Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-50911 March 12, 1986

MIGUEL PEREZ RUBIO, petitioner,

vs.
COURT OF APPEALS, ROBERT O. PHILLIPS & SONS, INC., MAGDALENA
YSMAEL PHILLIPS, MANUFACTURERS BANK & TRUST COMPANY, INC.,
HACIENDA BENITO, INC., VICTORIA VALLEY DEVELOPMENT CORPORATION
and ROBERT O. PHILLIPS, respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision of the Court of Appeals, now the Intermediate Appellate
Court, in CA-G.R. No. 60896-R, which affirmed the trial court's decision ordering Robert O.
Phillips & Sons, Inc., and the plaintiff-spouses to pay Miguel Perez Rubio the sum of
P4,250,000.00 but ordered Perez Rubio to pay Robert O. Phillips & Sons, Inc. and the other
plaintiffs damages in the amount of P4,404,510.76. The appellate court, however, modified the
lower court's order to pay P4,250,000.00 by removing the eight (8%) percent per annum interests
on that amount, dispensing with the ten (10%) percent attomey's fees and limiting the liability to
Robert O. Phillips and Sons, Inc., only. Also affirmed was the order directing Perez Rubio, as
third party plaintiff, to pay Hacienda Benito, Inc. the sum of P7,051,496.23 as actual damages
and P150,000.00 attorney's fees and to pay Manufacturer's Bank and Trust Co. P895,085.16
actual damages, plus ten (10%) percent of that amount as attorney's fees.

The decision of the trial court in Civil Case No. 8632 has actually been the subject matter of two
earlier petitions for certiorari filed by the petitioner against the same respondents. These are G.R.
No. L-24581 entitled Miguel Perez Rubio v. The Honorable Samuel Reyes Roberto O. Phillips
and Magdalena Ysmael Phillips, Manufacturer's Bank and Trust Company, Victoria Valley
Development Corporation and Hacienda Benito, Inc. and G.R. No. L-30404 entitled Miguel
Perez Rubio v. Honorable Judge Herminio Mariano in his capacity as Presiding Judge of
Branch X of the Court of First Instance of Rizal Robert O. Phillips and Sons, Inc. Robert O.
Phillips, Magdalena Ysmael Phillips, Victoria Valley Development Corporation Manufacturers
Bank and Trust Company and Hacienda Benito, Inc.

This petition arose from the same facts and events which triggered off the filing of the earlier
petitions. These facts and events are cited in our Resolution dated January 31, 1966 issued in
G.R. No, L-24581, as follows:
Upon the facts alleged in the complaint filed in Civil Case No, 8632 of the Court
of First Instance of Rizal by Robert O. Phillips and Sons, Inc., et al. v. Miguel
Perez Rubio, said plaintiffs prayed for judgment as follows:

1. That a Temporary restraining order and/or exparte writ of

preliminary injunction be issued against the defendant to prevent
and restrain them from further unlawfull and willful interference
with the transaction between the plaintiff corporation with Alfonso
T. Yuchengco on the sale of the shares of stock of Hacienda
Benito, Inc., and from enforcing whatever amount he may claim to
be due to them from the plaintiffs under the Agreements (Annexes
"A", "A-1" and "A- 2"), after the approval of the injunction bond;

2. That, after the hearing, judgment be rendered in favor of the

plaintiffs against the defendant:

a) Restraining him from willfully and unlawfully

interfering with the transaction of the plaintiffs with
Alfonso T. Yuchengco on the sale of the shares of
stock of Hacienda Benito, Inc.;

b) Declaring that the defendant has no right to

rescind the Agreements as referred to in Annexes
"A", "A.1" and "A.2";

c) Declaring that the defendant has no vendors' lien

over the shares of stock of Hacienda Benito, Inc.,
sold by them to the plaintiff corporation;

d) Restraining the defendant from enforcing any

collection action against the plaintiff until the
obligation, if any, mature;

e) Making the writ of preliminary injunction

permanent;

f) Sentencing the defendant to pay the plaintiffs;

(1) P 2,500,000.00, more or less, as

actual damages;

(2) Moral damages which this

Honorable Court may deem just and
reasonable;
 (3) Exemplary damages, which this
Honorable Court may deem just and
reasonable;

(4) P50,000.00, as attorney's fees;

and

(5) Costs of suit; and

3. That the plaintiffs be granted such further and other reliefs to which they may
be entitled in law and in equity'

Upon an ex-parte petition filed by the plaintiffs, the respondent judge issued on
April 1, 1965 a writ of preliminary injunction to be mentioned again later.
Subsequently, the respondent judge also denied Perez Rubio's motion to dissolve
the preliminary injunction.

It appears that the Perez Rubio spouses owned shares of stock in Hacienda Benito,
Inc. registered in their names and in the names of Joaquin Ramirez and Joaquin
Ramirez, Jr. On August 13, 1963 the Perez Rubios, with the conformity of the
Ramirezes, sold said shares to Robert O. Phillips and Sons, Inc. for P5,500,000.00
payable in installments and other conditions agreed upon as follows:

xxx xxx xxx

3. That for and in consideration of the mutual agreements and promises, MIGUEL
and MARIA LUISA hereby sell to PHILLIPS all the shares of stock of Hacienda
Benito, Inc. registered in their names and in the names of Joaquin Ramirez and
Joaquin, Jr. for the total price of FIVE MILLION FIVE HUNDRED
THOUSAND PESOS (P5,500,000.00), Philippine Currency, payable as follows:

a FIFTY THOUSAND PESOS (P50,000.00) upon execution of

this agreement,

b. ONE MILLION TWO HUNDRED THOUSAND PESOS (P

l,200,000.00) within sixty (60) days from this date.

c ONE MILLION TWO HUNDRED AND FIFTY THOUSAND

PESOS (P1,250,000.00) on April 30, 1964 less than the amount of
P 96,830.56 due the Hacienda Benito, Inc. from MARIA LUISA
and the amount of P127,096.09 from MIGUEL; hereby authorized
PHILLIPS to deduct said amounts and to pay the same to Hacienda
Benito, Inc.

d ONE MILLION TWO HUNDRED AND FIFTY THOUSAND

PESOS (P1,250,000.00) on or before April 30, 1965.
 e ONE MILLION TWO HUNDRED AND FIFTY THOUSAND
PESOS (P1,250,000.00) on or before April 30, 1965.

f FIVE HUNDRED THOUSAND PESOS (P500,000.00) on or

before April 30, 1967.

4. That should PHILLIPS fail to pay the amount of ONE MILLION TWO
HUNDRED THOUSAND PESOS (P1,200,000.00) due sixty days from this date
and to execute the letter of credit and/or bond or both to secure the payment of the
remaining installments, as agreed upon, then the Seller shall have the right, at
their own discretion, either to rescind this agreement or to enforce the same,
provided that any number of days used by the Sellers to consider the acceptability
of the bank or bonding company proposed by PHILLIPS shall be added to the
period of sixty (60) days herein mentioned;

5. That in case of default, PHILLIPS shall pay interest at the rate of eight percent
(8%) per annum on all amounts in arrears until paid in full either by the
guaranteeing bank, bonding company or PHILLIPS;

6. That all the installments due during the years 1964, 1965, 1966, and 1967 with
all the conditions above mentioned, shall be jointly and severally guaranteed by
means of Irrevocable Standby letter of Credit from a bank in favor of MIGUEL
and MARIA LUISA, in the proportion they may agree, which shall be
communicated to the bank and to PHILLIPS before final contract is entered into
with the bank, or by a bond from a bonding company duly approved by MIGUEL
and MARIA LUISA;

7. That the stock certificates corresponding to the shares sold, including those in
the names of Joaquin Ramirez and Joaquin Ramirez, Jr. shall not be transferred to
PHILLIPS until the installments due within sixty (60) days from this date is paid
in full.'

On June 23, 1964 Robert O. Phillips and Sons, Inc., and Robert O. Phillips
himself and his wife, entered into an agreement with the Perez Rubios deferring
payment of the April 31, 1964 under the following conditions;

(a) The deferred installment would bear an interest of eight (8%) percent per
annum from April 30, 1964 although partial payment, on the principal and on the
interest due may be paid during the period granted, in such amounts and at such
times as funds are available to Robert O. Phillips & Sons, Inc.;

(b) Should Robert O. Phillips & Sons, lnc. fail to pay the particular installment
now due on August 31, 1964 or any of the subsequent installments on the exact
date due, the whole obligation would become immediately demandable without
notice;
 (c) In consideration of this extension granted to Robert O. Phillips & Sons, Inc.,
Robert O. Phillips himself and his wife, Magdalena Ysmael Phillips, jointly and
severally guaranteed all the installments and other obligations of Robert O.
Phillips & Sons, Inc. under the original contract of sale dated April 13, 1963.'

In the meantime, Robert O. Phillips, in his behalf and in that of his wife and
Robert O. Phillips and Sons, Inc., entered into negotiations for the sale of their
shares of stock in Hacienda Benito, Inc. to Alfonso Yuchengco. Upon being
informed of this, the Perez Rubios, through their attorney-in-fact, Joaquin
Ramirez, reminded the Phillips spouses and the Phillips corporation in writing of
their obligations under the contract of sale of April 13, 1963 and reminded them
in particular that the shares subject matter thereof were still subject to the
payment of the unpaid balance of the sale price. They gave a similar notice to
Alfonso Yuchengco, but expressed no objection to the sale provided the
obligations in their favor were satisfied.

On March 26, 1965, the Phillips (individuals and corporation), through their
attorney, Juan T. David, sent a letter to the Perez Rubios telling them, in
substance, that the only obstacle to the consummation of the Phillips-Yuchengco
sale of the shares of stock of Hacienda Benito, Inc. was their letter of November
24, 1964 and warned that unless the same was withdrawn by March 29, they
would seek redress elsewhere. On March 27, 1965, the Perez Rubios, for their
part, wrote the Phillips that due to the latter's inability to comply with the former's
conditions, the negotiations going on between them were cancelled, and should
the full amount due to them remained unpaid by noon of March 31, 1965, they
would file action in court in the afternoon thereof. However, on March 30, 1965,
stealing a march on the Perez Rubios, the Phillips individuals and corporations
filed Civil Case No. 8632 mentioned heretofore where they obtained, ex-parte, a
preliminary injunction to this effect:

IT IS HEREBY ORDERED by the undersigned Judge of the Court of First

Instance that, until further orders, you, all your attorneys, representatives, agents,
and any other person assisting you, REFRAIN from interfering with the
transaction between the plaintiff-corporation with Alfonso T. Yuchengco on the
sale of the shares of stock of Hacienda Benito, Inc., and from enforcing whatever
amount he may claim to be due to them from the plaintiffs under the Agreements
(Annexes 'A', 'A-l', and 'A.2') mentioned in the complaint.'

On April 8, 1965 the Perez Rubios filed a motion to dissolve the above
reproduced writ of preliminary injunction, which the respondent judge denied on
May 6, 1964. But even before the motion aforesaid could be acted upon, they also
filed their answer to the combatting plaint with a counterclaim of P4,500,000.00
representing the unpaid balance of the sale price of their shares. Because of this
the Perez Rubios were charged with contempt. " (16 SCRA 168, 172).

xxx xxx xxx

Because of the above incidents and orders, Perez Rubio filed a petition for certiorari against
Robert O. Phillips in G.R. No. L- 24581 alleging that in taking cognizance of Civil Case No.
8632 and in issuing the writ of preliminary injunction ex parte, the respondent court committed a
grave abuse of discretion The petitioner prayed that the respondent court be restrained from in
any way proceeding with the case, and that, respondent Phillips be enjoined from proceeding
with the sale of the shares of stock of Hacienda Benito, Inc. or any of its assets to Alfonso
Yuchengco or to any other person, or from performing any act which would diminish the value
of said shares of stock or deplete the assets of the company.

Upon the filing of the original Perez Rubio petition, we issued on July 26, 1965 a writ of
preliminary injunction restraining all the respondents named in the original petition (l) from
taking further proceedings in Civil Case No. 8632; (2) from proceeding with the sale of shares of
stock of Hacienda Benito, Inc. or any of its assets to Alfonso T. Yuchengco or to any other
person, and (3) from performing any act which would either diminish the value of said shares of
stock or deplete the assets of the Hacienda subject matter of Civil Case No. 8632.

On June 10, 1965, the Manufacturers Bank and Trust Company filed a complaint against Phillips
and Sons and Hacienda Benito, Inc. as well as the other corporations controlled by Robert O.
Phillips for the foreclosure of a real estate mortgage constituted on the properties of the
Hacienda. The case was filed in another branch of the Court of First Instance of Rizal and was
docketed as Civil Case No. 8766. On the premise that the foreclosure by the bank of the
mortgage constituted on the properties of Hacienda Benito, Inc., was intended simply to remove
properties and the assets of the Hacienda pertaining to the Phillips spouses beyond Perez Rubios'
reach and thus make it impossible for him to collect the sum of P4,250,000.00, Perez Rubio filed
a motion for the admission of a supplemental petition, to include Manufacturer's Bank and
Victoria Valley Development Corporation as additional respondents. Victoria Valley was a
newly formed corporation which Perez Rubio alleged had been hurriedly organized and to which
Manufacturer's Bank would transfer all the foreclosed properties thus making it difficult for him
to enforce his vendor's lien. Before the first amended supplemental petition could be acted upon,
Perez Rubio filed a second amended supplemental petition to implead Hacienda Benito, Inc. as
additional party respondent with a specific plea that pending the issuance of a writ of preliminary
injunction, Hacienda Benito be restrained from disposing of its properties or assets in any way
save in the ordinary course of its business of selling lots of the subdivision. Both supplemental
amended petitions were admitted.

After all the respondents had filed their answers to the amended petition and after the petitioner
filed an answer to the counterclaim interposed by respondents Phillips and Sons, Inc. and the
Hacienda, this Court promulgated a decision dated May 27, 1968 wherein, among others, we
ruled:

(1) In connection with the writ of preliminary injunction issued by the respondent
judge in Civil Case 8632 on April 1, 1965 mentioned heretofore, the same is
hereby declared null and void and is, consequently, set aside with the result that
the writ of preliminary injunction issued by Us in this case enjoining its
enforcement is hereby made final. The order of the respondent judge of May 6,
 1965 denying petitioner's motion to set aside the aforesaid writ of preliminary
injunction of April 1 of the same year is hereby reversed;

(2) The writ of certiorari prayed for by petitioner is hereby denied insofar as it
seeks to annul the judicial proceedings had in Civil Case 8766 of the Court of
First Instance of Rizal, instituted by the Bank against Hacienda and other parties
for the foreclosure of the mortgage constituted in its favor upon the properties of
Hacienda; without prejudice, however, to the right of petitioner to seek such relief
and any other relief that he might be lawfully entitled to against the herein
respondents, singly or collectively, in the aforesaid Civil Case 8766 of the Court
of First Instance of Rizal or in a separate action. In this connection, it is our
judgment that the writ of preliminary injunction issued in this case shall remain
subsisting and binding for a period of thirty days from the date of finality of this
decision, upon the expiration of which period the same shall be deemed
automatically lifted or dissolved, irrespective of whether petitioner had or had not
taken steps required for the enforcement and protection of his rights as already
indicated; (23 SCRA 773, 789 & 790)

In the belief that the forum for the "separate action" referred to in our decision meant Civil Case
No. 8632, petitioner Perez Rubio filed in the said case on July 9, 1968 an "Urgent Motion to
Admit Amended and Supplemental Answer and Third-Party complaint," the third-party
complaint being directed against Manufacturer's Bank, Victoria Valley and hacienda Benito.

The motion was denied by the lower court. Hence, the petitioner filed another petition for
certiorari to review and set aside the lower court's order dated September 13, 1968 with the
additional prayer that pending determination of the issues raised in the petition, the respondent
court be restrained from proceeding with the hearing of the case below and the other respondents
from transferring or proceeding with the agreement to transfer any of the assets of Hacienda
Benito, Inc. to any third person except in the ordinary course of selling subdivision lots. The case
was docketed as G.R. No. 30904. On April 16, 1969, we issued a prayed for temporary
restraining order. The petition was later granted. In our decision dated January 31, 1973, we
ruled:

WHEREFORE, the orders complained of are set aside and respondent Judge or
whosoever is assigned to try the case below is instructed to admit the amended
and supplemental answer and third-party complaint filed by Miguel Perez Rubio.
Thereafter, these cases shall proceed accordingly. The restraining order
hereinbefore issued by this Court is hereby lifted insofar as it restrains respondent
Judge from proceeding with the hearing of Civil Case No. 8632 of the Court of
First Instance of Rizal Branch X (Pasig, Rizal), and maintained insofar as it
restrains (the other respondents) 'from proceeding with the transfer of the shares
and/or of the assets of Hacienda Benito, Inc. to each other or to any other person,
except in the ordinary course of selling subdivision lots without prejudice to the
judgment that may be rendered by the court a quo in the case. Costs against the
respondents. (49 SCRA 319, 337).
The third-party complaint sought to secure the return by Manufacturer's Bank and/or Victoria
Valley of the properties it and/or they bought as a consequence of the judicial foreclosure of
mortgage case, Civil Case No. 8766, with a further plea that in the event the Phillips spouses are
ordered to pay Miguel Perez Rubio the judgment on his counterclaim said properties and funds
foreclosed by the defendant Bank be held to answer for such judgment or any part thereof unpaid
by the Phillips spouses together with damages.

The third-party defendants, respondents herein, filed their separate answers. In addition to their
answer, Manufacturer's Bank and Hacienda Benito filed separate counterclaims for actual
damages for malicious prosecution plus attorney's fees.

After trial on the merits, the lower court rendered a decision the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered:

(1) Sentencing the plaintiffs to pay jointly and severally the amount of P4,250,000
to defendant Miguel Perez-Rubio, with interest of 8% per annum from April 30,
1964 and attorney's fees equivalent to 10% of the said amount. The plaintiffs
however, may offset the foregoing amount by the damages which Perez-Rubio
should pay to them for having unlawfully interferred in the transaction with
Alfonso Yuchengco which is merely assess at P4,404,510.76.

(2) Sentencing the defendant Perez-Rubio to pay to HBI the sum of P

7,051,496.23; attorney's fees of P150,000.00, and to MBTC the sum of P
895,085.16 as actual damages and the sum of 10% thereof as attorney's fees.

(3) Dismissing all other causes of action of the parties in this case without
pronouncement as to costs.

Plaintiffs Phillips and Sons and the Phillips spouses as well as defendant and third-party plaintiff
Perez Rubio appealed the decision to the Court of Appeals.

As earlier stated, the appealed decision was amended by the appellate court in so far as it related '
to the liability of the plaintiffs on their P4,250,000.00 debt. The appellate court ruled that only
plaintiff Phillips and Sons was liable to pay the amount of P4,250,000.00 to defendant Perez
Rubio without interest and without attorney's fees. The rest of the trial court's decision was
affirmed in full.

A motion for reconsideration filed by Perez Rubio was denied by the appellate court. Hence the
instant petition was filed.

Petitioner Perez Rubio raises the following assignments of errors:

I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR
PETITIONER UNLAWFULLY AND INOFFICIOUSLY INTERFERRED IN
THE TRANSACTION BETWEEN RESPONDENTS ROBERT O. PHILLIPS &
SONS, INC., ROBERT O. PHILLIPS & SONS AND HIS WIFE MAGDALENA
WHEN THE SUPREME COURT ITSELF DESCRIBED THE ACTS TAKEN
BY YOUR PETITIONER AS A VALID ENFORCEMENT OF ONE'S RIGHT
AS A CREDITOR.

II

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES

TO RESPONDENTS ROBERT 0. PHILLIPS, HIS WIFE, AND ROBERT O.
PHILLIPS & SONS, INC., ON THE ALLEGED GROUND OF UNLAWFUL
INTERFERENCE WITHOUT BASIS IN FACT AS TO WHAT THE DAMAGE
CONSISTED OF NOR OF THE MEASURE FOR SAID DAMAGES.

III

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR

PETITIONER WAS LIABLE FOR DAMAGES TO THE MANUFACTURERS
BANK AND TRUST COMPANY, INC. BY REASON OF THE TWO
INJUNCTIONS ISSUED BY THIS HONORABLE COURT IN L-24581
(MIGUEL PEREZ RUBIO, ET AL.) AND L-30404 (MIGUEL PEREZ RUBIO
VERSUS THE HON. HERMINIO MARIANO, ET AL.), DESPITE THE FACT
THAT THERE WAS ACTUALLY ONE RESTRAINING ORDER ISSUED BY
THIS HONORABLE COURT INSOFAR AS RESPONDENT MBTC IS
CONCERNED AND DESPITE THE FACT THAT NO VALID PROOF OF
DAMAGES WAS PRESENTED.

IV

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THAT

YOUR PETITIONER PEREZ RUBIO WAS LIABLE TO HACIENDA
BENITO, INC., WITHOUT MAKING SO MUCH AS A COMMENT OF
FINDING THEREOF, BUT BY THE MERE EXPEDIENT OF AFFIRMING
THE DECISION OF THE TRIAL COURT.

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE

DECISION OF THE TRIAL COURT IN FINDING YOUR PETITIONER
LIABLE TO RESPONDENT HACIENDA BENITO, INC. FOR THE ALLEGED
DAMAGES IT SUFFERED BY REASON OF THE INJUNCTION
ALLEGEDLY ISSUED BY THE SUPREME COURT AGAINST HACIENDA
BENITO, DESPITE THE FACT THAT THE SUPREME COURT AFFIRMED
THE PROPRIETY OF THE INJUNCTION ISSUED BY IT.
 VI

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE

AWARD OF DAMAGES IN FAVOR OF RESPONDENT HACIENDA
BENITO, INC. DESPITE THE FACT THAT THERE WAS NO BASIS IN THE
EVIDENCE FOR THE AWARD.

VII

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DISCHARGING THE RESPONDENT SPOUSES PHILLIPS FROM THEIR
JOINT AND SEVERAL GUARANTEE OF YOUR PETITIONERS' CREDIT
AND IN DISALLOWING INTEREST TO RUN THEREON WITHOUT ANY
BASIS OR REASON DESPITE THE FACT THEY WERE EXPRESSLY
PROVIDED IN THE AGREEMENTS ENTERED INTO BETWEEN YOUR
PETITIONER, THE RESPONDENTS ROBERT O. PHILLIPS HIS WIFE
MAGDALENA AND ROBERT . PHILLIPS & SONS, INC.

VIII

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DISALLOWING ATTORNEY'S FEES AND MORAL AS WELL AS
EXEMPLARY DAMAGES IN FAVOR OF YOUR PETITIONER PEREZ
RUBIO DESPITE THE FACT THAT THIS HONORABLE COURT HAD
CLEARLY SHOWN THAT YOUR PETITIONER HAD BEEN IMPROPERLY
SUED AND DESPITE THE FACT THAT THIS HONORABLE COURT HAD
ALREADY RULED THAT THE IMPLEADING OF OTHER PARTIES WAS
PROPER AND NECESSARY FOR THE PROTECTION OF HIS RIGHTS.

IX

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN

DISCHARGING RESPONDENTS MANUFACTURERS BANK AND TRUST
CO., INC., (MBTC) AND VICTORIA VALLEY DEVELOPMENT
CORPORATION FROM ANY LIABILITY TO YOUR PETITIONER DESPITE
THEIR VERY ACTIVE PARTICIPATION IN ATTEMPTING TO AND IN
ACTUALLY COMMENCING TO REMOVE ALL OF THE ASSETS OF
HACIENDA BENITO, INC., AND TRANSFERRING THEM TO
RESPONDENT VVDC.

The first two assigned errors are in relation to the original complaint in Civil Case No. 8632 filed
by Phillips and Sons, Inc., and the Phillips spouses against petitioner Perez Rubio for alleged
unlawful interference in the transaction between the respondents on one hand and Alfonso
Yuchengco on the other hand.
As earlier stated, because of the issuance of a preliminary injunction ex parte which restrained
petitioner Perez Rubio from interfering with the Yuchengco transaction and the denial of a
motion to dissolve the injunction in Civil Case No. 8632, petitioner Perez Rubio was constrained
to file a petition for certiorari with this Court in G.R. No. 24581 alleging that the lower court
committed a grave abuse of discretion in issuing the preliminary injunction.

Resolving the matter on the propriety of the preliminary injunction, we ruled:

It is obvious that what the plaintiffs in Civil Case No. 8632 considered as
interference, on the part of the therein defendant (petitioner herein) with the
negotiations or transaction at that time being carried on between said plaintiffs, on
one hand, and Alfonso T. Yuchengco, on the other, regarding the sale of the
shares of stock of Hacienda was said defendant's intention to enforce his right to
collect from Robert O. Phillips and Sons, Inc. and its guarantors, the Phillips
spouses, the unpaid balance- P4,250,000.00-due to him from the latter of the
purchase price of their shares in Hacienda mentioned at the beginning hereof. As
a matter of fact, when said defendant filed his answer in Civil Case No. 8632
interposing therein a counterclaim for the collection of said unpaid balance, the
plaintiffs therein charged him with having violated the terms of the writ of
preliminary injunction issued by the respondent judge. Proceedings in connection
with this charge, however, were held in abeyance by reason of the writ of
preliminary injunction ion We issued in the present case.

After a careful consideration of the material facts and the law applicable to them,
We are of the opinion and so hold, that the writ of preliminary injunction issued
ex parte by the respondent judge was unjust and improvident. Without hearing the
party concerned, and without any legal justification, it restrained a creditor (Perez
Rubio) from enforcing his undenied right to collect from his debtor and the latter's
guarantors the sum of P4,250,000.00 representing the unpaid balance of the
purchase price of his shares in Hacienda. It is a fact that the debtor Corporation
(Robert O. Phillips and Sons, Inc.) and its guarantors, the Phillips spouses, do not
deny the indebtedness, and yet, notwithstanding its extraordinary amount, they
attempted to sell all the shares of stock of Hacienda without making any
reasonable provision for the payment thereof. For them to prevent their creditor
from enforcing his right to collect, and for the Court to enjoin said creditor from
enforcing that right in any lawful manner is, in any language, rank injustice. (23
SCRA 773, 780).

The petitioner assumes that the foregoing pronouncement categorically ruled that he did not
unlawfully and inofficiously interfere in the transaction between respondents Phillips and Sons
and the Phillips spouses on one hand and Alfonso Yuchengco on the other hand and that his acts
were a valid enforcement of his rights as a creditor.

This assumption is incorrect. It is very clear from the decision that we ruled on the impropriety
of the manner in which the preliminary injunction was issued. We stated that without hearing the
party concerned and without any legal justification, the trial court restrained creditor Perez Rubio
from enforcing his undenied right. We could not have possibly ruled as suggested because the
case before us was a petition for certiorari alleging that the trial court committed a grave abuse of
discretion in issuing the preliminary injunction ex parte. The issue to be resolved was a pure
question of law based on the circumstances surrounding the issuance of the questioned
preliminary injunction ex parte. Whether or not the petitioner unlawfully and inofficiously
interfered with the aforementioned transaction was a question of fact and any grave abuse of
discretion could not, at that time, be resolved by this Court. A trial on the merits was necessary,
Our decision in the second petition for certiorari, filed by the petitioner in connection with Civil
Case No. 8632 lifted the temporary restraining order in so far as it restrained the trial court from
proceeding with the hearing and ordered the cases including the third party complaint to proceed
accordingly.

Trial on the merits accordingly proceeded after which the trial court concluded that the petitioner
unlawfully and inofficiously interfered with the subject transaction as a result of which Phillips
and Sons and the Phillips spouses suffered damages. This conclusion was upheld by the Court of
Appeals. The appellate court justified its ruling as follows:

It is a fact, which defendant Perez Rubio does not and can not deny. that he had
informed Alfonso Yuchengco of his vendor's lien over the unpaid shares of stock
in the Hacienda Benito, Inc., and that he still had the right to rescind the sale of
his stocks to ROPSI (t.s.n., August 7, 1974, pp. 31-35; Exhibit D-1-A-Plaintiffs, I
Folder of Exhibits, p. 2). As stated before, Alfonso Yuchengco cooled off, as it
were, and withdrew from the transaction (t.s.n., October 30, 1974, pp. 94-95) to
which he had previously given his conformity (Exhibits 18-, 21 -Rubio-II Folder
of Exhibits, pp. 37, 43) because of Perez Rubio's refusal to withdraw his letter to
Yuchengco containing his threat to rescind the sale of his stocks to ROPSI. If this
Court has said it before it is repeated here for emphasis that Alfonso Yuchengco
had no intention to holding an empty bag, and for defendant Perez Rubio to block
the plaintiffs from consummating a transaction the terms of which have already
been approved in principle providing for the payment of Perez Rubio's credit is
unlawful and inofficious interference.

It should be noted that defendant Perez Rubio had already delivered completely
the shares of stock of hacienda Benito, Inc. which he had sold to plaintiff ROPSI
and that these shares were transferred in the books of the Hacienda in the name of
ROPSI (t.s.n., August 5, 1974, pp. 129-130, 131-132, 133-134; August 7, 1974, p.
62; May 14, 1975, p. 32). The plaintiffs therefore had all the right to dispose of
the shares of stock. Defendant Perez Rubio also admitted that there was no
agreement or document prohibiting plaintiff ROPSI from selling the said shares of
stock to any person (t.s.n., August 3, 1974, pp. 12-13) nor any agreement or
document requiring his prior permission before ROPSI could sell or otherwise
dispose of the said shares of stock (lbid., p. 14). There was also no vendor's lien
annotated in the books of Hacienda Benito, Inc. over the said shares of stock
(t.s.n., August 7, 1974, pp. 14-16, 63, 66-67), What is more, the plaintiffs have
made reasonable provisions for the payment of the unpaid balance due the
defendant in their transaction with Alfonso Yuchengco (Exhibit 18-Rubio,
 paragraph 19, II Folder of Exhibits, pp. 36-37, Exhibit 20-Rubio, paragraphs 8
and 12, lbid., pp. 41-42, Exhibit 22-Rubio, paragraph 5, lbid., p. 46; t.s.n., May
14, 1975, pp. 46, 119-120). Clearly, there appears no valid reason why defendant
Perez Rubio had to block the plaintiffs' transaction with Alfonso Yuchengco,
except 'to destroy' and 'ruin' the plaintiffs (t.s.n., May 14, 1975, pp. 129- 130),
which defendant Perez Rubio himself vowed he would do (t.s.n., May 14, 1975, p.
136).

A thorough examination of the record reveals that the factual findings of the appellate court are
incomplete and do not reflect the actual events that transpired concerning the sale of shares of
stock of Hacienda Benito to Alfonso Yuchengco. The important point left out by the appellate
court refers to the controversial November 24, 1964 letter of the petitioner to Phillips and Sons
and to the Phillips spouses wherein the petition stated that he has a vendor's lien over the shares
of stock of Hacienda Benito and that he still has the option to rescind the contract as regards his
sale of stock of the Hacienda. A copy of the letter was sent to Alfonso Yuchengeo, the
prospective buyer of the shares of stock of Hacienda Benito, but even after receipt of the letter,
the negotiations on the sale of the shares of stock of Hacienda Benito to Alfonso Yuchengco
continued. This is shown by the following events:

1. In a letter dated December 17, 1964, Hacienda Benito through Robert O. Phillips as president,
Phillips and Sons, through Robert Phillips as president and Robert Phillips in his own behalf
offered to Alfonso Yuchengco an option to buy 100% of the shares of stock of Hacienda Benito.
It is to be noted that the first option contained in the letter of November 17, 1964 offered to
Alfonso Yuchengco was the sale of 80% of the shares of stock of Hacienda Benito. In reply
Alfonso Yuchengco in his letter to the Phillips spouses and Phillips and Sons dated January 6,
1965 accepted the option but with modifications as to the terms of the sale, Included in the terms
of the sale were provisions for the payment of the seller's debts.

2. In a letter dated February 12, 1965 from the law firm of Ramirez and Ortigas, counsel of the
petitioner to Phillips and Sons and the Phillips spouses in relation to the ongoing negotiations for
the settlement of the P3,800,000.00, it was stated that the petitioner was not willing to extend the
manner of payment of the credit further than April 30, 1967. Contained in the same letter of the
law firm was an offer of a compromise as to the manner of payment.

3. In reply to the aforementioned letter, Phillips and Sons and the Phillips spouses wrote a letter
dated February 16, 1965 stating their final proposal as to the manner of payment. ln accordance
with the final proposal, the last payment of the debt would be on April 30, 1968. On the basis of
the terms and conditions of the final proposal, Phillips and Sons and the Phillips spouses
requested a "waiver for the consummation of the proposed sale to Mr. Alfonso Yuchengco"
(Exhibit 22-Perez Rubio, Exhibits 11, p. 46).

4. In a letter dated February, 22, 1965, the law firm of Ramirez and Ortigas informed Phillips
and Sons that their client, the petitioner, rejected the plan to modify in any way the original
agreements for payment and that the letter was a formal notice that the complaint for the
enforcement of the original contracts would be filed on March 8, 1965 unless the case is settled
in a satisfactory manner. (Exhibit 23-Perez Rubio, Exhibit 11, p. 80).
As a consequence of the February 22, 1965 letter of the petitioner, Juan T. David, counsel for
Phillips and Sons wrote the petitioner himself. In this letter dated March 12, 1965, Atty. David
requested that the petitioner withdraw his controversial November 24, 1964 letter. According to
David the said letter was the "only obstacle to the conclusion of the transaction between my
client, Robert O. Phillips and Sons, Inc. and Mr. Yuchengco involving the shares of stock of
Hacienda Benito, Inc." A copy of the letter was attached to a letter sent to Yuchengco also dated
March 12, 1965 informing him about the failure to obtain the desired waiver and expressing the
view that "waiver is unnecessary."

In another letter dated March 26, 1965 addressed to the petitioner, Atty. David gave the
petitioner until March 29, 1965 to withdraw unconditionally the controversial letter. The
petitioner was informed that Yuchengco had given an ultimatum that if waiver was not obtained
by March 31, 1965, the transaction would have to be cancelled.

In reply to the March 26, 1965 letter, the petitioner sent a letter addressed to Phillips and Sons
and the Phillips spouses informing them that the letter served as notice that all negotiations had
been cancelled. Perez Rubio gave them until March 31, 1965 to pay the balance of the payment
for his shares of stock plus interests and attorney's fees.

The letter served as the last communications between the petitioner and Phillips and Sons and the
Phillips spouses before March 31, 1965 when Civil Case No. 8632 was filed.

Taking into consideration, all the details of the negotiations in the sale of the shares of stock of
Hacienda Benito, Inc. from Phillips and Sons to Mr. Yuchengco, there is no factual or legal basis
for the appellate court's conclusion that the petitioner unlawfully and inofficiously interfered
with the negotiations.

We fail to see any reason why the petitioner should be accused of unlawful interference in
maintaining his stand regarding the sale of shares of stock of Hacienda Benito, Inc. that he still
had the option to rescind the contract between him and Phillips and Sons and stating the
existence of his vendor's hen over said shares of stock.

The petitioner never pretended that he still had full control of the shares of stock which he sold to
Phillips and Sons. He in fact admitted that the shares of stock were already transferred to the
corporation and that he did not have a recorded lien therein. He merely made of record his right
to rescind under the original contract of sale. The details pertaining to the earlier transaction
governing the sale of the shares of stock between the petitioner and Phillips and Sons were in
fact, all known to Yuchengco. And, more important, it is obvious from the records that the
petitioner's interest was only in the payment of the P4,250,000.00 balance due him from Phillips
and Sons. Thus, in a meeting called by Yuchengco where the negotiations for the sale of the
shares of stock of Hacienda Benito were discussed, the petitioner made it clear that he was
amenable to his waiving or withdrawing the controversial November 24, 1964 letter provided his
interests would be taken care of and protected. (Testimony of Perez Rubio, TSN., August 5,
1970, pp. 44-50). Obviously, the petitioner felt that the payment of his P4,250,000.00 was not
secured under the terms of payment proposed by Yuchengco. He had the right to refuse to
withdraw the November 24, 1964 letter. We see nothing illegal or inofficious about the letter or
the refusal to withdraw it.

Whether or not Yuchengco, the prospective buyer, believed that Perez Rubio had a good ground
to rescind and whether or not the buyer's interest would be prejudiced were matters of decision-
making dependent solely on hint In fact the March 12, 1965 letter of Atty. Juan T. David to the
petitioner is quite revealing. Phillips and Sons admitted that under the circumstances, the
petitioner's waiver of the controversial November 24, 1964 letter was unnecessary. The letter
disclosed the fact that the waiver issue was extensively discussed by the parties including their
counsel's maintaining the view that waiver was unnecessary. Thus:

M
a
r
c
h

1
2
,

1
9
6
5

MR. MIGUEL PEREZ RUBIO

c/o Ramirez and Ortigas Law Office

1515 Roxas Boulevard

Manila

Sir:

xxx xxx xxx

Taking advantage of the permission given to us by Mr. Yuchengco, to take up the

aforementioned legal aspect of the 'waiver', with his counsel, Atty. Alberto M.
Meer, we conferred with the latter and expressed our understanding of a 'waiver',
and the conclusion that it has no place in the present case, considering the fact that
a 'waiver' is only appropriate where the person from whom it is sought has a direct
recorded lien on the subject thereof, particularly when the subject is a negotiable
instrument; that, at best, a withdrawal of your aforementioned letter should be
 sufficient to allay the fear of Mr. Yuchengco on the possibility of a suit which
might involve him after the sale, if the 'waiver' is not obtained from you.

We also called the attention of Mr. Yuchengco that the shares of stock subject of
the transaction are clean and un-encumbered, therefore, there is nothing to waive
on the part of any person; that the negotiability of the said shares of stock is not
impaired by the fact that the owner thereof is indebted to another, especially
considering the fact that, instead of securing your credit against my client with the
encumbrance of its shares of stock, you preferred the personal guaranty of Mr.
and Mrs. Robert O. Phillips, as recorded in the corresponding instruments.

Atty. Meer told us that, if we could obtain from you the letter of withdrawal and
the phraseology thereof is adequate, the only obstacle to the consummation of the
transaction will have been removed and he is disposed to advise his client, Mr.
Yuchengco, to go through with the purchase of the shares of stocks of the
Hacienda Benito, Inc., therefore, we reiterate our request for the withdrawal of
your aforementioned letter.

xxx xxx xxx

Very truly yours,

(SGD.)

JUAN
T.
DAVI
D

Counse
l

for ROBERTO.
PHILLIPS

& SONS, INC.

A carbon copy of a March 12, 1965 letter from Atty. David to Mr. Alfonso Yuchengco was
attached to the letter addressed to Mr. Perez Rubio. In the letter to Mr. Yuchengco, the counsel
for Phillips and Sons stressed the View that the waiver or withdrawal of the Perez Rubio letter
was unnecessary.

The conclusion to be drawn from these facts is that the petitioner is not liable for any form of
damages in favor of Phillips and Sons and the Phillips spouses. Consequently, we come to the
issue of whether or not the Phillips spouses are solidarily liable for the debt of Phillips and Sons.
This is the issue raised in the seventh assignment of error.
It should be remembered that on June 23, 1964, Philipps and Sons and the Phillips spouses
entered into an agreement wherein, in consideration of the extension granted to Phillips and Sons
in the payment of the latter's outstanding debt to the petitioner, the Phillips spouses ". . . jointly
and severally guaranteed all the installments and other obligations of Robert O. Phillips & Sons,
Inc. under the signed contract of sale dated April 13, 1963. " Phillips and Sons was not able to
pay the petitioner as covenanted in the agreement.

The agreement was not assailed in any of the cases involving the petitioner Phillips and Sons and
the Phillips spouses. Both parties admit the veracity of the agreement. The agreement serves as
the law between the parties. The full enforcement of the agreement's provisions necessarily is in
order. We rule that per agreement, the Phillips spouses are jointly and severally liable to the
petitioner for the outstanding debt of Phillips and Sons with interest therein from April 30, 1964
until fully paid.

The third, fourth, fifth and sixth assignments of errors refer to the actual damages awarded to
Manufacturers Bank and Hacienda Benito by the appellate court.

Both awards were premised on the appellate court's finding that Manufacturers Bank and
Hacienda Benito were wrongfully impleaded as parties by the petitioner in his two petitions
earlier filed wherein two injunctions were issued by this Court. As a result, the parties allegedly
suffered damages. The appellate court premises its findings on the following justifications:

(a) Even before the aborted transaction between ROPSI and Alfonso Yuchengco,
Hacienda Benito, Inc. was already indebted to the Manufacturers Bank the year
before. Appellant ROPSI had also executed real estate mortgages on 78 hectares
out of the 135-hectare holding of Hacienda Benito, Inc. in favor of the
Manufacturers Bank. Subsequently, the Hacienda executed a Memorandum
Agreement on June 5, 1965 with Victoria Valley Development Corporation, with
the conformity of the Manufacturers Bank as mortgage creditor, where the
financial obligations of the Hacienda and its other affiliate corporations were
restructured thus freeing them from their financial obligations to the
Manufacturers Bank in exchange for 78 hectares of land which were then
mortgaged with the Manufacturers Bank, let alone the payment of a huge amount
of interest on the principal. As of May 21, 1965, the Hacienda and its affiliates
have not paid the Manufacturers Bank P 7,459,042.98 which was already due and
demandable forcing the Manufacturers Bank to file Civil Case No. 8766 against
the Hacienda for the foreclosure of the mortgages which resulted in a compromise
agreement between the parties, which the court below approved. (Defendant's
Record on Appeal, pp. 498-499).

(b) As early as October 8, 1965, Miguel Perez Rubio knew that no assets have
been transferred under the Memorandum Agreement of June 5, 1965 and that
Victoria Valley Development Corporation has considered said Agreement without
force and effect making it moot and academic for purposes of rescission (Ibid, p.
501),
 (c) There is nothing in the promissory notes and the real estate mortgages forming
part of the records of Civil Case No. 8766 to show that they have been executed
in bad faith or to defeat the credit of Miguel Perez Rubio against ROPSI since
they were executed in 1963 over 78 hectares out of the 135- hectare holding of
Hacienda Benito, Inc. in the Victoria Valley Subdivision so that prior to the
default of ROPSI in the payment of the third installment on August 31, 1964 in
favor of Perez Rubio, there were already prior and existing mortgages over the 78
hectares owned by the Hacienda in favor of the Manufacturers Bank (Ibid., pp.
501- 502).

(d) The existence of sufficient assets for the payment of the credit of Perez Rubio
failed to contradict the evidence showing the existence of unencumbered
properties of Hacienda Benito, Inc. which were more than sufficient to meet his
credit against ROPSI in the amount of P4,250,000.00 as well as the evidence
showing the good financial position of the Hacienda as shown by Exhibit II -
Benito, also marked as Exhibit 9-MBTC, III Folder of Exhibits, p. 129 (Ibid., pp.
502- 503).

(e) The admission of Perez Rubio that he did not investigate with the
corresponding registers of deeds and other entities the status of the unencumbered
properties of Hacienda Benito, Inc., ROPSI, Robert O. Phillips and his wife, and
the other corporations owned by the Phillips spouses before filing the third-party
complaints against the Manufacturers Bank & Trust Company, Hacienda Benito,
Inc. and Victoria Valley Development Corporation (t.s.n., August 21, 1974, pp.
133- 138). . . .

xxx xxx xxx

These findings do not justify the appellate court's conclusion that Manufacturers Bank and
Hacienda Benito were wrongfully impleaded and that Perez Rubio owes them millions of pesos
in damages as a result.

In the welter of cases filed by the contending parties over the same properties and the confusion
spawned by the many incidents which gave rise to separate petitions, one basic fact tends to be
forgotten. It is this. The Perez Rubio spouses sold Hacienda Benito, Inc. to Phillips and Sons for
P5,500,000.00 in 1963 or more than 22 years ago. P50,000.00 was paid immediately;
P1,2000,000.00 was due in 60 days; in another 6 months, a third payment of P1,250,000.00 was
to be paid. The full amount should have been paid by April 30, 1967. Up to now, P4.25 million
of the basic indebtedness has not been paid.

The Perez Rubio spouses were not paid as agreed in the contract. When the buyers could not
comply with their commitments, the Perez Rubios graciously acceded to a deferment of overdue
accounts under a new agreement. Still the payments could not be effected under the extension.

All the transactions which led to the litigations by, against, or among Manufacturers Bank,
Hacienda Benito, Phillips and Sons, and the Phillips spouses were entered into at the time when
payments on the petitioner's shares of stock were overdue, A person who has not been paid a
balance of P4,250,000.00 on a sale of P5,500,000.00 will naturally be extremely disturbed to see
the buyers and other parties dealing with the properties in a manner which could be reasonably
construed as calculated to bring them beyond his reach and making full payment of the debt
extremely difficult, if not impossible. It was a normal reaction and to be expected for the original
owner to inform third persons trying to buy the still unpaid properties about that fact of non-
payment and to emphasize to them his right and options under the original contract of sale. It was
also normal to include the third party would-be-buyers who had taken sides with the defaulting
original buyer in the litigations brought against Perez Rubio, the man seeking to protect his
endangered interests.

The inclusion of Manufacturers Bank and Hacienda Benito was part and parcel of the efforts to
protect Perez Rubio's interests. It should be noted that petitions wherein they were impleaded had
for their subject matter the same unpaid obligation of P4,250,000.00 from Phillips and Sons. The
properties to be foreclosed by the Bank represented properties of Perez Rubio for which he had
not yet been paid.

There is nothing in the records to show that, far from protecting his P4.25 million, Perez Rubio
filed the third party complaint to vex and humiliate Manufacturers Bank and Hacienda Benito.
As we ruled in the case of R & B Surety and Insurance Company Inc, v. Intermediate Appellate
Court (129 SCRA 736):

xxx xxx xxx

While petitioner might have been negligent in not verifying the authenticity of the
signatures in the indemnity agreement, still the same does not amount to bad faith
as to justify the award of damages and the conclusion that the act of filing the
complaint against respondent Uson amounts to malicious prosecution. In filing
the action, the petitioner was only protecting its business interests by trying to
recover the amount it had already paid to the Philippine National Bank.

In a long line of cases, we have consistently ruled that in the absence of a

wrongful act or ommission or of fraud or bad faith, moral damages cannot be
awarded and that the adverse result of an action does not per se make the action
wrongful and subject the actor to the payment of damages, for the law could not
have meant to impose a penalty on the right to litigate. . . .

The actual damages awarded to both the Manufacturers Bank and Hacienda Benito apart from
having no legal basis were also not duly proven. In fact, the appellate court made no findings of
fact on how it arrived at the total amount of P895,085.14 awarded to Manufacturers Bank much
less did the court discuss the damages awarded to Hacienda Benito. The damages awarded to
Hacienda Benito were only impliedly affirmed by the dispositive portion of the decision wherein
it declared that the decision of the lower court was affirmed in toto.

This can not be done. As we ruled in Perfecto v. Gonzales (128 SCRA 635):
 xxx xxx xxx

. . . [A]ctual or compensatory damages are those recoverable because of pecuniary

loss in business, trade, property, profession, job, or occupation, and the same must
be proved; otherwise, if the proof is flimsy and non- substantial, no damages will
be given. In the case of Malonzo v. Galang, log Phil. 16, the Court, speaking
through Justice J.B.L. Reyes, held that with respect to compensatory damages
assuming that they are recoverable under the theory that petitioner had filed a
clearly unfounded suit against respondent, the same constitutes a tort against the
latter that makes the former liable for all damages which are the natural and
probable consequences of the act or omissions complained of. These damages,
cannot, however, be presumed and must be duly proved (Article 2199, New Civil
Code). Well settled is the rule that even if the complaint filed by one against the
other is clearly unfounded this does not necessarily mean, in the absence of
specific facts proving damages, that said defendant reany suffered actual damage
over and above attorney's fees and costs. The Court cannot rely on its relations as
to the fact and amount of damages. It must depend on actual proof of the damages
alleged to have been suffered.

Considering these conclusions, the final question to be resolved is whether or not the petitioner is
entitled to moral and exemplary damages? This is the subject matter of the eighth and ninth
assigned errors.

We have stated that the petitioner had valid reasons to implead Manufacturers Bank and
Hacienda Benito in his cases against Phillips and Sons and the Phillips spouses. An assessment
of the evidence in record shows that the filing of the complaint may likewise be characterized as
a sincere attempt on the part of Phillips and Sons and the Phillips spouses to find means or to buy
time to pay their debt to the petitioner. In the case of Manufacturers Bank, the record shows that
its active participation in the transaction involving the properties of Hacienda was legitimate.
While no damages are due the Bank, neither is it liable for damages. As far as Victoria Valley is
concerned, we find no reason to conclude that it was really organized or actively participated to
prejudice the interests of the petitioner. The record shows that Victoria Valley withdrew from the
transaction involving the properties of Hacienda Benito even before the filing of the third party
complaint. The eighth and ninth assignments of errors under consideration are, therefore, without
merit.

WHEREFORE, the petition is GRANTED. The decision of the former Court of Appeals is
hereby REVERSED and SET ASIDE. The respondents Robert O. Phillips and Sons and the
Phillips spouses are declared to be jointly and severally liable to the petitioner for the
outstanding debt of Phillips and Sons in the amount of FOUR MILLION, TWO HUNDRED
FIFTY THOUSAND PESOS (P4,250,000.00) with interest at the rate of eight (8%) percent per
annum from April 30, 1964 until fully paid as provided for in the parties' agreement dated
August 13, 1963. Costs against the respondents.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11037 December 29, 1960

EDGARDO CARIAGA, ET AL., plaintiffs-appellants,

vs.
LAGUNA TAYABAS BUS COMPANY, defendant-appellant.
MANILA RAILROAD COMPANY, defendant-appellee.

Ozaeta, Lichauco and Picazo for defendant and appellant.

E.A. Fernandez and L.H. Fernandez for plaintiffs and appellants.
Gov't. Corp. Counsel A. Padilla and Atty. F.A. Umali for appellee.

DIZON, J.:

At about 1:00 p.m. on June 18, 1952, Bus No. 133 of the Laguna Tayabas Bus
Co. — hereinafter referred to as the LTB — driven by Alfredo Moncada, left its station at
Azcarraga St., Manila, for Lilio, Laguna, with Edgardo Cariaga, a fourth-year medical student of
the University of Santo Tomas, as one of its passengers. At about 3:00 p.m., as the bus reached
that part of the poblacion of Bay, Laguna, where the national highway crossed a railroad track, it
bumped against the engine of a train then passing by with such terrific force that the first six
wheels of the latter were derailed, the engine and the front part of the body of the bus was
wrecked, the driver of the bus died instantly, while many of its passengers, Edgardo among
them, were severely injured. Edgardo was first confined at the San Pablo City Hospital from 5:00
p.m., June 18, 1952, to 8:25 a.m., June 20 of the same year when he was taken to the De los
Santos Clinic, Quezon City. He left that clinic on October 14 to be transferred to the University
of Santo Tomas Hospital where he stayed up to November 15. On this last date he was taken
back to the De los Santos Clinic where he stayed until January 15, 1953. He was unconscious
during the first 35 days after the accident; at the De los Santos Clinic Dr. Gustilo removed the
fractured bones which lacerated the right frontal lobe of his brain and at the University of Santo
Tomas Hospital Dr. Gustilo performed another operation to cover a big hole on the right frontal
part of the head with a tantalum plate.

The LTB paid the sum of P16,964.45 for all the hospital, medical and miscellaneous expenses
incurred from June 18, 1952 to April, 1953. From January 15, 1953 up to April of the same year
Edgardo stayed in a private house in Quezon, City, the LTB having agreed to give him a
subsistence allowance of P10.00 daily during his convalescence, having spent in this connection
the total sum of P775.30 in addition to the amount already referred to.
On April 24, 1953 the present action was filed to recover for Edgardo Cariaga, from the LTB and
the MRR Co., and total sum of P312,000.00 as actual, compensatory, moral and exemplary
damages, and for his parents, the sum of P18,00.00 in the same concepts. The LTB disclaimed
liability claiming that the accident was due to the negligence of its co-defendant, the Manila
Railroad Company, for not providing a crossing bar at the point where the national highway
crossed the railway track, and for this reason filed the corresponding cross-claim against the
latter company to recover the total sum of P18,194.75 representing the expenses paid to Edgardo
Cariaga. The Manila Railroad Company, in turn, denied liability upon the complaint and cross-
claim alleging that it was the reckless negligence of the bus driver that caused the accident.

The lower court held that it was the negligence of the bus driver that caused the accident and, as
a result, rendered judgment sentencing the LTB to pay Edgardo Cariaga the sum of P10,490.00
as compensatory damages, with interest at the legal rate from the filing of the complaint, and
dismissing the cross-claim against the Manila Railroad Company. From this decision the
Cariagas and the LTB appealed.

The Cariagas claim that the trial court erred: in awarding only P10,490.00 as compensatory
damages to Edgardo; in not awarding them actual and moral damages, and in not sentencing
appellant LTB to pay attorney's fees.

On the other hand, the LTB's principal contention in this appeal is that the trial court should have
held that the collision was due to the fault of both the locomotive driver and the bus driver and
erred, as a consequence, in not holding the Manila Railroad Company liable upon the cross-claim
filed against it.

We shall first dispose of the appeal of the bus company. Its first contention is that the driver of
the train locomotive, like the bus driver, violated the law, first, in sounding the whistle only
when the collision was about to take place instead of at a distance at least 300 meters from the
crossing, and second, in not ringing the locomotive bell at all. Both contentions are without
merits.

After considering the evidence presented by both parties the lower court expressly found:

. . . While the train was approximately 300 meters from the crossing, the engineer
sounded two long and two short whistles and upon reaching a point about 100 meters
from the highway, he sounded a long whistle which lasted up to the time the train was
about to cross it. The bus proceeded on its way without slackening its speed and it
bumped against the train engine, causing the first six wheels of the latter to be derailed.

xxx xxx xxx

. . . that the train whistle had been sounded several times before it reached the crossing.
All witnesses for the plaintiffs and the defendants are uniform in stating that they heard
the train whistle sometime before the impact and considering that some of them were in
the bus at the time, the driver thereof must have heard it because he was seated on the left
front part of the bus and it was his duty and concern to observe such fact in connection
 with the safe operation of the vehicle. The other L.T.B. bus which arrived ahead at the
crossing, heeded the warning by stopping and allowing the train to pass and so nothing
happened to said vehicle. On the other hand, the driver of the bus No. 133 totally ignored
the whistle and noise produced by the approaching train and instead he tried to make the
bus pass the crossing before the train by not stopping a few meters from the railway track
and in proceeding ahead.

The above findings of the lower court are predicated mainly upon the testimony of Gregorio
Ilusondo, a witness for the Manila Railroad Company. Notwithstanding the efforts exerted by the
LTB to assail his credibility, we do not find in the record any fact or circumstance sufficient to
discredit his testimony. We have, therefore, no other alternative but to accept the findings of the
trial court to the effect, firstly, that the whistle of locomotive was sounded four times — two
long and two short — "as the train was approximately 300 meters from the crossing"; secondly,
that another LTB bus which arrived at the crossing ahead of the one where Edgardo Cariaga was
a passenger, paid heed to the warning and stopped before the "crossing", while — as the LTB
itself now admits (Brief p. 5) — the driver of the bus in question totally disregarded the warning.

But to charge the MRR Co. with contributory negligence, the LTB claims that the engineer of the
locomotive failed to ring the bell altogether, in violation of the section 91 of Article 1459,
incorporated in the charter of the said MRR Co. This contention — as is obvious — is the very
foundation of the cross-claim interposed by the LTB against its
co-defendant. The former, therefore, had the burden of proving it affirmatively because a
violation of law is never presumed. The record discloses that this burden has not been
satisfactorily discharged.

The Cariagas, as appellants, claim that the award of P10,000.00 compensatory damages to
Eduardo is inadequate considering the nature and the after effects of the physical injuries
suffered by him. After a careful consideration of the evidence on this point we find their
contentions to be well-founded.

From the deposition of Dr. Romeo Gustilo, a neurosurgeon, it appears that, as a result of the
injuries suffered by Edgardo, his right forehead was fractured necessitating the removal of
practically all of the right frontal lobe of his brain. From the testimony of Dr. Jose A. Fernandez,
a psychiatrist, it may be gathered that, because of the physical injuries suffered by Edgardo, his
mentality has been so reduced that he can no longer finish his studies as a medical student; that
he has become completely misfit for any kind of work; that he can hardly walk around without
someone helping him, and has to use a brace on his left leg and feet.

Upon the whole evidence on the matter, the lower court found that the removal of the right
frontal lobe of the brain of Edgardo reduced his intelligence by about 50%; that due to the
replacement of the right frontal bone of his head with a tantalum plate Edgardo has to lead a
quite and retired life because "if the tantalum plate is pressed in or dented it would cause his
death."
The impression one gathers from this evidence is that, as a result of the physical injuries suffered
by Edgardo Cariaga, he is now in a helpless condition, virtually an invalid, both physically and
mentally.

Appellant LTB admits that under Art. 2201 of the Civil Code the damages for which the obligor,
guilty of a breach of contract but who acted in good faith, is liable shall be those that are the
natural and probable consequences of the breach and which the parties had forseen or could have
reasonably forseen at the time the obligation was constituted, provided such damages, according
to Art. 2199 of the same Code, have been duly proved. Upon this premise it claims that only the
actual damages suffered by Edgardo Cariaga consisting of medical, hospital and other expenses
in the total sum of P17,719.75 are within this category. We are of the opinion, however, that the
income which Edgardo Cariaga could earn if he should finish the medical course and pass the
corresponding board examinations must be deemed to be within the same category because they
could have reasonably been foreseen by the parties at the time he boarded the bus No. 133 owned
and operated by the LTB. At that time he was already a fourth-year student in medicine in a
reputable university. While his scholastic may not be first rate (Exhibits 4, 4-A to 4-C), it is,
nevertheless, sufficient to justify the assumption that he could have passed the board test in due
time. As regards the income that he could possibly earn as a medical practitioner, it appears that,
according to Dr. Amado Doria, a witness for the LTB, the amount of P300.00 could easily be
expected as the minimum monthly income of Edgardo had he finished his studies.

Upon consideration of all the facts mentioned heretofore this Court is of the opinion, and so
holds, that the compensatory damages awarded to Edgardo Cariaga should be increased to
P25,000.00.

Edgardo Cariaga's claim for moral damages and attorney's fees was denied by the trial court, the
pertinent portion of its decision reading as follows:

Plaintiffs' claim for moral damages cannot also be granted. Article 2219 of the Civil Code
enumerates the instances when moral damages may be covered and the case under
consideration does not fall under any one of them. The present action cannot come under
paragraph 2 of said article because it is not one of the quasi-delict and cannot be
considered as such because of the pre-existing contractual relation between the Laguna
Tayabas Bus Company and Edgardo Cariaga. Neither could defendant Laguna Tayabas
Bus Company be held liable to pay moral damages to Edgardo Cariaga under Article
2220 of the Civil Code on account of breach of its contract of carriage because said
defendant did not act fraudulently or in bad faith in connection therewith. Defendant
Laguna Tayabas Bus Company had exercised due diligence in the selection and
supervision of its employees like the drivers of its buses in connection with the discharge
of their duties and so it must be considered an obligor in good faith.

The plaintiff Edgardo Cariaga is also not entitled to recover for attorney's fees, because
this case does not fall under any of the instances enumerated in Article 2208 of the Civil
Code.
We agree with the trial court and, to the reason given above, we add those given by this Court in
Cachero vs. Manila Yellow Taxicab Co., Inc.(101 Phil., 523, 530, 533):

A mere perusal of plaintiff's complaint will show that this action against the defendant is
predicated on an alleged breach of contract of carriage, i.e., the failure of the defendants
to bring him "safely and without mishaps" to his destination, and it is to be noted that the
chauffeur of defendant's taxicab that plaintiff used when he received the injuries involved
herein, Gregorio Mira, has not even made a party defendant to this case.

Considering, therefore, the nature of plaintiff's action in this case, is he entitled to

compensation for moral damages? Article 2219 of the Civil Code says the following:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

xxx xxx xxx

Of course enumerated in the just quoted Article 2219 only the first two may have any
bearing on the case at bar. We find, however, with regard to the first that the defendant
herein has not committed in connection with this case any "criminal offense resulting in
physical injuries". The one that committed the offense against the plaintiff is Gregorio
Mira, and that is why he has been already prosecuted and punished therefor. Altho (a)
owners and managers of an establishment and enterprise are responsible for damages
caused by their employees in the service of the branches in which the latter are employed
or on the occasion of their functions; (b) employers are likewise liable for damages
caused by their employees and household helpers acting within the scope of their
assigned task (Article 218 of the Civil Code); and (c) employers and corporations
engaged in any kind of industry are subsidiary civilly liable for felonies committed by
their employees in the discharge of their duties (Art. 103, Revised Penal Code), plaintiff
herein does not maintain this action under the provisions of any of the articles of the
codes just mentioned and against all the persons who might be liable for the damages
caused, but as a result of an admitted breach of contract of carriage and against the
defendant employer alone. We, therefore, hold that the case at bar does not come within
the exception of paragraph 1, Article 2219 of the Civil Code.

The present complaint is not based either on a "quasi-delict causing physical injuries"
(Art. 2219, par. 2 of the Civil Code). From the report of the Code Commission on the
new Civil Code. We copy the following:

A question of nomenclature confronted the Commission. After a careful deliberation, it

was agreed to use the term "quasi-delict" for those obligations which do not arise from
law, contracts, quasi-contracts, or criminal offenses. They are known in Spanish legal
treaties as "culpa aquiliana", "culpa-extra-contractual" or "cuasi-delitos". The phrase
"culpa-extra-contractual" or its translation "extra-contractual-fault" was eliminated
because it did not exclude quasi-contractual or penal obligations. "Aquilian fault" might
have been selected, but it was thought inadvisable to refer to so ancient a law as the "Lex
Aquilia". So "quasi-delict" was chosen, which more nearly corresponds to the Roman
Law classification of the obligations and is in harmony with the nature of this kind of
liability.

The Commission also thought of the possibility of adopting the word "tort" from Anglo-
American law. But "tort" under that system is much broader than the Spanish-Philippine
concept of obligations arising from non-contractual negligence. "Tort" in Anglo-
American jurisprudence includes not only negligence, but also intentional criminal act,
such as assault and battery, false imprisonment and deceit. In the general plan of the
Philippine legal system, intentional and malicious acts are governed by the Penal Code,
although certain exceptions are made in the Project. (Report of the Code Commission, pp.
161-162).

In the case of Cangco, vs. Manila Railroad, 38 Phil. 768, We established the distinction
between obligation derived from negligence and obligation as a result of a breach of
contract. Thus, we said:

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 the legal viewpoint from the presumptive responsibility
for the negligence of its servants, imposed by Article 1903 of the Civil Code (Art. 2180 of
the new), which can be rebutted by proof of the exercise of due care in their selection of
supervision. Article 1903 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.lawphil.net

The decisions in the cases of Castro vs. Acro Taxicab Co., (82 Phil., 359; 46 Off. Gaz.,
No. 5, p. 2023); Lilius, et al. vs. Manila Railroad, 59 Phil., 758) and others, wherein
moral damages were awarded to the plaintiffs, are not applicable to the case at bar
because said decision were rendered before the effectivity of the new Civil Code (August
30, 1950) and for the further reason that the complaints filed therein were based on
different causes of action.

In view of the foregoing the sum of P2,000 was awarded as moral damages by the trial
court has to be eliminated, for under the law it is not a compensation awardable in a case
like the one at bar.

What has been said heretofore relative to the moral damages claimed by Edgardo Cariaga
obviously applies with greater force to a similar claim (4th assignment of error) made by his
parents.

The claim made by said spouses for actual and compensatory damages is likewise without
merits. As held by the trial court, in so far as the LTB is concerned, the present action is based
upon a breach of contract of carriage to which said spouses were not a party, and neither can they
premise their claim upon the negligence or quasi-delict of the LTB for the simple reason that
they were not themselves injured as a result of the collision between the LTB bus and train
owned by the Manila Railroad Company.

Wherefore, modified as above indicated, the appealed judgement is hereby affirmed in all other
respects, with costs against appellant LTB.

FIRST DIVISION

[G.R. No. L-30965. November 29, 1983.]

G.A MACHINERIES, INC., Petitioner, v. HORACIO YAPTINCHAY, doing business

under the name and style "HI-WAY EXPRESS" and THE COURT OF APPEALS,
Respondents.

Bengzon, Villegas & Zarraga & Jose P. Bengzon Law Office for Petitioner.

Mariano V. Ampil, Jr. for Respondents.

SYLLABUS

1. REMEDIAL LAW; ACTION FOR BREACH OF CONTRACT; DELIVERY OF AN

ENGINE NOT BRAND NEW INSTEAD OF A BRAND NEW ENGINE, A STIPULATED,
DIFFERENT FROM BREACH OF WARRANTY AGAINST HIDDEN DEFECTS;
PRESCRIPTIVE PERIOD UNDER ARTICLE 1571 OF THE CIVIL CODE HELD
INAPPLICABLE. — The main thrust of the complaint is the contention that the Fordson diesel
engine delivered by the petitioner to the respondent was not brand-new contrary to the
representations of the former and the expectations of the latter. The complaint was couched in
manner which shows that instead of the brand new Fordson diesel engine which was bought by
the respondent from the petitioner, another engine which was not brand new was delivered
resulting in the damages sought to be recovered. It is evident therefore, that the complaint was
for a breach of contract of sale rather than a breach of warranty against hidden defects. This is so
because an action for breach of warranty against hidden defects presupposes that the thing sold is
the same thing delivered but with hidden defects. Consequently, the six-month prescriptive
period under Article 1571 of the civil Code is not applicable.

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; MISREPRESENTATION AS TO THE

QUALITY OF THE OBJECT OF THE CONTRACT, AMOUNTS TO FRAUD OR BAD
FAITH; RESTITUTION OF THE PURCHASE PRICE WITH INTEREST; JUSTIFIED. — The
petitioner committed a breach of contract against Respondent. The misrepresentation of the
quality of the subject Fordson diesel engine tantamount to fraud or bad faith. The return of the
P7,590.00 purchase price with legal interest from the date of purchase and computed pursuant to
our ruling in Villoria v. Court of Appeals (G.R. No. 63398, June 29, 1983) is justified.

3. ID.; ID.; DAMAGES RECOVERABLE IN CASE OF BREACH IF DULY PROVED. —

Article 2200 of the Civil Code entitles the respondent to recover as compensatory damages not
only the value of the loss suffered but also prospective profits while Article 2201 entitles the
respondent to recover all damages which may be attributed to the non-performance of the
obligation. However, in order to recover this kind of damages, the plaintiff must prove his case.

4. ID.; ID.; AWARD OF ACTUAL DAMAGES NOT WARRANTED BY THE BEST

EVIDENCE ON RECORD. — The next question refers to the award of actual damages in the
amount of P54,000.48. This amount covers the probable income which the respondent failed to
realize because of the breach of contract. Is the award of damages in the form of lucro cessante
justified? The law on the matter is spelled out in Raagas v. Traya (22 SCRA 839). we find the
evidence of the respondent insufficient to be considered within the purview of "best evidence."
The bare assertion of the respondent that he lost about P54,000.00 and the accompanying
documentary evidence presented to prove the amount lost are inadequate if not speculative. The
document itself merely shows that everytime a truck travels, Mr. Yaptinchay earns P369.88. This
amount is then multiplied by the number of trips which the truck was allegedly unable to make.
The estimates were prepared by a certain Dionisio M. Macasieb whose identity was not even
revealed by the Respondent. Mr. Yaptinchay was in the freight truck business. He had several
freight trucks among them the truck with the subject Forson diesel engine, covering the route
from Manila to Baguio. To prove actual damages, it would have been easy to present the average
actual profits realized by the other freight trucks plying the Manila-Baguio route. With the
presentation of such actual income the court could have arrived with reasonable certainty at the
amount of actual damages suffered by the Respondent. We rule that the award of actual damages
in the amount of P54,000.48 is not warranted by the evidence on record.

DECISION
 GUTIERREZ, JR., J.:

Petitioner G. A. Machineries, Inc. (hereinafter referred to as GAMI) seeks the reversal of the
decision of the Court of First Instance of Rizal, affirmed by the Court of Appeals in the original
case entitled Horacio Yaptinchay, doing business under the name and style "Hi-Way Express", v.
G.A. Machineries Inc. for recovery of damages.

The antecedent facts of the case are not seriously disputed and are summarized by the Court of
Appeals as follows:jgc:chanrobles.com.ph

"Sometime early in January, 1962 appellant GAMI, thru a duly authorized agent, offered to sell a
brand-new Fordson Diesel Engine to appellee Horacio Yaptinchay, owner of the freight hauling
business styled ‘Hi-Way Express’. Relying on the representations of appellant’s representative
that the engine offered for sale was brandnew, appellee agreed to purchase the same at the price
of P7,590.00. Pursuant to the contract of sale thus entered into, appellant delivered to appellee,
on January 27, 1962, one (1) Fordson Diesel Engine assembly, Model 6-D, with Engine Serial
No. A-212193, at 1500 RPM, with fly wheel, fly wheel housing, fuel injection assembly,
exhauster, fuel filter, oil filter, fuel lift pump, plus conversion kit for F-500, subject to the
standard warranties, particularly the representation, relied upon by appellee, that the same was
brandnew. Said engine was installed by appellant in Unit No. 6 of the Hi-Way Express.

"Within the week after its delivery, however, the engine in question started to have a series of
malfunctions which necessitated successive trips to appellant’s repair shop. Thus, it first sprang
an oil leak such that, on February 6, 1962, it was brought in to ‘1. Adjust idling of engine and
tappete clearance; 2. Inspect and remedy oil leaks of engine; 3. Replace clutch disc and pressure
plate w/original; and 4. Replace release bearing hub trunion bolt’ (Exhibit C). Thereafter, the
malfunctioning persisted and, on inspection, appellee’s mechanic noticed a worn out screw
which made appellee suspicious about the age of the engine. This prompted appellee, thru his
lawyer, to write appellant a letter, dated February 10, 1962, protesting that the engine was not
brand-new as represented (Exhibit E). Because of the recurring defects, the engine was again
submitted to appellant’s shop to ‘1. Inspect engine oil leaks on cylinder head; 2. Check up
propeller shaft (vibrating at high speed); and 3. Tighten bolts of pump.’ (Exhibit F). All these
notwithstanding, the engine could still not be returned into operation because it continued not to
function well. In fact, it was sent back to appellant’s shop on the same day it was delivered after
the last repair work done on it. Another check up was thereafter required to be made on March 5,
1962 (Exhibit G). Then again, on March 10, 1962, the engine was back at the repair shop to ‘1.
Inspect leaks on No. 1 & 5 high pressure pipe; and 2. Change engine oil with finishing & oil
element’ (Exhibit H). Still, the oil leaks remained unchecked and, on July 2, 1962, one last effort
to ‘1. Remedy engine oil leaks’ (Exhibit 1) was made, but all to no avail because, instead of
improving, the engine’s condition became worse as it developed engine knock and appellee had
to stop its operation altogether due to its unserviceability.

"These repeatedly recurring defects and continued failure of appellant to put the engine in good
operating condition only served to firm up in appellee’s mind the suspicion that the engine sold
to him was not brand-new as represented. He then sought the assistance of the PC Criminal
Investigation Service to check on the authenticity of the serial number of the engine, with due
notice to appellant. Scientific examination and verification tests revealed that the original motor
number of the engine aforesaid was tampered. Further inquiries by appellee from the Manila
Trading Company, which also handles the importation and distribution of similar engines, also
disclosed that, unlike the engine delivered to appellee whose engine body and injection pump
were painted with two different colors, brand-new engines are painted with only one color all
over.

"Thus convinced that a fraudulent misrepresentation as to the character of the engine had been
perpetrated upon him, appellee made demands from appellant for indemnification for damages
and eventually instituted the present suit.

"In its defense, appellant interposed prescription of the action, denied the imputation of
misrepresentation, and disputed the propriety and amount of damages claimed.." . .

After trial on the merits, the trial court ruled in favor of plaintiff Yaptinchay as
follows:chanrobles lawlibrary : rednad

"FOR ALL THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment
ordering the defendant, G. A. Machineries, Inc., to pay the plaintiff, Horacio Yaptinchay, actual
damages sustained in the sum of P54,000.48; to reimburse the purchase price of the Fordson
diesel engine in the amount of P7,590.00; and to pay attorney’s fees to plaintiff’s counsel on the
sum of P2,000.00 and costs.

"Plaintiff is, likewise, ordered to return the Fordson diesel engine with serial number A-21219 to
the defendant."cralaw virtua1aw library

Defendant GAMI appealed the decision to the Court of Appeals. As stated earlier, the decision
was affirmed by the Appellate Court. A motion for reconsideration was denied. Hence, the
instant petition.

Petitioner GAMI raises the following alleged errors of judgment of the respondent
court:chanrob1es virtual 1aw library

THE COURT OF APPEALS ERRED IN NOT APPLYING THE PRESCRIPTIVE PERIOD OF

ARTICLE 1571 OF THE CIVIL CODE TO THE CASE AT BAR.

II

THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE IN THE CASE OF

ASOCIACION ZANJERA CASILIAN v. CRUZ, 46 O.G. 4813, 4820 REGARDING
ADMISSION BY FAILURE TO REBUT, TO THE ISSUE OF ACTUAL DAMAGES, WHICH
MUST BE PROVED BY THE BEST AND COMPETENT EVIDENCE.

III

THE COURT OF APPEALS ERRED IN AWARDING ACTUAL DAMAGES IN THE FORM

OF UNREALIZED PROFITS (LUCRUM CESSANTE) WHEN THE ISSUE RAISED BY THE
PLEADINGS REFERS ONLY TO ALLEGED ACTUAL DAMAGES IN THE FORM OF
DAMNUM EMERGENTE.

IV

THE COURT OF APPEALS ERRED IN FINDING THAT THE FORDSON DIESEL ENGINE
DELIVERED BY PETITIONER TO RESPONDENT HORACIO YAPTINCHAY WAS NOT
BRAND NEW, REACHING SUCH FINDING BY WAY OF A MANIFESTLY MISTAKEN
INFERENCE AND ON THE BASIS OF A MISAPPREHENSION OF FACTS AND SOLELY
ON THE GROUND OF SPECULATION, SURMISES AND CONJECTURES.

The assignments of errors raise the following issues: 1) whether or not the respondent’s cause of
action against the petitioner had already prescribed at the time the complaint was filed in the trial
court; 2) whether or not the factual findings of both the trial and appellate courts as regards the
subject Fordson diesel engine are supported by evidence and 3) whether or not the award of
damages was justified considering the evidence on record.

The first issue is premised on the petitioner’s proposition that the respondent’s cause of action
was for breach of warranty against hidden defects as provided under Articles 1561 and 1566 of
the Civil Code. Article 1571 of the Civil Code provides for a six-month prescriptive period from
the delivery of the thing sold for the filing of an action for breach of warranty against hidden
defects. According to petitioner GAMI when respondent Yaptinchay filed the case with the trial
court, more than six months had already lapsed from the time the alleged defective engine was
delivered and, therefore, the action had prescribed.

The petitioner contends that Yaptinchay’s asserted cause of action was premised and anchored
on the delivery by the defendant of a DEFECTIVE ENGINE and that the allegations in the
complaint that the engine was not brand new are clearly mere specifications of the precise nature
of the hidden defects.

A cursory reading of the complaint shows that the petitioner’s arguments are not well-taken.

The main thrust of the complaint is the contention that the Fordson diesel engine delivered by the
petitioner to the respondent was not brand-new contrary to the representations of the former and
the expectations of the latter. The complaint was couched in a manner which shows that instead
of the brand-new Fordson diesel engine which was bought by the respondent from the petitioner,
another engine which was not brand new was delivered resulting in the damages sought to be
recovered. It is evident therefore, that the complaint was for a breach of a contract of sale rather
than a breach of warranty against hidden defects. This is so because an action for breach of
warranty against hidden defects presupposes that the thing sold is the same thing delivered but
with hidden defects. Consequently, the six-month prescriptive period under Article 1571 of the
Civil Code is not applicable.

The petitioner takes exception to the factual findings of the appellate court and argues: 1) the fact
that the Fordson diesel engine developed oil leaks does not necessarily imply that the said engine
was not brand new and 2) the testimony of laboratory technician Captain Garcia of the Philippine
Constabulary to the effect that the motor or serial number of the engine was tampered does not
deserve credence.chanrobles virtual lawlibrary

The first argument is premised on the proposition that even brand-new engines in many cases
develop oil leaks. To support this proposition the petitioner presented documentary evidence
(Exhibits "5", "7", "8", "9", "10", "11", "12", "13", "14", "15", "16" and "17") consisting of job
orders for allegedly brand new engines which developed oil leaks.

An examination of the documentary evidence shows that the job orders were for twelve (12)
different engines. Moreover, the petitioner’s witness who testified on the said job orders
admitted that some engines were repaired only after a few months. On the other hand, the subject
Fordson diesel engine was repaired on the complaint not only of oil leaks but also replacement of
clutch disc and pressure plate, replacement of release bearing hub trunion belt, and other defects
within a week after it was delivered to the respondents or on February 6, 1962 (Exhibit "C").
Thereafter it was returned for more repairs on February 28, 1962 (Exhibit "F"), on March 10,
1962 (Exhibit "H") and on July 2, 1962 (Exhibit "I"). The documentary evidence of the petitioner
consisting of the job orders of the supposed brand-new engines which also developed oil leaks is
no reason to doubt the trial court’s and appellate court’s factual findings. In fact, the
documentary evidence and the admissions of the petitioner’s witness enhance the respondent’s
allegation that the Fordson diesel engine sold to him was not brand-new.

The second argument questions Captain Garcia’s findings that the original motor number of the
engine was tampered as shown by the presence of fragmentary numbers which appeared in the
engine when he conducted a macro-etching test thereon by applying acid on the surface of said
engine. The petitioner emphasizes Captain Garcia’s alleged testimony that." . . what he calls
fragmentary numeral" is not definitely a numeral or a fragment of a numeral and states that the
same could have been caused by any molecular pressure applied to the area of the metal where it
appeared. In effect, the petitioner insists that the supposed fragmentary numerals could have
been merely scratches or indentations near the serial number of the motor which might have been
caused by sparks from the welding process.

The arguments are not well-taken. First, the statements attributed to Captain Garcia are not
accurate. An examination of the record shows that Captain Garcia positively stated the
fragmentary numeral to be a numeral or a number but in the absence of key portions he could not
positively identify the exact number or numeral. He discounted the possibility that such
fragmentary numerals could be mere scratches. Second, the witness did not categorically state
that any molecular pressure could have caused the fragmentary numeral. Hence, Captain Garcia
under cross-examination stated:jgc:chanrobles.com.ph
"Q. This fragmentary numeral could be caused deliberately by tampering with the engine number
or by other factor such as scratches or burning by other foreign element, is that right?

"A. No, sir, they can be caused by scraping but not by scratching, because by scraping there is
molecular disturbance of metal.

"Q. When you say molecular disturbance does it mean you first apply in the area, or would it
disturb the molecule in or around that area?

"A. Once you stamped the number, you impressed it and there is molecular disturbance in the
structure of the metal.

"Q. If the metal is burned, there is also molecular disturbance in the metal, is that correct?

"A. The metal will only expand.

"Q. There is no spark of the machine could not cause the molecular disturbance in the steam, is
that right?

"A. It cannot"

(T.S.N., Iluminado C. Palisoc, February 5, 1965, pp. 99-100)

The petitioner’s argument that the Court of Appeals findings are based on manifestly mistaken
inferences, misapprehension of facts, and purely on speculation, surmises, and conjectures is
without merit.

The Fordson diesel engine delivered to the respondent was not brand-new.

We agree with the Court of Appeals that:jgc:chanrobles.com.ph

"Indeed, it would be too much to say that the successive malfunctions of the engine, the defects
and other discrepancies therein that cropped up so soon after its delivery, the numerous trips it
had to appellant’s repair shop, the demonstrable tampering with its serial number, and its
ultimate breakdown despite appellant’s attempts to put it into good working order could be
attributed to mere coincidence. If all these mean anything at all, it can only be that the engine
aforesaid was not really brand new.

The petitioner committed a breach of contract against the Respondent. The misrepresentation of
the quality of the subject Fordson diesel engine is tantamount to fraud or bad faith. The return of
the P7,590.00 purchase price with legal interest from the date of purchase and computed
pursuant to our ruling in Villoria v. Court of Appeals (G.R. No. 63398, June 29, 1983) is
justified. The next question refers to the award of actual damages in the amount of P54,000.48.
This amount covers the probable income which the respondent failed to realize because of the
breach of contract. Is the award of damages in the form of lucro cessante justified?chanrobles
lawlibrary : rednad

The law on the matter is spelled out in Raagas v. Traya (22 SCRA 839), where we stated.

". . . In Abubakar Tan v. Tian Ho, L-18820, December 29, 1962 and Lim Giok v. Bataan Cigar
and Cigarette Factory, L-15861, April 16, 1960, we held that even if the allegations regarding the
amount of damages in the complaint are not specifically denied in the answer, such damages are
not deemed admitted. In Tomassi v. Villa-Abrille, L-7047, August 21, 1958, Suntay Tanjangco
v. Jovellanos, et al, L-12332, June 30, 1960, and Delfin v. Court of Agrarian Relations, Et Al., L-
23348, March 14, 1967, 1967 A PHILD 453, we declared in no uncertain terms that actual
damages must be proved, and that a court cannot rely on ‘speculation, conjecture or guesswork’
as to the fact and amount of damages, but must depend on actual proof that damages had been
suffered and on evidence of the actual amount. . . ."cralaw virtua1aw library

The fact that the defendant does not dispute the amount of this kind of damages does not
necessarily imply that the other party outright is entitled to the award of damages.

Article 2200 of the Civil Code entitles the respondent to recover as compensatory damages not
only the value of the loss suffered but also prospective profits while Article 2201 entitles the
respondent to recover all damages which may be attributed to the non-performance of the
obligation. However, in order to recover this kind of damages, the plaintiff must prove his case
—

"‘When the existence of a loss is established, absolute certainty as to its amount is not required.
The benefit to be derived from a contract which one of the parties has absolutely failed to
perform is of necessity to some extent, a matter of speculation, but the injured party is not to be
denied all remedy for that reason alone. He must produce the best evidence of which his case is
susceptible and if that evidence warrants the inference that he has been damaged by the loss of
profits which he might with reasonable certainty have anticipated but for the defendant’s
wrongful act, he is entitled to recover." (Cerreno v. Tan Chuco, 28 Phil. 312 quoted in Central
Bank of the Philippines v. Court of Appeals, 63 SCRA 431, 457).

Applying the foregoing test to the instant case, we find the evidence of the respondent
insufficient to be considered within the purview of "best evidence." The bare assertion of the
respondent that he lost about P54,000.00 and the accompanying documentary evidence presented
to prove the amount lost are inadequate if not speculative. The document itself merely shows that
everytime a truck travels, Mr. Yaptinchay earns P369.88. This amount is then multiplied by the
number of trips which the truck was allegedly unable to make. The estimates were prepared by a
certain Dionisio M. Macasieb whose identity was not even revealed by the Respondent. Mr.
Yaptinchay was in the freight truck business. He had several freight trucks among them the truck
with the subject Fordson diesel engine, covering the route from Manila to Baguio. To prove
actual damages, it would have been easy to present the average actual profits realized by the
other freight trucks plying the Manila-Baguio route. With the presentation of such actual income
the court could have arrived with reasonable certainty at the amount of actual damages suffered
by the Respondent. We rule that the award of actual damages in the amount of P54,000.08 is not
warranted by the evidence on record.
WHEREFORE, the decision appealed from is hereby modified. The award of actual damages in
the amount of P54,000.48 is deleted. The petitioner shall also pay six (6%) percent interest per
annum on the P7,590.00 purchase price from January 27, 1962 to July 29, 1974 and twelve
(12%) percent interest per annum from July 30, 1974 until the purchase price is reimbursed. In
all other respects, the appealed decision is affirmed.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-58028 April 18, 1989

CHIANG KAI SHEK SCHOOL, petitioner,

vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the
next semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous
period of almost 33 years. And now, out of the blue, and for no apparent or given reason, this
abrupt dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek
School but when it filed a motion to dismiss on the ground that it could not be sued, the
complaint was amended. 2 Certain officials of the school were also impleaded to make them
solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its decision was
set aside by the respondent court, which held the school suable and liable while absolving the
other defendants. 4 The motion for reconsideration having been denied, 5 the school then came
to this Court in this petition for review on certiorari.

The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,

2. Whether or not a complaint filed against persons associated under a common name will justify
a judgment against the association itself and not its individual members.

3. Whether or not the collection of tuition fees and book rentals will make a school profit-making
and not charitable.

4. Whether or not the Termination Pay Law then in force was available to the private respondent
who was employed on a year-to-year basis.

5. Whether or not the awards made by the respondent court were warranted.

We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules
of Court clearly provides that "only natural or juridical persons may be parties in a civil action."
It is also not denied that the school has not been incorporated. However, this omission should not
prejudice the private respondent in the assertion of her claims against the school.

As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:

Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated
under the provisions of Act No. 1459 known as the Corporation Law, within 90
days after the date of recognition, and shall file with the Secretary of Public
Instruction a copy of its incorporation papers and by-laws.

Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the
time the complaint was filed notwithstanding that it had been in existence even earlier than 1932.
The petitioner cannot now invoke its own non-compliance with the law to immunize it from the
private respondent's complaint.

There should also be no question that having contracted with the private respondent every year
for thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through estoppel an admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying on it."

As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued
with such association. Besides, it has been shown that the individual members of the board of
trustees are not liable, having been appointed only after the private respondent's dismissal. 6
It is clear now that a charitable institution is covered by the labor laws 7 although the question
was still unsettled when this case arose in 1968. At any rate, there was no law even then
exempting such institutions from the operation of the labor laws (although they were exempted
by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner was a
charitable institution as it claims, the private respondent was nonetheless still entitled to the
protection of the Termination Pay Law, which was then in force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily
follow that those in its employ were as generously motivated. Obviously, most of them would
not have the means for such charity. The private respondent herself was only a humble school
teacher receiving a meager salary of Pl80. 00 per month.

At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this
alone may not indicate that it is profit-making, it does weaken its claim that it is a non-profit
entity.

The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The
argument is that her services were terminable at the end of each year at the discretion of the
school. Significantly, no explanation was given by the petitioner, and no advance notice either,
of her relief after teaching year in and year out for all of thirty-two years, the private respondent
was simply told she could not teach any more.

The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice
then required by law had not been given, such dismissal was invalid.

The private respondent's position is no different from that of the rank-and-file employees
involved in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the
following to say:

Undoubtedly, the private respondents' positions as deans and department heads of

the petitioner university are necessary in its usual business. Moreover, all the
private respondents have been serving the university from 18 to 28 years. All of
them rose from the ranks starting as instructors until they became deans and
department heads of the university. A person who has served the University for 28
years and who occupies a high administrative position in addition to teaching
duties could not possibly be a temporary employee or a casual.

The applicable law is the Termination Pay Law, which provided:

SECTION 1. In cases of employment, without a definite period, in a commercial,

industrial, or agricultural establishment or enterprise, the employer or the
employee may terminate at any time the employment with just cause; or without
 just cause in the case of an employee by serving written notice on the employer at
least one month in advance, or in the case of an employer, by serving such notice
to the employee at least one month in advance or one-half month for every year of
service of the employee, whichever, is longer, a fraction of at least six months
being considered as one whole year.

The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .

The respondent court erred, however, in awarding her one month pay instead of only one-half
month salary for every year of service. The law is quite clear on this matter. Accordingly, the
separation pay should be computed at P90.00 times 32 months, for a total of P2,880.00.

Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School
Teachers, confers security of tenure on the teacher upon appointment as long as he possesses the
required qualification. 10 And under the present policy of the Department of Education, Culture
and Sports, a teacher becomes permanent and automatically acquires security of tenure upon
completion of three years in the service. 11

While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude of
the government on the protection of the worker's security of tenure, which is now guaranteed by
no less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no
cause for her removal nor had it given her the notice required by the Termination Pay Law. As
the respondent court said, the contention that she could not report one week before the start of
classes is a flimsy justification for replacing her. 13 She had been in its employ for all of thirty-
two years. Her record was apparently unblemished. There is no showing of any previous strained
relations between her and the petitioner. Oh had every reason to assume, as she had done in
previous years, that she would continue teaching as usual.

It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning
told she was dismissed. There was not even the amenity of a formal notice of her replacement,
with perhaps a graceful expression of thanks for her past services. She was simply informed she
was no longer in the teaching staff. To put it bluntly, she was fired.

For the wrongful act of the petitioner, the private respondent is entitled to moral damages. 14 As
a proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety, wounded
feelings and even besmirched reputation as an experienced teacher for more than three decades.
We also find that the respondent court did not err in awarding her exemplary damages because
the petitioner acted in a wanton and oppressive manner when it dismissed her. 15
The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are
always at the forefront in the battle against illiteracy and ignorance. If only because it is they
who open the minds of their pupils to an unexplored world awash with the magic of letters and
numbers, which is an extraordinary feat indeed, these humble mentors deserve all our respect and
appreciation.

WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the
award of separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs
against the petitioner.

This decision is immediately executory.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-58028 April 18, 1989

CHIANG KAI SHEK SCHOOL, petitioner,

vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the
next semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous
period of almost 33 years. And now, out of the blue, and for no apparent or given reason, this
abrupt dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek
School but when it filed a motion to dismiss on the ground that it could not be sued, the
complaint was amended. 2 Certain officials of the school were also impleaded to make them
solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its decision was
set aside by the respondent court, which held the school suable and liable while absolving the
other defendants. 4 The motion for reconsideration having been denied, 5 the school then came
to this Court in this petition for review on certiorari.
The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,

2. Whether or not a complaint filed against persons associated under a common name will justify
a judgment against the association itself and not its individual members.

3. Whether or not the collection of tuition fees and book rentals will make a school profit-making
and not charitable.

4. Whether or not the Termination Pay Law then in force was available to the private respondent
who was employed on a year-to-year basis.

5. Whether or not the awards made by the respondent court were warranted.

We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules
of Court clearly provides that "only natural or juridical persons may be parties in a civil action."
It is also not denied that the school has not been incorporated. However, this omission should not
prejudice the private respondent in the assertion of her claims against the school.

As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:

Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated
under the provisions of Act No. 1459 known as the Corporation Law, within 90
days after the date of recognition, and shall file with the Secretary of Public
Instruction a copy of its incorporation papers and by-laws.

Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the
time the complaint was filed notwithstanding that it had been in existence even earlier than 1932.
The petitioner cannot now invoke its own non-compliance with the law to immunize it from the
private respondent's complaint.

There should also be no question that having contracted with the private respondent every year
for thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it.
According to Article 1431 of the Civil Code, "through estoppel an admission or representation is
rendered conclusive upon the person making it and cannot be denied or disproved as against the
person relying on it."

As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued
with such association. Besides, it has been shown that the individual members of the board of
trustees are not liable, having been appointed only after the private respondent's dismissal. 6

It is clear now that a charitable institution is covered by the labor laws 7 although the question
was still unsettled when this case arose in 1968. At any rate, there was no law even then
exempting such institutions from the operation of the labor laws (although they were exempted
by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner was a
charitable institution as it claims, the private respondent was nonetheless still entitled to the
protection of the Termination Pay Law, which was then in force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily
follow that those in its employ were as generously motivated. Obviously, most of them would
not have the means for such charity. The private respondent herself was only a humble school
teacher receiving a meager salary of Pl80. 00 per month.

At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this
alone may not indicate that it is profit-making, it does weaken its claim that it is a non-profit
entity.

The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The
argument is that her services were terminable at the end of each year at the discretion of the
school. Significantly, no explanation was given by the petitioner, and no advance notice either,
of her relief after teaching year in and year out for all of thirty-two years, the private respondent
was simply told she could not teach any more.

The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice
then required by law had not been given, such dismissal was invalid.

The private respondent's position is no different from that of the rank-and-file employees
involved in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the
following to say:

Undoubtedly, the private respondents' positions as deans and department heads of

the petitioner university are necessary in its usual business. Moreover, all the
private respondents have been serving the university from 18 to 28 years. All of
them rose from the ranks starting as instructors until they became deans and
department heads of the university. A person who has served the University for 28
years and who occupies a high administrative position in addition to teaching
duties could not possibly be a temporary employee or a casual.

The applicable law is the Termination Pay Law, which provided:

 SECTION 1. In cases of employment, without a definite period, in a commercial,
industrial, or agricultural establishment or enterprise, the employer or the
employee may terminate at any time the employment with just cause; or without
just cause in the case of an employee by serving written notice on the employer at
least one month in advance, or in the case of an employer, by serving such notice
to the employee at least one month in advance or one-half month for every year of
service of the employee, whichever, is longer, a fraction of at least six months
being considered as one whole year.

The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .

The respondent court erred, however, in awarding her one month pay instead of only one-half
month salary for every year of service. The law is quite clear on this matter. Accordingly, the
separation pay should be computed at P90.00 times 32 months, for a total of P2,880.00.

Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School
Teachers, confers security of tenure on the teacher upon appointment as long as he possesses the
required qualification. 10 And under the present policy of the Department of Education, Culture
and Sports, a teacher becomes permanent and automatically acquires security of tenure upon
completion of three years in the service. 11

While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude of
the government on the protection of the worker's security of tenure, which is now guaranteed by
no less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no
cause for her removal nor had it given her the notice required by the Termination Pay Law. As
the respondent court said, the contention that she could not report one week before the start of
classes is a flimsy justification for replacing her. 13 She had been in its employ for all of thirty-
two years. Her record was apparently unblemished. There is no showing of any previous strained
relations between her and the petitioner. Oh had every reason to assume, as she had done in
previous years, that she would continue teaching as usual.

It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning
told she was dismissed. There was not even the amenity of a formal notice of her replacement,
with perhaps a graceful expression of thanks for her past services. She was simply informed she
was no longer in the teaching staff. To put it bluntly, she was fired.

For the wrongful act of the petitioner, the private respondent is entitled to moral damages. 14 As
a proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety, wounded
feelings and even besmirched reputation as an experienced teacher for more than three decades.
We also find that the respondent court did not err in awarding her exemplary damages because
the petitioner acted in a wanton and oppressive manner when it dismissed her. 15

The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are
always at the forefront in the battle against illiteracy and ignorance. If only because it is they
who open the minds of their pupils to an unexplored world awash with the magic of letters and
numbers, which is an extraordinary feat indeed, these humble mentors deserve all our respect and
appreciation.

WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the
award of separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs
against the petitioner.

This decision is immediately executory.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 70462 August 11, 1988

PAN AMERICAN WORLD AIRWAYS, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS
PRODUCTIONS and ARCHER PRODUCTIONS, respondents.

Guerrero & Torres for petitioner.

Jose B. Layug for private respondents.

CORTES, J.:

Before the Court is a petition filed by an international air carrier seeking to limit its liability for
lost baggage, containing promotional and advertising materials for films to be exhibited in Guam
and the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in
the airline ticket absent a declaration of a higher valuation and the payment of additional charges.

The undisputed facts of the case, as found by the trial court and adopted by the appellate court,
are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of
the plaintiffs Sotang Bastos and Archer Production while in San Francisco,
Califonia and Primo Quesada of Prime Films, San Francisco, California, entered
into an agreement (Exh. A) whereby the former, for and in consideration of the
amount of US $2,500.00 per picture, bound himself to supply the latter with three
films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and
Iking,' and 'Kambal Dragon' for exhibition in the United States. It was also their
agreement that plaintiffs would provide the necessary promotional and advertising
materials for said films on or before May 30, 1978.

On his way home to the Philippines, plaintiff Pangan visited Guam where he
contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan
likewise entered into a verbal agreement with Slutchnick for the exhibition of two
of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978
for the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff
Pangan undertook to provide the necessary promotional and advertising materials
for said films on or before the exhibition date on May 30,1978.

By virtue of the above agreements, plaintiff Pangan caused the preparation of the
requisite promotional handbills and still pictures for which he paid the total sum
of P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip
abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch
bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00
(Exhs. D, D-1, E, and F).

On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila
Office, through the Your Travel Guide, an economy class airplane ticket with No.
0269207406324 (Exh. G) for passage from Manila to Guam on defendant's Flight
No. 842 of May 27,1978, upon payment by said plaintiff of the regular fare. The
Your Travel Guide is a tour and travel office owned and managed by plaintiffs
witness Mila de la Rama.

On May 27, 1978, two hours before departure time plaintiff Pangan was at the
defendant's ticket counter at the Manila International Airport and presented his
ticket and checked in his two luggages, for which he was given baggage claim
tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained
the promotional and advertising materials, the clutch bags, barong tagalog and his
personal belongings. Subsequently, Pangan was informed that his name was not
in the manifest and so he could not take Flight No. 842 in the economy class.
Since there was no space in the economy class, plaintiff Pangan took the first
class because he wanted to be on time in Guam to comply with his commitment,
paying an additional sum of $112.00.

When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two
luggages did not arrive with his flight, as a consequence of which his agreements
with Slutchnick and Quesada for the exhibition of the films in Guam and in the
 United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh.
J) for his missing luggages.

Upon arrival in the Philippines, Pangan contacted his lawyer, who made the
necessary representations to protest as to the treatment which he received from the
employees of the defendant and the loss of his two luggages (Exh. M, O, Q, S,
and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be
investigated and given its immediate consideration (Exhs. N, P and R). Due to the
defendant's failure to communicate with Pangan about the action taken on his
protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record On
Appeal). [Rollo, pp. 27-29.]

On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:

(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs
the sum of P83,000.00, for actual damages, with interest thereon at the rate of
14% per annum from December 6, 1978, when the complaint was filed, until the
same is fully paid, plus the further sum of P10,000.00 as attorney's fees;

(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene
V. Pangan the sum of P8,123.34, for additional actual damages, with interest
thereon at the rate of 14% per annum from December 6, 1978, until the same is
fully paid;

(3) Dismissing the counterclaim interposed by defendant Pan American World

Airways, Inc.; and

(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of
suit. [Rollo, pp. 106-107.]

On appeal, the then Intermediate Appellate Court affirmed the trial court decision.

Hence, the instant recourse to this Court by petitioner.

The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.

In assailing the decision of the Intermediate Appellate Court petitioner assigned the following
errors:

1. The respondent court erred as a matter of law in affirming the trial court's award of actual
damages beyond the limitation of liability set forth in the Warsaw Convention and the contract of
carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of actual
damages consisting of alleged lost profits in the face of this Court's ruling concerning special or
consequential damages as set forth in Mendoza v. Philippine Airlines [90 Phil. 836 (1952).]

The assigned errors shall be discussed seriatim

1. The airline ticket (Exh. "G') contains the following conditions:

NOTICE

If the passenger's journey involves an ultimate destination or stop in a country

other than the country of departure the Warsaw Convention may be applicable
and the Convention governs and in most cases limits the liability of carriers for
death or personal injury and in respect of loss of or damage to baggage. See also
notice headed "Advice to International Passengers on Limitation of Liability.

CONDITIONS OF CONTRACT

1. As used in this contract "ticket" means this passenger ticket and baggage check
of which these conditions and the notices form part, "carriage" is equivalent to
"transportation," "carrier" means all air carriers that carry or undertake to carry
the passenger or his baggage hereunder or perform any other service incidental to
such air carriage. "WARSAW CONVENTION" means the convention for the
Unification of Certain Rules Relating to International Carriage by Air signed at
Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28th
September 1955, whichever may be applicable.

2. Carriage hereunder is subject to the rules and limitations relating to liability

established by the Warsaw Convention unless such carriage is not "international
carriage" as defined by that Convention.

3. To the extent not in conflict with the foregoing carriage and other services
performed by each carrier are subject to: (i) provisions contained in this ticket, (ii)
applicable tariffs, (iii) carrier's conditions of carriage and related regulations
which are made part hereof (and are available on application at the offices of
carrier), except in transportation between a place in the United States or Canada
and any place outside thereof to which tariffs in force in those countries apply.

xxx xxx xxx

NOTICE OF BAGGAGE LIABILITY LIMITATIONS

Liability for loss, delay, or damage to baggage is limited as follows unless a

higher value is declared in advance and additional charges are paid: (1)for most
international travel (including domestic portions of international journeys) to
approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400
 per passenger for unchecked baggage: (2) for travel wholly between U.S. points,
to $750 per passenger on most carriers (a few have lower limits). Excess valuation
may not be declared on certain types of valuable articles. Carriers assume no
liability for fragile or perishable articles. Further information may be obtained
from the carrier. [Emphasis supplied.].

On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends
that its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x
30 kilos) as the latter did not declare a higher value for his baggage and pay the corresponding
additional charges.

To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-
40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed
stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a
specified amount and ruled that the carrier's liability was limited to said amount since the
passenger did not declare a higher value, much less pay additional charges.

We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court,
through Justice Melencio Herrera, stated:

Petitioner further contends that respondent Court committed grave error when it
limited PAL's carriage liability to the amount of P100.00 as stipulated at the back
of the ticket....

We agree with the foregoing finding. The pertinent Condition of Carriage printed
at the back of the plane ticket reads:

8. BAGGAGE LIABILITY ... The total liability of the Carrier for

lost or damage baggage of the passenger is LIMITED TO P100.00
for each ticket unless a passenger declares a higher valuation in
excess of P100.00, but not in excess, however, of a total valuation
of Pl,000.00 and additional charges are paid pursuant to Carrier's
tariffs.

There is no dispute that petitioner did not declare any higher value for his
luggage, much less (lid he pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had
actually entered into a contract with PAL limiting the latter's liability for loss or
delay of the baggage of its passengers, and that Article 1750 * of the Civil Code
has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he
is nevertheless bound by the provisions thereof. "Such provisions have been held
to be a part of the contract of carriage, and valid and binding upon the passenger
regardless of the latter's lack of knowledge or assent to the regulation."
 [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400;
Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines,
Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of "adhesion," in
regards which it has been said that contracts of adhesion wherein one party
imposes a ready made form of contract on the other, as the plane ticket in the case
at bar, are contracts not entirely prohibited. The one who adheres to the contract is
in reality free to reject it entirely; if he adheres, he gives his consent,[Tolentino,
Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's
Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103
Ohio App. 172,144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349
S.W. 2d 483.] "a contract limiting liability upon an agreed valuation does not
offend against the policy of the law forbidding one from contracting against his
own negligence."

Considering, therefore, that petitioner had failed to declare a higher value for his
baggage, he cannot be permitted a recovery in excess of P100.00....

On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July
2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to
a specified amount was invalid, finds no application in the instant case, as the ruling in said case
was premised on the finding that the conditions printed at the back of the ticket were so small
and hard to read that they would not warrant the presumption that the passenger was aware of the
conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts that
would make the case fall under the exception have not been alleged, much less shown to exist.

In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00,
as stipulated at the back of the ticket.

At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state
that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R.
No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw
Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases
of contractual breach of carriage ** is against public policy" is utterly misplaced, to say the least.
In said case, while the Court, as quoted in the Intermediate Appellate Court's decision, said:

Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in
the event of death of a passenger or injury suffered by him, or of destruction or
loss of, or damages to any checked baggage or any goods, or of delay in the
transportation by air of passengers, baggage or goods. This pretense is not borne
out by the language of said Articles. The same merely declare the carrier liable for
damages in enumerated cases, if the conditions therein specified are present.
Neither said provisions nor others in the aforementioned Convention regulate or
exclude liability for other breaches of contract by the carrier. Under petitioner's
theory, an air carrier would be exempt from any liability for damages in the event
of its absolute refusal, in bad faith, to comply with a contract of carriage, which is
absurd.
it prefaced this statement by explaining that:

...The case is now before us on petition for review by certiorari, upon the ground
that the lower court has erred: (1) in holding that the Warsaw Convention of
October 12, 1929, relative to transportation by air is not in force in the
Philippines: (2) in not holding that respondent has no cause of action; and (3) in
awarding P20,000 as nominal damages.

We deem it unnecessary to pass upon the First assignment of error because the
same is the basis of the second assignment of error, and the latter is devoid of
merit, even if we assumed the former to be well taken. (Emphasis supplied.)

Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the
validity of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination
may said quotation from Northwest be considered as supportive of the appellate court's statement
that the provisions of the Warsaw Convention limited a carrier's liability are against public
policy.

2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the
Court of Appeals, awarding private respondents damages as and for lost profits when their
contracts to show the films in Guam and San Francisco, California were cancelled.

The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:

...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant
herein, may be held liable only for damages that were foreseen or might have
been foreseen at the time the contract of transportation was entered into. The trial
court correctly found that the defendant company could not have foreseen the
damages that would be suffered by Mendoza upon failure to deliver the can of
film on the 17th of September, 1948 for the reason that the plans of Mendoza to
exhibit that film during the town fiesta and his preparations, specially the
announcement of said exhibition by posters and advertisement in the newspaper,
were not called to the defendant's attention.

In our research for authorities we have found a case very similar to the one under consideration.
In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York,
delivered motion picture films to the defendant Fargo, an express company, consigned and to be
delivered to him in Utica. At the time of shipment the attention of the express company was
called to the fact that the shipment involved motion picture films to be exhibited in Utica, and
that they should be sent to their destination, rush. There was delay in their delivery and it was
found that the plaintiff because of his failure to exhibit the film in Utica due to the delay suffered
damages or loss of profits. But the highest court in the State of New York refused to award him
special damages. Said appellate court observed:
 But before defendant could be held to special damages, such as the present
alleged loss of profits on account of delay or failure of delivery, it must have
appeared that he had notice at the time of delivery to him of the particular
circumstances attending the shipment, and which probably would lead to such
special loss if he defaulted. Or, as the rule has been stated in another form, in
order to purpose on the defaulting party further liability than for damages
naturally and directly, i.e., in the ordinary course of things, arising from a breach
of contract, such unusual or extraordinary damages must have been brought
within the contemplation of the parties as the probable result of breach at the time
of or prior to contracting. Generally, notice then of any special circumstances
which will show that the damages to be anticipated from a breach would be
enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that
the attention of the common carrier in said case was called to the nature of the articles shipped,
the purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in
the present case. [Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing
that petitioner's attention was called to the special circumstances requiring prompt delivery of
private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an eventuality when it accepted
the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down
in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages
based on the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the
exhibition of the films in Guam and California were cancelled because of the loss of the two
luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to deliver the promotional
and advertising materials on the dates agreed upon. For this petitioner cannot be held liable.
Private respondent Pangan had not declared the value of the two luggages he had checked in and
paid additional charges. Neither was petitioner privy to respondents' contracts nor was its
attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket,
the award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to
satisfy private respondent's just and valid claim, loses support and must be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US $600.00 or its equivalent in Philippine
currency at the time of actual payment.

SO ORDERED.