeals,60 and we have laid down the made judicially or extrajudicially (Art. 1169, Civil Code), but
following guidelines with regard to the rate of legal interest: when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
To recapitulate and for future guidance, the guidelines laid down from the date the judgment of the court is made (at which time
in the case of Eastern Shipping Linesare accordingly modified to the quantification of damages may be deemed to have been
embody BSP-MB Circular No. 799, as follows: reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
I. When an obligation, regardless of its source, i.e., law, contracts, adjudged.
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under 3. When the judgment of the court awarding a sum of money
Title XVIII on "Damages" of the Civil Code govern in determining becomes final and executory, the rate of legal interest, whether
the measure of recoverable damages. the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this

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interim period being deemed to be by then an equivalent to a HONORABLE COURT OF APPEALS AND ANTONIO P. SO,
forbearance of credit. respondents.

And, in addition to the above, judgments that have become final Gloria A. Fortun for petitioner.
and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest Roselino Reyes Isler for respondents.
fixed therein.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation CUEVAS, J.:
of P7,220,968.31 should now be at 6% per annum, computed
from May 5, 2007, when respondent sent his letter of demand to This is a petition to review the Resolution dated June 30, 1980 of
petitioners. This interest shall continue to be due from the the then Court of Appeals (now the Intermediate Appellate
finality of this decision until its full satisfaction. Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo
versus the Hon. Florellana Castro-Bartolome, etc." and the Order
WHEREFORE, the petition is DENIED in part. The decision in CA- of said court dated August 20, 1980, denying petitioner's motion
G.R. CV No. 95709 is AFFIRMED. for reconsideration of the above resolution.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are Petitioner Ernesto V. Ronquillo was one of four (4) defendants in
hereby ordered solidarily to pay respondent Dan T. Lim the Civil Case No. 33958 of the then Court of First Instance of Rizal
amount of P7,220,968.31 with interest of 6% per annum at the (now the Regional Trial Court), Branch XV filed by private
time of demand until finality of judgment and its full satisfaction, respondent Antonio P. So, on July 23, 1979, for the collection of
with moral damages in the amount of P50,000.00, exemplary the sum of P17,498.98 plus attorney's fees and costs. The other
damages in the amount of P50,000.00, and attorney's fees in the defendants were Offshore Catertrade Inc., Johnny Tan and Pilar
amount of P50,000.00. Tan. The amount of P117,498.98 sought to be collected
represents the value of the checks issued by said defendants in
payment for foodstuffs delivered to and received by them. The
said checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision 1
based on the compromise agreement submitted by the parties,
the pertinent portion of which reads as follows:
27. G.R. No. L-55138 September 28, 1984
1. Plaintiff agrees to reduce its total claim of P117,498-95 to
ERNESTO V. RONQUILLO, petitioner, only P11,000 .00 and defendants agree to acknowledge the
vs. validity of such claim and further bind themselves to initially pay
out of the total indebtedness of P10,000.00 the amount of

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P55,000.00 on or before December 24, 1979, the balance of Court. The amount deposited was subsequently withdrawn by
P55,000.00, defendants individually and jointly agree to pay private respondent. 3
within a period of six months from January 1980, or before June
30, 1980; (Emphasis supplied) On the same day, January 16, 1980, the lower court ordered the
issuance of a writ of execution for the balance of the initial
xxx xxx xxx amount payable, against the other two defendants, Offshore
Catertrade Inc. and Johnny Tan 4 who did not pay their shares.
4. That both parties agree that failure on the part of either
party to comply with the foregoing terms and conditions, the On January 22, 1980, private respondent moved for the
innocent party will be entitled to an execution of the decision reconsideration and/or modification of the aforesaid Order of
based on this compromise agreement and the defaulting party execution and prayed instead for the "execution of the decision in
agrees and hold themselves to reimburse the innocent party for its entirety against all defendants, jointly and severally." 5
attorney's fees, execution fees and other fees related with the Petitioner opposed the said motion arguing that under the
execution. decision of the lower court being executed which has already
become final, the liability of the four (4) defendants was not
xxx xxx xxx expressly declared to be solidary, consequently each defendant is
obliged to pay only his own pro-rata or 1/4 of the amount due
On December 26, 1979, herein private respondent (then plaintiff and payable.
filed a Motion for Execution on the ground that defendants failed
to make the initial payment of P55,000.00 on or before December On March 17, 1980, the lower court issued an Order reading as
24, 1979 as provided in the Decision. Said motion for execution follows:
was opposed by herein petitioner (as one of the defendants)
contending that his inability to make the payment was due to ORDER
private respondent's own act of making himself scarce and
inaccessible on December 24, 1979. Petitioner then prayed that Regardless of whatever the compromise agreement has intended
private respondent be ordered to accept his payment in the the payment whether jointly or individually, or jointly and
amount of P13,750.00. 2 severally, the fact is that only P27,500.00 has been paid. There
appears to be a non-payment in accordance with the compromise
During the hearing of the Motion for Execution and the agreement of the amount of P27,500.00 on or before December
Opposition thereto on January 16, 1980, petitioner, as one of the 24, 1979. The parties are reminded that the payment is condition
four defendants, tendered the amount of P13,750.00, as his sine qua non to the lifting of the preliminary attachment and the
prorata share in the P55,000.00 initial payment. Another execution of an affidavit of desistance.
defendant, Pilar P. Tan, offered to pay the same amount. Because
private respondent refused to accept their payments, demanding WHEREFORE, let writ of execution issue as prayed for
from them the full initial installment of P 55,000.00, petitioner
and Pilar Tan instead deposited the said amount with the Clerk of

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On March 17, 1980, petitioner moved for the reconsideration of On April 2, 1980, the lower court denied petitioner's motion for
the above order, and the same was set for hearing on March reconsideration but the scheduled public sale in that same day
25,1980. did not proceed in view of the pendency of a certiorari
proceeding before the then Court of Appeals.
Meanwhile, or more specifically on March 19, 1980, a writ of
execution was issued for the satisfaction of the sum of On June 30, 1980, the said court issued a Resolution, the
P82,500.00 as against the properties of the defendants (including pertinent portion of which reads as follows:
petitioner), "singly or jointly hable." 6
This Court, however, finds the present petition to have been filed
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, prematurely. The rule is that before a petition for certiorari can
issued a notice of sheriff's sale, for the sale of certain furnitures be brought against an order of a lower court, all remedies
and appliances found in petitioner's residence to satisfy the sum available in that court must first be exhausted. In the case at bar,
of P82,500.00. The public sale was scheduled for April 2, 1980 at herein petitioner filed a petition without waiting for a resolution
10:00 a.m. 7 of the Court on the motion for reconsideration, which could have
been favorable to the petitioner. The fact that the hearing of the
Petitioner's motion for reconsideration of the Order of Execution motion for reconsideration had been reset on the same day the
dated March 17, 1980 which was set for hearing on March 25, public sale was to take place is of no moment since the motion for
1980, was upon motion of private respondent reset to April 2, reconsideration of the Order of March 17, 1980 having been
1980 at 8:30 a.m. Realizing the actual threat to property rights seasonably filed, the scheduled public sale should be suspended.
poised by the re-setting of the hearing of s motion for Moreover, when the defendants, including herein petitioner,
reconsideration for April 2, 1980 at 8:30 a.m. such that if his defaulted in their obligation based on the compromise
motion for reconsideration would be denied he would have no agreement, private respondent had become entitled to move for
more time to obtain a writ from the appellate court to stop the an execution of the decision based on the said agreement.
scheduled public sale of his personal properties at 10:00 a.m. of
the same day, April 2, 1980, petitioner filed on March 26, 1980 a WHEREFORE, the instant petition for certiorari and prohibition
petition for certiorari and prohibition with the then Court of with preliminary injunction is hereby denied due course. The
Appeals (CA-G.R. No. SP-10573), praying at the same time for the restraining order issued in our resolution dated April 9, 1980 is
issuance of a restraining order to stop the public sale. He raised hereby lifted without pronouncement as to costs.
the question of the validity of the order of execution, the writ of
execution and the notice of public sale of his properties to satisfy SO ORDERED.
fully the entire unpaid obligation payable by all of the four (4)
defendants, when the lower court's decision based on the Petitioner moved to reconsider the aforesaid Resolution alleging
compromise agreement did not specifically state the liability of that on April 2, 1980, the lower court had already denied the
the four (4) defendants to be solidary. motion referred to and consequently, the legal issues being
raised in the petition were already "ripe" for determination. 8

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The said motion was however denied by the Court of Appeals in 1. Was the filing of a petition for certiorari before the then
its Resolution dated August 20, 1980. Court of Appeals against the Order of Execution issued by the
lower court, dated March 17, 1980, proper, despite the pendency
Hence, this petition for review, petitioner contending that the of a motion for reconsideration of the same questioned Order?
Court of Appeals erred in
2. What is the nature of the liability of the defendants
(a) declaring as premature, and in denying due course to the (including petitioner), was it merely joint, or was it several or
petition to restrain implementation of a writ of execution issued solidary?
at variance with the final decision of the lower court filed barely
four (4) days before the scheduled public sale of the attached Anent the first issue raised, suffice it to state that while as a
movable properties; general rule, a motion for reconsideration should precede
recourse to certiorari in order to give the trial court an
(b) denying reconsideration of the Resolution of June 30, opportunity to correct the error that it may have committed, the
1980, which declared as premature the filing of the petition, said rule is not absolutes 9 and may be dispensed with in
although there is proof on record that as of April 2, 1980, the instances where the filing of a motion for reconsideration would
motion referred to was already denied by the lower court and serve no useful purpose, such as when the motion for
there was no more motion pending therein; reconsideration would raise the same point stated in the motion
10 or where the error is patent for the order is void 11 or where
(c) failing to resolve the legal issues raised in the petition and the relief is extremely urgent, as in cases where execution had
in not declaring the liabilities of the defendants, under the final already been ordered 12 where the issue raised is one purely of
decision of the lower court, to be only joint; law. 13

(d) not holding the lower court's order of execution dated In the case at bar, the records show that not only was a writ of
March 17, 1980, the writ of execution and the notice of sheriff's execution issued but petitioner's properties were already
sale, executing the lower court's decision against "all defendants, scheduled to be sold at public auction on April 2, 1980 at 10:00
singly and jointly", to be at variance with the lower court's final a.m. The records likewise show that petitioner's motion for
decision which did not provide for solidary obligation; and reconsideration of the questioned Order of Execution was filed
on March 17, 1980 and was set for hearing on March 25, 1980 at
(e) not declaring as invalid and unlawful the threatened 8:30 a.m., but upon motion of private respondent, the hearing
execution, as against the properties of petitioner who had paid was reset to April 2, 1980 at 8:30 a.m., the very same clay when
his pro-rata share of the adjudged obligation, of the total unpaid petitioner's properties were to be sold at public auction. Needless
amount payable by his joint co-defendants. to state that under the circumstances, petitioner was faced with
imminent danger of his properties being immediately sold the
The foregoing assigned errors maybe synthesized into the more moment his motion for reconsideration is denied. Plainly,
important issues of urgency prompted recourse to the Court of Appeals and the
adequate and speedy remedy for petitioner under the situation

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was to file a petition for certiorari with prayer for restraining 1. Plaintiff agrees to reduce its total claim of P117,498.95 to
order to stop the sale. For him to wait until after the hearing of only P110,000.00 and defendants agree to acknowledge the
the motion for reconsideration on April 2, 1980 before taking validity of such claim and further bind themselves to initially pay
recourse to the appellate court may already be too late since out of the total indebtedness of P110,000.00, the amount of
without a restraining order, the public sale can proceed at 10:00 P5,000.00 on or before December 24, 1979, the balance of
that morning. In fact, the said motion was already denied by the P55,000.00, defendants individually and jointly agree to pay
lower court in its order dated April 2, 1980 and were it not for within a period of six months from January 1980 or before June
the pendency of the petition with the Court of Appeals and the 30, 1980. (Emphasis supply)
restraining order issued thereafter, the public sale scheduled that
very same morning could have proceeded. Clearly then, by the express term of the compromise agreement
and the decision based upon it, the defendants obligated
The other issue raised refers to the nature of the liability of themselves to pay their obligation "individually and jointly".
petitioner, as one of the defendants in Civil Case No. 33958, that
is whether or not he is liable jointly or solidarily. The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An
In this regard, Article 1207 and 1208 of the Civil Code provides agreement to be "individually liable" undoubtedly creates a
several obligation, 14 and a "several obligation is one by which
one individual binds himself to perform the whole obligation. 15
Art. 1207. The concurrence of two or more debtors in one and
the same obligation does not imply that each one of the former In the case of Parot vs. Gemora 16 We therein ruled that "the
has a right to demand, or that each one of the latter is bound to phrase juntos or separadamente or in the promissory note is an
render, entire compliance with the prestation. Then is a solidary express statement making each of the persons who signed it
liability only when the obligation expressly so states, or when the individually liable for the payment of the fun amount of the
law or the nature of the obligation requires solidarity. obligation contained therein." Likewise in Un Pak Leung vs.
Negorra 17 We held that "in the absence of a finding of facts that
Art. 1208. If from the law,or the nature or the wording of the the defendants made themselves individually hable for the debt
obligation to which the preceding article refers the contrary does incurred they are each liable only for one-half of said amount
not appear, the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors and debtors, the The obligation in the case at bar being described as "individually
credits or debts being considered distinct from one another, and jointly", the same is therefore enforceable against one of the
subject to the Rules of Court governing the multiplicity of quits. numerous obligors.

The decision of the lower court based on the parties' compromise IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant
agreement, provides: petition is hereby DISMISSED. Cost against petitioner.

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No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon
City, 1967. The insurance coverage was for "own damage" not to
28. G.R. No. L-36413 September 26, 1988 exceed P600.00 and "third-party liability" in the amount of
P20,000.00.
MALAYAN INSURANCE CO., INC., petitioner, During the effectivity of said insurance policy, and more
vs. particularly on 19 December 1967, at about 3:30 o'clock in the
THE HON. COURT OF APPEALS (THIRD DIVISION) afternoon, the insured jeep, while being driven by one Juan P.
MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, Campollo an employee of the respondent San Leon Rice Mill, Inc.,
INC. and PANGASINAN TRANSPORTATION CO., INC., collided with a passenger bus belonging to the respondent
respondents. Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at
the national highway in Barrio San Pedro, Rosales, Pangasinan,
Freqillana Jr. for petitioner. causing damage to the insured vehicle and injuries to the driver,
Juan P. Campollo, and the respondent Martin C. Vallejos, who was
B.F. Estrella & Associates for respondent Martin riding in the ill-fated jeep.
Vallejos.
As a result, Martin C. Vallejos filed an action for damages against
Vicente Erfe Law Office for respondent Pangasinan Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before
Transportation Co., Inc. the Court of First Instance of Pangasinan, which was docketed as
Civil Case No. U-2021. He prayed therein that the defendants be
Nemesio Callanta for respondent Sio Choy and San ordered to pay him, jointly and severally, the amount of
Leon Rice Mill, Inc. P15,000.00, as reimbursement for medical and hospital
expenses; P6,000.00, for lost income; P51,000.00 as actual, moral
PADILLA, J.: and compensatory damages; and P5,000.00, for attorney's fees.

Review on certiorari of the judgment * of the respondent Answering, PANTRANCO claimed that the jeep of Sio Choy was
appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, then operated at an excessive speed and bumped the
which affirmed, with some modifications, the decision, ** dated PANTRANCO bus which had moved to, and stopped at, the
27 April 1970, rendered in Civil Case No. U-2021 of the Court of shoulder of the highway in order to avoid the jeep; and that it had
First Instance of Pangasinan. observed the diligence of a good father of a family to prevent
damage, especially in the selection and supervision of its
The antecedent facts of the case are as follows: employees and in the maintenance of its motor vehicles. It prayed
that it be absolved from any and all liability.
On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc.,
issued in favor of private respondent Sio Choy Private Car Defendant Sio Choy and the petitioner insurance company, in
Comprehensive Policy No. MRO/PV-15753, effective from 18 their answer, also denied liability to the plaintiff, claiming that
April 1967 to 18 April 1968, covering a Willys jeep with Motor the fault in the accident was solely imputable to the PANTRANCO.

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Sio Choy, however, later filed a separate answer with a cross- (a) P4,103 as actual damages;
claim against the herein petitioner wherein he alleged that he
had actually paid the plaintiff, Martin C. Vallejos, the amount of (b) P18,000.00 representing the unearned income of plaintiff
P5,000.00 for hospitalization and other expenses, and, in his Martin C. Vallejos for the period of three (3) years;
cross-claim against the herein petitioner, he alleged that the
petitioner had issued in his favor a private car comprehensive (c) P5,000.00 as moral damages;
policy wherein the insurance company obligated itself to
indemnify Sio Choy, as insured, for the damage to his motor (d) P2,000.00 as attomey's fees or the total of P29,103.00,
vehicle, as well as for any liability to third persons arising out of plus costs.
any accident during the effectivity of such insurance contract,
which policy was in full force and effect when the vehicular The above-named parties against whom this judgment is
accident complained of occurred. He prayed that he be rendered are hereby held jointly and severally liable. With
reimbursed by the insurance company for the amount that he respect, however, to Malayan Insurance Co., Inc., its liability will
may be ordered to pay. be up to only P20,000.00.

Also later, the herein petitioner sought, and was granted, leave to As no satisfactory proof of cost of damage to its bus was
file a third-party complaint against the San Leon Rice Mill, Inc. for presented by defendant Pantranco, no award should be made in
the reason that the person driving the jeep of Sio Choy, at the its favor. Its counter-claim for attorney's fees is also dismissed for
time of the accident, was an employee of the San Leon Rice Mill, not being proved. 1
Inc. performing his duties within the scope of his assigned task,
and not an employee of Sio Choy; and that, as the San Leon Rice On appeal, the respondent Court of Appeals affirmed the
Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, judgment of the trial court that Sio Choy, the San Leon Rice Mill,
it should be liable for the acts of its employee, pursuant to Art. Inc. and the Malayan Insurance Co., Inc. are jointly and severally
2180 of the Civil Code. The herein petitioner prayed that liable for the damages awarded to the plaintiff Martin C. Vallejos.
judgment be rendered against the San Leon Rice Mill, Inc., making It ruled, however, that the San Leon Rice Mill, Inc. has no
it liable for the amounts claimed by the plaintiff and/or ordering obligation to indemnify or reimburse the petitioner insurance
said San Leon Rice Mill, Inc. to reimburse and indemnify the company for whatever amount it has been ordered to pay on its
petitioner for any sum that it may be ordered to pay the plaintiff. policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance
After trial, judgment was rendered as follows: company. 2

WHEREFORE, in view of the foregoing findings of this Court Hence, the present recourse by petitioner insurance company.
judgment is hereby rendered in favor of the plaintiff and against
Sio Choy and Malayan Insurance Co., Inc., and third-party The petitioner prays for the reversal of the appellate court's
defendant San Leon Rice Mill, Inc., as follows: judgment, or, in the alternative, to order the San Leon Rice Mill,

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Inc. to reimburse petitioner any amount, in excess of one-half We do not agree with the aforesaid ruling. We hold instead that it
(1/2) of the entire amount of damages, petitioner may be is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the
ordered to pay jointly and severally with Sio Choy. exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.
The Court, acting upon the petition, gave due course to the same,
but "only insofar as it concerns the alleged liability of respondent It must be observed that respondent Sio Choy is made liable to
San Leon Rice Mill, Inc. to petitioner, it being understood that no said plaintiff as owner of the ill-fated Willys jeep, pursuant to
other aspect of the decision of the Court of Appeals shall be Article 2184 of the Civil Code which provides:
reviewed, hence, execution may already issue in favor of
respondent Martin C. Vallejos against the respondents, without Art. 2184. In motor vehicle mishaps, the owner is solidarily liable
prejudice to the determination of whether or not petitioner shall with his driver, if the former, who was in the vehicle, could have,
be entitled to reimbursement by respondent San Leon Rice Mill, by the use of due diligence, prevented the misfortune it is
Inc. for the whole or part of whatever the former may pay on the disputably presumed that a driver was negligent, if he had been
P20,000.00 it has been adjudged to pay respondent Vallejos." 3 found guilty of reckless driving or violating traffic regulations at
least twice within the next preceding two months.
However, in order to determine the alleged liability of
respondent San Leon Rice Mill, Inc. to petitioner, it is important If the owner was not in the motor vehicle, the provisions of
to determine first the nature or basis of the liability of petitioner article 2180 are applicable.
to respondent Vallejos, as compared to that of respondents Sio
Choy and San Leon Rice Mill, Inc. On the other hand, it is noted that the basis of liability of
respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the
Therefore, the two (2) principal issues to be resolved are (1) former being the employer of the driver of the Willys jeep at the
whether the trial court, as upheld by the Court of Appeals, was time of the motor vehicle mishap, is Article 2180 of the Civil Code
correct in holding petitioner and respondents Sio Choy and San which reads:
Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
(2) whether petitioner is entitled to be reimbursed by Art. 2180. The obligation imposed by article 2176 is demandable
respondent San Leon Rice Mill, Inc. for whatever amount not only for one's own acts or omissions, but also for those of
petitioner has been adjudged to pay respondent Vallejos on its persons for whom one is responsible.
insurance policy.
xxx xxx xxx
As to the first issue, it is noted that the trial court found, as
affirmed by the appellate court, that petitioner and respondents Employers shall be liable for the damages caused by their
Sio Choy and San Leon Rice Mill, Inc. are jointly and severally employees and household helpers acting within the scope of their
liable to respondent Vallejos. assigned tasks, even though the former are not engaged ill any
business or industry.

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xxx xxx xxx
While it is true that where the insurance contract provides for
The responsibility treated in this article shall cease when the indemnity against liability to third persons, such third persons
persons herein mentioned proved that they observed all the can directly sue the insurer, 6 however, the direct liability of the
diligence of a good father of a family to prevent damage. insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with
It thus appears that respondents Sio Choy and San Leon Rice Mill, the insured and/or the other parties found at fault. The liability
Inc. are the principal tortfeasors who are primarily liable to of the insurer is based on contract; that of the insured is based on
respondent Vallejos. The law states that the responsibility of two tort.
or more persons who are liable for a quasi-delict is solidarily. 4
In the case at bar, petitioner as insurer of Sio Choy, is liable to
On the other hand, the basis of petitioner's liability is its respondent Vallejos, but it cannot, as incorrectly held by the trial
insurance contract with respondent Sio Choy. If petitioner is court, be made "solidarily" liable with the two principal
adjudged to pay respondent Vallejos in the amount of not more tortfeasors namely respondents Sio Choy and San Leon Rice Mill,
than P20,000.00, this is on account of its being the insurer of Inc. For if petitioner-insurer were solidarily liable with said two
respondent Sio Choy under the third party liability clause (2) respondents by reason of the indemnity contract against third
included in the private car comprehensive policy existing party liability-under which an insurer can be directly sued by a
between petitioner and respondent Sio Choy at the time of the third party this will result in a violation of the principles
complained vehicular accident. underlying solidary obligation and insurance contracts.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just In solidary obligation, the creditor may enforce the entire
alighted therefrom, when he was bumped by another passenger obligation against one of the solidary debtors. 7 On the other
jeepney. He died as a result thereof. In the damage suit filed by hand, insurance is defined as "a contract whereby one
the heirs of said passenger against the driver and owner of the undertakes for a consideration to indemnify another against loss,
jeepney at fault as well as against the insurance company which damage, or liability arising from an unknown or contingent
insured the latter jeepney against third party liability, the trial event." 8
court, affirmed by this Court, adjudged the owner and the driver
of the jeepney at fault jointly and severally liable to the heirs of In the case at bar, the trial court held petitioner together with
the victim in the total amount of P9,572.95 as damages and respondents Sio Choy and San Leon Rice Mills Inc. solidarily
attorney's fees; while the insurance company was sentenced to liable to respondent Vallejos for a total amount of P29,103.00,
pay the heirs the amount of P5,500.00 which was to be applied as with the qualification that petitioner's liability is only up to
partial satisfaction of the judgment rendered against said owner P20,000.00. In the context of a solidary obligation, petitioner may
and driver of the jeepney. Thus, in said Guingon case, it was only be compelled by respondent Vallejos to pay the entire obligation
the owner and the driver of the jeepney at fault, not including the of P29,013.00, notwithstanding the qualification made by the
insurance company, who were held solidarily liable to the heirs trial court. But, how can petitioner be obliged to pay the entire
of the victim. obligation when the amount stated in its insurance policy with

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respondent Sio Choy for indemnity against third party liability is the insurer in this respect, the equitable right of subrogation as
only P20,000.00? Moreover, the qualification made in the the legal effect of payment inures to the insurer without any
decision of the trial court to the effect that petitioner is sentenced formal assignment or any express stipulation to that effect in the
to pay up to P20,000.00 only when the obligation to pay policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
P29,103.00 is made solidary, is an evident breach of the concept insurance company pays for the loss, such payment operates as
of a solidary obligation. Thus, We hold that the trial court, as an equitable assignment to the insurer of the property and all
upheld by the Court of Appeals, erred in holding petitioner, remedies which the insured may have for the recovery thereof.
solidarily liable with respondents Sio Choy and San Leon Rice That right is not dependent upon , nor does it grow out of any
Mill, Inc. to respondent Vallejos. privity of contract (emphasis supplied) or upon written
assignment of claim, and payment to the insured makes the
As to the second issue, the Court of Appeals, in affirming the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing
decision of the trial court, ruled that petitioner is not entitled to and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
be reimbursed by respondent San Leon Rice Mill, Inc. on the
ground that said respondent is not privy to the contract of It follows, therefore, that petitioner, upon paying respondent
insurance existing between petitioner and respondent Sio Choy. Vallejos the amount of riot exceeding P20,000.00, shall become
We disagree. the subrogee of the insured, the respondent Sio Choy; as such, it
is subrogated to whatever rights the latter has against
The appellate court overlooked the principle of subrogation in respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code
insurance contracts. Thus gives to a solidary debtor who has paid the entire obligation the
right to be reimbursed by his co-debtors for the share which
... Subrogation is a normal incident of indemnity insurance (Aetna corresponds to each.
L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment
of the loss, the insurer is entitled to be subrogated pro tanto to Art. 1217. Payment made by one of the solidary debtors
any right of action which the insured may have against the third extinguishes the obligation. If two or more solidary debtors offer
person whose negligence or wrongful act caused the loss (44 Am. to pay, the creditor may choose which offer to accept.
Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037). He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
The right of subrogation is of the highest equity. The loss in the payment already made. If the payment is made before the debt is
first instance is that of the insured but after reimbursement or due, no interest for the intervening period may be demanded.
compensation, it becomes the loss of the insurer (44 Am. Jur. 2d,
746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. xxx xxx xxx
382).
In accordance with Article 1217, petitioner, upon payment to
Although many policies including policies in the standard form, respondent Vallejos and thereby becoming the subrogee of
now provide for subrogation, and thus determine the rights of

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solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc. Tomas Yumol for Fajardo, defendant-appellee.

To recapitulate then: We hold that only respondents Sio Choy and PLANA, J.:
San Leon Rice Mill, Inc. are solidarily liable to the respondent
Martin C. Vallejos for the amount of P29,103.00. Vallejos may Appeal by the Philippine National Bank (PNB) from the Order of
enforce the entire obligation on only one of said solidary debtors. the defunct Court of First Instance of Manila (Branch XX) in its
If Sio Choy as solidary debtor is made to pay for the entire Civil Case No. 46741 dismissing PNB's complaint against several
obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is solidary debtors for the collection of a sum of money on the
compelled to pay P20,000.00 of said entire obligation, petitioner ground that one of the defendants (Ceferino Valencia) died
would be entitled, as subrogee of Sio Choy as against San Leon during the pendency of the case (i.e., after the plaintiff had
Rice Mills, Inc., to be reimbursed by the latter in the amount of presented its evidence) and therefore the complaint, being a
P14,551.50 (which is 1/2 of P29,103.00 ) money claim based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of the estate of
WHEREFORE, the petition is GRANTED. The decision of the trial the deceased defendant pursuant to Section 6 of Rule 86 of the
court, as affirmed by the Court of Appeals, is hereby AFFIRMED, Rules of Court which reads:
with the modification above-mentioned. Without pronouncement
as to costs. SEC. 6. Solidary obligation of decedent. the obligation of the
decedent is solidary with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from
the other debtor. In a joint obligation of the decedent, the claim
29. G.R. No. L-28046 May 16, 1983 shall be confined to the portion belonging to him.

PHILIPPINE NATIONAL BANK, plaintiff-appellant, The appellant assails the order of dismissal, invoking its right of
vs. recourse against one, some or all of its solidary debtors under
INDEPENDENT PLANTERS ASSOCIATION, INC., Article 1216 of the Civil Code
ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO
VALENCIA, MOISES CARANDANG, LUCIANO CASTILLO, ART. 1216. The creditor may proceed against any one of the
AURELIO VALENCIA, LAURO LEVISTE, GAVINO solidary debtors or some or all of them simultaneously. The
GONZALES, LOPE GEVANA and BONIFACIO LAUREANA, demand made against one of them shall not be an obstacle to
defendants-appellees. those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Basa, Ilao, del Rosario Diaz for plaintiff-appellant.
The sole issue thus raised is whether in an action for collection of
Laurel Law Office for Dimayuga. a sum of money based on contract against all the solidary

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debtors, the death of one defendant deprives the court of settlement of the estate of the deceased debtor wherein his claim
jurisdiction to proceed with the case against the surviving could be filed.
defendants.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this
It is now settled that the quoted Article 1216 grants the creditor Court, speaking thru Mr. Justice Makasiar, reiterated the doctrine.
the substantive right to seek satisfaction of his credit from one,
some or all of his solidary debtors, as he deems fit or convenient A cursory perusal of Section 6, Rule 86 of the Revised Rules of
for the protection of his interests; and if, after instituting a Court reveals that nothing therein prevents a creditor from
collection suit based on contract against some or all of them and, proceeding against the surviving solidary debtors. Said provision
during its pendency, one of the defendants dies, the court retains merely sets up the procedure in enforcing collection in case a
jurisdiction to continue the proceedings and decide the case in creditor chooses to pursue his claim against the estate of the
respect of the surviving defendants. Thus in Manila Surety & deceased solidary, debtor.
Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this
Court ruled: It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
Construing Section 698 of the Code of Civil Procedure from creditor the right to 'proceed against anyone of the solidary
whence the aforequoted provision (Sec. 6, Rule 86) was taken, debtors or some or all of them simultaneously.' The choice is
this Court held that where two persons are bound in solidum for undoubtedly left to the solidary, creditor to determine against
the same debt and one of them dies, the whole indebtedness can whom he will enforce collection. In case of the death of one of the
be proved against the estate of the latter, the decedent's liability solidary debtors, he (the creditor) may, if he so chooses, proceed
being absolute and primary; and if the claim is not presented against the surviving solidary debtors without necessity of filing
within the time provided by the rules, the same will be barred as a claim in the estate of the deceased debtors. It is not mandatory
against the estate. It is evident from the foregoing that Section 6 for him to have the case dismissed against the surviving debtors
of Rule 87 (now Rule 86) provides the procedure should the and file its claim in the estate of the deceased solidary debtor . . .
creditor desire to go against the deceased debtor, but there is
certainly nothing in the said provision making compliance with As correctly argued by petitioner, if Section 6, Rule 86 of the
such procedure a condition precedent before an ordinary action Revised Rules of Court were applied literally, Article 1216 of the
against the surviving solidary debtors, should the creditor choose New Civil Code would, in effect, be repealed since under the Rules
to demand payment from the latter, could be entertained to the of Court, petitioner has no choice but to proceed against the
extent that failure to observe the same would deprive the court estate of Manuel Barredo only. Obviously, this provision
jurisdiction to take cognizance of the action against the surviving diminishes the Bank's right under the New Civil, Code to proceed
debtors. Upon the other hand, the Civil Code expressly allows the against any one, some or all of the solidary debtors. Such a
creditor to proceed against any one of the solidary debtors or construction is not sanctioned by the principle, which is too well
some or all of them simultaneously. There is, therefore, nothing settled to require citation, that a substantive law cannot be
improper in the creditor's filing of an action against the surviving amended by a procedural rule. Otherwise stared, Section 6, Rule
solidary debtors alone, instead of instituting a proceeding for the 86 of the Revised Rules of Court cannot be made to prevail over

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Article 1216 of the New Civil Code, the former being merely when its rear left side hit the front left portion of a Sarao jeep
procedural, while the latter, substantive. coming from the opposite direction. As a result of the collision,
Cresencio Pinohermoso, the jeeps driver, lost control of the
WHEREFORE the appealed order of dismissal of the court a quo vehicle, and bumped and killed Jose Mabansag, a bystander who
in its Civil Case No. 46741 is hereby set aside in respect of the was standing along the highways shoulder. The jeep turned
surviving defendants; and the case is remanded to the turtle three (3) times before finally stopping at about 25 meters
corresponding Regional Trial Court for proceedings. proceedings. from the point of impact. Two of the jeeps passengers, Armando
No costs. Nablo and an unidentified woman, were instantly killed, while
the other passengers sustained serious physical injuries.

The prosecution charged Calang with multiple homicide, multiple
serious physical injuries and damage to property thru reckless
30. G.R. No. 190696 August 3, 2010 imprudence before the Regional Trial Court (RTC), Branch 31,
Calbayog City. The RTC, in its decision dated May 21, 2001, found
ROLITO CALANG and PHILTRANCO SERVICE Calang guilty beyond reasonable doubt of reckless imprudence
ENTERPRISES, INC., Petitioners, resulting to multiple homicide, multiple physical injuries and
vs. damage to property, and sentenced him to suffer an
PEOPLE OF THE PHILIPPINES, Respondent. indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional,
R E S O L U T I O N as maximum. The RTC ordered Calang and Philtranco, jointly and
severally, to pay P50,000.00 as death indemnity to the heirs of
BRION, J.: Armando; P50,000.00 as death indemnity to the heirs of
Mabansag; and P90,083.93 as actual damages to the private
We resolve the motion for reconsideration filed by the complainants.
petitioners, Philtranco Service Enterprises, Inc. (Philtranco) and
Rolito Calang, to challenge our Resolution of February 17, 2010. The petitioners appealed the RTC decision to the Court of
Our assailed Resolution denied the petition for review on Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its
certiorari for failure to show any reversible error sufficient to decision dated November 20, 2009, affirmed the RTC decision in
warrant the exercise of this Courts discretionary appellate toto. The CA ruled that petitioner Calang failed to exercise due
jurisdiction. care and precaution in driving the Philtranco bus. According to
the CA, various eyewitnesses testified that the bus was traveling
Antecedent Facts fast and encroached into the opposite lane when it evaded a
pushcart that was on the side of the road. In addition, he failed to
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving slacken his speed, despite admitting that he had already seen the
Philtranco Bus No. 7001, owned by Philtranco along Daang jeep coming from the opposite direction when it was still half a
Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar kilometer away. The CA further ruled that Calang demonstrated a

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reckless attitude when he drove the bus, despite knowing that it We see no reason to overturn the lower courts finding on
was suffering from loose compression, hence, not roadworthy. Calangs culpability. The finding of negligence on his part by the
trial court, affirmed by the CA, is a question of fact that we cannot
The CA added that the RTC correctly held Philtranco jointly and pass upon without going into factual matters touching on the
severally liable with petitioner Calang, for failing to prove that it finding of negligence. In petitions for review on certiorari under
had exercised the diligence of a good father of the family to Rule 45 of the Revised Rules of Court, this Court is limited to
prevent the accident. reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on
The petitioners filed with this Court a petition for review on record, or the assailed judgment is based on a misapprehension
certiorari. In our Resolution dated February 17, 2010, we denied of facts.
the petition for failure to sufficiently show any reversible error in
the assailed decision to warrant the exercise of this Courts Liability of Philtranco
discretionary appellate jurisdiction.
We, however, hold that the RTC and the CA both erred in holding
The Motion for Reconsideration Philtranco jointly and severally liable with Calang. We emphasize
that Calang was charged criminally before the RTC. Undisputedly,
In the present motion for reconsideration, the petitioners claim Philtranco was not a direct party in this case. Since the cause of
that there was no basis to hold Philtranco jointly and severally action against Calang was based on delict, both the RTC and the
liable with Calang because the former was not a party in the CA erred in holding Philtranco jointly and severally liable with
criminal case (for multiple homicide with multiple serious Calang, based on quasi-delict under Articles 21761 and 21802 of
physical injuries and damage to property thru reckless the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to
imprudence) before the RTC. the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to
The petitioners likewise maintain that the courts below civil liability arising from delict.
overlooked several relevant facts, supported by documentary
exhibits, which, if considered, would have shown that Calang was If at all, Philtrancos liability may only be subsidiary. Article 102
not negligent, such as the affidavit and testimony of witness of the Revised Penal Code states the subsidiary civil liabilities of
Celestina Cabriga; the testimony of witness Rodrigo Bocaycay; innkeepers, tavernkeepers and proprietors of establishments, as
the traffic accident sketch and report; and the jeepneys follows:
registration receipt. The petitioners also insist that the jeeps
driver had the last clear chance to avoid the collision. In default of the persons criminally liable, innkeepers,
tavernkeepers, and any other persons or corporations shall be
We partly grant the motion. civilly liable for crimes committed in their establishments, in all
cases where a violation of municipal ordinances or some general
Liability of Calang or special police regulations shall have been committed by them
or their employees.1avvphil

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purpose, with due notice to the employer, as part of the
Innkeepers are also subsidiary liable for the restitution of goods proceedings for the execution of the judgment.4
taken by robbery or theft within their houses from guests lodging
therein, or for the payment of the value thereof, provided that WHEREFORE, we PARTLY GRANT the present motion. The Court
such guests shall have notified in advance the innkeeper himself, of Appeals decision that affirmed in toto the RTC decision, finding
or the person representing him, of the deposit of such goods Rolito Calang guilty beyond reasonable doubt of reckless
within the inn; and shall furthermore have followed the imprudence resulting in multiple homicide, multiple serious
directions which such innkeeper or his representative may have physical injuries and damage to property, is AFFIRMED, with the
given them with respect to the care of and vigilance over such MODIFICATION that Philtrancos liability should only be
goods. No liability shall attach in case of robbery with violence subsidiary. No costs.
against or intimidation of persons unless committed by the
innkeepers employees.

The foregoing subsidiary liability applies to employers, according
to Article 103 of the Revised Penal Code, which reads: 31. G.R. No. 204866 January 21, 2015

The subsidiary liability established in the next preceding article RUKS KONSULT AND CONSTRUCTION, Petitioner,
shall also apply to employers, teachers, persons, and vs.
corporations engaged in any kind of industry for felonies ADWORLD SIGN AND ADVERTISING CORPORATION*
committed by their servants, pupils, workmen, apprentices, or and TRANSWORLD MEDIA ADS, INC., Respondents.
employees in the discharge of their duties.
D E C I S I O N
The provisions of the Revised Penal Code on subsidiary liability
Articles 102 and 103 are deemed written into the judgments in PERLAS-BERNABE, J.:
cases to which they are applicable. Thus, in the dispositive
portion of its decision, the trial court need not expressly Assailed in this petition for review on certiorari1 are the
pronounce the subsidiary liability of the employer.3 Nonetheless, Decision2 dated November 16, 2011 and the Resolution3 dated
before the employers subsidiary liability is enforced, adequate December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
evidence must exist establishing that (1) they are indeed the 94693 which affirmed the Decision4 dated August 25, 2009 of the
employers of the convicted employees; (2) they are engaged in Regional Trial Court of Makati City, Branch 142 (RTC) in Civil
some kind of industry; (3) the crime was committed by the Case No. 03-1452 holding, inter alia, petitioner Ruks Konsult and
employees in the discharge of their duties; and (4) the execution Construction (Ruks) and respondent Transworld Media Ads, Inc.
against the latter has not been satisfied due to insolvency. The (Transworld) jointly and severally liable to respondent Adworld
determination of these conditions may be done in the same Sign and Advertising Corporation (Adworld) for damages.
criminal action in which the employees liability, criminal and
civil, has been pronounced, in a hearing set for that precise The Facts

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only contracted the use of the same. In this relation, Comark
The instant case arose from a complaint for damages filed by prayed for exemplary damages from Transworld for
Adworld against Transworld and Comark International unreasonably includingit as a party-defendant in the complaint.8
Corporation (Comark) before the RTC.5 In the complaint,
Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard Lastly, Ruks admitted that it entered into a contract with
structure located at EDSA Tulay, Guadalupe, Barangka Transworld for the construction of the latters billboard
Mandaluyong, which was misaligned and its foundation impaired structure, but denied liability for the damages caused by its
when, on August 11, 2003, the adjacent billboard structure collapse. It contended that when Transworld hired its services,
owned by Transworld and used by Comark collapsed and there was already an existing foundation for the billboard and
crashed against it. Resultantly, on August 19, 2003, Adworld sent that it merely finished the structure according to the terms and
Transworld and Comark a letter demanding payment for the conditions of its contract with the latter.9
repairs of its billboard as well asloss of rental income. On August
29, 2003, Transworld sent its reply, admitting the damage caused The RTC Ruling
by its billboard structure on Adworlds billboard, but
nevertheless, refused and failed to pay the amounts demanded by In a Decision10 dated August 25, 2009, the RTC ultimately ruled
Adworld. As Adworlds final demand letter also went unheeded, in Adworlds favor, and accordingly, declared, inter alia,
it was constrained to file the instant complaint, praying for Transworld and Ruks jointly and severally liable to Adworld in
damages in the aggregate amount of P474,204.00, comprised of the amount of P474,204.00 as actual damages, with legal interest
P281,204.00 for materials, P72,000.00 for labor, and from the date of the filing of the complaint until full payment
P121,000.00 for indemnity for loss of income.6 thereof, plus attorneys fees in the amount of P50,000.00.11 The
RTC found both Transworld and Ruks negligent in the
In its Answer with Counterclaim, Transworld averred that the construction of the collapsed billboard as they knew that the
collapse of its billboard structure was due to extraordinarily foundation supporting the same was weak and would pose
strong winds that occurred instantly and unexpectedly, and danger to the safety of the motorists and the other adjacent
maintained that the damage caused to Adworlds billboard properties, such as Adworlds billboard, and yet, they did not do
structure was hardly noticeable. Transworld likewise filed a anything to remedy the situation.12 In particular, the RTC
Third-Party Complaint against Ruks, the company which built the explained that Transworld was made aware by Ruks that the
collapsed billboard structure in the formers favor.1wphi1 It initial construction of the lower structure of its billboard did not
was alleged therein that the structure constructed by Ruks had a have the proper foundation and would require additional
weak and poor foundation not suited for billboards, thus, prone columns and pedestals to support the structure.
to collapse, and as such, Ruks should ultimately be held liable for Notwithstanding, however, Ruks proceeded with the
the damages caused to Adworlds billboard structure.7 construction of the billboards upper structure and merely
assumed that Transworld would reinforce its lower structure.13
For its part, Comark denied liability for the damages caused to The RTC then concluded that these negligent acts were the direct
Adworlds billboard structure, maintaining that it does not have and proximate cause of the damages suffered by Adworlds
any interest on Transworlds collapsed billboard structure as it billboard.14

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Aggrieved, both Transworld and Ruks appealed to the CA. In a The primordial issue for the Courts resolution is whether or not
Resolution dated February 3, 2011, the CA dismissed the CA correctly affirmed the ruling of the RTC declaring Ruks
Transworlds appeal for its failure to file an appellants brief on jointly and severally liable with Transworld for damages
time.15 Transworld elevated its case before the Court, docketed sustained by Adworld.
as G.R. No. 197601.16 However, in a Resolution17 dated
November 23, 2011, the Court declared the case closed and The Courts Ruling
terminated for failure of Transworld to file the intended petition
for review on certiorariwithin the extended reglementary period. The petition is without merit.
Subsequently, the Court issued an Entry of Judgment18 dated
February 22, 2012 in G.R. No. 197601 declaring the Courts At the outset, it must be stressed that factual findings of the RTC,
November 23, 2011 Resolution final and executory. when affirmed by the CA, are entitled to great weight by the
Court and are deemed final and conclusive when supported by
The CA Ruling the evidence on record.25 Absent any exceptions to this rule
such as when it is established that the trial court ignored,
In a Decision19 dated November 16, 2011, the CA denied Rukss overlooked, misconstrued, or misinterpreted cogent facts and
appeal and affirmed the ruling of the RTC. It adhered to the RTCs circumstances that, if considered, would change the outcome of
finding of negligence on the part of Transworld and Ruks which the case26 such findings must stand.
brought about the damage to Adworlds billboard. It found that
Transworld failed to ensure that Ruks will comply with the After a judicious perusal of the records, the Court sees no cogent
approved plans and specifications of the structure, and that Ruks reason to deviate from the findings of the RTC and the CA and
continued to install and finish the billboard structure despite the their uniform conclusion that both Transworld and Ruks
knowledge that there were no adequate columns to support the committed acts resulting in the collapse of the formers billboard,
same.20 which in turn, caused damage to the adjacent billboard of
Adworld.
Dissatisfied, Ruks moved for reconsideration,21 which was,
however, denied in a Resolution22 dated December 10, Jurisprudence defines negligence as the omission to do
2012,hence, this petition. something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human
On the other hand, Transworld filed another appeal before the affairs, would do, or the doing of something which a prudent and
Court, docketed as G.R. No. 205120.23 However, the Court denied reasonable man would not do.27 It is the failure to observe for
outright Transworlds petition in a Resolution24 dated April 15, the protection of the interest of another person that degree of
2013, holding that the same was already bound by the dismissal care, precaution, and vigilance which the circumstances justly
of its petition filed in G.R. No. 197601. demand, whereby such other person suffers injury.28

The Issue Before the Court

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In this case, the CA correctly affirmed the RTCs finding that actor's negligence ceases to be a proximate cause merely because
Transworlds initial construction of its billboards lower it does not exceed the negligence of other actors. Each wrongdoer
structure without the proper foundation, and that of Rukss is responsible for the entire result and is liable as though his acts
finishing its upper structure and just merely assuming that were the sole cause of the injury.
Transworld would reinforce the weak foundation are the two (2)
successive acts which were the direct and proximate cause of the There is no contribution between joint [tortfeasors] whose
damages sustained by Adworld. Worse, both Transworld and liability is solidary since both of them are liable for the total
Ruks were fully aware that the foundation for the formers damage.1wphi1 Where the concurrent or successive negligent
billboard was weak; yet, neither of them took any positive step to acts or omissions of two or more persons, although acting
reinforce the same. They merely relied on each others word that independently, are in combination the direct and proximate
repairs would be done to such foundation, but none was done at cause of a single injury to a third person, it is impossible to
all. Clearly, the foregoing circumstances show that both determine in what proportion each contributed to the injury and
Transworld and Ruks are guilty of negligence in the construction either of them is responsible for the whole injury. x x x.
of the formers billboard, and perforce, should be held liable for (Emphases and underscoring supplied)
its collapse and the resulting damage to Adworlds billboard
structure. As joint tortfeasors, therefore, they are solidarily liable In conclusion, the CA correctly affirmed the ruling of the RTC
to Adworld. Verily, "[j]oint tortfeasors are those who command, declaring Ruks jointly and severally liable with Transworld for
instigate, promote, encourage, advise, countenance, cooperate in, damages sustained by Adworld.
aid or abet the commission of a tort, or approve of it after it is
done, if done for their benefit. They are also referred to as those WHEREFORE, the petition is DENIED. The Decision dated
who act together in committing wrong or whose acts, if November 16, 2011 and the Resolution dated December 10, 2012
independent of each other, unite in causing a single injury. Under of the Court of Appeals in CA-G.R. CV No. 94693 are hereby
Article 219429 of the Civil Code, joint tortfeasors are solidarily AFFIRMED.
liable for the resulting damage. In other words, joint tortfeasors
are each liable as principals, to the same extent and in the same
manner as if they had performed the wrongful act themselves."30
The Courts pronouncement in People v. Velasco31 is instructive
on this matter, to wit:32 32. G.R. No. L-28497 November 6, 1928

Where several causes producing an injury are concurrent and THE BACHRACH MOTOR CO., INC., plaintiff-appellee,
each is an efficient cause without which the injury would not vs.
have happened, the injury may be attributed to all or any of the FAUSTINO ESPIRITU, defendant-appellant.
causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the ------------------------------
case, it may appear that one of them was more culpable, and that
the duty owed by them to the injured person was not same. No G.R. No. L-28498 November 6, 1928

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purchased and two others, numbered 77197 and 92744,
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, respectively, the same that were mortgaged in the purchase of
vs. the other truck referred to in the other case. The defendant failed
FAUSTINO ESPIRITU, defendant-appellant, and to pay P4,208.28 of this sum.
ROSARIO ESPIRITU, intervenor-appellant.
In both sales it was agreed that 12 per cent interest would be
Ernesto Zaragoza and Simeon Ramos for defendant- paid upon the unpaid portion of the price at the executon of the
appellant. contracts, and in case of non-payment of the total debt upon its
Benito Soliven and Jose Varela Calderon for maturity, 25 per cent thereon, as penalty.
intervenor-appellant.
B. Francisco for appellee. In addition to the mortagage deeds referred to, which the
defendant executed in favor of the plaintiff, the defendant at the
AVANCEA, C. J.: same time also signed a promissory note solidarily with his
brother Rosario Espiritu for the several sums secured by the two
These two cases, Nos. 28497 and 28948, were tried together. mortgages (Exhibits B and D).

It appears, in connection with case 28497; that on July 28, 1925 Rosario Espiritu appeared in these two cases as intervenor,
the defendant Faustino Espiritu purchased of the plaintiff alleging to be the exclusive owner of the two White trucks Nos.
corporation a two-ton White truck for P11,983.50, paying P1,000 77197 and 92744, which appear to have been mortgaged by the
down to apply on account of this price, and obligating himself to defendants to the plaintiff. lawphi1.net
pay the remaining P10,983.50 within the periods agreed upon.
To secure the payment of this sum, the defendants mortgaged the While these two cases were pending in the lower court the
said truck purchased and, besides, three others, two of which are mortgaged trucks were sold by virtue of the mortgage, all of them
numbered 77197 and 92744 respectively, and all of the White together bringing in, after deducting the sheriff's fees and
make (Exhibit A). These two trucks had been purchased from the transportation charges to Manila, the net sum of P3,269.58.
same plaintiff and were fully paid for by the defendant and his
brother Rosario Espiritu. The defendant failed to pay P10,477.82 The judgment appealed from ordered the defendants and the
of the price secured by this mortgage. intervenor to pay plaintiff in case 28497 the sum of P7,732.09
with interest at the rate of 12 per cent per annum from May 1,
In connection with case 28498, it appears that on February 18, 1926 until fully paid, and 25 per cent thereof in addition as
1925 the defendant bought a one-ton White truck of the plaintiff penalty. In case 28498, the trial court ordered the defendant and
corporation for the sum of P7,136.50, and after having deducted the intervenor to pay plaintiff the sum of P4,208.28 with interest
the P500 cash payment and the 12 per cent annual interest on at 12 per cent per annum from December 1, 1925 until fully paid,
the unpaid principal, obligated himself to make payment of this and 25 per cent thereon as penalty.
sum within the periods agreed upon. To secure this payment the
defendant mortgaged to the plaintiff corporation the said truck

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The appellants contend that trucks 77197 and 92744 were not was in Batac, Ilocos Norte, many miles away from Manila. And the
mortgaged, because, when the defendant signed the mortgage fact that on the 24th of said month of July, the plaintiff sent some
deeds these trucks were not included in those documents, and truck accessory parts by rail to Ilocos for the intervenor does not
were only put in later, without defendant's knowledge. But there necessarily prove that the latter could not have been in Manila on
is positive proof that they were included at the time the the 25th of that month.
defendant signed these documents. Besides, there were
presented two of defendant's letters to Hidalgo, an employee of In view of his conclusion that the intervenor signed the
the plaintiff's written a few days before the transaction, promissory notes secured by trucks 77197 and 92744 and
acquiescing in the inclusion of all his White trucks already paid consented to the mortgage of the same, it is immaterial whether
for, in the mortgage (Exhibit H-I). he was or was not the exclusive owner thereof.

Appellants also alleged that on February 4, 1925, the defendant It is finally contended that the 25 per cent penalty upon the debt,
sold his rights in said trucks Nos. 77197 and 92744 to the in addition to the interest of 12 per cent per annum, makes the
intervenor, and that as the latter did not sign the mortgage deeds, contract usurious. Such a contention is not well founded. Article
such trucks cannot be considered as mortgaged. But the evidence 1152 of the Civil Code permits the agreement upon a penalty
shows that while the intervenor Rosario Espiritu did not sign the apart from the interest. Should there be such an agreemnet, the
two mortgage deeds (Exhibits A and C), yet, together with the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil.,
defendants Faustino Espiritu, he signed the two promissory 631), does not include the interest, and which may be demamded
notes (Exhibits B and D) secured by these two mortgages. All separetely. According to this, the penalty is not to be added to the
these instruments were executed at the same time, and when the interest for the determination of whether the interest exceeds
trucks 77197 and 92744 were included in the mortgages, the the rate fixed by the law, since said rate was fixed only for the
intervenor Rosario Espiritu was aware of it and consented to interest. But considering that the obligation was partly
such inclusion. These facts are supported by the testimony of performed, and making use of the power given to the court by
Bachrach, manager of the plaintiff corporation, of Agustin article 1154 of the Civil Code, this penalty is reduced to 10 per
Ramirez, who witnessed the execution of all these documents, cent of the unpaid debt.
and of Angel Hidalgo, who witnessed the execution of Exhibits B
and D. With the sole modification that instead of 25 per cent upon the
sum owed, the defendants need pay only 10 per cent thereon as
We do not find the statement of the intervenor Rosario Espiritu penalty, the judgment appealed from is affired in all other
that he did not sign promissory notes Exhibits B and C to be respects without special pronouncement as to costs. So ordered.
sufficient to overthrow this evidence. A comparison of his
genuine signature on Exhibit AA with those appearing on
promissory notes B and C, convinces us that the latter are his
signatures. And such is our conclusion, notwithstanding the
evidence presented to establish that on the date when Exhibits B 33. G.R. No. L-41093 October 30, 1978
appears to have been signed, that is July 25, 1925, the intervenor

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ROBES-FRANCISCO REALTY & DEVELOPMENT Petitioner corporation questions the award for nominal damages
CORPORATION, petitioner, of P20,000.00 and attorney's fee of P5,000.00 which are allegedly
vs. excessive and unjustified.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH
XXXIV), and LOLITA MILLAN, respondents. In the Court's resolution of October 20, 1975, We gave due course
to the Petition only as regards the portion of the decision
Purugganan & Bersamin for petitioner. awarding nominal damages. 1

Salvador N. Beltran for respondent. The following incidents are not in dispute:

In May 1962 Robes-Francisco Realty & Development
MUOZ PALMA, J.: Corporation, now petitioner, agreed to sell to private respondent
Lolita Millan for and in consideration of the sum of P3,864.00,
This is a direct appeal on questions of law from a decision of the payable in installments, a parcel of land containing an area of
Court of First Instance of Rizal, Branch XXXIV, presided by the approximately 276 square meters, situated in Barrio Camarin,
Honorable Bernardo P. Pardo, the dispositive portion of which Caloocan City, known as Lot No. 20, Block No. 11 of its Franville
reads: Subdivision. 2

WHEREFORE, judgment is hereby rendered commanding the Millan complied with her obligation under the contract and paid
defendant to register the deed of absolute sale it had executed in the installments stipulated therein, the final payment having
favor of plaintiff with the Register of Deeds of Caloocan City and been made on December 22, 1971. The vendee made a total
secure the corresponding title in the name of plaintiff within ten payment of P5,193.63 including interests and expenses for
(10) days after finality of this decision; if, for any reason, this not registration of title. 3
possible, defendant is hereby sentenced to pay plaintiff the sum
of P5,193.63 with interest at 4% per annum from June 22, 1972 Thereafter, Lolita Millan made repeated demands upon the
until fully paid. corporation for the execution of the final deed of sale and the
issuance to her of the transfer certificate of title over the lot. On
In either case, defendant is sentenced to pay plaintiff nominal March 2, 1973, the parties executed a deed of absolute sale of the
damages in the amount of P20,000.00 plus attorney's fee in the aforementioned parcel of land. The deed of absolute sale
amount of P5,000.00 and costs. contained, among others, this particular provision:

SO ORDERED. That the VENDOR further warrants that the transfer certificate of
title of the above-described parcel of land shall be transferred in
Caloocan City, February 11, 1975. (rollo, p. 21) the name of the VENDEE within the period of six (6) months from
the date of full payment and in case the VENDOR fails to issue
said transfer certificate of title, it shall bear the obligation to

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refund to the VENDEE the total amount already paid for, plus an of P10 million and that the owner's duplicate certificate of title of
interest at the rate of 4% per annum. (record on appeal, p. 9) the subdivision was in the possession of the Government Service
Insurance System (GSIS), the trial court, on February 11, 1975,
Notwithstanding the lapse of the above-mentioned stipulated rendered judgment the dispositive portion of which is quoted in
period of six (6) months, the corporation failed to cause the pages 1 and 2 of this Decision. We hold that the trial court did not
issuance of the corresponding transfer certificate of title over the err in awarding nominal damages; however, the circumstances of
lot sold to Millan, hence, the latter filed on August 14, 1974 a the case warrant a reduction of the amount of P20,000.00
complaint for specific performance and damages against Robes- granted to private respondent Millan.
Francisco Realty & Development Corporation in the Court of First
Instance of Rizal, Branch XXXIV, Caloocan City, docketed therein There can be no dispute in this case under the pleadings and the
as Civil Case No. C-3268. 4 admitted facts that petitioner corporation was guilty of delay,
amounting to nonperformance of its obligation, in issuing the
The complaint prayed for judgment (1) ordering the reformation transfer certificate of title to vendee Millan who had fully paid up
of the deed of absolute sale; (2) ordering the defendant to deliver her installments on the lot bought by her. Article 170 of the Civil
to plaintiff the certificate of title over the lot free from any lien or Code expressly provides that those who in the performance of
encumbrance; or, should this be not possible, to pay plaintiff the their obligations are guilty of fraud, negligence, or delay, and
value of the lot which should not be less than P27,600.00 those who in any manner contravene the tenor thereof, are liable
(allegedly the present estimated value of the lot); and (3) for damages.
ordering the defendant to pay plaintiff damages, corrective and
actual in the sum of P15 000.00. 5 Petitioner contends that the deed of absolute sale executed
between the parties stipulates that should the vendor fail to issue
The corporation in its answer prayed that the complaint be the transfer certificate of title within six months from the date of
dismissed alleging that the deed of absolute sale was voluntarily full payment, it shall refund to the vendee the total amount paid
executed between the parties and the interest of the plaintiff was for with interest at the rate of 4% per annum, hence, the vendee
amply protected by the provision in said contract for payment of is bound by the terms of the provision and cannot recover more
interest at 4% per annum of the total amount paid, for the delay than what is agreed upon. Presumably, petitioner in invoking
in the issuance of the title. 6 Article 1226 of the Civil Code which provides that in obligations
with a penal clause, the penalty shall substitute the indemnity for
At the pretrial conference the parties agreed to submit the case damages and the payment of interests in case of noncompliance,
for decision on the pleadings after defendant further made if there is no stipulation to the contrary.
certain admissions of facts not contained in its answer. 7
The foregoing argument of petitioner is totally devoid of merit.
Finding that the realty corporation failed to cause the issuance of We would agree with petitioner if the clause in question were to
the corresponding transfer certificate of title because the parcel be considered as a penal clause. Nevertheless, for very obvious
of land conveyed to Millan was included among other properties reasons, said clause does not convey any penalty, for even
of the corporation mortgaged to the GSIS to secure an obligation without it, pursuant to Article 2209 of the Civil Code, the vendee

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would be entitled to recover the amount paid by her with legal It is true as petitioner claims that under American jurisprudence
rate of interest which is even more than the 4% provided for in nominal damages by their very nature are small sums fixed by
the clause. 7-A the court without regard to the extent of the harm done to the
injured party.
It is therefore inconceivable that the aforecited provision in the
deed of sale is a penal clause which will preclude an award of It is generally held that a nominal damage is a substantial claim, if
damages to the vendee Millan. In fact the clause is so worded as based upon the violation of a legal right; in such case, the law
to work to the advantage of petitioner corporation. presumes a damage, although actual or compensatory damages
are not proven; in truth nominal damages are damages in name
Unfortunately, the vendee, now private respondent, submitted only and not in fact, and are allowed, not as an equivalent of a
her case below without presenting evidence on the actual wrong inflicted, but simply in recogniton of the existence of a
damages suffered by her as a result of the nonperformance of technical injury. (Fouraker v. Kidd Springs Boating and Fishing
petitioner's obligation under the deed of sale. Nonetheless, the Club, 65 S. W. 2d 796-797, citing 17 C.J. 720, and a number of
facts show that the right of the vendee to acquire title to the lot authorities). 9
bought by her was violated by petitioner and this entitles her at
the very least to nominal damages. In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al.
1956, which was an action for damages arising out of a vehicular
The pertinent provisions of our Civil Code follow: accident, this Court had occasion to eliminate an award of
P10,000.00 imposed by way of nominal damages, the Court
Art. 2221. Nominal damages are adjudicated in order that a stating inter alia that the amount cannot, in common sense, be
right of the plaintiff, which has been violated or invaded by the demeed "nominal". 10
defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L.
Cuenca, 1965, this Court, however, through then Justice Roberto
Art. 2222. The court may award nominal damages in every Concepcion who later became Chief Justice of this Court,
obligation arising from any source enumerated in article 1157, or sustained an award of P20,000.00 as nominal damages in favor of
in every case where any property right has been invaded. respnodent Cuenca. The Court there found special reasons for
considering P20,000.00 as "nominal". Cuenca who was the holder
Under the foregoing provisions nominal damages are not of a first class ticket from Manila to Tokyo was rudely compelled
intended for indemnification of loss suffered but for the by an agent of petitioner Airlines to move to the tourist class
vindication or recognition of a right violated or invaded. They are notwithstanding its knowledge that Cuenca as Commissioner of
recoverable where some injury has been done the amount of Public Highways of the Republic of the Philippines was travelling
which the evidence fails to show, the assessment of damages in his official capacity as a delegate of the country to a conference
being left to the discretion of the court according to the in Tokyo." 11
circumstances of the case. 8

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Actually, as explained in the Court's decision in Northwest shown that he is entitled to recover moral, temperate or
Airlines, there is no conflict between that case and Medina, for in compensatory damages."
the latter, the P10,000.00 award for nominal damages was
eliminated principally because the aggrieved party had already Here, respondent Millan did not submit below any evidence to
been awarded P6,000.00 as compensatory damages, P30,000.00 prove that she suffered actual or compensatory damages. 14
as moral damages and P10,000.00 as exemplary damages, and
"nominal damages cannot coexist with compensatory damages," To conclude, We hold that the sum of Ten Thousand Pesos
while in the case of Commissioner Cuenca, no such (P10,000.00) by way of nominal damages is fair and just under
compensatory, moral, or exemplary damages were granted to the the following circumstances, viz: respondent Millan bought the
latter. 12 lot from petitioner in May, 1962, and paid in full her installments
on December 22, 1971, but it was only on March 2, 1973, that a
At any rate, the circumstances of a particular case will determine deed of absolute sale was executed in her favor, and
whether or not the amount assessed as nominal damages is notwithstanding the lapse of almost three years since she made
within the scope or intent of the law, more particularly, Article her last payment, petitioner still failed to convey the
2221 of the Civil Code. corresponding transfer certificate of title to Millan who
accordingly was compelled to file the instant complaint in August
In the situation now before Us, We are of the view that the of 1974.
amount of P20,000.00 is excessive. The admitted fact that
petitioner corporation failed to convey a transfer certificate of PREMISES CONSIDERED, We modify the decision of the trial
title to respondent Millan because the subdivision property was court and reduce the nominal damages to Ten Thousand Pesos
mortgaged to the GSIS does not in itself show that there was bad (P10,000.00). In all other respects the aforesaid decision stands.
faith or fraud. Bad faith is not to be presumed. Moreover, there
was the expectation of the vendor that arrangements were
possible for the GSIS to make partial releases of the subdivision
lots from the overall real estate mortgage. It was simply
unfortunate that petitioner did not succeed in that regard. 34. G.R. No. L-26339 December 14, 1979

For that reason We cannot agree with respondent Millan Chat the MARIANO C. PAMINTUAN, petitioner-appellant,
P20,000.00 award may be considered in the nature of exemplary vs.
damages. COURT OF APPEALS and YU PING KUN CO., INC.,
respondent-appellees.
In case of breach of contract, exemplary damages may be
awarded if the guilty party acted in wanton, fraudulent, reckless, V. E. del Rosario & Associates for appellant.
oppressive or malevolent manner. 13 Furthermore, exemplary or
corrective damages are to be imposed by way of example or Sangco & Sangalang for private respondent.
correction for the public good, only if the injured party has

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acceptance by Japanese suppliers of firm offers for the
AQUINO, J.: consignment to Pamintuan of plastic sheetings valued at forty-
seven thousand dollars. Acting on that information, the company
This case is about the recovery compensatory, damages for lost no time in securing in favor of Pamintuan an irrevocable
breach of a contract of sale in addition to liquidated damages. letter of credit for two hundred sixty-five thousand five hundred
fifty pesos.
Mariano C. Pamintuan appealed from the judgment of the Court
of Appeals wherein he was ordered to deliver to Yu Ping Kun Co., Pamintuan was apprised by the bank on August 1, 1960 of that
Inc. certain plastic sheetings and, if he could not do so, to pay the letter of credit which made reference to the delivery to Yu Ping
latter P100,559.28 as damages with six percent interest from the Kun Co., Inc. on or before October 31, 1960 of 336, 360 yards of
date of the filing of the complaint. The facts and the findings of plastic sheetings (p. 21, Record on Appeal).
the Court of Appeals are as follows:
On September 27 and 30 and October 4, 1960, the Japanese
In 1960, Pamintuan was the holder of a barter license wherein he suppliers shipped to Pamintuan, through Toyo Menka Kaisha,
was authorized to export to Japan one thousand metric tons of Ltd., the plastic sheetings in four shipments to wit: (1) Firm Offer
white flint corn valued at forty-seven thousand United States No. 327 for 50,000 yards valued at $9,000; (2) Firm Offer No. 328
dollars in exchange for a collateral importation of plastic for 70,000 yards valued at $8,050; (3) Firm Offers Nos. 329 and
sheetings of an equivalent value. 343 for 175,000 and 18,440 yards valued at $22,445 and $2,305,
respectively, and (4) Firm Offer No. 330 for 26,000 yards valued
By virtue of that license, he entered into an agreement to ship his at $5,200, or a total of 339,440 yards with an aggregate value of
corn to Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for $47,000 (pp. 4-5 and 239-40, Record on Appeal).
plastic sheetings. He contracted to sell the plastic sheetings to Yu
Ping Kun Co., Inc. for two hundred sixty-five thousand five The plastic sheetings arrived in Manila and were received by
hundred fifty pesos. The company undertook to open an Pamintuan. Out of the shipments, Pamintuan delivered to the
irrevocable domestic letter of credit for that amount in favor of company's warehouse only the following quantities of plastic
Pamintuan. sheetings:

It was further agreed that Pamintuan would deliver the plastic November 11, 1960 140 cases, size 48 inches by 50 yards.
sheetings to the company at its bodegas in Manila or suburbs November 14, 1960 258 cases out of 352 cases.
directly from the piers "within one month upon arrival of" the November 15, 1960 11 cases out of 352 cases. November 15,
carrying vessels. Any violation of the contract of sale would 1960 10 cases out of 100 cases. November 15, 1960 30
entitle the aggreived party to collect from the offending party cases out of 100 cases.
liquidated damages in the sum of ten thousand pesos (Exh. A).
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings
On July 28, 1960, the company received a copy of the letter from containing 26,000 yards valued at $5,200; (2) 37 cases containing
the Manila branch of Toyo Menka Kaisha, Ltd. confirming the 18,440 yards valued at $2,305; (3) 60 cases containing 30,000

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yards valued at $5,400 and (4) 83 cases containing 40,850 yards The unrealized profits awarded as damages in the trial court's
valued at $5,236.97. While the plastic sheetings were arriving in decision were computed as follows (pp. 248-9, Record on
Manila, Pamintuan informed the president of Yu Ping Kun Co., Appeal):
Inc. that he was in dire need of cash with which to pay his
obligations to the Philippine National Bank. Inasmuch as the (1) 26,000 yards with a contract price of Pl.13 per yard and a
computation of the prices of each delivery would allegedly be a selling price at the time of delivery of Pl.75 a
long process, Pamintuan requested that he be paid immediately. yard........................................................... P16,120.00

Consequently, Pamintuan and the president of the company, (2) 18,000 yards with a contract price of P0.7062 per yard and
Benito Y.C. Espiritu, agreed to fix the price of the plastic sheetings selling price of Pl.20 per yard at the time of
at P0.782 a yard, regardless of the kind, quality or actual invoice delivery......................................... 9,105.67
value thereof. The parties arrived at that figure by dividing the
total price of P265,550 by 339,440 yards, the aggregate quantity (3) 30,000 yards with a contract price of Pl.017 per yard and a
of the shipments. selling price of Pl.70 per yard. 20,490.00

After Pamintuan had delivered 224,150 yards of sheetings of (4) 40,850 yards with a contract price of P0.7247 per
interior quality valued at P163,.047.87, he refused to deliver the yard and a selling price of P1.25 a yard at the time of
remainder of the shipments with a total value of P102,502.13 delivery.............................................. 21,458.50 Total unrealized
which were covered by (i) Firm Offer No. 330, containing 26,000 profits....................... P67,174.17
yards valued at P29,380; (2) Firm Offer No. 343, containing
18,440 yards valued at P13,023.25; (3) Firm Offer No. 217, The overpayment of P12,282.26 made to Pamintuan by Yu Ping
containing 30,000 yards valued at P30,510 and (4) Firm Offer No. Kun Co., Inc. for the 224,150 yards, which the trial court regarded
329 containing 40,850 yards valued at P29,588.88 (See pp. 243- as an item of damages suffered by the company, was computed as
2, Record on Appeal). follows (p. 71, Record on Appeal):

As justification for his refusal, Pamintuan said that the company Liquidation value of 224,150 yards at P0.7822 a yard
failed to comply with the conditions of the contract and that it .............................................................................. P175,330.13
was novated with respect to the price.
Actual peso value of 224,150 yards as per firm offers or as per
On December 2, 1960, the company filed its amended complaint contract............................................ 163,047.87
for damages against Pamintuan. After trial, the lower court
rendered the judgment mentioned above but including moral Overpayment................................................................ P 12,282.26
damages.
To these two items of damages (P67,174.17 as unrealized profits
and P12,282.26 as overpayment), the trial court added (a)
P10,000 as stipulated liquidated damages, (b) P10,000 as moral

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damages, (c) Pl,102.85 as premium paid by the company on the process delivered only the poorer or cheaper kind or those which
bond of P102,502.13 for the issuance of the writ of preliminary he had predetermined to deliver and did not conceal in his
attachment and (d) P10,000 as attorney's fees, or total damages brother's name and thus deceived the unwary party into
of P110,559.28) p. 250, Record on Appeal). The Court of Appeals overpaying him the sum of P 1 2,282.26 for the said deliveries,
affirmed that judgment with the modification that the moral and would thereafter refuse to make any further delivery in
damages were disallowed (Resolution of June 29, 1966). flagrant violation of his plighted word, would now ask us to
sanction his actuation" (pp. 61-62, Rollo).
Pamintuan appealed. The Court of Appeals in its decision of
March 18, 1966 found that the contract of sale between The main contention of appellant Pamintuan is that the buyer, Yu
Pamintuan and the company was partly consummated. The Ping Kun Co., Inc., is entitled to recover only liquidated damages.
company fulfilled its obligation to obtain the Japanese suppliers' That contention is based on the stipulation "that any violation of
confirmation of their acceptance of firm offers totalling $47,000. the provisions of this contract (of sale) shall entitle the aggrieved
Pamintuan reaped certain benefits from the contract. Hence, he is party to collect from the offending party liquidated damages in
estopped to repudiate it; otherwise, he would unjustly enrich the sum of P10,000 ".
himself at the expense of the company.
Pamintuan relies on the rule that a penalty and liquidated
The Court of Appeals found that the writ of attachment was damages are the same (Lambert vs. Fox 26 Phil. 588); that "in
properly issued. It also found that Pamintuan was guilty of fraud obligations with a penal clause, the penalty shall substitute the
because (1) he was able to make the company agree to change indemnity for damages and the payment of interests in case of
the manner of paying the price by falsely alleging that there was a non-compliance, if there is no stipulation to the contrary " (1st
delay in obtaining confirmation of the suppliers' acceptance of sentence of Art. 1226, Civil Code) and, it is argued, there is no
the offer to buy; (2) he caused the plastic sheetings to be such stipulation to the contrary in this case and that "liquidated
deposited in the bonded warehouse of his brother and then damages are those agreed upon by the parties to a contract, to be
required his brother to make him Pamintuan), his attorney-in- paid in case of breach thereof" (Art. 2226, Civil Code).
fact so that he could control the disposal of the goods; (3)
Pamintuan, as attorney-in-fact of the warehouseman, endorsed to We hold that appellant's contention cannot be sustained because
the customs broker the warehouse receipts covering the plastic the second sentence of article 1226 itself provides that I
sheetings withheld by him and (4) he overpriced the plastic nevertheless, damages shall be paid if the obligor ... is guilty of
sheetings which he delivered to the company. fraud in the fulfillment of the obligation". "Responsibility arising
from fraud is demandable in all obligations" (Art. 1171, Civil
The Court of Appeals described Pamintuan as a man "who, after Code). "In case of fraud, bad faith, malice or wanton attitude, the
having succeeded in getting another to accommodate him by obligor shall be responsible for an damages which may be
agreeing to liquidate his deliveries on the basis of P0.7822 per reasonably attributed to the non-performance of the obligation"
yard, irrespective of invoice value, on the pretense that he would (Ibid, art. 2201).
deliver what in the first place he ought to deliver anyway, when
he knew all the while that he had no such intention, and in the

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The trial court and the Court of Appeals found that Pamintuan After a conscientious consideration of the facts of the case, as
was guilty of fraud because he did not make a complete delivery found by Court of Appeals and the trial court, and after reflecting
of the plastic sheetings and he overpriced the same. That factual on the/tenor of the stipulation for liquidated damages herein, the
finding is conclusive upon this Court. true nature of which is not easy to categorize, we further hold
that justice would be adequately done in this case by allowing Yu
There is no justification for the Civil Code to make an apparent Ping Kun Co., Inc. to recover only the actual damages proven and
distinction between penalty and liquidated damages because the not to award to it the stipulated liquidated damages of ten
settled rule is that there is no difference between penalty and thousand pesos for any breach of the contract. The proven
liquidated damages insofar as legal results are concerned and damages supersede the stipulated liquidated damages.
that either may be recovered without the necessity of proving
actual damages and both may be reduced when proper (Arts. This view finds support in the opinion of Manresa (whose
1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L. comments were the bases of the new matter found in article
Reyes, cited in 4 Tolentino's Civil Code, p. 251). 1226, not found in article 1152 of the old Civil Code) that in case
of fraud the difference between the proven damages and the
Castan Tobeas notes that the penal clause in an obligation has stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil,
three functions: "1. Una funcion coercitiva o de garantia, 5th Ed., 1950, p. 483).
consistente en estimular al deudor al complimiento de la
obligacion principal, ante la amenaza de tener que pagar la pena. Hence, the damages recoverable by the firm would amount to
2. Una funcion liquidadora del dao, o sea la de evaluar por ninety thousand five hundred fifty-nine pesos and twenty-eight
anticipado los perjuicios que habria de ocasionar al acreedor el centavos (P90,559.28), with six percent interest a year from the
incumplimiento o cumplimiento inadecuado de la obligacion. 3. filing of the complaint.
Una funcion estrictamente penal, consistente en sancionar o
castigar dicho incumplimiento o cumplimiento inadecuado, With that modification the judgment of the Court of Appeals is
atribuyendole consecuencias mas onerosas para el deudor que affirmed in all respects. No costs in this instance.
las que normalmente lleva aparejadas la infraccion contractual. "
(3 Derecho Civil Espanol, 9th Ed., p. 128).

The penalty clause is strictly penal or cumulative in character
and does not partake of the nature of liquidated damages (pena 35. G.R. No. 204702 January 14, 2015
sustitutiva) when the parties agree "que el acreedor podra pedir,
en el supuesto incumplimiento o mero retardo de la obligacion RICARDO C. HONRADO, Petitioner,
principal, ademas de la pena, los danos y perjuicios. Se habla en vs.
este caso de pena cumulativa, a differencia de aquellos otros GMA NETWORK FILMS, INC., Respondent.
ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130). D E C I S I O N

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CARPIO, J.: Two of the films covered by the Agreement were Evangeline
Katorse and Bubot for which GMA Films paid P1.5 million each.
The Case
In 2003, GMA Films sued petitioner in the Regional Trial Court of
We review1 the Decision2 of the Court of Appeals (CA) ordering Quezon City (trial court) to collect P1.6 million representing the
petitioner Ricardo C. Honrado (petitioner) to pay a sum of money fee it paid for Evangeline Katorse (P1.5 million) and a portion of
to respondent GMA Network Films, Inc. for breach of contract the fee it paid for Bubot (P350,0004). GMA Films alleged that it
and breach of trust. rejected Evangeline Katorse because "its running time was too
short for telecast"5 and petitioner only remitted P900,000 to the
The Facts owner of Bubot (Juanita Alano [Alano]), keeping for himself the
balance of P350,000. GMA Films prayed for the return of such
On 11December 1998, respondent GMA Network Films, Inc. amount on the theory that an implied trust arose between the
(GMA Films) entered into a "TV Rights Agreement" (Agreement) parties as petitioner fraudulently kept it for himself.6
with petitioner under which petitioner, as licensor of 36 films,
granted to GMA Films, for a fee of P60.75 million, the exclusive Petitioner denied liability, counter-alleging that after GMA Films
right to telecast the 36 films for a period of three years. Under rejected Evangeline Katorse, he replaced it with another film,
Paragraph 3 of the Agreement, the parties agreed that "all Winasak na Pangarap, which GMA Films accepted. As proof of
betacam copies of the [films] should pass through broadcast such acceptance, petitioner invoked a certification of GMA
quality test conducted by GMA-7," the TV station operated by Network, dated 30 March 1999, attesting that such film "is of
GMA Network, Inc. (GMA Network), an affiliate of GMA Films. The good broadcast quality"7 (Film Certification). Regarding the fee
parties also agreed to submit the films for review by the Movie GMA Films paid for Bubot, petitioner alleged that he had settled
and Television Review and Classification Board (MTRCB) and his obligation to Alano. Alternatively, petitioner alleged that GMA
stipulated on the remedies in the event that MTRCB bans the Films, being a stranger to the contracts he entered into with the
telecasting ofany of the films (Paragraph 4): owners of the films in question, has no personality to question his
compliance with the terms of such contracts. Petitioner
The PROGRAMME TITLES listed above shall be subject to counterclaimed for attorneys fees.
approval by the Movie and Television Review and Classification
Board (MTRCB) and, in the event of disapproval, LICENSOR The Ruling of the Trial Court
[Petitioner] will either replace the censored PROGRAMME
TITLES with another title which is mutually acceptable to both The trial court dismissed GMA Films complaint and, finding
parties or, failure to do such, a proportionate reduction from the merit in petitioners counterclaim, ordered GMA Films to pay
total price shall either be deducted or refunded whichever is the attorneys fees (P100,000). The trial court gave credence to
case by the LICENSOR OR LICENSEE [GMA Films].3 (Emphasis petitioners defense that he replaced Evangeline Katorse with
supplied) Winasak na Pangarap. On the disposal of the fee GMA Films paid
for Bubot, the trial court rejected GMA Films theory of implied

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trust, finding insufficient GMA Films proof that petitioner The question is whether the CA erred in finding petitioner liable
pocketed any portion of the fee in question. for breach of the Agreement and breach of trust.

GMA Films appealed to the CA. The Ruling of the Court

The Ruling of the Court of Appeals We grant the petition. We find GMA Films complaint without
merit and accordingly reinstate the trial courts ruling dismissing
The CA granted GMA Films appeal, set aside the trial courts it with the modification that the award of attorneys fees is
ruling, and ordered respondent to pay GMA Films P2 million8 as deleted. Petitioner Committed No Breach of Contract or Trust
principal obligation with 12% annual interest, exemplary
damages (P100,000), attorneys fees (P200,000), litigation MTRCB Disapproval the Stipulated
expenses (P100,000) and the costs. Brushing aside the trial Basis for Film Replacement
courts appreciation of the evidence, the CA found that (1) GMA
Films was authorized under Paragraph 4 of the Agreement to The parties do not quarrel on the meaning of Paragraph 4 of the
reject Evangeline Katorse, and (2) GMA Films never accepted Agreement which states:
Winasak na Pangarap as replacement because it was a "bold"
film.9 The PROGRAMME TITLES listed [in the Agreement] x x x shall be
subject to approval by the Movie and Television Review and
On petitioners liability for the fee GMA Films paid for Bubot, the Classification Board (MTRCB) and, in the event of disapproval,
CA sustained GMA Films contention that petitioner was under LICENSOR [Petitioner] will either replace the censored
obligation to turn over to the film owners the fullamount GMA PROGRAMME TITLES with another title which is mutually
Films paid for the films as "nowhere in the TV Rights Agreement acceptable to both parties or, failure to do such, a proportionate
does it provide that the licensor is entitled to any commission x x reduction from the total price shall either be deducted or
x [hence] x x x [petitioner] Honrado cannot claim any portion of refunded whichever is the case by the LICENSOR OR LICENSEE
the purchase price paid for by x x x GMA Films."10 The CA [GMA Films].11 (Emphasis supplied)
concluded that petitioners retention of a portion of the fee for
Bubot gave rise to an implied trust between him and GMA Films, Under this stipulation, what triggersthe rejection and
obligating petitioner, as trustee, to return to GMA Films, as replacement of any film listed in the Agreement is the
beneficiary, the amount claimed by the latter. "disapproval" of its telecasting by MTRCB.

Hence, this petition. Petitioner prays for the reinstatement of the Nor is there any dispute that GMA Films rejected Evangeline
trial courts ruling while GMA Films attacks the petition for lack Katorse not because it was disapproved by MTRCB but because
of merit. the films total running time was too short for telecast
(undertime). Instead of rejecting GMA Films demand for falling
The Issue outside of the terms of Paragraph 4, petitioner voluntarily
acceded to it and replaced such film with Winasak na Pangarap.

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What is disputed is whether GMA Films accepted the of the Agreement
replacement film offered by petitioner.
GMA Films also seeks refund for the balance of the fees it paid to
Petitioner maintains that the Film Certification issued by GMA petitioner for Bubot which petitioner allegedly failed to turn-over
Network attesting to the "good broadcast quality" of Winasak na to the films owner, Alano.14 Implicit in GMA Films claim is the
Pangarap amounted to GMA Films acceptance of such film. On theory that the Agreement obliges petitioner to give to the film
the other hand, GMA Films insists that such clearance pertained owners the entire amount he received from GMA Films and that
only to the technical quality of the film but not to its content his failure to do so gave rise to an implied trust, obliging
which it rejected because it found the film as "bomba" (bold).12 petitioner to hold whatever amount he kept in trust for GMA
The CA, working under the assumption that the ground GMA Films. The CA sustained GMA Films interpretation, noting that
Films invoked to reject Winasak na Pangarap was sanctioned the Agreement "does not provide that the licensor is entitled to
under the Agreement, found merit in the latters claim. We hold any commission."15
that regardless of the import of the Film Certification, GMA Films
rejection of Winasak na Pangarap finds no basis in the This is error.
Agreement.
The Agreement, as its full title denotes ("TV Rights Agreement"),
In terms devoid of any ambiguity, Paragraph 4 of the Agreement is a licensing contract, the essence of which is the transfer by the
requires the intervention of MTRCB, the state censor, before GMA licensor (petitioner) to the licensee (GMA Films), for a fee, of the
Films can reject a film and require its replacement. Specifically, exclusive right to telecast the films listed in the Agreement.
Paragraph 4 requires that MTRCB, after reviewing a film listed in Stipulations for payment of "commission" to the licensor is
the Agreement, disapprove or X-rate it for telecasting. GMA Films incongruous to the nature of such contracts unless the licensor
does not allege, and we find no proof on record indicating, that merely acted as agent of the film owners. Nowhere in the
MTRCB reviewed Winasak na Pangarap and X-rated it. Indeed, Agreement, however, did the parties stipulate that petitioner
GMA Films own witness, Jose Marie Abacan (Abacan), then Vice- signed the contract in such capacity. On the contrary, the
President for Program Management of GMA Network, testified Agreement repeatedly refers to petitioner as "licensor" and GMA
during trial that it was GMA Network which rejected Winasak na Films as "licensee." Nor did the parties stipulate that the fees paid
Pangarap because the latter considered the film "bomba."13 In by GMA Films for the films listed in the Agreement will be turned
doing so, GMA Network went beyond its assigned role under the over by petitioner to the film owners. Instead, the Agreement
Agreement of screening films to test their broadcast quality and merely provided that the total fees will be paid in three
assumed the function of MTRCB to evaluate the films for the installments (Paragraph 3).16
propriety of their content. This runs counter to the clear terms of
Paragraphs 3 and 4 of the Agreement. We entertain no doubt that petitioner forged separate
contractual arrangements with the owners of the films listed in
Disposal of the Fees Paid to the Agreement, spelling out the terms of payment to the latter.
Whether or not petitioner complied with these terms, however, is
Petitioner Outside of the Terms a matter to which GMA Films holds absolutely no interest. Being a

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stranger to such arrangements, GMA Films is no more entitled to JOSE CANGCO, plaintiff-appellant,
complain of any breach by petitioner of his contracts with the vs.
film owners than the film owners are for any breach by GMA MANILA RAILROAD CO., defendant-appellee.
Films of its Agreement with petitioner.
Ramon Sotelo for appellant.
We find it unnecessary to pass upon the question whether an Kincaid & Hartigan for appellee.
implied trust arose between the parties, as held by the
CA.1wphi1 Such conclusion was grounded on the erroneous
assumption that GMA Films holds an interest in the disposition of
the licensing fees it paid to petitioner. FISHER, J.:

Award of Attorney's Fees to Petitioner Improper At the time of the occurrence which gave rise to this litigation the
plaintiff, Jose Cangco, was in the employment of Manila Railroad
The trial court awarded attorney's fees to petitioner as it Company in the capacity of clerk, with a monthly wage of P25. He
"deemed it just and reasonable"17 to do so, using the amount lived in the pueblo of San Mateo, in the province of Rizal, which is
provided by petitioner on the witness stand (P100,000). located upon the line of the defendant railroad company; and in
Undoubtedly, attorney's fees may be awarded if the trial court coming daily by train to the company's office in the city of Manila
"deems it just and equitable."18 Such ground, however, must be where he worked, he used a pass, supplied by the company,
fully elaborated in the body of the ruling.19 Its mere invocation, which entitled him to ride upon the company's trains free of
without more, negates the nature of attorney's fees as a form of charge. Upon the occasion in question, January 20, 1915, the
actual damages. plaintiff arose from his seat in the second class-car where he was
riding and, making, his exit through the door, took his position
WHEREFORE, we GRANT the petition. The Decision, dated 30 upon the steps of the coach, seizing the upright guardrail with his
April 2012 and Resolution, dated 19 November 2012, of the right hand for support.
Court of Appeals are SET ASIDE. The Decision, dated 5 December
2008, of the Regional Trial Court of Quezon City (Branch 223) is On the side of the train where passengers alight at the San Mateo
REINSTATED with the MODIFICATION that the award of station there is a cement platform which begins to rise with a
attorney's fees is DELETED. moderate gradient some distance away from the company's
office and extends along in front of said office for a distance
SO ORDERED. sufficient to cover the length of several coaches. As the train
slowed down another passenger, named Emilio Zuiga, also an
employee of the railroad company, got off the same car, alighting
safely at the point where the platform begins to rise from the
level of the ground. When the train had proceeded a little farther
36. G.R. No. L-12191 October 14, 1918 the plaintiff Jose Cangco stepped off also, but one or both of his
feet came in contact with a sack of watermelons with the result

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that his feet slipped from under him and he fell violently on the P790.25 in the form of medical and surgical fees and for other
platform. His body at once rolled from the platform and was expenses in connection with the process of his curation.
drawn under the moving car, where his right arm was badly
crushed and lacerated. It appears that after the plaintiff alighted Upon August 31, 1915, he instituted this proceeding in the Court
from the train the car moved forward possibly six meters before of First Instance of the city of Manila to recover damages of the
it came to a full stop. defendant company, founding his action upon the negligence of
the servants and employees of the defendant in placing the sacks
The accident occurred between 7 and 8 o'clock on a dark night, of melons upon the platform and leaving them so placed as to be
and as the railroad station was lighted dimly by a single light a menace to the security of passenger alighting from the
located some distance away, objects on the platform where the company's trains. At the hearing in the Court of First Instance, his
accident occurred were difficult to discern especially to a person Honor, the trial judge, found the facts substantially as above
emerging from a lighted car. stated, and drew therefrom his conclusion to the effect that,
although negligence was attributable to the defendant by reason
The explanation of the presence of a sack of melons on the of the fact that the sacks of melons were so placed as to obstruct
platform where the plaintiff alighted is found in the fact that it passengers passing to and from the cars, nevertheless, the
was the customary season for harvesting these melons and a plaintiff himself had failed to use due caution in alighting from
large lot had been brought to the station for the shipment to the the coach and was therefore precluded form recovering.
market. They were contained in numerous sacks which has been Judgment was accordingly entered in favor of the defendant
piled on the platform in a row one upon another. The testimony company, and the plaintiff appealed.
shows that this row of sacks was so placed of melons and the
edge of platform; and it is clear that the fall of the plaintiff was It can not be doubted that the employees of the railroad company
due to the fact that his foot alighted upon one of these melons at were guilty of negligence in piling these sacks on the platform in
the moment he stepped upon the platform. His statement that he the manner above stated; that their presence caused the plaintiff
failed to see these objects in the darkness is readily to be to fall as he alighted from the train; and that they therefore
credited. constituted an effective legal cause of the injuries sustained by
the plaintiff. It necessarily follows that the defendant company is
The plaintiff was drawn from under the car in an unconscious liable for the damage thereby occasioned unless recovery is
condition, and it appeared that the injuries which he had received barred by the plaintiff's own contributory negligence. In
were very serious. He was therefore brought at once to a certain resolving this problem it is necessary that each of these
hospital in the city of Manila where an examination was made conceptions of liability, to-wit, the primary responsibility of the
and his arm was amputated. The result of this operation was defendant company and the contributory negligence of the
unsatisfactory, and the plaintiff was then carried to another plaintiff should be separately examined.
hospital where a second operation was performed and the
member was again amputated higher up near the shoulder. It It is important to note that the foundation of the legal liability of
appears in evidence that the plaintiff expended the sum of the defendant is the contract of carriage, and that the obligation
to respond for the damage which plaintiff has suffered arises, if at

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all, from the breach of that contract by reason of the failure of subject to article 1101, 1103, and 1104 of the same code. (Rakes
defendant to exercise due care in its performance. That is to say, vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the This distinction is of the utmost importance. The liability, which,
negligence of its servants, imposed by article 1903 of the Civil under the Spanish law, is, in certain cases imposed upon
Code, which can be rebutted by proof of the exercise of due care employers with respect to damages occasioned by the negligence
in their selection and supervision. Article 1903 of the Civil Code of their employees to persons to whom they are not bound by
is not applicable to obligations arising ex contractu, but only to contract, is not based, as in the English Common Law, upon the
extra-contractual obligations or to use the technical form of principle of respondeat superior if it were, the master would
expression, that article relates only to culpa aquiliana and not to be liable in every case and unconditionally but upon the
culpa contractual. principle announced in article 1902 of the Civil Code, which
imposes upon all persons who by their fault or negligence, do
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 injury to another, the obligation of making good the damage
and 1104 of the Civil Code, clearly points out this distinction, caused. One who places a powerful automobile in the hands of a
which was also recognized by this Court in its decision in the case servant whom he knows to be ignorant of the method of
of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In managing such a vehicle, is himself guilty of an act of negligence
commenting upon article 1093 Manresa clearly points out the which makes him liable for all the consequences of his
difference between "culpa, substantive and independent, which imprudence. The obligation to make good the damage arises at
of itself constitutes the source of an obligation between persons the very instant that the unskillful servant, while acting within
not formerly connected by any legal tie" and culpa considered as the scope of his employment causes the injury. The liability of the
an accident in the performance of an obligation already existing . . master is personal and direct. But, if the master has not been
. ." guilty of any negligence whatever in the selection and direction of
the servant, he is not liable for the acts of the latter, whatever
In the Rakes case (supra) the decision of this court was made to done within the scope of his employment or not, if the damage
rest squarely upon the proposition that article 1903 of the Civil done by the servant does not amount to a breach of the contract
Code is not applicable to acts of negligence which constitute the between the master and the person injured.
breach of a contract.
It is not accurate to say that proof of diligence and care in the
Upon this point the Court said: selection and control of the servant relieves the master from
liability for the latter's acts on the contrary, that proof shows
The acts to which these articles [1902 and 1903 of the Civil Code] that the responsibility has never existed. As Manresa says (vol. 8,
are applicable are understood to be those not growing out of pre- p. 68) the liability arising from extra-contractual culpa is always
existing duties of the parties to one another. But where relations based upon a voluntary act or omission which, without willful
already formed give rise to duties, whether springing from intent, but by mere negligence or inattention, has caused damage
contract or quasi-contract, then breaches of those duties are to another. A master who exercises all possible care in the
selection of his servant, taking into consideration the

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qualifications they should possess for the discharge of the duties
which it is his purpose to confide to them, and directs them with This theory bases the responsibility of the master ultimately on
equal diligence, thereby performs his duty to third persons to his own negligence and not on that of his servant. This is the
whom he is bound by no contractual ties, and he incurs no notable peculiarity of the Spanish law of negligence. It is, of
liability whatever if, by reason of the negligence of his servants, course, in striking contrast to the American doctrine that, in
even within the scope of their employment, such third person relations with strangers, the negligence of the servant in
suffer damage. True it is that under article 1903 of the Civil Code conclusively the negligence of the master.
the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is The opinion there expressed by this Court, to the effect that in
rebuttable and yield to proof of due care and diligence in this case of extra-contractual culpa based upon negligence, it is
respect. necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
The supreme court of Porto Rico, in interpreting identical 1903 merely establishes a rebuttable presumption, is in complete
provisions, as found in the Porto Rico Code, has held that these accord with the authoritative opinion of Manresa, who says (vol.
articles are applicable to cases of extra-contractual culpa 12, p. 611) that the liability created by article 1903 is imposed by
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.) reason of the breach of the duties inherent in the special relations
of authority or superiority existing between the person called
This distinction was again made patent by this Court in its upon to repair the damage and the one who, by his act or
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. omission, was the cause of it.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the On the other hand, the liability of masters and employers for the
damage caused by the carelessness of his employee while acting negligent acts or omissions of their servants or agents, when such
within the scope of his employment. The Court, after citing the acts or omissions cause damages which amount to the breach of a
last paragraph of article 1903 of the Civil Code, said: contact, is not based upon a mere presumption of the master's
negligence in their selection or control, and proof of exercise of
From this article two things are apparent: (1) That when an the utmost diligence and care in this regard does not relieve the
injury is caused by the negligence of a servant or employee there master of his liability for the breach of his contract.
instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the Every legal obligation must of necessity be extra-contractual or
servant or employee, or in supervision over him after the contractual. Extra-contractual obligation has its source in the
selection, or both; and (2) that that presumption is juris tantum breach or omission of those mutual duties which civilized society
and not juris et de jure, and consequently, may be rebutted. It imposes upon it members, or which arise from these relations,
follows necessarily that if the employer shows to the satisfaction other than contractual, of certain members of society to others,
of the court that in selection and supervision he has exercised the generally embraced in the concept of status. The legal rights of
care and diligence of a good father of a family, the presumption is each member of society constitute the measure of the
overcome and he is relieved from liability. corresponding legal duties, mainly negative in character, which

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the existence of those rights imposes upon all other members of the facts averred show a contractual undertaking by defendant
society. The breach of these general duties whether due to willful for the benefit of plaintiff, and it is alleged that plaintiff has failed
intent or to mere inattention, if productive of injury, give rise to or refused to perform the contract, it is not necessary for plaintiff
an obligation to indemnify the injured party. The fundamental to specify in his pleadings whether the breach of the contract is
distinction between obligations of this character and those which due to willful fault or to negligence on the part of the defendant,
arise from contract, rests upon the fact that in cases of non- or of his servants or agents. Proof of the contract and of its
contractual obligation it is the wrongful or negligent act or nonperformance is sufficient prima facie to warrant a recovery.
omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the As a general rule . . . it is logical that in case of extra-contractual
breach of the voluntary duty assumed by the parties when culpa, a suing creditor should assume the burden of proof of its
entering into the contractual relation. existence, as the only fact upon which his action is based; while