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Republic of the Philippines SUPREME COURT Manila

EN BANC

DECISION

December 19, 1940

GR No. L-47362

JOHN F. VILLARROEL , appellant-appellant, vs.. BERNARDINO ESTRADA , turned-appellee.

D. Felipe Agoncillo in representation of the appellant-appelante.


D. Crispin Oben in representation of the defendant-appellee.
Avanceña, J. :
On May 9, 1912, Alejandro F. Callao, mother of defendant John F. Villarroel, obtained from the spouses Mariano
Estrada and Severina a loan of P1, 000 payable after seven years (Exhibito A). Alejandra died, leaving as sole heir to
the defendant.Spouses Mariano Estrada and Severina also died, leaving as sole heir to the plaintiff Bernardino
Estrada. On August 9, 1930, the defendant signed a document (Exhibito B) by which the applicant must declare in
the amount of P1, 000, with an interest of 12 percent per year. This action relates to the recovery of this amount.

The Court of First Instance of Laguna, which was filed in this action, condemn the defendant to pay the claimed
amount of P1, 000 with legal interest of 12 percent per year since the August 9, 1930 until full pay. He appealed the
sentence.

It will be noted that the parties in the present case are, respectively, the only heirs and creditors of the original
debtor. This action is brought under the defendant's liability as the only son of the original debtor in favor of the
plaintiff contracted, sole heir of primitive loa creditors. It is recognized that the amount of P1, 000 to which
contracts this obligation is the same debt of the mother's parents sued the plaintiff.

Although the action to recover the original debt has prescribed and when the lawsuit was filed in this case, the
question raised in this appeal is primarily whether, notwithstanding such requirement, the action taken is
appropriate. However, this action is based on the original obligation contracted by the mother of the defendant, who
has already prescribed, but in which the defendant contracted the August 9, 1930 (Exhibito B) by assuming the
fulfillment of that obligation, as prescribed. Being the only defendant in the original herdero debtor eligible
successor into his inheritance, that debt brought by his mother in law, although it lost its effectiveness by
prescription, is now, however, for a moral obligation, that is consideration enough to create and make effective and
enforceable obligation voluntarily contracted its August 9, 1930 in Exhibito B.

The rule that a new promise to pay a debt prrescrita must be made by the same person obligated or otherwise legally
authorized by it, is not applicable to the present case is not required in compliance with the mandatory obligation
orignalmente but which would give it voluntarily assumed this obligation.

It confirms the judgment appealed from, with costs against the appellant. IT IS SO ORDERED.

Imperial, Diaz, Laurel, and Horrilleno, MM., Concur.

G.R. No. L-13667 April 29, 1960

PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,


vs.
THE BOARD OF DIRECTORS OF THE NATIONAL DEVELOPMENT COMPANY, ET AL., defendants-
appellees.
Celso A. Fernandez for appellants.
Juan C. Jimenez, for appellees.

PARAS, C. J.:

On July 25, 1956, appellants filed against appellees in the Court of First Instance of Manila a complaint praying for
a 20% Christmas bonus for the years 1954 and 1955. The court a quo on appellees' motion to dismiss, issued the
following order:

Considering the motion to dismiss filed on 15 August, 1956, set for this morning; considering that at the
hearing thereof, only respondents appeared thru counsel and there was no appearance for the plaintiffs
although the court waited for sometime for them; considering, however, that petitioners have submitted an
opposition which the court will consider together with the arguments presented by respondents and the
Exhibits marked and presented, namely, Exhibits 1 to 5, at the hearing of the motion to dismiss;
considering that the action in brief is one to compel respondents to declare a Christmas bonus for
petitioners workers in the National Development Company; considering that the Court does not see how
petitioners may have a cause of action to secure such bonus because:

(a) A bonus is an act of liberality and the court takes it that it is not within its judicial powers to command
respondents to be liberal;

(b) Petitioners admit that respondents are not under legal duty to give such bonus but that they had only ask
that such bonus be given to them because it is a moral obligation of respondents to give that but as this
Court understands, it has no power to compel a party to comply with a moral obligation (Art. 142, New
Civil Code.).

IN VIEW WHEREOF, dismissed. No pronouncement as to costs.

A motion for reconsideration of the afore-quoted order was denied. Hence this appeal.

Appellants contend that there exists a cause of action in their complaint because their claim rests on moral grounds
or what in brief is defined by law as a natural obligation.

Since appellants admit that appellees are not under legal obligation to give such claimed bonus; that the grant arises
only from a moral obligation or the natural obligation that they discussed in their brief, this Court feels it urgent to
reproduce at this point, the definition and meaning of natural obligation.

Article 1423 of the New Civil Code classifies obligations into civil or natural. "Civil obligations are a right of action
to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do
not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize
the retention of what has been delivered or rendered by reason thereof".

It is thus readily seen that an element of natural obligation before it can be cognizable by the court is voluntary
fulfillment by the obligor. Certainly retention can be ordered but only after there has been voluntary performance.
But here there has been no voluntary performance. In fact, the court cannot order the performance.

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 Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) —

xxx xxx xxx

From the legal point of view a bonus is not a demandable 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. Heacock vs. National Labor Union, et al., 95 Phil., 553; 50 Off.
Gaz., 4253, we stated that:

Even if a bonus is not demandable for not forming part of the wage, salary or compensation of an
employee, the same may nevertheless, be granted on equitable consideration as when it was given in the
past, though withheld in succeeding two years from low salaried employees due to salary increases.

still the facts in said Heacock case are not the same as in the instant one, and hence the ruling applied in said case
cannot be considered in the present action.

Premises considered, the order appealed from is hereby affirmed, without pronouncement as to costs.

G.R. No. L-48889 May 11, 1989

DEVELOPMENT BANK OF THE PHILIPPINES (DBP), petitioner,


vs.
THE HONORABLE MIDPAINTAO L. ADIL, Judge of the Second Branch of the Court of First Instance of
Iloilo and SPOUSES PATRICIO CONFESOR and JOVITA VILLAFUERTE, respondents.

GANCAYCO, J.:

The issue posed in this petition for review on certiorari is the validity of a promissory note which was executed in
consideration of a previous promissory note the enforcement of which had been barred by prescription.

On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the
Agricultural and Industrial Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00,
Philippine Currency, as evidenced by a promissory note of said date whereby they bound themselves jointly and
severally to pay the account in ten (10) equal yearly amortizations. As the obligation remained outstanding and
unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the Congress of
the Philippines, executed a second promissory note on April 11, 1961 expressly acknowledging said loan and
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
I can secure a certificate of indebtedness from the government of my back pay I will be allowed to
pay the amount out of it.

Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11,
1970 in the City Court of Iloilo City against the spouses for the payment of the loan.

After trial on the merits a decision was rendered by the inferior court on December 27, 1976, the dispositive part of
which reads as follows:

WHEREFORE, premises considered, this Court renders judgment, ordering the defendants
Patricio Confesor and Jovita Villafuerte Confesor to pay the plaintiff Development Bank of the
Philippines, jointly and severally, (a) the sum of P5,760.96 plus additional daily interest of P l.04
from September 17, 1970, the date Complaint was filed, until said amount is paid; (b) the sum of
P576.00 equivalent to ten (10%) of the total claim by way of attorney's fees and incidental
expenses plus interest at the legal rate as of September 17,1970, until fully paid; and (c) the costs
of the suit.

Defendants-spouses appealed therefrom to the Court of First Instance of Iloilo wherein in due course a decision was
rendered on April 28, 1978 reversing the appealed decision and dismissing the complaint and counter-claim with
costs against the plaintiff.

A motion for reconsideration of said decision filed by plaintiff was denied in an order of August 10, 1978. Hence
this petition wherein petitioner alleges that the decision of respondent judge is contrary to law and runs counter to
decisions of this Court when respondent judge (a) refused to recognize the law that the right to prescription may be
renounced or waived; and (b) that in signing the second promissory note respondent Patricio Confesor can bind the
conjugal partnership; or otherwise said respondent became liable in his personal capacity. The petition is impressed
with merit. The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:

Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained,
but not the right to prescribe in the future.

Prescription is deemed to have been tacitly renounced when the renunciation results from acts
which imply the abandonment of the right acquired.

There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when
respondent Confesor executed the second promissory note on April 11, 1961 whereby he promised to pay the
amount covered by the previous promissory note on or before June 15, 1961, and upon failure to do so, agreed to the
foreclosure of the mortgage, said respondent thereby effectively and expressly renounced and waived his right to the
prescription of the action covering the first promissory note.

This Court had ruled in a similar case that –

... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new
contract recognizing and assuming the prescribed debt would be valid and enforceable ... . 1

Thus, it has been held —

Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the
same has prescribed and with full knowledge of the prescription he thereby waives the benefit of
prescription. 2

This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The
consideration of the new promissory note is the pre-existing obligation under the first promissory note. The statutory
limitation bars the remedy but does not discharge the debt.

A new express promise to pay a debt barred ... will take the case from the operation of the statute
of limitations as this proceeds upon the ground that as a statutory limitation merely bars the
remedy and does not discharge the debt, there is something more than a mere moral obligation to
support a promise, to wit a – pre-existing debt which is a sufficient consideration for the new the
new promise; upon this sufficient consideration constitutes, in fact, a new cause of action. 3

... It is this new promise, either made in express 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
However, the court a quo held that in signing the promissory note alone, respondent Confesor cannot thereby bind
his wife, respondent Jovita Villafuerte, citing Article 166 of the New Civil Code which provides:

Art. 166. Unless the wife has been declared a non compos mentis or a spend thrift, or is under civil
interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real
property of the conjugal partnership without, the wife's consent. If she ay compel her to refuses
unreasonably to give her consent, the court m grant the same.

We disagree. Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As
such administrator, all debts and obligations contracted by the husband for the benefit of the conjugal partnership,
are chargeable to the conjugal partnership. 5 No doubt, in this case, respondent Confesor signed the second
promissory note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this
obligation.

WHEREFORE, the decision subject of the petition is reversed and set aside and another decision is hereby rendered
reinstating the decision of the City Court of Iloilo City of December 27, 1976, without pronouncement as to costs in
this instance. This decision is immediately executory and no motion for extension of time to file motion for
reconsideration shall be granted.

SO ORDERED.

G.R. No. L-3756 June 30, 1952

SAGRADA ORDEN DE PREDICADORES DEL SANTISMO ROSARIO DE FILIPINAS, plaintiff-appellee,


vs.
NATIONAL COCONUT CORPORATION, defendant-appellant.

First Assistant Corporate Counsel Federico C. Alikpala and Assistant Attorney Augusto Kalaw for appellant.
Ramirez and Ortigas for appellee.

LABRADOR, J.:

This is an action to recover the possession of a piece of real property (land and warehouses) situated in Pandacan
Manila, and the rentals for its occupation and use. The land belongs to the plaintiff, in whose name the title was
registered before the war. On January 4, 1943, during the Japanese military occupation, the land was acquired by a
Japanese corporation by the name of Taiwan Tekkosho for the sum of P140,00, and thereupon title thereto issued in
its name (transfer certificate of title No. 64330, Register of Deeds, Manila). After liberation, more specifically on
April 4, 1946, the Alien Property Custodian of the United States of America took possession, control, and custody
thereof under section 12 of the Trading with the Enemy Act, 40 Stat., 411, for the reason that it belonged to an
enemy national. During the year 1946 the property was occupied by the Copra Export Management Company under
a custodianship agreement with United States Alien Property Custodian (Exhibit G), and when it vacated the
property it was occupied by the defendant herein. The Philippine Government made representations with the Office
Alien Property Custodian for the use of property by the Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31,
1947, the defendant was authorized to repair the warehouse on the land, and actually spent thereon the repairs the
sum of P26,898.27. In 1948, defendant leased one-third of the warehouse to one Dioscoro Sarile at a monthly rental
of P500, which was later raised to P1,000 a month. Sarile did not pay the rents, so action was brought against him. It
is not shown, however, if the judgment was ever executed.

Plaintiff made claim to the property before the Alien Property Custodian of the United States, but as this was denied,
it brought an action in court (Court of First Instance of Manila, civil case No. 5007, entitled "La Sagrada Orden
Predicadores de la Provinicia del Santisimo Rosario de Filipinas," vs. Philippine Alien Property Administrator,
defendant, Republic of the Philippines, intervenor) to annul the sale of property of Taiwan Tekkosho, and recover its
possession. The Republic of the Philippines was allowed to intervene in the action. The case did not come for trial
because the parties presented a joint petition in which it is claimed by plaintiff that the sale in favor of the Taiwan
Tekkosho was null and void because it was executed under threats, duress, and intimidation, and it was agreed that
the title issued in the name of the Taiwan Tekkosho be cancelled and the original title of plaintiff re-issued; that the
claims, rights, title, and interest of the Alien Property Custodian be cancelled and held for naught; that the occupant
National Coconut Corporation has until February 28, 1949, to recover its equipment from the property and vacate
the premises; that plaintiff, upon entry of judgment, pay to the Philippine Alien Property Administration the sum of
P140,000; and that the Philippine Alien Property Administration be free from responsibility or liability for any act of
the National Coconut Corporation, etc. Pursuant to the agreement the court rendered judgment releasing the
defendant and the intervenor from liability, but reversing to the plaintiff the right to recover from the National
Coconut Corporation reasonable rentals for the use and occupation of the premises. (Exhibit A-1.)

The present action is to recover the reasonable rentals from August, 1946, the date when the defendant began to
occupy the premises, to the date it vacated it. The defendant does not contest its liability for the rentals at the rate of
P3,000 per month from February 28, 1949 (the date specified in the judgment in civil case No. 5007), but resists the
claim therefor prior to this date. It interposes the defense that it occupied the property in good faith, under no
obligation whatsoever to pay rentals for the use and occupation of the warehouse. Judgment was rendered for the
plaintiff to recover from the defendant the sum of P3,000 a month, as reasonable rentals, from August, 1946, to the
date the defendant vacates the premises. The judgment declares that plaintiff has always been the owner, as the sale
of Japanese purchaser was void ab initio; that the Alien Property Administration never acquired any right to the
property, but that it held the same in trust until the determination as to whether or not the owner is an enemy citizen.
The trial court further declares that defendant can not claim any better rights than its predecessor, the Alien Property
Administration, and that as defendant has used the property and had subleased portion thereof, it must pay
reasonable rentals for its occupation.

Against this judgment this appeal has been interposed, the following assignment of error having been made on
defendant-appellant's behalf:

The trial court erred in holding the defendant liable for rentals or compensation for the use and occupation
of the property from the middle of August, 1946, to December 14, 1948.

1. Want to "ownership rights" of the Philippine Alien Property Administration did not render illegal or
invalidate its grant to the defendant of the free use of property.

2. the decision of the Court of First Instance of Manila declaring the sale by the plaintiff to the Japanese
purchaser null and void ab initio and that the plaintiff was and has remained as the legal owner of the
property, without legal interruption, is not conclusive.

3. Reservation to the plaintiff of the right to recover from the defendant corporation not binding on the
later;

4. Use of the property for commercial purposes in itself alone does not justify payment of rentals.

5. Defendant's possession was in good faith.

6. Defendant's possession in the nature of usufruct.

In reply, plaintiff-appellee's counsel contends that the Philippine Allien Property Administration (PAPA) was a mere
administrator of the owner (who ultimately was decided to be plaintiff), and that as defendant has used it for
commercial purposes and has leased portion of it, it should be responsible therefore to the owner, who had been
deprived of the possession for so many years. (Appellee's brief, pp. 20, 23.)
We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of the property
and the defendant-appellant the occupant, which used for its own benefit but by the express permission of the Alien
Property Custodian of the United States, so easily jumped to the conclusion that the occupant is liable for the value
of such use and occupation. If defendant-appellant is liable at all, its obligations, must arise from any of the four
sources of obligations, namley, law, contract or quasi-contract, crime, or negligence. (Article 1089, Spanish Civil
Code.) Defendant-appellant is not guilty of any offense at all, because it entered the premises and occupied it with
the permission of the entity which had the legal control and administration thereof, the Allien Property
Administration. Neither was there any negligence on its part. There was also no privity (of contract or obligation)
between the Alien Property Custodian and the Taiwan Tekkosho, which had secured the possession of the property
from the plaintiff-appellee by the use of duress, such that the Alien Property Custodian or its permittee (defendant-
appellant) may be held responsible for the supposed illegality of the occupation of the property by the said Taiwan
Tekkosho. The Allien Property Administration had the control and administration of the property not as successor to
the interests of the enemy holder of the title, the Taiwan Tekkosho, but by express provision of law (Trading with
the Enemy Act of 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 trustee of then Government of the United States (32 Op. Atty. Gen. 249; 50 U.S.C.A.
283), in its own right, to the exclusion of, and against the claim or title of, the enemy owner. (Youghioheny & Ohio
Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; U.S.C.A., 282-283.) From August, 1946, when
defendant-appellant took possession, to the late of judgment on February 28, 1948, Allien Property Administration
had the absolute control of the property as trustee of the Government of the United States, with power to dispose of
it by sale or otherwise, as though it were the absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5 F.
[2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant-appellant were liable to the Allien Property
Administration for rentals, these would not accrue to the benefit of the plaintiff-appellee, the owner, but to the
United States Government.

But there is another ground why the claim or rentals can not be made against defendant-appellant. There was no
agreement between the Alien Property Custodian and the defendant-appellant for the latter to pay rentals on the
property. The existence of an implied agreement to that effect is contrary to the circumstances. The copra Export
Management Company, which preceded the defendant-appellant, in the possession and use of the property, does not
appear to have paid rentals therefor, as it occupied it by what the parties denominated a "custodianship agreement,"
and there is no provision therein for the payment of rentals or of any compensation for its custody and or occupation
and the use. The Trading with the Enemy Act, as originally enacted, was purely a measure of conversation, hence, it
is very unlikely that rentals were demanded for the use of the property. When the National coconut Corporation
succeeded the Copra Export Management Company in the possession and use of the 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 agreement that the defendant-appellant was to pay for the use and
occupation of the premises at all.

The above considerations show that plaintiff-appellee's claim for rentals before it obtained the judgment annulling
the sale of the Taiwan Tekkosho may not be predicated on any negligence or offense of the defendant-appellant, or
any contract, express or implied, because the Allien Property Administration was neither a trustee of plaintiff-
appellee, nor a privy to the obligations of the Taiwan Tekkosho, its title being based by legal provision of the seizure
of enemy property. We have also tried in vain to find a law or provision thereof, or any principle in quasi contracts
or equity, upon which the claim can be supported. On the contrary, as defendant-appellant entered into possession
without any expectation of liability for such use and occupation, it is only fair and just that it may not be held liable
therefor. And as to the rents it collected from its lessee, the same should accrue to it as a possessor in good faith, as
this Court has already expressly held. (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil. 467.)

Lastly, the reservation of this action may not be considered as vesting a new right; if no right to claim for rentals
existed at the time of the reservation, no rights can arise or accrue from such reservation alone.

Wherefore, the part of the judgment appealed from, which sentences defendant-appellant to pay rentals from
August, 1946, to February 28, 1949, is hereby reversed. In all other respects the judgment is affirmed. Costs of this
appeal shall be against the plaintiff-appellee.
G.R. No. 183204 January 13, 2014

THE METROPOLITAN BANK AND TRUST COMPANY, Petitioner,


vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.

DECISION

DEL CASTILLO, J.:

Bank deposits, which are in the nature of a simple loan or mutuum, 1 must be paid upon demand by the depositor.2

This Petition for Review on Certiorari3 under Rule 45 of the Rules of Court assails the April 2, 2008 Decision4 and
the May 30, 2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.

Factual Antecedents

Petitioner Metropolitan Bank and Trust Company is a domestic banking corporation duly organized and existing
under the laws of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the owner of China Golden Bridge
Travel Services,7 a travel agency.8 Respondent Yo Yuk To is the mother of respondent Rosales. 9

In 2000, respondents opened a Joint Peso Account10 with petitioner’s Pritil-Tondo Branch.11 As of August 4, 2004,
respondents’ Joint Peso Account showed a balance of ₱2,515,693.52. 12

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

On March 3, 2003, respondents opened with petitioner’s Pritil-Tondo Branch a Joint Dollar Account15 with an initial
deposit of US$14,000.00.16

On July 31, 2003, petitioner issued a "Hold Out" order against respondents’ accounts. 17

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed before the
Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences, Misrepresentation, Deceit, and
Use of Falsified Documents, docketed as I.S. No. 03I-25014,18 against respondent Rosales.19 Petitioner accused
respondent Rosales and an unidentified woman as the ones responsible for the unauthorized and fraudulent
withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar account with petitioner’s Escolta Branch.20Petitioner
alleged that on February 5, 2003, its branch in Escolta received from the PLRA a Withdrawal Clearance for the
dollar account of Liu Chiu Fang;21 that in the afternoon of the same day, respondent Rosales went to petitioner’s
Escolta Branch to inform its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw
her dollar deposits in cash;22 that Gutierrez told respondent Rosales to come back the following day because the
bank did not have enough dollars;23 that on February 6, 2003, respondent Rosales accompanied an unidentified
impostor of Liu Chiu Fang to the bank;24 that the impostor was able to withdraw Liu Chiu Fang’s dollar deposit in
the amount of US$75,000.00;25 that on March 3, 2003, respondents opened a dollar account with petitioner; and that
the bank later discovered that the serial numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the dollar
account of Liu Chiu Fang.27 Respondent Rosales claimed that she did not go to the bank on February 5,
2003.28Neither did she inform Gutierrez that Liu Chiu Fang was going to close her account. 29 Respondent Rosales
further claimed that after Liu Chiu Fang opened an account with petitioner, she lost track of her. 30 Respondent
Rosales’ version of the events that transpired thereafter is as follows:

On February 6, 2003, she received a call from Gutierrez informing her that Liu Chiu Fang was at the bank to close
her account.31 At noon of the same day, respondent Rosales went to the bank to make a transaction. 32 While she was
transacting with the teller, she caught a glimpse of a woman seated at the desk of the Branch Operating Officer,
Melinda Perez (Perez).33 After completing her transaction, respondent Rosales approached Perez who informed her
that Liu Chiu Fang had closed her account and had already left. 34 Perez then gave a copy of the Withdrawal
Clearance issued by the PLRA to respondent Rosales.35 On June 16, 2003, respondent Rosales received a call from
Liu Chiu Fang inquiring about the extension of her PLRA Visa and her dollar account. 36 It was only then that Liu
Chiu Fang found out that her account had been closed without her knowledge. 37 Respondent Rosales then went to
the bank to inform Gutierrez and Perez of the unauthorized withdrawal. 38 On June 23, 2003, respondent Rosales and
Liu Chiu Fang went to the PLRA Office, where they were informed that the Withdrawal Clearance was issued on
the basis of a Special Power of Attorney (SPA) executed by Liu Chiu Fang in favor of a certain Richard So. 39 Liu
Chiu Fang, however, denied executing the SPA.40 The following day, respondent Rosales, Liu Chiu Fang, Gutierrez,
and Perez met at the PLRA Office to discuss the unauthorized withdrawal. 41 During the conference, the bank
officers assured Liu Chiu Fang that the money would be returned to her.42

On December 15, 2003, the Office of the City Prosecutor of Manila issued a Resolution dismissing the criminal case
for lack of probable cause.43 Unfazed, petitioner moved for reconsideration.

On September 10, 2004, respondents filed before the Regional Trial Court (RTC) of Manila a Complaint44 for
Breach of Obligation and Contract with Damages, docketed as Civil Case No. 04110895 and raffled to Branch 21,
against petitioner. Respondents alleged that they attempted several times to withdraw their deposits but were unable
to because petitioner had placed their accounts under "Hold Out" status. 45 No explanation, however, was given by
petitioner as to why it issued the "Hold Out" order.46 Thus, they prayed that the "Hold Out" order be lifted and that
they be allowed to withdraw their deposits.47 They likewise prayed for actual, moral, and exemplary damages, as
well as attorney’s fees.48

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold Out"
order.49 It averred that due to the fraudulent scheme of respondent Rosales, it was compelled to reimburse Liu Chiu
Fang the amount of US$75,000.0050 and to file a criminal complaint for Estafa against respondent Rosales. 51

While the case for breach of contract was being tried, the City Prosecutor of Manila issued a Resolution dated
February 18, 2005, reversing the dismissal of the criminal complaint. 52 An Information, docketed as Criminal Case
No. 05-236103,53 was then filed charging respondent Rosales with Estafa before Branch 14 of the RTC of Manila.54

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision55 finding petitioner liable for damages for breach of
contract.56The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the act of
withdrawal of a bank deposit is an act of demand by the creditor. 57 The RTC also said that the recourse of petitioner
is against its negligent employees and not against respondents.58 The dispositive portion of the Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK
& TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their
Savings and Time Deposits with the agreed interest, actual damages of ₱50,000.00, moral damages of ₱50,000.00,
exemplary damages of ₱30,000.00 and 10% of the amount due [respondents] as and for attorney’s fees plus the cost
of suit.

The counterclaim of [petitioner] is hereby DISMISSED for lack of merit.


SO ORDERED.59

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

On April 2, 2008, the CA affirmed the ruling of the RTC but deleted the award of actual damages because "the basis
for [respondents’] claim for such damages is the professional fee that they paid to their legal counsel for
[respondent] Rosales’ defense against the criminal complaint of [petitioner] for estafa before the Office of the City
Prosecutor of Manila and not this case." 60 Thus, the CA disposed of the case in this wise:

WHEREFORE, premises considered, the Decision dated January 15, 2007 of the RTC, Branch 21, Manila in Civil
Case No. 04-110895 is AFFIRMED with MODIFICATION that the award of actual damages to [respondents]
Rosales and Yo Yuk To is hereby DELETED.

SO ORDERED.61

Petitioner sought reconsideration but the same was denied by the CA in its May 30, 2008 Resolution. 62

Issues

Hence, this recourse by petitioner raising the following issues:

A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT" PROVISION IN THE APPLICATION
AND AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.

B. THE [CA] ERRED WHEN IT RULED THAT PETITIONER’S EMPLOYEES WERE NEGLIGENT
IN RELEASING LIU CHIU FANG’S FUNDS.

C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY


DAMAGES, AND ATTORNEY’S FEES.63

Petitioner’s Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and
Agreement for Deposit Account.64 It posits that the said clause applies to any and all kinds of obligation as it does
not distinguish between obligations arising ex contractu or ex delictu. 65 Petitioner also contends that the fraud
committed by respondent Rosales was clearly established by evidence;66 thus, it was justified in issuing the "Hold-
Out" order.67 Petitioner likewise denies that its employees were negligent in releasing the dollars.68 It claims that it
was the deception employed by respondent Rosales that caused petitioner’s employees to release Liu Chiu Fang’s
funds to the impostor.69

Lastly, petitioner puts in issue the award of moral and exemplary damages and attorney’s fees. It insists that
respondents failed to prove that it acted in bad faith or in a wanton, fraudulent, oppressive or malevolent manner. 70

Respondents’ Arguments

Respondents, on the other hand, argue that there is no legal basis for petitioner to withhold their deposits because
they have no monetary obligation to petitioner.71 They insist that petitioner miserably failed to prove its accusations
against respondent Rosales.72 In fact, no documentary evidence was presented to show that respondent Rosales
participated in the unauthorized withdrawal.73 They also question the fact that the list of the serial numbers of the
dollar notes fraudulently withdrawn on February 6, 2003, was not signed or acknowledged by the alleged
impostor.74Respondents likewise maintain that what was established during the trial was the negligence of
petitioner’s employees as they allowed the withdrawal of the funds without properly verifying the identity of the
depositor.75Furthermore, respondents contend that their deposits are in the nature of a loan; thus, petitioner had the
obligation to return the deposits to them upon demand. 76 Failing to do so makes petitioner liable to pay respondents
moral and exemplary damages, as well as attorney’s fees. 77

Our Ruling

The Petition is bereft of merit.

At the outset, the relevant issues in this case are (1) whether petitioner breached its contract with respondents, and
(2) if so, whether it is liable for damages. The issue of whether petitioner’s employees were negligent in allowing
the withdrawal of Liu Chiu Fang’s dollar deposits has no bearing in the resolution of this case. Thus, we find no
need to discuss the same.

The "Hold Out" clause does not apply

to the instant case.

Petitioner claims that it did not breach its contract with respondents because it has a valid reason for issuing the
"Hold Out" order. Petitioner anchors its right to withhold respondents’ deposits on the Application and Agreement
for Deposit Account, which reads:

Authority to Withhold, Sell and/or Set Off:

The Bank is hereby authorized to withhold as security for any and all obligations with the Bank, all monies,
properties or securities of the Depositor now in or which may hereafter come into the possession or under the control
of the Bank, whether left with the Bank for safekeeping or otherwise, or coming into the hands of the Bank in any
way, for so much thereof as will be sufficient to pay any or all obligations incurred by Depositor under the Account
or by reason of any other transactions between the same parties now existing or hereafter contracted, to sell in any
public or private sale any of such properties or securities of Depositor, and to apply the proceeds to the payment of
any Depositor’s obligations heretofore mentioned.

xxxx

JOINT ACCOUNT

xxxx

The Bank may, at any time in its discretion and with or without notice to all of the Depositors, assert a lien on any
balance of the Account and apply all or any part thereof against any indebtedness, matured or unmatured, that may
then be owing to the Bank by any or all of the Depositors. It is understood that if said indebtedness is only owing
from any of the Depositors, then this provision constitutes the consent by all of the depositors to have the Account
answer for the said indebtedness to the extent of the equal share of the debtor in the amount credited to the
Account.78

Petitioner’s reliance on the "Hold Out" clause in the Application and Agreement for Deposit Account is misplaced.

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 115779 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and quasi-
delict. In this case, petitioner failed to show that respondents have an obligation to it under any law, contract, quasi-
contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against respondent Rosales, this
is not enough reason for petitioner to issue a "Hold Out" order as the case is still pending and no final judgment of
conviction has been rendered against respondent Rosales. In fact, it is significant to note that at the time petitioner
issued the "Hold Out" order, the criminal complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there was no legal basis for petitioner to issue the
"Hold Out" order. Accordingly, we agree with the findings of the RTC and the CA that the "Hold Out" clause does
not apply in the instant case.

In view of the foregoing, we find that petitioner is guilty of breach of contract when it unjustifiably refused to
release respondents’ deposit despite demand. Having breached its contract with respondents, petitioner is liable for
damages.

Respondents are entitled to moral and


exemplary damages and attorney’s fees.1âwphi1

In cases of breach of contract, moral damages may be recovered only if the defendant acted fraudulently or in bad
faith,80 or is "guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations."81

In this case, a review of the circumstances surrounding the issuance of the "Hold Out" order reveals that petitioner
issued the "Hold Out" order in bad faith. First of all, the order was issued without any legal basis. Second, petitioner
did not inform respondents of the reason for the "Hold Out." 82 Third, the order was issued prior to the filing of the
criminal complaint. Records show that the "Hold Out" order was issued on July 31, 2003, 83 while the criminal
complaint was filed only on September 3, 2003.84 All these taken together lead us to conclude that petitioner acted in
bad faith when it breached its contract with respondents. As we see it then, respondents are entitled to moral
damages.

As to the award of exemplary damages, Article 2229 85 of the Civil Code provides that exemplary damages may be
imposed "by way of example or correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages." They are awarded only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.86

In this case, we find that petitioner indeed acted in a wanton, fraudulent, reckless, oppressive or malevolent manner
when it refused to release the deposits of respondents without any legal basis. We need not belabor the fact that the
banking industry is impressed with public interest.87 As such, "the highest degree of diligence is expected, and high
standards of integrity and performance are even required of it." 88 It must therefore "treat the accounts of its
depositors with meticulous care and always to have in mind the fiduciary nature of its relationship with them." 89 For
failing to do this, an award of exemplary damages is justified to set an example.

The award of attorney's fees is likewise proper pursuant to paragraph 1, Article 2208 90 of the Civil Code.

In closing, it must be stressed that while we recognize that petitioner has the right to protect itself from fraud or
suspicions of fraud, the exercise of his right should be done within the bounds of the law and in accordance with due
process, and not in bad faith or in a wanton disregard of its contractual obligation to respondents.

WHEREFORE, the Petition is hereby DENIED. The assailed April 2, 2008 Decision and the May 30, 2008
Resolution of the Court of Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO ORDERED.

G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,


vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity as President of
FEU, respondents.

DECISION

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of Court assails the June 29, 2007 Decision 2 of
the Court of Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the November 10, 2004 Decision 3 of
the Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the complaint filed by
petitioner; as well as its August 23, 2007 Resolution4 denying the Motion for Reconsideration.5

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent Far Eastern University (FEU) when he was
shot by Alejandro Rosete (Rosete), one of the security guards on duty at the school premises on August 18, 1996.
Petitioner was rushed to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he
sustained.6Meanwhile, Rosete was brought to the police station where he explained that the shooting was accidental.
He was eventually released considering that no formal complaint was filed against him.

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 Management Corporation
(Galaxy), the agency contracted by respondent FEU to provide security services within its premises and Mariano D.
Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be adjudged in favor of petitioner, if
any; and to pay attorney's fees and cost of the suit. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of which
reads:

WHEREFORE, from the foregoing, judgment is hereby rendered ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally
Joseph Saludaga the amount of P35,298.25 for actual damages with 12% interest per annum from
the filing of the complaint until fully paid; moral damages of P300,000.00, exemplary damages of
P500,000.00, attorney's fees of P100,000.00 and cost of the suit;

2. Galaxy Management and Development Corp. and its president, Col. Mariano Imperial to
indemnify jointly and severally 3rd party plaintiffs (FEU and Edilberto de Jesus in his capacity as
President of FEU) for the above-mentioned amounts;

3. And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to
costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of which
provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby
REVERSED and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483 is DISMISSED.
SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the following
grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND


JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY RESULTING FROM A
GUNSHOT WOUND SUFFERED BY THE PETITIONER FROM THE HANDS OF NO LESS THAN
THEIR OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN CONTRACTUAL
OBLIGATION TO PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE
HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER WHILE HE WAS
WALKING ON HIS WAY TO THE LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR
EMPLOYEE BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY
AND FEU NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY TO IT, IS
NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY


WHICH WOULD PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT
FEU.11

Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe
learning environment. The pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to
visit and inquire about his condition. This abject indifference on the part of the defendants continued even
after plaintiff was discharged from the hospital when not even a word of consolation was heard from them.
Plaintiff waited for more than one (1) year for the defendants to perform their moral obligation but the wait
was fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's
miserable condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students while the latter are within the
University premises. And that should anything untoward happens to any of its students while they are
within the University's premises shall be the responsibility of the defendants. In this case, defendants,
despite being legally and morally bound, miserably failed to protect plaintiff from injury and thereafter, to
mitigate and compensate plaintiff for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was entered into between them. Under this
contract, defendants are supposed to ensure that adequate steps are taken to provide an atmosphere
conducive to study and ensure the safety of the plaintiff while inside defendant FEU's premises. In the
instant case, the latter breached this contract when defendant allowed harm to befall upon the plaintiff when
he was shot at by, of all people, their security guard who was tasked to maintain peace inside the campus. 12

In Philippine School of Business Administration v. Court of Appeals,13 we held that:


When an academic institution accepts students for enrollment, there is established a contract between them,
resulting in bilateral obligations which both parties are bound to comply with. For its part, the school
undertakes to provide the student with an education that would presumably suffice to equip him with the
necessary tools and skills to pursue higher education or a profession. On the other hand, the student
covenants to abide by the school's academic requirements and observe its rules and regulations.

Institutions of learning must also meet the implicit or "built-in" obligation of providing their students with
an atmosphere that promotes or assists in attaining its primary undertaking of imparting knowledge.
Certainly, no student can absorb the intricacies of physics or higher mathematics or explore the realm of the
arts and other sciences when bullets are flying or grenades exploding in the air or where there looms around
the school premises a constant threat to life and limb. Necessarily, the school must ensure that adequate
steps are taken to maintain peace and order within the campus premises and to prevent the breakdown
thereof.14

It is undisputed that petitioner was enrolled as a sophomore law student in respondent FEU. As such, there was
created a contractual obligation between the two parties. On petitioner's part, he was obliged to comply with the
rules and regulations of the school. On the other hand, respondent FEU, as a learning institution is mandated to
impart knowledge and equip its students with the necessary skills to pursue higher education or a profession. At the
same time, it is obliged to ensure and take adequate steps to maintain peace and order within the campus.

It is settled that in culpa contractual, the mere proof of the existence of the contract and the failure of its compliance
justify, prima facie, a corresponding right of relief. 15 In the instant case, we find that, when petitioner was shot
inside the campus by no less the security guard who was hired to maintain peace and secure the premises, there is a
prima facie showing that respondents failed to comply with its obligation to provide a safe and secure environment
to its students.

In order to avoid liability, however, respondents aver that the shooting incident was a fortuitous event because they
could not have reasonably foreseen nor avoided the accident caused by Rosete as he was not their employee; 16and
that they complied with their obligation to ensure a safe learning environment for their students by having exercised
due diligence in selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed to discharge the burden of proving that they
exercised due diligence in providing a safe learning environment for their students. They failed to prove that they
ensured that the guards assigned in the campus met the requirements stipulated in the Security Service Agreement.
Indeed, certain documents about Galaxy were presented during trial; however, no evidence as to the qualifications of
Rosete as a security guard for the university was offered.

Respondents also failed to show that they undertook steps to ascertain and confirm that the security guards assigned
to them actually possess the qualifications required in the Security Service Agreement. It was not proven that they
examined the clearances, psychiatric test results, 201 files, and other vital documents enumerated in its contract with
Galaxy. Total reliance on the security agency about these matters or failure to check the papers stating the
qualifications of the guards is negligence on the part of respondents. A learning institution should not be allowed to
completely relinquish or abdicate security matters in its premises to the security agency it hired. To do so would
result to contracting away its inherent obligation to ensure a safe learning environment for its students.

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct was committed that may have occasioned the loss. An act
of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and
injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act - the whole occurrence is humanized and
removed from the rules applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning environment,
respondent FEU is liable to petitioner for damages. It is essential in the award of damages that the claimant must
have satisfactorily proven during the trial the existence of the factual basis of the damages and its causal connection
to defendant's acts.18

In the instant case, it was established that petitioner spent P35,298.25 for his hospitalization and other medical
expenses.19 While the trial court correctly imposed interest on said amount, however, the case at bar involves an
obligation arising from a contract and not a loan or forbearance of money. As such, the proper rate of legal interest is
six percent (6%) per annum of the amount demanded. Such interest shall continue to run from the filing of the
complaint until the finality of this Decision.20 After this Decision becomes final and executory, the applicable rate
shall be twelve percent (12%) per annum until its satisfaction.

The other expenses being claimed by petitioner, such as transportation expenses and those incurred in hiring a
personal assistant while recuperating were however not duly supported by receipts. 21 In the absence thereof, no
actual damages may be awarded. Nonetheless, temperate damages under Art. 2224 of the Civil Code may be
recovered where it has been shown that the claimant suffered some pecuniary loss but the amount thereof cannot be
proved with certainty. Hence, the amount of P20,000.00 as temperate damages is awarded to petitioner.

As regards the award of moral damages, there is no hard and fast rule in the determination of what would be a fair
amount of moral damages since each case must be governed by its own peculiar circumstances. 22 The testimony of
petitioner about his physical suffering, mental anguish, fright, serious anxiety, and moral shock resulting from the
shooting incident23 justify the award of moral damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer. The
award is not meant to enrich the complainant at the expense of the defendant, but to enable the injured party to
obtain means, diversion, or amusements that will serve to obviate the moral suffering he has undergone. It is aimed
at the restoration, within the limits of the possible, of the spiritual status quo ante, and should be proportionate to the
suffering inflicted. Trial courts must then guard against the award of exorbitant damages; they should exercise
balanced restrained and measured objectivity to avoid suspicion that it was due to passion, prejudice, or corruption
on the part of the trial court.24 We deem it just and reasonable under the circumstances to award petitioner moral
damages in the amount of P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of P50,000.00 as part of damages is reasonable in
view of Article 2208 of the Civil Code.25 However, the award of exemplary damages is deleted considering the
absence of proof that respondents acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable with respondent FEU. In Powton
Conglomerate, Inc. v. Agcolicol,26 we held that:

[A] corporation is invested by law with a personality separate and distinct from those of the persons
composing it, such that, save for certain exceptions, corporate officers who entered into contracts in behalf
of the corporation cannot be held personally liable for the liabilities of the latter. Personal liability of a
corporate director, trustee or officer along (although not necessarily) with the corporation may so validly
attach, as a rule, only when - (1) he assents to a patently unlawful act of the corporation, or when he is
guilty of bad faith or gross negligence in directing its affairs, or when there is a conflict of interest resulting
in damages to the corporation, its stockholders or other persons; (2) he consents to the issuance of watered
down stocks or who, having knowledge thereof, does not forthwith file with the corporate secretary his
written objection thereto; (3) he agrees to hold himself personally and solidarily liable with the corporation;
or (4) he is made by a specific provision of law personally answerable for his corporate action. 27

None of the foregoing exceptions was established in the instant case; hence, respondent De Jesus should not be held
solidarily liable with respondent FEU.
Incidentally, although the main cause of action in the instant case is the breach of the school-student contract,
petitioner, in the alternative, also holds respondents vicariously liable under Article 2180 of the Civil Code, which
provides:

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

xxxx

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

xxxx

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

We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under Art.
2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by Galaxy.
The instructions issued by respondents' Security Consultant to Galaxy and its security guards are ordinarily no more
than requests commonly envisaged in the contract for services entered into by a principal and a security agency.
They cannot be construed as the element of control as to treat respondents as the employers of Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency recruits, hires and assigns the works of
its watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and
not the client, since the latter has no hand in selecting the security guards. Thus, the duty to observe the
diligence of a good father of a family cannot be demanded from the said client:

… [I]t is settled in our jurisdiction that where the security agency, as here, recruits, hires and
assigns the work of its watchmen or security guards, the agency is the employer of such guards or
watchmen. Liability for illegal or harmful acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of such agency. As a general rule, a client or
customer of a security agency has no hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty to observe the diligence of a
good father of a family in the selection of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are protected by the security guards.

xxxx

The fact that a client company may give instructions or directions to the security guards assigned to it, does
not, by itself, render the client responsible as an employer of the security guards concerned and liable for
their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,32 we held that:

The third-party complaint is, therefore, a procedural device 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 case with leave of court,
by the defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for
this provision of the Rules of Court, it would have to be filed independently and separately from the
original complaint by the defendant against the third-party. But the Rules permit defendant to bring in a
third-party defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim
against a third-party in the original and principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in one litigation the entire subject
matter arising from one particular set of facts.33

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of
petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only in the
selection of its employees but also in their supervision. Indeed, no administrative sanction was imposed against
Rosete despite the shooting incident; moreover, he was even allowed to go on leave of absence which led eventually
to his disappearance.34 Galaxy also failed to monitor petitioner's condition or extend the necessary assistance, other
than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to make good their pledge to reimburse
petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU with an unqualified security guard, which
resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent FEU for such
damages equivalent to the above-mentioned amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in
directing the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses will be
shouldered by Galaxy but said representations were not fulfilled because they presumed that petitioner and his
family were no longer 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 complaint as well as the August 23, 2007
Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for damages
for breach of its obligation to provide students with a safe and secure learning atmosphere, is AFFIRMED with the
following MODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay petitioner actual damages in the amount of
P35,298.25, plus 6% interest per annum from the filing of the complaint until the finality of this Decision. After this
decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its
satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate damages in the amount of P20,000.00; moral
damages in the amount of P100,000.00; and attorney's fees and litigation expenses in the amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED. The counterclaims of respondents are
likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its president, Mariano D. Imperial
are ORDEREDto jointly and severally pay respondent FEU damages equivalent to the above-mentioned amounts
awarded to petitioner.

SO ORDERED.
G.R. No. L-36840 May 22, 1973

PEOPLE'S CAR INC., plaintiff-appellant,


vs.
COMMANDO SECURITY SERVICE AGENCY, defendant-appellee.

TEEHANKEE, J.:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiff-appellant's recovery
under its complaint to the sum of P1,000.00 instead of the actual damages 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 plaintiff's premises in pursuance
of their "Guard Service Contract", the Court finds merit in the appeal and accordingly reverses the trial court's
judgment.

The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-one vote as per its
resolution of April 14, 1973 that "Since the case was submitted to the court a quo for decision on the strength of the
stipulation of facts, only questions of law can be involved in the present appeal."

The Court has accepted such certification and docketed this 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 appellate court)" on pure questions of
law"1 and its record on appeal accordingly prayed that" the corresponding records be certified and forwarded to the
Honorable Supreme Court."2 The trial court so approved the same3 on July 3, 1971 instead of having required the
filing of a petition for review of the judgment sought to be appealed from directly with this Court, in accordance
with the provisions of Republic Act 5440. By some unexplained and hitherto undiscovered error of the clerk of
court, furthermore, the record on appeal was erroneously forwarded to the appellate court rather than to this Court.

The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as to the factual bases
of plaintiff's complaint for recovery of actual damages against defendant, to wit, that under the subsisting "Guard
Service Contract" between the parties, defendant-appellee as a duly licensed security service agency undertook in
consideration of the payments made by plaintiff to safeguard and protect the business premises of (plaintiff) from
theft, pilferage, robbery, vandalism and all other unlawful acts of any person or person prejudicial to the interest of
(plaintiff)."4

On April 5, 1970 at around 1:00 A.M., however, defendant's security guard on duty at plaintiff's premises, "without
any authority, consent, approval, knowledge or orders of the plaintiff 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 places unknown, abandoning his
post as such security guard on duty inside the plaintiff's compound, and while so driving said car in one of the City
streets lost control of said car, causing the same to fall into a ditch along J.P. Laurel St., Davao City by reason of
which the plaintiff's complaint for qualified theft against said driver, was blottered in the office of the Davao City
Police Department."5

As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer, Joseph Luy, which
had been left with plaintiff for servicing and maintenance, "suffered extensive damage in the total amount of
P7,079."6 besides the car rental value "chargeable to defendant" in the sum of P1,410.00 for a car that plaintiff had
to rent and make available to its said customer to enable him to pursue his business and occupation for the period of
forty-seven (47) days (from April 25 to June 10, 1970) that it took plaintiff to repair the damaged car, 7 or total actual
damages incurred by plaintiff in the sum of P8,489.10.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract whereunder
defendant assumed "sole responsibility for the acts done during their watch hours" by its guards, whereas defendant
contended, without questioning the amount of the actual damages incurred by plaintiff, that its liability "shall not
exceed one thousand (P1,000.00) pesos per guard post" under paragraph 4 of their contract.
The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as follows:

Interpretation of the contract, as to the extent of the liability of the defendant to the plaintiff by
reason of the acts of the employees of the defendant is the only issue to be resolved.

The defendant relies on Par. 4 of the contract to support its contention while the plaintiff relies on
Par. 5 of the same contract in support of its claims against the defendant. For ready reference they
are quoted hereunder:

'Par. 4. — Party of the Second Part (defendant) through the negligence of its
guards, after an investigation has been conducted by the Party of the First Part
(plaintiff) wherein the Party of the Second Part has been duly represented shall
assume full responsibilities for any loss or damages that may occur to any
property of the Party of the First Part for which it is accountable, during the
watch hours of the Party of the Second Part, provided the same is reported to the
Party of the Second Part within twenty-four (24) hours of the occurrence, except
where such loss or damage is due to force majeure, provided however that after
the proper investigation to be made thereof that the guard on post is found
negligent and that the amount of the loss shall not exceed ONE THOUSAND
(P1,000.00) PESOS per guard post.'

'Par. 5 — The party of the Second Part assumes the responsibility for the proper
performance by the guards employed, of their duties and (shall) be solely
responsible for the acts done during their watch hours, the Party of the First Part
being specifically released from any and all liabilities to the former's employee
or to the third parties arising from the acts or omissions done by the guard
during their tour of
duty.' ...8

The trial court, misreading the above-quoted contractual provisions, held that "the liability of the defendant in favor
of the plaintiff falls under paragraph 4 of the Guard Service Contract" and rendered judgment "finding the defendant
liable to the plaintiff in the amount of P1,000.00 with costs."

Hence, this appeal, which, as already indicated, is meritorious and must be granted.

Paragraph 4 of the contract, which limits defendant's liability for the amount of loss or damage to any property of
plaintiff to "P1,000.00 per guard post," is by its own terms applicable only for loss or damage 'through
the negligenceof its guards ... during the watch hours" provided that the same is duly reported by plaintiff within 24
hours of the occurrence and the guard's negligence is verified after proper investigation with the attendance of both
contracting parties. Said paragraph is manifestly inapplicable to the stipulated facts of record, which involve neither
property of plaintiff that has been lost or damaged at its premises nor mere negligence of defendant's security guard
on duty.

Here, instead of defendant, through its assigned security guards, complying with its contractual undertaking 'to
safeguard and protect the business premises of (plaintiff) from theft, robbery, vandalism and all other unlawful acts
of any person or persons," defendant's own guard on duty unlawfully and wrongfully drove out of plaintiffs
premises a customer's car, lost control of it on the highway causing it to fall into a ditch, thereby directly causing
plaintiff to incur actual damages in the total amount of P8,489.10.

Defendant is therefore undoubtedly liable to indemnify plaintiff for the entire damages thus incurred, since under
paragraph 5 of their contract it "assumed the responsibility for the proper performance by the guards employed of
their duties and (contracted to) be solely responsible for the acts done during their watch hours" and "specifically
released (plaintiff) from any and all liabilities ... to the third parties arising from the acts or omissions done by the
guards during their tour of duty." As plaintiff had duly discharged its liability to the third party, its customer, Joseph
Luy, for the undisputed damages of P8,489.10 caused said customer, due to the wanton and unlawful act of
defendant's guard, defendant in turn was clearly liable under the terms of paragraph 5 of their contract to indemnify
plaintiff in the same amount.

The trial court's approach that "had plaintiff understood the liability of the defendant to fall under paragraph 5, it
should have told Joseph Luy, owner of the car, that under the Guard Service Contract, it was not liable for the
damage but the defendant and had Luy insisted on the liability of the plaintiff, the latter should have challenged him
to bring the matter to court. If Luy accepted the challenge and instituted an action against the plaintiff, it 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.

Plaintiff was in law liable to its customer for the damages caused the customer's car, which had been entrusted into
its custody. Plaintiff therefore was in law justified in making good such damages and relying in turn on defendant to
honor its contract and indemnify it for such undisputed damages, which had been 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 force of law between the contracting parties and should be complied
with in good faith."

Plaintiff in law could not tell its customer, as per the trial court's view, that "under the Guard Service Contract it was
not liable for the damage but the defendant" — since the customer could not hold defendant to account for the
damages as he had no privity of contract with defendant. Such an approach of telling the adverse party to go to
court, notwithstanding his plainly valid claim, aside from its ethical deficiency among others, could hardly create
any goodwill for plaintiff's business, in the same way that defendant's baseless attempt to evade fully discharging its
contractual liability to plaintiff cannot be expected to have brought it more business. Worse, the administration of
justice is prejudiced, since the court dockets are unduly burdened with unnecessary litigation.

ACCORDINGLY, the judgment appealed from is hereby reversed and judgment is hereby rendered sentencing
defendant-appellee to pay plaintiff-appellant the sum of P8,489.10 as and by way of reimbursement of the stipulated
actual damages and expenses, as well as the costs of suit in both instances. It is so ordered.

G.R. No. L-23749 April 29, 1977

FAUSTINO CRUZ, plaintiff-appellant,


vs.
J. M. TUASON & COMPANY, INC., and GREGORIO ARANETA, INC., defendants-appellees.

BARREDO, J.:

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 vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing the complaint of appellant
Cruz for the recovery of improvements he has made on appellees' land and to compel appellees to convey to him
3,000 square meters of land on three grounds: (1) failure of the complaint to state a cause of action; (2) the cause of
action of plaintiff is unenforceable under the Statute of Frauds; and (3) the action of the plaintiff has already
prescribed.

Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate causes of action,
namely: (1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the land in question
on the strength of an "informacion posesoria" ) plaintiff made permanent improvements valued at P30,400.00 on
said land having an area of more or less 20 quinones and for which he also incurred expenses in the amount of
P7,781.74, and since defendants-appellees are being benefited by said improvements, he is entitled to
reimbursement from them of said amounts and (2) that in 1952, defendants availed of plaintiff's services as an
intermediary with the Deudors to work for the amicable settlement of Civil Case No. Q-135, then pending also in the
Court of First Instance of Quezon City, and involving 50 quinones of land, of Which the 20 quinones
aforementioned form part, and notwithstanding his having performed his services, as in fact, a compromise
agreement entered into on March 16, 1963 between the Deudors and the defendants was approved by the court, the
latter have refused to convey to him the 3,000 square meters of land occupied by him, (a part of the 20 quinones
above) which said defendants had promised to do "within ten years from and after date of signing of the compromise
agreement", as consideration for his services.

Within the Period allowed by the rules, the defendants filed separate motions to dismiss alleging three Identical
grounds: (1) As regards that improvements made by plaintiff, that the complaint states no cause of action, the
agreement regarding the same having been made by plaintiff with the Deudors and not with the defendants, hence
the theory of plaintiff based on Article 2142 of the Code on unjust enrichment is untenable; and (2) anent the alleged
agreement about plaintiffs services as intermediary in consideration of which, defendants promised to convey to him
3,000 square meters of land, that the same is unenforceable under the Statute of Frauds, there being nothing in
writing about it, and, in any event, (3) that the action of plaintiff to compel such conveyance has already prescribed.

Plaintiff opposed the motion, insisting that Article 2142 of the applicable to his case; that the Statute of Frauds
cannot be invoked by defendants, not only because Article 1403 of the Civil Code refers only to "sale of real
property or of an interest therein" and not to promises to convey real property like the one supposedly promised by
defendants to him, but also because, he, the plaintiff has already performed his part of the agreement, hence the
agreement has already been partly executed and not merely executory within the contemplation of the Statute; and
that his action has not prescribed for the reason that defendants had ten years to comply and only after the said ten
years did his cause of action accrue, that is, ten years after March 16, 1963, the date of the approval of the
compromise agreement, and his complaint was filed on January 24, 1964.

Ruling on the motion to dismiss, the trial court issued the herein impugned order of August 13, 1964:

In the motion, dated January 31, 1964, defendant Gregorio Araneta, Inc. prayed that the complaint
against it be dismissed on the ground that (1) the claim on which the action is founded is
unenforceable under the provision of the Statute of Frauds; and (2) the plaintiff's action, if any has
already prescribed. In the other motion of February 11, 1964, defendant J. M. Tuason & Co., Inc.
sought the dismissal of the plaintiffs complaint on the ground that it states no cause of action and
on the Identical grounds stated in the motion to dismiss of defendant Gregorio Araneta, Inc. The
said motions are duly opposed by the plaintiff.

From the allegations of the complaint, it appears that, by virtue of an agreement arrived at in 1948
by the plaintiff and the Deudors, the former assisted the latter in clearing, improving, subdividing
and selling the large tract of land consisting of 50 quinones covered by the informacion
posesoria in the name of the late Telesforo Deudor and incurred expenses, which are valued
approximately at P38,400.00 and P7,781.74, respectively; and, for the reasons that said
improvements are being used and enjoyed by the defendants, the plaintiff is seeking the
reimbursement for the services and expenses stated above from the defendants.

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the
reimbursement of the amounts of 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 quinones. On the other hand, the
plaintiff countered that, by holding and utilizing the improvements introduced by him, the
defendants are unjustly enriching and benefiting at the expense of the plaintiff; and that said
improvements constitute a lien or charge of the property itself
On the issue that the complaint insofar as it claims the reimbursement for the services rendered
and expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the
same is well-founded. It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the clearing and
improvement of the 50 quinones. Furthermore in order that the alleged improvement may be
considered a lien or charge on the property, the same should have been made in good faith and
under the mistake as to the title. The Court can take judicial notice of the fact that the tract of land
supposedly improved by the plaintiff had been registered way back in 1914 in the name of the
predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This fact is confirmed in the
decision rendered by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079 entitled J.M.
Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the case, the plaintiff cannot claim
good faith and mistake as to the title of the land.

On the issue of statute of fraud, the Court believes that same is applicable to the instant case. The
allegation in par. 12 of the complaint states that the defendants promised and agreed to cede,
transfer and convey unto the plaintiff the 3,000 square meters of land in consideration of certain
services to be rendered 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 the Civil Code, such agreement is
not enforceable as it is not in writing and subscribed by the party charged.

On the issue of statute of limitations, the Court holds that the plaintiff's action has prescribed. It is
alleged in par. 11 of the complaint that, sometime in 1952, the defendants approached the plaintiff
to prevail upon the Deudors to enter to a compromise agreement in Civil Case No. Q-135 and
allied cases. Furthermore, par. 13 and 14 of the complaint alleged that the plaintiff acted as
emissary of both parties in conveying their respective proposals and couter-proposals until the
final settlement was effected on March 16, 1953 and approved by Court on April 11, 1953. In the
present action, which was instituted on January 24, 1964, the plaintiff is seeking to enforce the
supposed agreement entered into between him and the defendants in 1952, which was already
prescribed.

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without pronouncement as


to costs.

SO ORDERED. (Pp. 65-69, Rec. on Appeal,)

On August 22, 1964, plaintiff's counsel filed a motion for reconsideration dated August 20, 1964 as follows:

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

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST


DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES, IS CONCERNED;

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS., THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO;

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action for sum of
money in the amount of P7,781.74 representing actual expenses and P38,400.00 as reasonable
compensation for services in improving the 50 quinones now in the possession of defendants. The
second cause of action deals with the 3,000 sq. ms. which defendants have agreed to transfer into
Plaintiff for services rendered in effecting the compromise between the Deudors and defendants;
Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum of money on
the ground that the complaint does not state a cause of action against defendants. We respectfully
submit:

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST


DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES IS CONCERNED.

Said this Honorable Court (at p. 2, Order):

ORDER

xxx xxx xxx

On the issue that the complaint, in so far as it claims the reimbursement for the services rendered
and expenses incurred by the plaintiff, states no cause of action, the Court is of the opinion that the
same is well-founded. It is found that the defendants are not parties to the supposed express
contract entered into by and between the plaintiff and the Deudors for the clearing and
improvement of the 50 quinones. Furthermore, in order that the alleged improvement may he
considered a lien or charge on the property, the same should have been made in good 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 the plaintiff had been registered way back in 1914 in the name of the
predecessors-in-interest of defendant J. M. Tuason & Co., Inc. This fact is confirmed in the
decision rendered by the Supreme Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M.
Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the case, the plaintiff cannot claim
good faith and mistake as to the title of the land.

The position of this Honorable Court (supra) is that the complaint does not state a cause of action
in so far as the claim for services and expenses is concerned because the contract for the
improvement of the properties was solely between the Deudors and plaintiff, and defendants are
not privies to it. Now, plaintiff's theory is that defendants are nonetheless liable since they are
utilizing and enjoying the benefit's of said improvements. Thus under paragraph 16 of "he
complaint, it is alleged:

(16) That the services and personal expenses of plaintiff mentioned in paragraph
7 hereof were rendered and in fact paid by him to improve, as they in fact
resulted in considerable improvement of the 50 quinones, and defendants being
now in possession of and utilizing said improvements should reimburse and pay
plaintiff for such services and expenses.

Plaintiff's cause of action is premised inter alia, on the theory of unjust enrichment under Article
2142 of the civil Code:

ART. 2142. Certain lawful voluntary and unilateral acts give rise to the juridical
relation of quasi-contract to the end that no one shill be unjustly enriched or
benefited at the expense of another.

In like vein, Article 19 of the same Code enjoins that:

ART. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give every-one his due and observe honesty and good faith.
We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142
(SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO
CONTRACT BETWEEN THE PARTIES TO THE ACTION. Further, as we can readily see from
the title thereof (Title XVII), that the Same bears the designation 'EXTRA CONTRACTUAL
OBLIGATIONS' or obligations which do not arise from contracts. While it is true that there was
no agreement between plaintiff and defendants herein for the improvement of the 50 quinones
since the latter are presently enjoying and utilizing the benefits brought about through plaintiff's
labor and expenses, defendants should pay and reimburse him therefor under the principle that 'no
one may enrich himself at the expense of another.' In this posture, the complaint states a cause of
action against the defendants.

II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS
NOT PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

At page 2 of this Honorable Court's order dated 13 August 1964, the Court ruled as follows:

ORDER

xxx xxx xxx

On the issue of statute of fraud, the Court believes that same is applicable to the
instant Case, The allegation in par. 12 of the complaint states that the defendants
promised and agree to cede, transfer and convey unto the plaintiff, 3,000 square
meters of land in consideration of certain services to be rendered then. It is clear
that the alleged agreement involves an interest in real property. Under the
provisions of Sec. 2(e) of Article 1403 of the Civil Code, such agreement is not
enforceable as it is not in writing and subscribed by the party charged.

To bring this issue in sharper focus, shall reproduce not only paragraph 12 of the complaint but
also the other pertinent paragraphs therein contained. Paragraph 12 states thus:

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants several times and on
these occasions, the latter 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 plaintiff was then occupying and
continues to occupy as of this writing, for and in consideration of the following conditions:

(a) That plaintiff succeed in convincing the DEUDORS to enter into a


compromise agreement and that such agreement be actually entered into by and
between the DEUDORS and defendant companies;

(b) That as of date of signing the compromise agreement, plaintiff 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 and after date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part, assist in
clearing the 20 quinones of its occupants;
13). That in order to effect a compromise between the parties. plaintiff not only as well acted as
emissary of both parties in conveying their respective proposals and counter- proposals until
succeeded in convinzing the DEUDORS to settle with defendants amicably. Thus, on March 16,
1953, a Compromise Agreement was entered into by and between the DEUDORS and the
defendant companies; and on April 11, 1953, this agreement was approved by this Honorable
Court;

14). That in order to comply with his other obligations under his agreement with defendant
companies, plaintiff had to confer with the occupants of the property, exposing himself to physical
harm, convincing said occupants to leave the premises and to refrain from resorting to physical
violence in resisting defendants' demands to vacate;

That plaintiff further assisted defendants' employees in the actual demolition


and transferof all the houses within the perimeter of the 20 quinones until the
end of 1955, when said area was totally cleared and the houses transferred to
another area designated by the defendants as 'Capt. Cruz Block' in Masambong,
Quezon City. (Pars. 12, 13 and 14, Complaint; Emphasis supplied)

From the foregoing, it is clear then the agreement between the parties mentioned in paragraph 12
(supra) of the complaint has already been fully EXECUTED ON ONE PART, namely by the
plaintiff. Regarding the applicability of the statute of frauds (Art. 1403, Civil Code), it has been
uniformly held that the statute of frauds IS APPLICABLE ONLY TO EXECUTORY
CONTRACTS BUT NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:

SAME ACTION TO ENFORCE. — The statute of frauds has been uniformly


interpreted to be applicable to executory and not to completed or contracts.
Performance of the contracts takes it out of the operation of the statute. ...

The statute of the frauds is not applicable to contracts which are either totally or
partially performed, on the theory that there is a wide field for the commission
of frauds in executory contracts which can only be prevented by requiring them
to be in writing, a facts which is reduced to a minimum in executed contracts
because the intention of the parties becomes apparent buy their execution and
execution, in mots cases, concluded the right the parties. ... The partial
performance may be proved by either documentary or oral evidence. (At pp.
564-565, Tolentino's Civil Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis
supplied).

Authorities in support of the foregoing rule are legion. Thus Mr. Justice Moran in his 'Comments
on the Rules of Court', Vol. III, 1974 Ed., at p. 167, states:

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY


CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR
PARTIALLY PERFORMED ARE WITHOUT THE STATUE. The statute of
frauds is applicable only to executory contracts. It is neither applicable to
executed contracts nor to contracts partially performed. The reason is simple. In
executory contracts there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of the contracting parties.
The statute has been enacted to prevent fraud. On the other hand the commission
of fraud in executed contracts is reduced to minimum in executed contracts
because (1) the intention of the parties is made apparent by the execution and (2)
execution concludes, in most cases, the rights of the parties. (Emphasis supplied)
Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has
fulfilled ALL his obligation under the agreement between him defendants concerning the 3,000 sq.
ms. over which the latter had agreed to execute the proper documents of transfer. This fact is
further projected in paragraph 15 of the complaint where plaintiff states;

15). That in or about the middle of 1963, after all the conditions stated in
paragraph 12 hereof had been fulfilled and fully complied with, plaintiff
demanded of said defendants that they execute the Deed of Conveyance in his
favor and deliver the title certificate in his name, over the 3,000 sq. ms. but
defendants failed and refused and continue to fail and refuse to heed his
demands. (par. 15, complaint; Emphasis supplied).

In view of the foregoing, we respectfully submit that this Honorable court erred in holding that the
statute of frauds is applicable to plaintiff's claim over the 3,000 sq. ms. There having been full
performance of the contract on plaintiff's part, the same takes this case out of the context of said
statute.

Plaintiff's Cause of Action had NOT Prescribed:

With all due respect to this Honorable court, we also submit that the Court committed error in
holding that this action has prescribed:

ORDER

xxx xxx xxx

On the issue of the statute of limitations, the Court holds that the plaintiff's
action has prescribed. It is alleged in par. III of the complaint that, sometime in
1952, the defendants approached the plaintiff to prevail upon the Deudors to
enter into a compromise agreement in Civil Case No. Q-135 and allied cases.
Furthermore, pars. 13 and 14 of the complaint alleged that plaintiff acted as
emissary of both parties in conveying their respective proposals and counter-
proposals until the final settlement was affected on March 16, 1953 and
approved by the Court on April 11, 1953. In the present actin, which was
instituted on January 24, 1964, the plaintiff is seeking to enforce the supposed
agreement entered into between him and the defendants in 1952, which has
already proscribed. (at p. 3, Order).

The present action has not prescribed, especially when we consider carefully the terms of the
agreement between plaintiff and the defendants. First, we must draw the attention of this
Honorable Court to the fact that this is an action to compel defendants to execute a Deed of
Conveyance over the 3,000 sq. ms. subject of their agreement. In paragraph 12 of the complaint,
the terms and conditions of the contract between the parties are spelled out. Paragraph 12 (b) of
the complaint states:

(b) That as of date of signing the compromise agreement, plaintiff 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 and after date of signing of the compromise agreement.
(Emphasis supplied).

The compromise agreement between defendants and the Deudors which was conclude through the
efforts of plaintiff, was signed on 16 March 1953. Therefore, the defendants had ten (10) years
signed on 16 March 1953. Therefore, the defendants had ten (10) years from said date within
which to execute the deed of conveyance in favor of plaintiff over the 3,000 sq. ms. As long as the
10 years period has not expired, plaintiff had no right to compel defendants to execute the
document and the latter were under no obligation to do so. Now, this 10-year period elapsed on
March 16, 1963. THEN and ONLY THEN does plaintiff's cause of action plaintiff on March 17,
1963. Thus, under paragraph 15, of the complaint (supra) plaintiff made demands upon defendants
for the execution of the deed 'in or about the middle of 1963.

Since the contract now sought to be enforced was not reduced to writing, plaintiff's cause of action
expires on March 16, 1969 or six years from March 16, 1963 WHEN THE CAUSE OF ACTION
ACCRUED (Art. 1145, Civil Code).

In this posture, we gain respectfully submit that this Honorable Court erred in holding that
plaintiff's action has prescribed.

PRAYER

WHEREFORE, it is respectfully prayed that " Honorable Court reconsider its Order dated August
13, 1964; and issue another order denying the motions to dismiss of defendants G. Araneta, Inc.
and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-85, Record on Appeal.)

Defendants filed an opposition on the main ground that "the arguments adduced by the plaintiff are merely
reiterations of his arguments contained in his Rejoinder to Reply and Opposition, which have not only been refuted
in herein defendant's Motion to Dismiss and Reply but already passed upon by this Honorable Court."

On September 7, 1964, the trial court denied the motion for reconsiderations thus:

After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it appearing
that the grounds relied upon in said motion are mere repetition of those already resolved and
discussed by this Court in the order of August 13, 1964, the instant motion is hereby denied and
the findings and conclusions arrived at by the Court in its order of August 13, 1964 are hereby
reiterated and affirmed.

SO ORDERED. (Page 90, Rec. on Appeal.)

Under date of September 24, 1964, plaintiff filed his record on appeal.

In his brief, appellant poses and discusses the following assignments of error:

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE


GROUND THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
UNENFORCEABLE UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING


APPELLANT'S COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE 3,000 SQ.
MS. IS ALLEGEDLY BARRED BY THE STATUTE OF LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR FAILURE
TO STATE A CAUSE OF ACTION IN SO FAR AS APPELLANT'S CLAIM FOR
REIMBURSEMENT OF EXPENSES AND FOR SERVICES RENDERED IN THE
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED.
We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is elementary that
the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated therein. And
the only agreements or contracts covered thereby are the following:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

(2) Those do not comply with the Statute of Frauds as set forth in this number, In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note
or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the
making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual


promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not
less than five hundred pesos, unless the 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 time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient
memorandum:

(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein:

(f) a representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract. (Art. 1403, civil Code.)

In the instant case, what appellant is trying to enforce is the delivery to him of 3,000 square meters of land which he
claims defendants promised to do in consideration of his services as mediator or intermediary in effecting a
compromise of the civil action, Civil Case No. 135, between the defendants and the Deudors. In no sense may such
alleged contract be considered as being a "sale of real property or of any interest therein." Indeed, not all dealings
involving interest in real property come under the Statute.

Moreover, appellant's complaint clearly alleges that he has already fulfilled his part of the bargains to induce the
Deudors to amicably settle their differences with defendants as, in fact, on March 16, 1963, through his efforts, a
compromise agreement between these parties was approved by the court. In other words, the agreement in question
has already been partially consummated, and is no longer merely executory. And it is likewise a fundamental
principle governing the application of the Statute that the contract in dispute should be purely executory on the part
of both parties thereto.

We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied upon by
appellant, that in several cases We have decided, We have declared the same rescinded and of no effect. In J. M.
Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123, the Court held:
It is also worthy of note that the compromise between Deudors and Tuason, upon which
Sanvictores predicates his right to buy the lot he occupies, has been validly rescinded and set
aside, as recognized by this Court in its decision in G.R. No. L-13768, Deudor vs. Tuason,
promulgated on May 30, 1961.

We repeated this observation in J.M. Tuason & Co., Inc. vs. Teodosio Macalindong, 6 SCRA 938. Thus, viewed
from what would be the ultimate conclusion of appellant's case, We entertain grave doubts as to whether or not he
can successfully maintain his alleged cause of action against defendants, considering that the compromise agreement
that he invokes did not actually materialize and defendants have not benefited therefrom, not to mention the
undisputed fact that, as pointed out by appellees, appellant's other attempt to secure the same 3,000 square meters
via the judicial enforcement of the compromise agreement in which they were supposed to be reserved for him has
already been repudiated by the courts. (pp. 5-7. Brief of Appellee Gregorio Araneta, Inc.)

As regards appellant's third assignment of error, We hold that the allegations in his complaint do not sufficiently
Appellants' reliance. on Article 2142 of Civil Code is misplaced. Said article provides:

Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to
the end that no one shall be unjustly enriched or benefited at the expense of another.

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as against one
party when the subject mater thereof is already covered by an existing contract with another party. Predicated on the
principle that no one should be allowed to unjustly enrich himself at the expense of another, Article 2124 creates the
legal fiction of a quasi-contract precisely because of the absence of any actual agreement between the parties
concerned. Corollarily, if the one who claims having enriched somebody has done so pursuant to a contract with a
third party, his cause of action should be against the latter, who in turn may, if there is any ground therefor, seek
relief against the party benefited. It is essential that the act by which the defendant is benefited must have been
voluntary and unilateral on the part of the plaintiff. As one distinguished civilian puts it, "The act is voluntary.
because the actor in quasi-contracts is not bound by any pre-existing obligation to act. It is unilateral, because it
arises from the sole will of the actor who is not previously bound by any reciprocal or bilateral agreement. The
reason why the law creates a juridical relations and imposes certain obligation is to prevent a situation where a
person is able to benefit or take advantage of such lawful, voluntary and unilateral acts at the expense of said actor."
(Ambrosio Padilla, Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant has a clearer and more
direct recourse against the Deudors with whom he had entered into an agreement regarding the improvements and
expenditures made by him on the land of appellees. it Cannot be said, in the sense contemplated in Article 2142, that
appellees have been enriched at the expense of appellant.

In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well taken cannot
save the day for him. Aside from his having no cause of action against appellees, there is one plain error of
omission. We have found in the order 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 We have quoted in full earlier in this opinion, the trial court
ruled that "the grounds relied upon in said motion are mere repetitions of those already resolved and discussed by
this Court in the order of August 13, 1964", an observation which We fully share. Virtually, therefore. appellant's
motion for reconsideration was ruled to be pro-forma. Indeed, a cursory reading of the record on appeal reveals that
appellant's motion for reconsideration above-quoted contained exactly the same arguments and manner of discussion
as his February 6, 1964 "Opposition to Motion to Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on
Appeal) as well as his February 17, 1964 "Opposition to Motion to Dismiss of Defendant J. M. Tuason & Co." (pp.
33-45, Rec. on Appeal and his February 29, 1964 "Rejoinder to Reply Oil Defendant J. M. Tuason & Co." (pp. 52-
64, Rec. on Appeal) We cannot see anything in said motion for reconsideration that is substantially different from
the above oppositions and rejoinder he had previously submitted and which the trial court had already considered
when it rendered its main order of dismissal. Consequently, appellant's motion for reconsideration did not suspend
his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this point was covered by appellees'
"Opposition to Motion for Reconsideration" (pp. 8689), hence, within the frame of the issues below, it is within the
ambit of Our authority as the Supreme Court to consider the same here even if it is not discussed in the briefs of the
parties. (Insular Life Assurance Co., Ltd. Employees Association-NATU vs. Insular Life Assurance Co., Ltd.
[Resolution en banc of March 10, 1977 in G. R. No. L-25291).
Now, the impugned main order was issued on August 13, 1964, while the appeal was made on September 24, 1964
or 42 days later. Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the subject order of
dismissal was already final and executory when appellant filed his appeal.

WHEREFORE, the appeal of Faustino Cruz in this case is dismissed. No costs.

G.R. No. L-9188 December 4, 1914

GUTIERREZ HERMANOS, plaintiff-appellee,


vs.
ENGRACIO ORENSE, defendant-appellant.

William A. Kincaid, Thos. L. Hartigan, and Ceferino M. Villareal for appellant.


Rafael de la Sierra for appellee.

TORRES, J.:

Appeal through bill of exceptions filed by counsel for the appellant from the judgment on April 14, 1913, by the
Honorable P. M. Moir, judge, wherein he sentenced the defendant to make immediate delivery of the property in
question, through a public instrument, by transferring and conveying to the plaintiff all his rights in the property
described in the complaint and to pay it the sum of P780, as damages, and the costs of the suit.

On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of First
Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907, the defendant
Orense had been the owner of a parcel of land, with the buildings and improvements thereon, situated in the pueblo
of Guinobatan, Albay, the location, area and boundaries of which were specified in the complaint; that the said
property has up to date been recorded in the new property registry in the name of the said Orense, according to
certificate No. 5, with the boundaries therein given; that, on February 14, 1907, Jose Duran, a nephew of the
defendant, with 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 price within a period of four years from the date of the said
instrument; that the plaintiff company had not entered into possession of the purchased property, owing to its
continued occupancy by the defendant and his nephew, Jose Duran, by virtue of a contract of lease executed by the
plaintiff to Duran, which contract was in force up to February 14, 1911; that the said instrument of sale of the
property, executed by Jose Duran, was publicly and freely confirmed and ratified by the defendant Orense; that, in
order to perfect the title to the said property, but that the defendant Orense refused to do so, without any justifiable
cause or reason, wherefore he should be compelled to execute the said deed by an express order of the court, for Jose
Duran is notoriously insolvent and cannot reimburse the plaintiff company for the price of the sale which he
received, nor pay any sum whatever for the losses and damages occasioned by the said sale, aside from the fact that
the plaintiff had suffered damage by losing the present value of the property, which was worth P3,000; that, unless
such deed of final conveyance were executed in behalf of the plaintiff company, it would be injured by the fraud
perpetrated by the vendor, Duran, in connivance with the defendant; that the latter had been occupying the said
property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand made upon him
for its payment at the rate of P30 per month, the just and reasonable value for the occupancy of the said property, the
possession of which the defendant likewise refused to deliver to the plaintiff company, in spite of the continuous
demands made upon him, the defendant, with bad faith and to the prejudice of the firm of Gutierrez Hermanos,
claiming to have rights of ownership and possession in the said property. Therefore it was prayed that judgment be
rendered by holding that the land and improvements in question belong legitimately and exclusively to the plaintiff,
and ordering the defendant to execute in the plaintiff's behalf the said instrument of transfer and conveyance of the
property and of all the right, interest, title and share which the defendant has therein; that the defendant be sentenced
to pay P30 per month for damages and rental of the property from February 14, 1911, and that, in case these
remedies were not granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages,
together with interest thereon since the date of the institution of this suit, and to pay the costs and other legal
expenses.

The demurrer filed to the amended complaint was overruled, with exception on the part of the defendant, whose
counsel made a general denial of the allegations contained in the complaint, excepting those that were admitted, and
specifically denied paragraph 4 thereof to the effect that on February 14, 1907, Jose Duran executed the deed of sale
of the property in favor of the plaintiff with the defendant's knowledge and consent.1awphil.net

As the first special defense, counsel for the defendant alleged that the facts set forth in the complaint with respect to
the execution of the deed did not constitute a cause of action, nor did those alleged in the other form of action for the
collection of P3,000, the value of the realty.

As the second special defense, he alleged that the defendant was the lawful owner of the property claimed in the
complaint, as his ownership was recorded in the property registry, and that, since his title had been registered under
the proceedings in rem prescribed by Act No. 496, it was conclusive against the plaintiff and the pretended rights
alleged to have been acquired by Jose Duran prior to such registration could not now prevail; that the defendant had
not executed any written power of attorney nor given any verbal authority to Jose Duran in order that the latter
might, in his name and representation, sell the said property to the plaintiff company; that the defendant's knowledge
of the said sale was acquired long after the execution of the contract of sale between Duran and Gutierrez Hermanos,
and that prior thereto the defendant did not intentionally and deliberately perform any act such as might have
induced the plaintiff to believe that Duran was empowered and authorized by the defendant and which would
warrant him in acting to his own detriment, under the influence of that belief. Counsel therefore prayed that the
defendant be absolved from the complaint and that the plaintiff be sentenced to pay the costs and to hold his peace
forever.

After the hearing of the case and an examination of the evidence introduced by both parties, the court rendered the
judgment aforementioned, to which counsel for the defendant excepted and moved for a new trial. This motion was
denied, an exception was taken by the defendant and, upon presentation of the proper bill of exceptions, the same
was approved, certified and forwarded to the clerk of his court.

This suit involves the validity and efficacy of the sale under right of redemption of a parcel of land and a masonry
house with the nipa roof erected thereon, effected by Jose Duran, a nephew of the owner of the property, Engracio
Orense, for the sum of P1,500 by means of a notarial instrument executed and ratified on February 14, 1907.

After the lapse of the four years stipulated for the redemption, the defendant refused to deliver the property to the
purchaser, the firm of Gutierrez Hermanos, and to pay the rental thereof at the rate of P30 per month for its use and
occupation since February 14, 1911, when the period for its repurchase terminated. His refusal was based on the
allegations that he had been and was then the owner of the said property, which was registered in his name in the
property registry; that he had not executed any written power of attorney to Jose Duran, nor had he given the latter
any verbal authorization to sell the said property to the plaintiff firm in his name; and that, prior to the execution of
the deed of sale, the defendant performed no act such as might have induced the plaintiff to believe that Jose Duran
was empowered and authorized by the defendant to effect the said sale.

The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with estafa, for
having represented himself in the said deed of sale to be the absolute owner of the aforesaid land and improvements,
whereas in reality they did not belong to him, but to the defendant Orense. However, at the trial of the case Engracio
Orense, called as a witness, being interrogated by the fiscal as to whether he and consented to Duran's selling the
said property under right of redemption to the firm of Gutierrez Hermanos, replied that he had. In view of this
statement by the defendant, the court acquitted Jose Duran of the charge of estafa.
As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the owner of
the property, to the effect that he had consented to his nephew Duran's selling the property under right of repurchase
to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other remedies, that the defendant
Orense be compelled to execute a deed for the transfer and conveyance to the plaintiff company of all the right, title
and interest with Orense had in the property sold, and to pay to the same the rental of the property due from
February 14, 1911.itc-alf

Notwithstanding the allegations of the defendant, the record in this case shows that he did give his consent in order
that his nephew, Jose Duran, might sell the property in question to Gutierrez Hermanos, and that he did thereafter
confirm and ratify the sale by means of a public instrument executed before a notary.

It having been proven at the trial that he gave his consent to the said sale, it follows that the defendant conferred
verbal, or at least implied, power of agency upon his nephew Duran, who accepted it in the same way by selling the
said property. The principal must therefore fulfill all the obligations contracted by the agent, who acted within the
scope of his authority. (Civil Code, arts. 1709, 1710 and 1727.)

Even should it be held that the said consent was granted subsequently to the sale, it is unquestionable that the
defendant, the owner of the property, approved the action of his nephew, who in this case acted as the manager of
his uncle's business, and Orense'r ratification produced the effect of an express authorization to make the said sale.
(Civil Code, arts. 1888 and 1892.)

Article 1259 of the Civil Code prescribes: "No one can contract in the name of another without being authorized by
him or without his legal representation according to law.

A contract executed in the name of another by one who has neither his authorization nor legal
representation shall be void, unless it should be ratified by the person in whose name it was executed before
being revoked by the other contracting party.

The sworn statement made by the defendant, Orense, while testifying as a witness at the trial of Duran for estafa,
virtually confirms and ratifies the sale of his property effected by his nephew, Duran, and, pursuant to article 1313
of the Civil Code, remedies all defects which the contract may have contained from the moment of its execution.

The sale of the said property made by Duran to Gutierrez Hermanos was indeed null and void in the beginning, but
afterwards became perfectly valid and cured of the defect of nullity it bore at its execution by the confirmation
solemnly made by the said owner upon his stating under oath to the judge that he himself consented to his nephew
Jose Duran's making the said sale. Moreover, pursuant to article 1309 of the Code, the right of action for
nullification that could have been brought became legally extinguished from the moment the contract was validly
confirmed and ratified, and, in the present case, it is unquestionable that the defendant did confirm the said contract
of sale and consent to its execution.

On the testimony given by Engacio Orense at the trial of Duran for estafa, the latter was acquitted, and it would not
be just that the said testimony, expressive of his consent to the sale of his property, which determined the acquittal
of his nephew, Jose Duran, who then acted as his business manager, and which testimony wiped out the deception
that in the beginning appeared to have been practiced by the said Duran, should not now serve in passing upon the
conduct of Engracio Orense in relation to the firm of Gutierrez Hermanos in order to prove his consent to the sale of
his property, for, had it not been for the consent admitted by the defendant Orense, the plaintiff would have been the
victim of estafa.

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling the
property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny that
admission, to the prejudice of the purchaser, who gave P1,500 for the said property.

The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged to be
invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure, because the
authority which Orense may have given to Duran to make the said contract of sale is not shown to have been in
writing and signed by Orense, but the record discloses satisfactory and conclusive proof that the defendant Orense
gave his consent to the contract of sale executed in a public instrument by his nephew Jose Duran. Such consent was
proven in a criminal action by the sworn testimony of the principal and presented in this civil suit by other sworn
testimony of the same principal and by other evidence to which the defendant made no objection. Therefore the
principal is bound to abide by the consequences of his agency as though it had actually been given in writing
(Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs.
Jiongco, 22 Phil. Rep., 110.)

The repeated and successive statements made by the defendant Orense in two actions, wherein he affirmed that he
had given his consent to the sale of his property, meet the requirements of the law and legally excuse the lack of
written authority, and, as they are a full ratification of the acts executed by his nephew Jose Duran, they produce the
effects of an express power of agency.

The judgment appealed from in harmony with the law and the merits of the case, and the errors assigned thereto
have been duly refuted by the foregoing considerations, so it should be affirmed.

The judgment appealed from is hereby affirmed, with the costs against the appellant.

G.R. No. L-44546 January 29, 1988

RUSTICO ADILLE, petitioner,


vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO
ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:

In issue herein are property and property rights, a familiar subject of controversy and a wellspring of enormous
conflict that has led not only to protracted legal entanglements but to even more bitter consequences, like strained
relationships and even the forfeiture of lives. It is a question that likewise reflects a tragic commentary on prevailing
social and cultural values and institutions, where, as one observer notes, wealth and its accumulation are the basis of
self-fulfillment and where property is held as sacred as life itself. "It is in the defense of his property," says this
modern thinker, that one "will mobilize his deepest protective devices, and anybody that threatens his possessions
will arouse his most passionate enmity." 1

The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the social order is
shouldered by the political leadership-and the people themselves.

The parties have come to this Court for relief and accordingly, our responsibility is to give them that relief pursuant
to the decree of law.

The antecedent facts are quoted from the decision 2 appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an
area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property;
she married twice in her lifetime; the first, with one Bernabe Adille, with whom she had as an only
child, herein defendant Rustico Adille; in her second marriage with one Procopio Asejo, her
children were herein plaintiffs, — now, sometime in 1939, said Felisa sold the property in pacto
de retro to certain 3rd persons, period of repurchase being 3 years, but she died in 1942 without
being able to redeem and after her death, but during the period of redemption, herein defendant
repurchased, by himself alone, and after that, he executed a deed of extra-judicial partition
representing himself to be the only heir 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 in the name of his
mother was transferred to his name, that was in 1955; that was why after some efforts of
compromise had failed, his half-brothers and sisters, herein plaintiffs, filed present case for
partition with accounting on the position that he was 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, Emeteria Asejo
was occupying a portion, defendant counterclaimed for her to vacate that, —

Well then, after hearing the evidence, trial Judge sustained defendant in his position that he was
and became absolute owner, he was not a trustee, and therefore, dismissed case and also
condemned plaintiff occupant, Emeteria to vacate; it is because of this that plaintiffs have come
here and contend that trial court erred in:

I. ... declaring the defendant absolute owner of the property;

II. ... not ordering the partition of the property; and

III. ... ordering one of the plaintiffs who is in possession of the portion of the property to vacate
the land, p. 1 Appellant's brief.

which can be reduced to simple question of whether or not on the basis of evidence and law, judgment appealed
from should be maintained. 3

xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-appellants, the private
respondents herein. The petitioner now appeals, by way of certiorari, from the Court's decision.

We required the private respondents to file a comment and thereafter, having given due course to the petition,
directed the parties to file their briefs. Only the petitioner, however, filed a brief, and the private respondents having
failed to file one, we declared the case submitted for decision.

The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in
common?

Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of
his co-heirs to join him in its redemption within the period required by law. He relies on the provisions of Article
1515 of the old Civil Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of
the entire property.

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While the records show
that the petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not make him the
owner of all of it. In other words, it did not put to end the existing state of co-ownership.
Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the
remaining co-owners. 6 There is no doubt that redemption of property entails a necessary expense. Under the Civil
Code:

ART. 488. Each co-owner shall have a right to compel the other 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
latter may exempt himself from this obligation by renouncing so much of his undivided interest as
may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is
prejudicial to the co-ownership.

The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article
1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-
owner of the property in its totality does not vest in him ownership over it. Failure on the part of all the co-owners to
redeem it entitles the vendee a retro to retain the property and consolidate title thereto in his name. 7 But the
provision does not give to the redeeming co-owner the right to the entire property. It does not provide for a mode of
terminating a co-ownership.

Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the
existing co-ownership. While his half-brothers and sisters are, as we said, liable to him for reimbursement as and for
their shares in redemption expenses, he cannot claim exclusive right to the property owned in common. Registration
of property is not a means of acquiring ownership. It operates as a mere notice of existing title, that is, if there is one.

The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The Civil Code
states:

ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of
law, considered a trustee of an implied trust for the benefit of the person from whom the property
comes.

We agree with the respondent Court of Appeals that fraud attended the registration of the property. The petitioner's
pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to
the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole
dominion over the property. The aforequoted provision therefore applies.

It is the view of the respondent Court that the petitioner, in taking over the property, did so either on behalf of his
co-heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or for
his exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents being the
beneficiaries, under the Article 1456. The evidence, of course, points to the second alternative the petitioner having
asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot
therefore be said to have assume the mere management of the property abandoned by his co-heirs, the situation
Article 2144 of the Code contemplates. In any case, as the respondent Court itself affirms, the result would be the
same whether it is one or the other. The petitioner would remain liable to the Private respondents, his co-heirs.

This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in
common) held by another (co-owner) following the required number of years. In that event, the party in possession
acquires title to the property and the state of co-ownership is ended . 8 In the case at bar, the property was registered
in 1955 by the petitioner, solely in his name, while the claim of the private respondents was presented in 1974. Has
prescription then, set in?

We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been preceded
by repudiation (of the co-ownership). The act of repudiation, in turn is subject to certain conditions: (1) a co-owner
repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the
evidence thereon is clear and conclusive, and (4) he has been in possession through open, continuous, exclusive, and
notorious possession of the property for the period required by law. 9
The instant case shows that the petitioner had not complied with these requisites. We are not convinced that he had
repudiated the co-ownership; on the contrary, he had deliberately kept the private respondents in the dark by
feigning sole heirship over the estate under dispute. He cannot therefore be said to have "made known" his efforts to
deny the co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is occupying a portion of the land
up to the present, yet, the petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to
recover possession of that portion Emeteria is occupying only as a counterclaim, and only after the private
respondents had first sought judicial relief.

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, notwithstanding the long-standing rule
that registration operates as a universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate
registered in 1955. While actions to enforce a constructive trust prescribes in ten years, 12 reckoned from the date of
the registration of the 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 efforts to get hold of the property exclusively for himself beginning with his
fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and 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 right of the private respondents commenced from the time they actually discovered the petitioner's act of
defraudation. 15 According to the respondent Court of Appeals, they "came to know [of it] apparently only during
the progress of the litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion to dismiss or
in the answer otherwise it is deemed waived, 17 and here, the petitioner never raised that defense. 18 There are
recognized exceptions to this rule, but the petitioner has not shown why they apply.

WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the petition is
DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED,

G.R. No. 82670 September 15, 1989

DOMETILA M. ANDRES, doing business under the name and style "IRENE'S WEARING
APPAREL," petitioner,
vs.
MANUFACTURERS HANOVER & TRUST CORPORATION and COURT OF APPEALS, respondents.

Roque A. Tamayo for petitioner.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for private respondent.

CORTES, J.:
Assailed in this petition for review on certiorari is the judgment of the Court of Appeals, which, applying the
doctrine of solutio indebiti, reversed the decision of the Regional Trial Court, Branch CV, Quezon City by deciding
in favor of private respondent.

Petitioner, using the business name "Irene's Wearing Apparel," was engaged in the manufacture of ladies garments,
children's wear, men's apparel and linens for local and foreign buyers. Among its foreign buyers was Facets
Funwear, Inc. (hereinafter referred to as FACETS) of the United States.

In the course of the business transaction between the two, FACETS from time to time remitted certain amounts of
money to petitioner in payment for the items it had purchased. Sometime in August 1980, FACETS instructed the
First National State Bank of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to as FNSB) to transfer
$10,000.00 to petitioner via Philippine National Bank, Sta. Cruz Branch, Manila (hereinafter referred to as PNB).

Acting on said instruction, FNSB instructed private respondent Manufacturers Hanover and Trust Corporation to
effect the above- mentioned transfer through its facilities and to charge the amount to the account of FNSB with
private respondent. Although private respondent was able to send a telex to PNB to pay petitioner $10,000.00
through the Pilipinas Bank, where petitioner had an account, the payment was not effected immediately because the
payee designated in the telex was only "Wearing Apparel." Upon query by PNB, private respondent sent PNB
another telex dated August 27, 1980 stating that the payment was to be made to "Irene's Wearing Apparel." On
August 28, 1980, petitioner received the remittance of $10,000.00 through Demand Draft No. 225654 of the PNB.

Meanwhile, on August 25, 1980, after learning about the delay in the remittance of the money to petitioner,
FACETS informed FNSB about the situation. On September 8, 1980, unaware that petitioner had already received
the remittance, FACETS informed private respondent about the delay and at the same time amended its instruction
by asking it to effect the payment through the Philippine Commercial and Industrial Bank (hereinafter referred to as
PCIB) instead of PNB.

Accordingly, private respondent, which was also unaware that petitioner had already received the remittance of
$10,000.00 from PNB instructed the PCIB to pay $10,000.00 to petitioner. Hence, on September 11, 1980, petitioner
received a second $10,000.00 remittance.

Private respondent debited the account of FNSB for the second $10,000.00 remittance effected through PCIB.
However, when FNSB discovered that private respondent had made a duplication of the remittance, it asked for a
recredit of its account in the amount of $10,000.00. Private respondent complied with the request.

Private respondent asked petitioner for the return of the second remittance of $10,000.00 but the latter refused to
pay. On May 12, 1982 a complaint was filed with the Regional Trial Court, Branch CV, Quezon City which was
decided in favor of petitioner as defendant. The trial court ruled that Art. 2154 of the New Civil Code is not
applicable to the case because the second remittance was made not by mistake but by negligence and petitioner was
not unjustly enriched by virtue thereof [Record, p. 234]. On appeal, the Court of Appeals held that Art. 2154 is
applicable and reversed the RTC decision. The dispositive portion of the Court of Appeals' decision reads as
follows:

WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE and another one
entered in favor of plaintiff-appellant and against defendant-appellee Domelita (sic) M. Andres,
doing business under the name and style "Irene's Wearing Apparel" to reimburse and/or return to
plaintiff-appellant the amount of $10,000.00, its equivalent in Philippine currency, with interests
at the legal rate from the filing of the complaint on May 12, 1982 until the whole amount is fully
paid, plus twenty percent (20%) of the amount due as attomey's fees; and to pay the costs.

With costs against defendant-appellee.

SO ORDERED. [Rollo, pp. 29-30.]


Thereafter, this petition was filed. The sole issue in this case is whether or not the private respondent has the right to
recover the second $10,000.00 remittance it had delivered to petitioner. The resolution of this issue would hinge on
the applicability of Art. 2154 of the New Civil Code which provides that:

Art. 2154. If something received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.

This provision is taken from Art. 1895 of the Spanish Civil Code which provided that:

Art. 1895. If a thing is received when there was no right to claim it and which, through an error,
has been unduly delivered, an obligation to restore it arises.

In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking through Mr. Justice Bocobo explained the nature of
this article thus:

Article 1895 [now Article 2154] of the Civil Code abovequoted, is therefore applicable. This legal
provision, which determines the quasi-contract of solution indebiti, is one of the concrete
manifestations of the ancient principle that no one shall enrich himself unjustly at the expense of
another. In the Roman Law Digest the maxim was formulated thus: "Jure naturae acquum est,
neminem cum alterius detrimento et injuria fieri locupletiorem." And the Partidas
declared: "Ninguno non deue enriquecerse tortizeramente con dano de otro." Such axiom has
grown through the centuries in legislation, in the science of law and in court decisions. The
lawmaker has found it one of the helpful guides in framing statutes and codes. Thus, it is unfolded
in many articles scattered in the Spanish Civil Code. (See for example, articles, 360, 361, 464,
647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893 and 1895, Civil Code.) This time-honored
aphorism has also been adopted by jurists in their study of the conflict of rights. It has been
accepted by the courts, which have not hesitated to apply it when the exigencies of right and
equity demanded its assertion. It is a part of that affluent reservoir of justice upon which judicial
discretion draws whenever the statutory laws are inadequate because they do not speak or do so
with a confused voice. [at p. 632.]

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 payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio, 110 Phil. 558,
563 (1960)].

It is undisputed that private respondent delivered the second $10,000.00 remittance. However, petitioner contends
that the doctrine of solutio indebiti, does not apply because its requisites are absent.

First, it is argued that petitioner had the right to demand and therefore to retain the second $10,000.00 remittance. It
is alleged that even after the two $10,000.00 remittances are credited to petitioner's receivables from FACETS, the
latter allegedly still had a balance of $49,324.00. Hence, it is argued that the last $10,000.00 remittance being in
payment of a pre-existing debt, petitioner was not thereby unjustly enriched.

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It was the
latter and not private respondent which was indebted to petitioner. On the other hand, the contract for the transmittal
of dollars from the United States to petitioner was entered into by private respondent with FNSB. Petitioner,
although named as the payee was not privy to the contract of remittance of dollars. Neither was private respondent a
party to the contract of sale between petitioner and FACETS. There being no contractual relation between them,
petitioner has no right to apply the second $10,000.00 remittance delivered by mistake by private respondent to the
outstanding account of FACETS.
Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not made by
mistake but was the result of negligence of its employees. In connection with this the Court of Appeals made the
following finding of facts:

The fact that Facets sent only one remittance of $10,000.00 is not disputed. In the written
interrogatories sent to the First National State Bank of New Jersey through the Consulate General
of the Philippines in New York, Adelaide C. Schachel, the investigation and reconciliation clerk in
the said bank testified that a request to remit a payment for Facet Funwear Inc. was made in
August, 1980. The total amount which the First National State Bank of New Jersey actually
requested the plaintiff-appellant Manufacturers Hanover & Trust Corporation to remit to Irene's
Wearing Apparel was US $10,000.00. Only one remittance was requested by First National State
Bank of New Jersey as per instruction of Facets Funwear (Exhibit "J", pp. 4-5).

That there was a mistake in the second remittance of US $10,000.00 is borne out by the fact that
both remittances have the same reference invoice number which is 263 80. (Exhibits "A-1-
Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr. Stanley Panasow").

Plaintiff-appellant made the second remittance on the wrong assumption that defendant-appellee
did not receive the first remittance of US $10,000.00. [Rollo, pp. 26-27.]

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner would
have this Court review. The Court holds that the finding by the Court of Appeals that the second $10,000.00
remittance was made by mistake, being based on substantial evidence, is final and conclusive. The rule regarding
questions of fact being raised with 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. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari
under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases
brought to it from the Court of Appeals is limited to reviewing and revising the errors of law
imputed to it, its findings of fact being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically
declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have been
committed by the lower court" [Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58
SCRA 89; Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865;
Baniqued v. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596]. "Barring,
therefore, a showing that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or contrast the oral and documentary
evidence submitted by the parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December 17,
1966, 18 SCRA 9731. [at pp. 144-145.]

Petitioner invokes the equitable principle that when one of two innocent persons must suffer by the wrongful act of a
third person, the loss must be borne by the one whose negligence was the proximate cause of the loss.

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. 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 Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing Aznar v. Yapdiangco, G.R.
No. L-18536, March 31, 1965, 13 SCRA 486, held:

... The common law principle that where one of two innocent persons must suffer by a fraud
perpetrated by another, the law imposes the loss upon the party who, by his misplaced confidence,
has enabled the fraud to be committed, cannot be applied in a case which is covered by an express
provision of the new Civil Code, specifically Article 559. Between a common law principle and a
statutory provision, the latter must prevail in this jurisdiction. [at p. 135.]

Having shown that Art. 2154 of the Civil Code, which embodies the doctrine of solutio indebiti, applies in the case
at bar, the Court must reject the common law principle invoked by petitioner.

Finally, in her attempt to defeat private respondent's claim, petitioner makes much of the fact that from the time the
second $10,000.00 remittance was made, five hundred and ten days had elapsed before private respondent
demanded the return thereof. Needless to say, private respondent instituted the complaint for recovery of the second
$10,000.00 remittance well within the six years prescriptive period for actions based upon a quasi-contract [Art.
1145 of the New Civil Code].

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.

G.R. No. L-17447 April 30, 1963

GONZALO PUYAT & SONS, INC., plaintiff-appelle,


vs.
CITY OF MANILA AND MARCELO SARMIENTO, as City Treasurer of Manila, defendants-appellants

Feria, Manglapus & Associates for plainttiff-appelle.Asst. City Fiscal Manuel T. Reyes for defendants-appellants.

PAREDES, J.:

This is an appeal from the judgment of the CFI of Manila, the dispostive portion of which reads:

"xxx Of the payments made by the plaintiff, only that made on October 25, 1950 in the amount of
P1,250.00 has prescribed Payments made in 1951 and thereafter are still recoverable since the extra-judicial
demand made on October 30, 1956 was well within the six-year prescriptive period of the New CivilCode.

In view of the foregoing considerations, judgment is hereby rendered in favor of the plaintiff, ordering the
defendants to refund the amount of P29,824.00, without interest. No costs.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by
this Honorable Court, without prejudice to the parties adducing other evidence to prove their case not
covered by this stipulation of facts. 1äwphï1.ñët

Defendants' counterclaim is hereby dismissed for not having been substantiated."

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail DealerlsTaxes
paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956, amounting to P33,785.00,
against the City of Manila and its City Treasurer.The case was submitted on the following stipulation of facts, to
wit--

"1. That the plaintiff is a corporation duly organized and existing according to the laws of the Philippines,
with offices at Manila; while defendant City Manila is a Municipal Corporation duly organized in
accordance with the laws of the Philippines, and defendant Marcelino Sarmiento is the dulyqualified
incumbent City Treasurer of Manila;

"2. That plaintiff is engaged in the business of manufacturing and selling all kinds of furniture at its factory
at 190 Rodriguez-Arias, San Miguel, Manila, and has a display room located at 604-606 Rizal Avenue,
Manila, wherein it displays the various kind of furniture manufactured by it and sells some goods imported
by it, such as billiard balls, bowling balls and other accessories;

"3. That acting pursuant to the provisions of Sec. 1. group II, of Ordinance No. 3364, defendant City
Treasurer of Manilaassessed from plaintiff retail dealer's tax corresponding to the quarters hereunder stated
on the sales of furniture manufactured and sold by it at its factory site, all of which assessments plaintiff
paid without protest in the erroneous belief that it was liable therefor, on the dates and in the amount
enumerated herein below:

Amount
Period Date Paid O.R. No. Assessed
and Paid.
First Quarter 1950 Jan. 25, 1950 436271X P1,255.00
Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00
Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00
Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00
(Follows the assessment for different quarters in 1951, 1952,
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
First Quarter 1956 Jan. 25, 1956 823047X 1,250.00
Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00
Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00

TOTAL ............. P33,785.00


===========

"4. That plaintiff, being a manufacturer of various kinds of furniture, is exempt from the payment of taxes
imposed under the provisions of Sec. 1, Group II, of Ordinance No. 3364,which took effect on September
24, 1956, on the sale of the various kinds of furniture manufactured by it pursuant to the provisions of Sec.
18(n) of Republic Act No. 409 (Revised Charter of Manila), as restated in Section 1 of Ordinance No.3816.

"5. That, however, plaintiff, is liable for the payment of taxes prescribed in Section 1, Group II or
Ordinance No. 3364mas amended by Sec. 1, Group II of Ordinance No. 3816, which took effect on
September 24, 1956, on the sales of imported billiard balls, bowling balls and other accessories at its
displayroom. The taxes paid by the plaintiff on the sales of said article are as follows:

xxx xxx xxx

"6. That on October 30, 1956, the plaintiff filed with defendant City Treasurer of Manila, a formal request
for refund of the retail dealer's taxes unduly paid by it as aforestated in paragraph 3, hereof.

"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said request for refund.

"8. Hence on August 21, 1958, plaintiff filed the present complaint.
"9. Based on the above stipulation of facts, the legal issues to be resolved by this Honorable Court are: (1)
the period of prescription applicable in matters of refund of municipal taxes errenously paid by a taxpayer
and (2) refund of taxes not paid under protest. x x x."

Said judgment was directly appealed to this Court on two dominant issues to wit: (1) Whether or not the amounts
paid by plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as amended by Ordinance No. 3364of the
City of Manila, without protest, are refundable;(2) Assuming arguendo, that plaintiff-appellee is entitled to the
refund of the retail taxes in question, 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 already prescribed. .

Under the first issue, defendants-appellants contend tht the taxes in question were voluntarily paid by appellee
company and since, in this jurisdiction, in order that a legal basis arise for claim of refund of taxes erroneously
assessed, payment thereof must be made under protest, and this being a condition sine qua non, and no protest
having been made, -- verbally or in writing, therebyindicating that the payment was voluntary, the action must fail.
Cited in support of the above contention, are the cases of Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v.
Municipality of Calapan, 71 Phil. 438..

In refutation of the above stand of appellants, appellee avers tht the payments could not have been voluntary.At
most, they were paid "mistakenly and in good faith"and "without protest in the erroneous belief that it was liable
thereof." Voluntariness is incompatible with protest and mistake. It submits that this is a simple case of "solutio
indebiti"..

Appellants do not dispute the fact that appellee-companyis exempted from the payment of the tax in question.This is
manifest from the reply of appellant City Treasurer stating that sales of manufactured products at the factory site are
not taxable either under the Wholesalers Ordinance or under the Retailers' Ordinance. With this admission, it would
seem clear that the taxes collected from appellee were paid, thru an error or mistake, which places said act of
payment within the pale of the new Civil Code provision on solutio indebiti. The appellant City of Manila, at the
very start, notwithstanding the Ordinance imposing the Retailer's Tax, had no right to demand payment thereof..

"If something is received when there is no right to demand it, and it was unduly delivered through mistake, the
obligationto retun it arises" (Art. 2154, NCC)..

Appelle categorically stated that the payment was not voluntarily made, (a fact found also by the lower court),but on
the erronoues belief, that they were due. Under this circumstance, the amount paid, even without protest is
recoverable. "If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due"
(Art. 2156, NCC). Appellee had duly proved that taxes were not lawfully due. There is, therefore, no doubt that the
provisions of solutio indebtiti, the new Civil Code, apply to the admitted facts of the case..

With all, appellant quoted Manresa as saying: "x x x De la misma opinion son el Sr. Sanchez Roman y el Sr. Galcon,
et cual afirma que si la paga se hizo por error de derecho, ni existe el cuasi-contrato ni esta obligado a la restitucion
el que cobro, aunque no se debiera lo que se pago" (Manresa, Tomo 12, paginas 611-612). This opinion, however,
has already lost its persuasiveness, in view of the provisions of the Civil Code, recognizing "error de derecho" as a
basis for the quasi-contract, of solutio indebiti. .

"Payment by reason of a mistake in the contruction or application of a doubtful or difficult question of law may
come within the scope of the preceding article" (Art. 21555)..

There is no gainsaying the fact that the payments made by appellee was due to a mistake in the construction of a
doubtful question of law. The reason underlying similar provisions, as applied to illegal taxation, in the United
States, is expressed in the case of Newport v. Ringo, 37 Ky. 635, 636; 10 S.W. 2, in the following manner:.

"It is too well settled in this state to need the citation of authority that if money be paid through a clear mistake of
law or fact, essentially affecting the rights of the parties, and which in law or conscience was not payable, and
should not be retained by the party receiving it, it may be recovered. Both law and sound morality so dictate.
Especially should this be the rule as to illegal taxation. The taxpayer has no voice in the impositionof the burden. He
has the right to presume that the taxing power has been lawfully exercised. He should not be required to know more
than those in authority over him, nor should he suffer loss by complying with what he bona fide believe to be his
duty as a good citizen. Upon the contrary, he should be promoted to its ready performance by refunding to him any
legal exaction paid by him in ignorance of its illegality; and, certainly, in such a case, if be subject to a penalty for
nonpayment, his compliance under belief of its legality, and without awaitinga resort to judicial proceedings should
not be regrded in law as so far voluntary as to affect his right of recovery.".

"Every person who through an act or performance by another, or any other means, acquires or comes into possession
of something at the expense of the latter without just or legal grounds, shall return the same to him"(Art. 22, Civil
Code). It would seems unedifying for the government, (here the City of Manila), that 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 same. No one
should enrich itself unjustly at the expense of another (Art. 2125, Civil Code)..

Admittedly, plaintiff-appellee paid the tax without protest.Equally admitted is the fact that section 76 of the Charter
of Manila provides that "No court shall entertain any suit assailing the validity of tax assessed under this article until
the taxpayer shall have paid, under protest the taxes assessed against him, xx". It should be noted, however, that the
article referred to in said section is Article XXI, entitled Department of Assessment and the sections thereunder
manifestly show that said article and its sections relate to asseessment, collection and recovery of real estate taxes
only. Said section 76, therefor, is not applicable to the case at bar, which relates to the recover of retail dealer taxes..

In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in a question similar to the case at bar, it was held
that the requiredment of protest refers only to the payment of taxes which are directly imposed by the charter itself,
that is, real estate taxes, which view was sustained by judicial and administrative precedents, one of which is the
case of Medina, et al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other words, protest is not necessary
for the recovery of retail dealer's taxes, like the present, because they are not directly imposed by the charter. In the
Medina case, the Charter of Baguio (Chap. 61, Revised Adm. Code), provides that "no court shall entertain any suit
assailing the validity of a tax assessed unde this charter until the tax-payer shall have paid, under protest, the taxes
assessed against him (sec.25474[b], Rev. Adm. Code), a proviso similar to section 76 of the Manila Charter. The
refund of specific taxes paid under a void ordinance was ordered, although it did not appear that payment thereof
was made under protest..

In a recent case, We said: "The appellants argue that the sum the refund of which is sought by the appellee, was not
paid under protest and hence is not refundable. Again, the trial court correctly held that being unauthorized, it is not
a tax assessed under the Charter of the Appellant City of Davao and for that reason, no protest is necessary for a
claim or demand for its refund" (Citing the Medina case, supra; East Asiatic Co., Ltd. v. City of Davao, G.R. No. L-
16253, Aug. 21, 1962). Lastly, being a case of solutio indebiti, protest is not required as a condition sine qua non for
its application..

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 payments made before the
effectivity of the New Civil Code on August 30, 1950, the period of which is ten (10) years, (Sec. 40,Act No. 190;
Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made after said effectivity, providing
for a period of six (6) years (upon quasi-contracts like solutio indebiti). Even if the provisionsof Act No. 190 should
apply to those payments made before the effectivity of the new Civil Code, because "prescription already runnig
before the effectivity of this Code shall be governed by laws previously in force x x x" (art. 1116, NCC), for
payments made after said effectivity,providing for a period of six (6) years (upon quasi-contracts like solutio
indebiti). Even if the provisions of Act No. 190should apply to those payments made before the effectivity of the
new Civil Code, because "prescription already running before the effectivity of of this Code shall be govern by laws
previously in force xxx " (Art. 1116, NCC), Still payments made before August 30, 1950 are no longer recoverable
in view of the second paragraph of said article (1116), which provides:"but if since the time this Code took effect the
entire period herein required for prescription should elapse the present Code shall be applicable even though by the
former laws a longer period might be required". Anent the payments made after August 30, 1950, it is abvious that
the action has prescribed with respect to those made before October 30, 1950 only, considering the fact that the
prescription of action is interrupted xxx when is a writteen extra-judicial demand x x x" (Art. 1155, NCC), and the
written demand in the case at bar was made on October 30, 1956 (Stipulation of Facts).MODIFIED in the sense that
only payments made on or after October 30, 1950 should be refunded, the decision appealed from is affirmed, in all
other respects. No costs. .

G.R. Nos. 198729-30 January 15, 2014

CBK POWER COMPANY LIMITED, Petitioner,


vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

SERENO, CJ:

This is a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure filed by CBK Power
Company Limited (petitioner). The Petition assails the Decision2 dated 27 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 659. The assailed
Decision and Resolution reversed and set aside the Decision 4 dated 3 March 2010 and Resolution5 dated 6 July 2010
rendered by the CTA Special Second Division in C.T.A. Case No. 7621, which partly granted the claim of petitioner
for the issuance of a tax credit certificate representing the latter's alleged unutilized input taxes on local purchases of
goods and services attributable to effectively zero-rated sales to National Power Corporation (NPC) for the second
and third quarters of 2005.

The Facts

Petitioner is engaged, among others, in the operation, maintenance, and management of the Kalayaan II pumped-
storage hydroelectric power plant, the new Caliraya Spillway, Caliraya, Botocan; and the Kalayaan I hydroelectric
power plants and their related facilities located in the Province of Laguna.6

On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue
(BIR) in 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 the NPC from 1 January
2005 to 31 October 2005 was declared to be entitled to the benefit of effectively zero-rated value added tax (VAT).7

Petitioner filed its administrative claims for the issuance of tax credit certificates for its alleged unutilized input
taxes on its purchase of capital goods and alleged unutilized input taxes on its local purchases and/or importation of
goods and services, other than capital goods, pursuant to Sections 112(A) and (B) of the NIRC of 1997, as amended,
with BIR Revenue District Office (RDO) No. 55 of Laguna, as follows: 8

Period Covered Date Of Filing


1st quarter of 2005 30-Jun-05
2nd quarter of 2005 15-Sep-05
3rd quarter of 2005 28-Oct-05

Alleging inaction of the Commissioner of Internal Revenue (CIR), petitioner filed a Petition for Review with the
CTA on 18 April 2007.

THE CTA SPECIAL SECOND DIVISION RULING


After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010. Applying
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant), 9 the court

a quo ruled that petitioner had until the following dates within which to file both administrative and judicial claims:

Taxable Quarter Last Day to


File Claim for
2005 Close of the quarter
Refund
1st quarter 31-Mar-05 31-Mar-07
2nd quarter 30-Jun-05 30-Jun-07
3rd quarter 30-Sep-05 30-Sep-07

Accordingly, petitioner timely filed its administrative claims for the three quarters of 2005. However, considering
that the judicial claim was filed on 18 April 2007, the CTA Division denied the claim for the first quarter of 2005 for
having been filed out of time.

After an evaluation of petitioner’s claim for the second and third quarters of 2005, the court a quo partly granted the
claim and ordered the issuance of a tax credit certificate in favor of petitioner in the reduced amount of
₱27,170,123.36.

The parties filed their respective Motions for Partial Reconsideration, which were both denied by the CTA Division.

THE CTA EN BANC RULING

On appeal, relying on Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), 10 the
CTA En Banc ruled that petitioner’s judicial claim for the first, second, and third quarters of 2005 were belatedly
filed.

The CTA Special Second Division Decision and Resolution were reversed and set aside, and the Petition for Review
filed in CTA Case No. 7621 was dismissed. Petitioner’s Motion for Reconsideration was likewise denied for lack of
merit.

Hence, this Petition.ISSUE

Petitioner’s assigned errors boil down to the principal issue of the applicable prescriptive period on its claim for
refund of unutilized input VAT for the first to third quarters of 2005. 11

THE COURT’S RULING

The pertinent provision of the NIRC at the time when petitioner filed its claim for refund provides:

SEC. 112. Refunds or Tax Credits of Input Tax. –

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two (2) years after the close of the taxable quarter when the sales were
made, apply for the issuance of a tax credit certificate or refund of creditable input tax due or paid
attributable to such sales, except transitional input tax, to the extent that such input tax has not been applied
against output tax: Provided, however, That in the case of zero-rated sales under Section
106(A)(2)(a)(1),(2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange
proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or
effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the
amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the
transactions, it shall be allocated proportionately on the basis of the volume of sales.

xxxx

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one
hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsections (A) and (B) hereof.

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 application within the period prescribed above, the taxpayer affected may, within thirty (30) days from
the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax Appeals.

Petitioner’s sales to NPC are effectively zero-rated

As aptly ruled by the CTA Special Second Division, petitioner’s sales to NPC are effectively subject to zero percent
(0%) VAT. The NPC is an entity with a special charter, which categorically exempts it from the payment of any tax,
whether direct or indirect, including VAT. Thus, services rendered to NPC by a VAT-registered entity are
effectively zero-rated. In fact, the BIR itself approved the application for zero-rating on 29 December 2004, filed by
petitioner for its sales to NPC covering January to October 2005. 12 As a consequence, petitioner claims for the
refund of the alleged excess input tax attributable to its effectively zero-rated sales to NPC.

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal Revenue,13 this
Court ruled:

Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes equal to the input taxes that
his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that
he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be
carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-
rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded
to the taxpayer.

The crux of the controversy arose from the proper application of the prescriptive periods set forth in Section 112 of
the NIRC of 1997, as amended, and the interpretation of the applicable jurisprudence.

Although the ponente in this case expressed a different view on the mandatory application of the 120+30 day period
as prescribed in Section 112, with the finality of the Court’s pronouncement on the consolidated tax cases
Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining Corporation v.
Commissioner of Internal Revenue, and Philex Mining Corporation v. Commissioner of Internal Revenue 14 (hereby
collectively referred as San Roque), we are constrained to apply the dispositions therein to the facts herein which are
similar.

Administrative Claim

Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is a two-year
prescriptive period within which a VAT-registered person whose sales are zero-rated or effectively zero-rated may
apply for the issuance of a tax credit certificate or refund of creditable input tax.
Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input taxes
over the output taxes they had paid in relation to their sales. For the refund or credit of excess or unutilized input tax,
Section 112 is the governing law. Given the distinctive nature of creditable input tax, the law under Section 112 (A)
provides for a different reckoning point for the two-year prescriptive period, specifically for the refund or credit of
that tax only.

We agree with petitioner that Mirant was not yet in existence when their administrative claim was filed in 2005;
thus, it should not retroactively be applied to the instant case.

However, the fact remains that Section 112 is the controlling 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 Sections 204 and 229, which prescribed a different starting point for the two-year
prescriptive limit for filing a claim for a refund or credit of excess input tax, were not applicable. Input tax is neither
an erroneously paid nor an illegally collected internal revenue tax. 15

Section 112(A) is clear that for VAT-registered persons whose sales are zero-rated or effectively zero-rated, a claim
for the refund or credit of creditable input tax that is due or paid, and that is attributable to zero-rated or effectively
zero-rated sales, must be filed within two years after the close of the taxable quarter when such sales were made.
The reckoning frame would always be the end of the quarter when the pertinent sale or transactions were made,
regardless of when the input VAT was paid.16

Pursuant to Section 112(A), petitioner’s administrative claims were filed well within the two-year period from the
close of the taxable quarter when the effectively zero-rated sales were made, to wit:

Period Covered Close of the Last day to File Administrative Date of Filing
Taxable Claim
Quarter
1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05
2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05
3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05

Judicial Claim

Section 112(D) further provides that the CIR has to decide on an administrative claim within one hundred twenty
(120) days from the date of submission of complete documents in support thereof.

Bearing in mind that the burden to prove entitlement to a tax refund is on the taxpayer, it is presumed that in order to
discharge its burden, petitioner had attached complete supporting documents necessary to prove its entitlement to a
refund in its application, absent any evidence to the contrary.

Thereafter, the taxpayer affected by the CIR’s decision or inaction may appeal to the CTA within 30 days from the
receipt of the decision or from the expiration of the 120-day period within which the claim has not been acted upon.

Considering further that the 30-day period to appeal to the CTA is dependent on the 120-day period, compliance
with both periods is jurisdictional. The period of 120 days is a prerequisite for the commencement of the 30-day
period to appeal to the CTA.

Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. Commissioner of
Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue, 17 this Court has
ruled thus:
Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque recognized
that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. BIR Ruling No. DA-489-03
expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek
judicial relief with the CTA by way of Petition for Review." This Court discussed BIR Ruling No. DA-489-03 and
its effect on taxpayers, thus:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult
question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas
doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi
prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule
issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply
prospectively. x x x.

xxxx

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers
or a specific ruling applicable only to a particular taxpayer. BIR Ruling No. DA-489-03 is a general interpretative
rule because it was a response to a query made, not by a particular taxpayer, but by a government agency asked with
processing tax refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback Center of the
Department of Finance. This government agency is also the addressee, or the entity responded to, in BIR Ruling No.
DA-489-03. Thus, while this government agency mentions in its query to the Commissioner the administrative claim
of Lazi Bay Resources Development, Inc., the agency was in fact asking the Commissioner what to do in cases like
the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for the lapse of the 120-day
period.

Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule.1âwphi1 Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to its reversal by this Court in Aichi
on 6 October 2010, where this Court held that the 120+30 day periods are mandatory and jurisdictional. (Emphasis
supplied)

In applying the foregoing to the instant case, we consider the following pertinent dates:

1âwphi1
Period Covered Administrative Expiration of 120- Last day to file Judicial Claim Filed
Claim Filed days Judicial Claim
1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07
2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06
3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06

It must be emphasized that this is not a case of premature filing of a judicial claim. Although petitioner did not file
its judicial claim with the CTA prior to the expiration of the 120-day waiting period, it failed to observe the 30-day
prescriptive period to appeal to the CTA counted from the lapse of the 120-day period.

Petitioner is similarly situated as Philex in the same case, San Roque, 18 in which this Court ruled:

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file any
petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within 30 days
after the expiration of 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 of the 120-day period. In any event, whether governed by jurisprudence
before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of late filing. Whether
the two-year prescriptive period is counted from the date of payment of the output VAT following the Atlas
doctrine, or from the close of the taxable quarter when the sales attributable to the input VAT were made following
the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

The Atlas doctrine cannot save Philex from the late filing of its judicial claim. The inaction of the Commissioner on
Philex’s claim during the 120-day period is, by express provision of law, "deemed a denial" of Philex’s claim.
Philex had 30 days from the expiration of the 120-day period to file its judicial claim with the CTA. Philex’s failure
to do so rendered the "deemed a denial" decision of the Commissioner final and inappealable. The right to appeal to
the CTA from a decision or "deemed a denial" decision of the Commissioner is merely a statutory privilege, not a
constitutional right. The exercise of such statutory privilege requires strict compliance with the conditions attached
by the statute for its exercise. Philex failed to comply with the statutory conditions and must thus bear the
consequences. (Emphases in the original)

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability of BIR
Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it 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-day period.
Again, BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the
120-day period for the Commissioner to act on an administrative claim, 19 but not its late filing.

As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case was promulgated
only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year period from the date of filing of
the return and payment of the tax, does not interpret − expressly or impliedly − the 120+30 day periods. 20 Simply
stated, Atlas referred only to the reckoning of the prescriptive period for filing an administrative claim.

For failure of petitioner to comply with the 120+30 day mandatory and jurisdictional period, petitioner lost its right
to claim a refund or credit of its alleged excess input VAT.

With regard to petitioner’s argument that Aichi should not be applied retroactively, we reiterate that even without
that ruling, the law is explicit on the mandatory and jurisdictional nature of the 120+30 day period.

Also devoid of merit is the applicability of the principle of solutio indebiti to the present case. According to this
principle, if something is received when there is no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises. In that situation, a creditor-debtor relationship is created under a quasi-contract,
whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake,
and the person who has no right to receive the payment becomes obligated to return it.21 The quasi-contract of
solutio indebiti is based on the ancient principle that no one shall enrich oneself unjustly at the expense of another.22

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

(2) Payment is made through mistake, and not through liberality or some other cause. 23

Though the principle of solutio indebiti may be applicable to some instances of claims for a refund, the elements
thereof are wanting in this case.

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

Second, the payment of input tax was not made through mistake, since petitioner was legally obligated to pay for
that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive nature of the
VAT system. At the time of payment of the input VAT, the amount paid was correct and proper. 24
Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the absence of, and
never against, statutory law or judicial rules of procedure. 25 Section 112 is a positive rule that should preempt and
prevail over all abstract arguments based only on equity. Well-settled is the rule that tax refunds or credits, just like
tax exemptions, are strictly construed against the taxpayer.26 The burden is on the taxpayer to show strict compliance
with the conditions for the grant of the tax refund or credit. 27

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,


vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.


Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in the employment of
Manila Railroad Company in the capacity of clerk, with a monthly wage of P25. He lived in the pueblo of San
Mateo, in the province of Rizal, which is located upon the line of the defendant railroad company; and in 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, which entitled him to ride upon the company's trains free of charge. Upon the occasion in question,
January 20, 1915, the plaintiff arose from his seat in the second class-car where he was riding and, making, his exit
through the door, took his position upon the steps of the coach, seizing the upright guardrail with his right hand for
support.

On the side of the train where passengers alight at the San Mateo station there is a cement platform which begins to
rise with a moderate gradient some distance away from the company's office and extends along in front of said
office for a distance sufficient to cover the length of several coaches. As the train slowed down another passenger,
named Emilio Zuñiga, 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 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 that his feet slipped from under him and he fell violently on the platform. His body at once rolled from the
platform and was drawn under the moving car, where his right arm was badly crushed and lacerated. It appears that
after the plaintiff alighted from the train the car moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was lighted dimly by a
single light located some distance away, objects on the platform where the accident occurred were difficult to
discern especially to a person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted is found in the fact
that it was the customary season for harvesting these melons and a large lot had been brought to the station for the
shipment to the market. They were contained in numerous sacks which has been 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 edge of platform; and it is
clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these melons at the moment he
stepped upon the platform. His statement that he failed to see these objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the injuries which he
had received were very serious. He was therefore brought at once to a certain hospital in the city of Manila where an
examination was made and his arm was amputated. The result of this operation was unsatisfactory, and the plaintiff
was then carried to another hospital where a second operation was performed and the member was again amputated
higher up near the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form of
medical and surgical fees and for other expenses in connection with the process of his curation.

Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of Manila to recover
damages of the defendant company, founding his action upon the negligence of the servants and employees of the
defendant in placing the sacks of melons upon the platform and leaving them so placed as to be a menace to the
security of passenger alighting from the company's trains. At the hearing in the Court of First Instance, his Honor,
the trial judge, found the facts substantially as above stated, and drew therefrom his conclusion to the effect that,
although negligence was attributable to the defendant by reason of the fact that the sacks of melons were so placed
as to obstruct passengers passing to and from the cars, nevertheless, the plaintiff himself had failed to use due
caution in alighting from the coach and was therefore precluded form recovering. Judgment was accordingly entered
in favor of the defendant company, and the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in piling these sacks on
the platform in the manner above stated; that their presence caused the plaintiff to fall as he alighted from the train;
and that they therefore constituted an effective legal cause of the injuries sustained by the plaintiff. It necessarily
follows that the defendant company is liable for the damage thereby occasioned unless recovery is barred by the
plaintiff's own contributory negligence. In resolving this problem it is necessary that each of these conceptions of
liability, to-wit, the primary responsibility of the defendant company and the contributory negligence of the plaintiff
should be separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of carriage, and that
the obligation to respond for the damage which plaintiff has suffered arises, if at all, from the breach of that contract
by reason of the failure of defendant to exercise due care in its performance. That is to say, its liability is direct and
immediate, differing essentially, in legal viewpoint from that presumptive responsibility for the negligence of its
servants, imposed by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in
their selection and supervision. Article 1903 of the Civil Code is not applicable to obligations arising ex contractu,
but only to extra-contractual obligations — or to use the technical form of expression, that article relates only
to culpa aquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code, clearly points out this
distinction, which was also recognized by this Court in its decision in the case of Rakes vs. Atlantic, Gulf and
Pacific Co. (7 Phil. rep., 359). In commenting upon article 1093 Manresa clearly points out the difference between
"culpa, substantive and independent, which of itself constitutes the source of an obligation between persons not
formerly connected by any legal tie" and culpa considered as an accident in the performance of an obligation already
existing . . . ."

In the Rakes case (supra) the decision of this court was made to rest squarely upon the proposition that article 1903
of the Civil Code is not applicable to acts of negligence which constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to be those
not growing out of pre-existing duties of the parties to one another. But where relations already formed
give rise to duties, whether springing from contract or quasi-contract, then breaches of those duties are
subject to article 1101, 1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil.
Rep., 359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in certain cases imposed
upon employers with respect to damages occasioned by the negligence of their employees to persons to whom they
are not bound by contract, is not based, as in the English Common Law, upon the principle of respondeat superior
— if it were, the master would be liable in every case and unconditionally — but upon the principle announced in
article 1902 of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to
another, the obligation of making good the damage caused. One who places a powerful automobile in the hands of a
servant whom he knows to be ignorant of the method of managing such a vehicle, is himself guilty of an act of
negligence which makes him liable for all the consequences of his imprudence. The obligation to make good the
damage arises at the very instant that the unskillful servant, while acting within the scope of his employment causes
the injury. The liability of the 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 done within
the scope of his employment or not, if the damage done by the servant does not amount to a breach of the contract
between the master and the person injured.

It is not accurate to say that proof of diligence and care in the selection and control of the servant relieves the master
from liability for the latter's acts — on the contrary, that proof shows that the responsibility has never existed. As
Manresa says (vol. 8, p. 68) the liability arising from extra-contractual culpa is always based upon a voluntary act or
omission which, without willful intent, but by mere negligence or inattention, has caused damage to another. A
master who exercises all possible care in the selection of his servant, taking into consideration the qualifications they
should possess for the discharge of the duties which it is his purpose to confide to them, and directs them with equal
diligence, thereby performs his duty to third persons to whom he is bound by no contractual ties, and he incurs no
liability whatever if, by reason of the negligence of his servants, even within the scope of their employment, such
third person suffer damage. True it is that under article 1903 of the Civil Code the law creates a presumption that he
has been negligent in the selection or direction of his servant, but the presumption is rebuttable and yield to proof of
due care and diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico Code, has held that
these articles are applicable to cases of extra-contractual culpa exclusively. (Carmona vs. Cuesta, 20 Porto Rico
Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and Leynes, (30
Phil. rep., 624), which was an action brought upon the theory of the extra-contractual liability of the defendant to
respond for the damage caused by the carelessness of his employee while acting within the scope of his
employment. The Court, after citing the last paragraph of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the negligence of a servant
or employee there instantly arises a presumption of law that there was negligence on the part of the master
or employer either in selection of the servant or employee, or in supervision over him after the selection, or
both; and (2) that that presumption is juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to the satisfaction of the court that in selection
and supervision he has exercised the care and diligence of a good father of a family, the presumption is
overcome and he is relieved from liability.

This theory bases the responsibility of the master ultimately on his own negligence and not on that of his
servant. This is the notable peculiarity of the Spanish law of negligence. It is, of course, in striking contrast
to the American doctrine that, in relations with strangers, the negligence of the servant in conclusively the
negligence of the master.

The opinion there expressed by this Court, to the effect that in case of extra-contractual culpa based upon
negligence, it is necessary that there shall have been some fault attributable to the defendant personally, and that the
last paragraph of article 1903 merely establishes a rebuttable presumption, is in complete accord with the
authoritative opinion of Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by
reason of the breach of the duties inherent in the special relations of authority or superiority existing between the
person called upon to repair the damage and the one who, by his act or omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of their servants or
agents, when such acts or omissions cause damages which amount to the breach of a contact, is not based upon a
mere presumption of the master's negligence in their selection or control, and proof of exercise of the utmost
diligence and care in this regard does not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual obligation has its
source in the breach or omission of those mutual duties which civilized society imposes upon it members, or which
arise from these relations, other than contractual, of certain members of society to others, generally embraced in the
concept of status. The legal rights of each member of society constitute the measure of the corresponding legal
duties, mainly negative in character, which the existence of those rights imposes upon all other members of society.
The breach of these general duties whether due to willful intent or to mere inattention, if productive of injury, give
rise to an obligation to indemnify the injured party. The fundamental distinction between obligations of this
character and those which arise from contract, rests upon the fact that in cases of non-contractual obligation it is the
wrongful or negligent act or omission itself which creates the vinculum juris, whereas in contractual relations
the vinculum exists independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for
the legislature to elect — and our Legislature has so elected — whom such an obligation is imposed is morally
culpable, or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral
culpability, so as to include responsibility for the negligence of those person who acts or mission are imputable, by a
legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature
which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions
— to cases in which moral culpability can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in the selection and control of one's agents or
servants, or in the control of persons who, by reason of their status, occupy a position of dependency with respect to
the person made liable for their conduct.

The position of a natural or juridical person who has undertaken by contract to render service to another, is wholly
different from that to which article 1903 relates. When the sources of the obligation upon which plaintiff's cause of
action depends is a negligent act or omission, the burden of proof rests upon plaintiff to prove the negligence — if
he does not his action fails. But when the facts averred show a contractual undertaking by defendant for the benefit
of plaintiff, and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for plaintiff
to specify in his pleadings whether the breach of the contract is due to willful fault or to negligence on the part of the
defendant, or of his servants or agents. Proof of the contract and of its nonperformance is sufficient prima facie to
warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should assume the
burden of proof of its existence, as the only fact upon which his action is based; while on the contrary, in a
case of negligence which presupposes the existence of a contractual obligation, if the creditor shows that it
exists and that it has been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71
[1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the breach was due to the
negligent conduct of defendant or of his servants, even though such be in fact the actual cause of the breach, it is
obvious that proof on the part of defendant that the negligence or omission of his servants or agents caused the
breach of the contract would not constitute a defense to the action. If the negligence of servants or agents could be
invoked as a means of discharging the liability arising from contract, the anomalous result would be that person
acting through the medium of agents or servants in the performance of their contracts, would be in a better position
than those acting in person. If one delivers a valuable watch to watchmaker who contract to repair it, and the bailee,
by a personal negligent act causes its destruction, he is unquestionably liable. Would it be logical to free him from
his liability for the breach of his contract, which involves the duty to exercise due care in the preservation of the
watch, if he shows that it was his servant whose negligence caused the injury? If such a theory could be accepted,
juridical persons would enjoy practically complete immunity from damages arising from the breach of their
contracts if caused by negligent acts as such juridical persons can of necessity only act through agents or servants,
and it would no doubt be true in most instances that reasonable care had been taken in selection and direction of
such servants. If one delivers securities to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and reasonable to permit the bank to relieve itself
of liability for the breach of its contract to return the collateral upon the payment of the debt by proving that due care
had been exercised in the selection and direction of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere incident to
the performance of a contract has frequently been recognized by the supreme court of Spain. (Sentencias of June 27,
1894; November 20, 1896; and December 13, 1896.) In the decisions of November 20, 1896, it appeared that
plaintiff's action arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of the
Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention, saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or negligence, such as
those to which article 1902 of the Civil Code relates, but of damages caused by the defendant's failure to
carry out the undertakings imposed by the contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage done by the
negligent acts of their servants will show that in no case has the court ever decided that the negligence of the
defendant's servants has been held to constitute a defense to an action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage was not liable for the
damages caused by the negligence of his driver. In that case the court commented on the fact that no evidence had
been adduced in the trial court that the defendant had been negligent in the employment of the driver, or that he had
any knowledge of his lack of skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the plaintiff sued the
defendant for damages caused by the loss of a barge belonging to plaintiff which was allowed to get adrift by the
negligence of defendant's servants in the course of the performance of a contract of towage. The court held, citing
Manresa (vol. 8, pp. 29, 69) that if the "obligation of the defendant grew out of a contract made between it and the
plaintiff . . . we do not think that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages for the
personal injuries caused by the negligence of defendant's chauffeur while driving defendant's automobile in which
defendant was riding at the time. The court found that the damages were caused by the negligence of the driver of
the automobile, but held that the master was not liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give the owner a
reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act complained
of must be continued in the presence of the owner for such length of time that the owner by his
acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that
the court rested its conclusion as to the liability of the defendant upon article 1903, although the facts disclosed that
the injury complaint of by plaintiff constituted a breach of the duty to him arising out of the contract of
transportation. The express ground of the decision in this case was that article 1903, in dealing with the liability of a
master for the negligent acts of his servants "makes the distinction between private individuals and public
enterprise;" that as to the latter the law creates a rebuttable presumption of negligence in the selection or direction of
servants; and that in the particular case the presumption of negligence had not been overcome.
It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded in tort
rather than as based upon the breach of the contract of carriage, and an examination of the pleadings and of the
briefs shows that the questions of law were in fact discussed upon this theory. Viewed from the standpoint of the
defendant the practical result must have been the same in any event. The proof disclosed beyond doubt that the
defendant's servant was grossly negligent and that his negligence was the proximate cause of plaintiff's injury. It also
affirmatively appeared that defendant had been guilty of negligence in its failure to exercise proper discretion in the
direction of the servant. Defendant was, therefore, liable for the injury suffered by plaintiff, whether the breach of
the duty were to be regarded as constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp.
29 and 69) whether negligence occurs an incident in the course of the performance of a contractual undertaking or
its itself the source of an extra-contractual undertaking obligation, its essential characteristics are identical. There is
always an act or omission productive of damage due to carelessness or inattention on the part of the defendant.
Consequently, when the court holds that a defendant is liable in damages for having failed to exercise due care,
either directly, or in failing to exercise proper care in the selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be inferred, because the court held in the Yamada case
that defendant was liable for the damages negligently caused by its servants to a person to whom it was bound by
contract, and made reference to the fact that the defendant was negligent in the selection and control of its servants,
that in such a case the court would have held that it would have been a good defense to the action, if presented
squarely upon the theory of the breach of the contract, for defendant to have proved that it did in fact exercise care in
the selection and control of the servant.

The true explanation of such cases is to be found by directing the attention to the relative spheres of contractual and
extra-contractual obligations. The field of non- contractual obligation is much more broader than that of contractual
obligations, comprising, as it does, the whole extent of juridical human relations. These two fields, figuratively
speaking, concentric; that is to say, the mere fact that a person is bound to another by contract does not relieve him
from extra-contractual liability to such person. When such a contractual relation exists the obligor may break the
contract under such conditions that the same act which constitutes the source of an extra-contractual obligation had
no contract existed between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in safety and to
provide safe means of entering and leaving its trains (civil code, article 1258). That duty, being contractual, was
direct and immediate, and its non-performance could not be excused by proof that the fault was morally imputable to
defendant's servants.

The railroad company's defense involves the assumption that even granting that the negligent conduct of its servants
in placing an obstruction upon the platform was a breach of its contractual obligation to maintain safe means of
approaching and leaving its trains, the direct and proximate cause of the injury suffered by plaintiff was his own
contributory negligence in failing to wait until the train had come to a complete stop before alighting. Under the
doctrine of comparative negligence announced in the Rakes case (supra), if the accident was caused by plaintiff's
own negligence, no liability is imposed upon defendant's negligence and plaintiff's negligence merely contributed to
his injury, the damages should be apportioned. It is, therefore, important to ascertain if defendant was in fact guilty
of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting, the particular
injury suffered by him could not have occurred. Defendant contends, and cites many authorities in support of the
contention, that it is negligence per se for a passenger to alight from a moving train. We are not disposed to
subscribe to this doctrine in its absolute form. We are of the opinion that this proposition is too badly stated and is at
variance with the experience of every-day life. In this particular instance, that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the place where he
stepped from it. Thousands of person alight from trains under these conditions every day of the year, and sustain no
injury where the company has kept its platform free from dangerous obstructions. There is no reason to believe that
plaintiff would have suffered any injury whatever in alighting as he did had it not been for defendant's negligent
failure to perform its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work on
Negligence (vol. 3, sec. 3010) as follows:
The test by which to determine whether the passenger has been guilty of negligence in attempting to alight
from a moving railway train, is that of ordinary or reasonable care. It is to be considered whether an
ordinarily prudent person, of the age, sex and condition of the passenger, would have acted as the passenger
acted under the circumstances disclosed by the evidence. This care has been defined to be, not the care
which may or should be used by the prudent man generally, but the care which a man of ordinary prudence
would use under similar circumstances, to avoid injury." (Thompson, Commentaries on Negligence, vol. 3,
sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil. rep., 809), we may
say that the test is this; Was there anything in the circumstances surrounding the plaintiff at the time he alighted
from the train which would have admonished a person of average prudence that to get off the train under the
conditions then existing was dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to
desist was contributory negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to the effect that
plaintiff was guilty of contributory negligence is that he stepped off the car without being able to discern clearly the
condition of the platform and while the train was yet slowly moving. In considering the situation thus presented, it
should not be overlooked that the plaintiff was, as we find, ignorant of the fact that the obstruction which was
caused by the sacks of melons piled on the platform existed; and as the defendant was bound by 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 assume,
in the absence of some circumstance to warn him to the contrary, that the platform was clear. The place, as we have
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 duty owing by it to the plaintiff; for if it were by any possibility concede that it had right to pile
these sacks in the path of alighting passengers, the placing of them adequately so that their presence would be
revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the following
circumstances are to be noted: The company's platform was constructed upon a level higher than that of the roadbed
and the surrounding ground. The distance from the steps of the car to the spot where the alighting passenger would
place his feet on the platform was thus reduced, thereby decreasing the risk incident to stepping off. The nature of
the platform, constructed as it was of cement material, also assured to the passenger a stable and even surface on
which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of young manhood, and it was by
no means so risky for 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 are
circumstances necessarily affecting the safety of the passenger, and should be considered. Women, it has been
observed, as a general rule are less capable than men of alighting with safety under such conditions, as the nature of
their wearing apparel obstructs the free movement of the limbs. Again, it may be noted that the place was perfectly
familiar to the plaintiff as it 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 either to the length of the step which he was required to take or the character
of the platform where he was alighting. Our conclusion is that the conduct of the plaintiff in undertaking to alight
while the train was yet slightly under way was not characterized by imprudence and that therefore he was not guilty
of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a copyist clerk, and
that the injuries he has suffered have permanently disabled him from continuing that employment. Defendant has not
shown that any other gainful occupation is open to plaintiff. His expectancy of life, according to the standard
mortality tables, is approximately thirty-three years. We are of the opinion that a fair compensation for the damage
suffered by him for his permanent disability is the sum of P2,500, and that he is also entitled to recover of defendant
the additional sum of P790.25 for medical attention, hospital services, and other incidental expenditures connected
with the treatment of his injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25, and for
the costs of both instances. So ordered.
G.R. No. 34840 September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,


vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.


San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to
recover damages in the amount of P10,000, for physical injuries suffered as a result of an automobile accident. On
judgment being rendered as prayed for by the plaintiff, both sets of defendants appealed.

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass
each other on the Talon bridge on the Manila South Road in the municipality of Las Piñas, Province of Rizal. The
truck was driven by the chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was
being operated by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and mother, Mr.
and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the car, but the mother, together will
several other members of the Gutierrez family, seven in all, were accommodated therein. A passenger in the
autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between
the bus and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical
attendance for a considerable period of time, and which even at the date of the trial appears not to have healed
properly.

It is conceded that the collision was caused by negligence pure and simple. The difference between the parties is
that, while the plaintiff blames both sets of defendants, the owner of the passenger truck blames the automobile, and
the owner of the automobile, in turn, blames the truck. We have given close attention to these highly debatable
points, and having done so, a majority of the court are of the opinion that the findings of the trial judge on all
controversial questions of fact find sufficient support in the record, and so should be maintained. With this general
statement set down, we turn to consider the respective legal obligations of the defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that
the youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on
approaching the bridge and 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 was granted a license to operate motor vehicles made the father
responsible for the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil Code,
the father alone and not the minor or the mother, would be liable for the damages caused by the minor.

We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the same
time, we believe that, as has been done in other cases, we can take cognizance of the common law rule on the same
subject. In the United States, it is uniformly held that the head of a house, the owner of an automobile, who
maintains it for the general use of his family is liable for its negligent operation by one of his children, whom he
designates or permits to run it, where the car is occupied and being used at the time of the injury for the pleasure of
other members of the owner's family than the child 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 the scope of the owner's business, so that he is
liable for the negligence of the child because of the relationship of master and servant. (Huddy On Automobiles, 6th
ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and
of his chauffeur Abelardo Velasco rests on a different basis, namely, that of contract which, we think, has been
sufficiently demonstrated by the allegations of the complaint, not controverted, and the evidence. The reason for this
conclusion reaches to the findings of the trial court concerning the position of the truck on the bridge, the speed in
operating the machine, and the lack of care employed by the chauffeur. While these facts are not as clearly
evidenced as are those which convict the other defendant, we nevertheless hesitate to disregard the points
emphasized by the trial judge. In its broader aspects, the case is one of two drivers approaching a 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.

The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the
plaintiff, consisting principally of his keeping his foot outside the truck, which occasioned his injury. In this
connection, it is sufficient to state that, aside from the fact that the defense of contributory negligence was not
pleaded, the evidence bearing out this theory of the case is contradictory in the extreme and leads us far afield into
speculative matters.

The last subject for consideration relates to the amount of the award. The appellee suggests that the amount could
justly be raised to P16,517, but naturally is not serious in asking for this sum, since no appeal was taken by him from
the judgment. The other parties unite in challenging the award of P10,000, as excessive. All facts considered,
including actual expenditures and damages for the injury to the leg of the plaintiff, which may cause him permanent
lameness, in connection with other adjudications of this court, lead us to conclude that a total sum for the plaintiff of
P5,000 would be fair and reasonable. The difficulty in approximating the damages by monetary compensation is
well elucidated by the divergence of opinion among the members of the court, three of whom have inclined to the
view that P3,000 would be amply sufficient, while a fourth member has argued that P7,500 would be none too
much.

In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have
judgment in his favor against the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and
severally, for the sum of P5,000, and the costs of both instances.