G.R. No.

188072               October 19, 2011 for an award of actual, moral and exemplary damages, as well as attorney’s fees and expenses of
litigation, and for the inspection and technical assessment of the construction project and the
EMERITA M. DE GUZMAN, Petitioner, rectification of any defect.
vs.
ANTONIO M. TUMOLVA, Respondent. In his Answer with Counterclaim, the Contractor denied liability for the damaged fence claiming,
among others, that its destruction was an act of God. He admitted making deviations from the plan,
DECISION but pointed out that the same were made with the knowledge and consent of De Guzman through
her representatives, Architect Quin Baterna and Project Engineer Rodello Santos (Engineer
Santos), who were present during the construction of the fence. He further argued that pursuant to
MENDOZA, J.: the Agreement, the claim for damages was already barred by the 12-month period from the
issuance of the Certificate of Acceptance of the project within which to file the claim. He, thus,
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the prayed for the dismissal of the action and interposed a counterclaim for actual and compensatory
February 24, 2009 Decision1 of the Court of Appeals (CA) and its May 26, 2009 Resolution2 in CA- damages for the additional work/change orders made on the project in the amount of ₱
G.R. SP. No. 104945 entitled "Antonio M. Tumolva v. Emerita M. De Guzman." 2,046,500.00, attorney’s fees and litigation expenses.

The Facts After due proceedings, the CIAC issued the Award dated July 17, 2008 in favor of De Guzman, the
dispositive portion of which reads:
On September 6, 2004, petitioner Emerita M. De Guzman (De Guzman), represented by her
attorneys-in-fact, Lourdes Rivera and Dhonna Chan, and respondent Antonio Tumolva, doing WHEREFORE, judgment is hereby rendered and AWARD is made on the monetary claims of
business under the name and style A.M. Tumolva Engineering Works (the Contractor), entered into Claimant EMERITA M. DE GUZMAN, directing Respondent Contractor ANTONIO M. TUMOLVA,
a Construction Agreement3 (Agreement) for the construction of an orphanage consisting of an to pay her the following amounts:
administration building, directors/guests house, dining and service building, children’s dormitory,
male staff house, and covered walkways in Brgy. Pulong Bunga, Purok 4, Silang, Cavite, for a ₱ 187,509.00 as actual damages for reconstructing the collapsed and damaged perimeter fence.
contract price of ₱ 15,982,150.39. Incorporated in the Agreement was the plan and specifications of
the perimeter fence. The Contractor, however, made deviations from the agreed plan4 with respect
to the perimeter fence of the orphanage. Interest is awarded on the foregoing amount at the legal rate of 6% per annum computed from the
date of this Award. After finality thereof, interest at the rate of 12% per annum shall be paid thereon
until full payment of the awarded amount shall have been made, "this interim period being deemed
On September 6, 2005, after the completion of the project, De Guzman issued a Certificate of to be at that time already a forbearance of credit" (Eastern Shipping Lines, Inc. v. Court of
Acceptance. For his part, the Contractor issued a quitclaim acknowledging the termination of the Appeals (243 SCRA 78 [1994])
contract and the full compliance therewith by De Guzman.
₱ 100,000.00 as moral damages.
In November 2006, during typhoon "Milenyo," a portion of the perimeter fence collapsed and other
portions tilted. In her Letter dated December 5, 2006, De Guzman, through counsel, demanded the
repair of the fence in accordance with the plan. In response, the Contractor claimed that the ₱ 100,000.00 as exemplary damages.
destruction of the fence was an act of God and expressed willingness to discuss the matter to avoid
unnecessary litigation. De Guzman, however, reiterated her demand for the restoration of the wall ₱ 50,000.00 for attorney’s fees and expenses of litigation.
without additional cost on her part, or in the alternative, for the Contractor to make an offer of a
certain amount by way of compensation for the damages she sustained. Her demand was not ₱ 437,509.00 – TOTAL AMOUNT DUE THE CLAIMANT
heeded.
The CIAC staff is hereby directed to make the necessary computation of how much has been paid
On February 14, 2008, De Guzman filed a Request for Arbitration5 of the dispute before the by Claimant as its proportionate share of the arbitration costs totaling ₱ 110,910.44, which
Construction Industry Arbitration Commission (CIAC). She alleged that the Contractor deliberately computed amount shall be reimbursed by Respondent to the Claimant.
defrauded her in the construction of the perimeter fence by "under sizing the required column rebars
from 12mm. based on the plan to only 10mm., the required concrete hollow blocks from #6 to #5,
and the distance between columns from 3.0m to 4.3m."6 Further, the Contractor neither anchored SO ORDERED.7
the lenten beams to the columns nor placed drains or weepholes along the lower walls. She prayed
Aggrieved, the Contractor filed before the CA a Petition for Review with prayer for the issuance of a
temporary restraining order, challenging the CIAC’s award of damages in favor of De Guzman.
On February 24, 2009, the CA modified the Award rendered by CIAC. The dispositive portion of the
decision states:
WHEREFORE, the instant petition is partly GRANTED. The assailed Award dated July 17, 2008
rendered by the CIAC in CIAC Case No. 03-2008 is hereby MODIFIED, deleting the award of
actual, moral and exemplary damages, but awarding temperate damages in the amount of ₱
100,000.00 for reconstructing the collapsed and damaged perimeter fence. The rest of the Award
stands.
SO ORDERED.8
The CA held that although the Contractor deviated from the plan, CIAC’s award of actual damages
was not proper inasmuch as De Guzman failed to establish its extent with reasonable certainty. The
CA, however, found it appropriate to award temperate damages considering that De Guzman
suffered pecuniary loss as a result of the collapse of the perimeter fence due to the Contractor’s
negligence and violation of his undertakings in the Agreement. It further ruled that there was no
basis for awarding moral damages reasoning out that De Guzman’s worry for the safety of the
children in the orphanage was insufficient to justify the award. Likewise, it could not sustain the
award of exemplary damages as there was no showing that the Contractor acted in wanton,
reckless, fraudulent, oppressive, or malevolent manner.
De Guzman filed a motion for reconsideration of the said decision, but it was denied for lack of merit
by the CA in its Resolution dated May 26, 2009.
Hence, De Guzman interposed the present petition before this Court anchored on the following
GROUNDS
(I)
THE COURT OF APPEALS ERRED IN RULING THAT THE EVIDENCE ON RECORD FAILED TO
SUFFICIENTLY ESTABLISH THE AMOUNT OF ACTUAL DAMAGES THAT PETITIONER DE
GUZMAN CAN RECOVER FROM THE RESPONDENT.
(II)
THE COURT OF APPEALS ERRED IN RULING THAT PETITIONER DE GUZMAN IS NOT
ENTITLED TO AWARDS OF MORAL AND EXEMPLARY DAMAGES.9
De Guzman argues inter alia that the Contractor is liable for the actual damages that she suffered
from the collapse of the perimeter fence. He failed to put weep holes on the collapsed portion of the
said fence, which could have relieved the pressure from the wet soil of the adjoining higher ground.
De Guzman adds that the computation of the cost of rebuilding the collapsed portion of the
perimeter fence by Engineer Santos constituted substantial evidence warranting an award of actual
damages. His affidavit served as his direct testimony in the case even if he did not appear during
the hearing. Having been notarized, it must be admissible in evidence without further proof of
authenticity.
Further, De Guzman questions the CA’s deletion of the award for moral and exemplary damages.
She insists that her anxiety and suffering over the safety of the children in the orphanage entitled
her to an award of moral damages. It is likewise her position that the Contractor’s wanton acts of
deliberately cheating the benefactors of the orphanage by making deviations on the approved plan
through the use of construction materials of inferior quality warranted the imposition of exemplary
damages against the Contractor.
The Court’s ruling
There is no doubt that De Guzman incurred damages as a result of the collapse of the perimeter
fence. The Contractor is clearly guilty of negligence and, therefore, liable for the damages caused.
As correctly found by the CA:
Nonetheless, the Court sustains the CIAC’s conclusion that the CONTRACTOR was negligent in
failing to place weepholes on the collapsed portion of the perimeter fence. Fault or negligence of the
obligor consists in his failure to exercise due care and prudence in the performance of the obligation
as the nature of the obligation so demands, taking into account the particulars of each case. It
should be emphasized that even if not provided for in the plan, the CONTRACTOR himself admitted
the necessity of putting weepholes and claimed to have actually placed them in view of the higher
ground elevation of the adjacent lot vis-à-vis the level ground of the construction site. Since he was
the one who levelled the ground and was, thus, aware that the lowest portion of the adjoining land
was nearest the perimeter fence, he should have ensured that sufficient weepholes were placed
because water would naturally flow towards the fence.
However, the CONTRACTOR failed to refute Mr. Ramos’ claim that the collapsed portion of the
perimeter fence lacked weepholes. Records also show that the omission of such weepholes and/or
their being plastered over resulted from his failure to exercise the requisite degree of supervision
over the work, which is the same reason he was unable to discover the deviations from the plan
until the fence collapsed. Hence, the CONTRACTOR cannot be relieved from liability therefor.10
The Court finds no compelling reason to deviate from this factual finding by the CIAC, as affirmed by
the CA. It is settled that findings of fact of quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only respect,
but also finality, especially when affirmed by the CA. In particular, factual findings of construction
arbitrators are final and conclusive and not reviewable by this Court on appeal.11
CIAC’s award of actual damages, however, is indeed not proper under the circumstances as there
is no concrete evidence to support the plea. In determining actual damages, one cannot rely on
mere assertions, speculations, conjectures or guesswork, but must depend on competent proof and
on the best evidence obtainable regarding specific facts that could afford some basis for measuring
compensatory or actual damages.12 Article 2199 of the New Civil Code defines actual or
compensatory damages as follows:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred
to as actual or compensatory damages.
Unfortunately, De Guzman failed to adduce evidence to satisfactorily prove the amount of actual
damage incurred. Contrary to her assertion, the handwritten calculation of reconstruction costs
made by Engineer Santos and attached to his affidavit cannot be given any probative value because
he never took the witness stand to affirm the veracity of his allegations in his affidavit and be cross-
examined on them. In this regard, it is well to quote the ruling of the Court in the case of Tating v.
Marcella,13 to wit:
There is no issue on the admissibility of the subject sworn statement. However, the admissibility of
evidence should not be equated with weight of evidence. The admissibility of evidence depends on
its relevance and competence while the weight of evidence pertains to evidence already admitted
and its tendency to convince and persuade. Thus, a particular item of evidence may be admissible,
but its evidentiary weight depends on judicial evaluation within the guidelines provided by the rules
of evidence. It is settled that affidavits are classified as hearsay evidence since they are not
generally prepared by the affiant but by another who uses his own language in writing the affiant’s
statements, which may thus be either omitted or misunderstood by the one writing them. Moreover,
the adverse party is deprived of the opportunity to cross-examine the affiant. For this reason,
affidavits are generally rejected for being hearsay, unless the affiants themselves are placed on the
witness stand to testify thereon.
Neither is there any evidence presented to substantiate Engineer Santos’ computation of the
reconstruction costs. For such computation to be considered, there must be some other relevant
evidence to corroborate the same.14 Thus, the CA was correct in disregarding the affidavit of
Engineer Santos for being hearsay and in not giving probative weight to it. There being no tangible
document or concrete evidence to support the award of actual damages, the same cannot be
sustained.
Nevertheless, De Guzman is indeed entitled to temperate damages as provided under Article 2224
of the Civil Code for the loss she suffered. When pecuniary loss has been suffered but the amount
cannot, from the nature of the case, be proven with certainty, temperate damages may be
recovered. Temperate damages may be allowed in cases where from the nature of the case,
definite proof of pecuniary loss cannot be adduced, although the court is convinced that the
aggrieved party suffered some pecuniary loss.15 Undoubtedly, De Guzman suffered pecuniary loss
brought about by the collapse of the perimeter fence by reason of the Contractor’s negligence and
failure to comply with the specifications. As she failed to prove the exact amount of damage with
certainty as required by law, the CA was correct in awarding temperate damages, in lieu of actual
damages. However, after weighing carefully the attendant circumstances and taking into account
the cost of rebuilding the damaged portions of the perimeter fence, the amount of ₱ 100,000.00
awarded to De Guzman should be increased. This Court, in recognition of the pecuniary loss
suffered, finds the award of ₱ 150,000.00 by way of temperate damages as reasonable and just
under the premises.
As to the CIAC’s award of ₱ 100,000.00 as moral damages, this Court is one with the CA that De
Guzman is not entitled to such an award. The record is bereft of any proof that she actually suffered
moral damages as contemplated in Article 2217 of the Code, which provides:
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant’s wrongful act or omission.
Certainly, the award of moral damages must be anchored on a clear showing that she actually
experienced mental anguish, besmirched reputation, sleepless nights, wounded feelings, or similar
injury. There could not have been a better witness to this experience than De Guzman herself. 16 Her
testimony, however, did not provide specific details of the suffering she allegedly went through after
the fence collapsed while she was miles away in the United States. As the CA aptly observed, "the
testimony of the OWNER as to her worry for the safety of the children in the orphanage is
insufficient to establish entitlement thereto."17 Since an award of moral damages is predicated on a
categorical showing by the claimant that she actually experienced emotional and mental sufferings,
it must be disallowed absent any evidence thereon.18
Moreover, under the aforequoted provision, moral damages cannot be recovered as the perimeter
fence collapsed in the midst of the strong typhoon "Milenyo." It was not clearly established that the
destruction was the proximate result of the Contractor’s act of making deviation from the plan. As
correctly concluded by the CA, viz:
However, while it cannot be denied that the Contractor deviated from the plan, there was no clear
showing whether the same caused or contributed to the collapse/tilting of the subject perimeter
fence. No competent evidence was presented to establish such fact. As the CIAC itself
acknowledged, "(t)here is no way by which to accurately resolve this issue by the evidence
submitted by the parties." The statement of Edwin B. Ramos, Engineering Aide at the Office of the
Municipal Engineer of Silang, Cavite, who conducted an ocular inspection of the collapsed perimeter
fence, that the observed deviations from the plan "affected the strength of the fence and made it
weaker, such that its chance of withstanding the pressure of water from the other side thereof was
greatly diminished or affected" was merely an expression of opinion. As he himself admitted, he is
not qualified to render an expert opinion.19
Further, De Guzman was not able to show that her situation fell within any of the cases enumerated
in Article 221920 of the Civil Code upon which to base her demand for the award of moral damages.
Neither does the breach of contract committed by the Contractor, not being fraudulent or made in
bad faith, warrant the grant of moral damages under Article 2220 which provides that:
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith.
De Guzman cannot be awarded exemplary damages either, in the absence of any evidence
showing that the Contractor acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner as provided in Article 2232 of the Civil Code. The ruling in the case of Nakpil and Sons v.
Court of Appeals,21 relied upon by De Guzman, where it was emphasized that the wanton
negligence in effecting the plans, designs, specifications, and construction of a building is equivalent
to bad faith in the performance of the assigned task, finds no application in the case at bench. As
already pointed out, there is negligence on the part of Contractor, but it is neither wanton,
fraudulent, reckless, oppressive, nor malevolent.
The award of exemplary damages cannot be made merely on the allegation of De Guzman that the
Contractor’s deviations from the plans and specifications without her written consent was deplorable
and condemnable. The Court regards the deviations as excusable due to the unavailability of the
approved construction materials. Besides, these were made known to De Guzman’s project
manager who was present all the time during the construction. Indeed, no deliberate intent on the
part of the Contractor to defraud the orphanage’s benefactors was ever shown, much less proved.
As may be gleaned from his testimony:
xxx
2.2.0 : What can you say to the claim that the column rebars were reduced in size from 12mm to
10mm?
A : That is untrue.
2.2.1 : Why did you say that it was untrue?
A : Because the column rebars that we used is 12mm and not 10mm contrary to the claim of the
claimant. The column rebars that claimant and his engineers claimed to have been undersized
[were] those already subjected to stretching. Due to the lateral load on the perimeter fence coming
from the water that accumulated thereon, the strength of the column bars was subjected to such
kind of force beyond its capacity thereby resulting them to yield or "mapatid." As a result of such
stretching, the column rebars were deformed thereby causing it [to] change its width but the length
was extended. You can compare it to a candy like "tira-tira" which if you stretch it becomes longer
but its width is reduced. The other column rebars on the perimeter fence which [were] not subjected
to stretching will prove what I am stating.
2.2.2 : Also, in the said request for arbitration, it was claimed that the required hollow blocks (CHB)
was reduced also from #6 to #5, how would you explain this?
A : It is true but such deviation was known to them in view of the fact that there was no available
CHB #6 in Silang, Cavite and so to save on the travel cost in bringing materials from Manila to the
site, it was agreed that such CHB #5 shall be used instead.
2.2.3 : What was the effect of such deviation in using CHB #5 instead of CHB #6?
A : No effect, madam.
2.2.4 : Why did you state so, Mr. Witness?
A : Because the entire area of the land which is being secured by the perimeter fence was fully
covered with the fence which is made of CHB. This simply implies that even though we used a much
lesser size of CHB, but we increased the compressive strength of the mortar and filler used in the
premises. This has really no effect because we cover the entire place with fence.
2.2.5 : It was also claimed that the distance between columns was deviated from 3.0 m. to 4.0 m,
will you please explain this matter.
A : The computation of the distance between the columns of the perimeter fence as appearing on
the plan was 3.0 m inside to inside. However, the computation made by the engineer of the claimant
as alleged in their Request for Arbitration was 4.0 m. outside to outside which should be 3.6 m.
outside to outside as correct distance.
2.2.6 : It now appears from your statement that there was a deviation as between the 3.0 m. inside
to inside computation in the plan and the actual 3.6 m. outside to outside computation made by the
engineers of the claimant. My question Mr. Witness is, what would be the effect of such deviation on
the columns?
A : It is true that there was such a deviation on the distance of the column but it will have no effect
because still the factor of safety was well provided for. Even the existing law on building
construction supports this matter. I even sought Engineer Rommel Amante on the matter and his
report supports my allegation.
2.2.7 : Was such deviation approved by the claimant or the representatives of the claimant?
A : Yes because during all the time the construction of the perimeter fence was done, the project
manager of the claimant was present and observing the works. Further, they have executed a
Certificate of Final Acceptance of the project.22
xxx
As regards the award of attorney’s fees, the Court upholds De Guzman’s entitlement to reasonable
attorney’s fees, although it recognizes that it is a sound policy not to set a premium on the right to
litigate.23 It must be recalled that De Guzman’s repeated demands for the repair of the fence or the
payment of damages by way of compensation, were not heeded by the Contractor. The latter’s
unjust refusal to satisfy De Guzman’s valid, just and demandable claim constrained her to litigate
and incur expenses to protect her interest. Article 2208 of the Civil Code, thus, provides:
Art. 2208. In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
xxx
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;
xxx
Finally, the dismissal of the Contractor’s counterclaim is sustained for lack of merit.1avvphi1 In his
Comment24 and Memorandum,25 the Contractor pleaded that damages should have been awarded
to him. This deserves scant consideration. A perusal of the record reveals that the matter as regards
the return of what he had donated by reason of De Guzman’s ingratitude was not among the issues
raised in this petition. Thus, the same cannot be taken cognizance by the Court.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated February 24,
2009 and its Resolution dated May 26, 2009 are AFFIRMED with the MODIFICATION that the
award of ₱ 100,000.00 as temperate damages is increased to ₱ 150,000.00. The award shall earn
interest at the rate of 12% per annum reckoned from the finality of this judgment until fully paid.
SO ORDERED.
G.R. No. 133803 September 16, 2005
BIENVENIDO M. CASIÑO, JR., Petitioners,
vs.
THE COURT OF APPEALS and OCTAGON REALTY DEVELOPMENT
CORPORATION, Respondent.
DECISION
GARCIA, J.:
Via this petition for review on certiorari under Rule 45 of the 1997 Rules of Court, petitioner
Bienvenido M. Casiño, Jr. seeks the annulment and setting aside of the following issuances of the
Court of Appeals (CA) in C.A. - G.R. CV No. 47702, to wit:
1. Decision dated January 21, 1997, 1 affirming an earlier decision of the Regional Trial Court at
Pasig which upheld private respondent’s rescission of its contract with petitioner; and
2. Resolution dated May 20, 1998,2 denying petitioner’s motion for reconsideration.
On October 2, 1991 in the Regional Trial Court at Pasig City, respondent Octagon Realty
Development Corporation, a corporation duly organized and existing under Philippine laws, filed a
complaint for rescission of contract with damages against petitioner Bienvenido M. Casiño, Jr.,
owner and proprietor of the Casiño Wood Parquet and Sanding Services, relative to the parties’
agreement for the supply and installation by petitioner of narra wood parquet ordered by
respondent.
As recited by the Court of Appeals in the decision under review, the parties’ principal pleadings in
the Regional Trial Court disclose the following:
In its complaint, [respondent] alleges that on December 22, 1989, it entered into a contract with
[petitioner] for the supply and installation by the latter of narra wood parquet (kiln dried) to the
Manila Luxury Condominium Project, of which [respondent] is the developer, covering a total area of
60,973 sq. ft. for a total price of P1,158,487.00; that the contract stipulated that full delivery by
[petitioner] of labor and materials was in May 1990; that in accordance with the terms of payment in
the contract, [respondent] paid to [petitioner] the amount P463,394.50, representing 40% of the total
contract price; that after delivering only 26,727.02 sq. ft. of wood parquet materials, [petitioner]
incurred in delay in the delivery of the remainder of 34,245.98 sq. ft.; that [petitioner] misrepresented
to [respondent] that he is qualified to do the work contracted when in truth and in fact he was not
and, furthermore, he lacked the necessary funds to execute the work as he was totally dependent
on the funds advanced to him by [respondent]; that due to [petitioner’s] unlawful and malicious
refusal to comply with its obligations, [respondent] incurred actual damages in the amount of
P912,452.39 representing estimated loss on the new price, unliquidated damages and cost of
money; that in order to minimize losses, the [respondent] contracted the services of Hilvano Quality
Parquet and Sanding Services to complete the [petitioner’s] unfinished work, [respondent] thereby
agreeing to pay the latter P1,198,609.30.
The [respondent] in its complaint prays for rescission of contract, actual damages of P912,452.39,
reimbursement in the amount of P1,198,609.30, moral damages of P200,000.00, and attorney’s
fees of P50,000.00 plus a fee of P1,000.00 per appearance and other expenses of the suit.
In his answer to the complaint, the [petitioner] admits the execution of the December 22, 1989
contract with the [respondent], the terms thereof relating to total price and scope of work, as well as
the payment by the [respondent] of the 40% downpayment. He, however, avers that the manner of
payment, period of delivery and completion of work and/or full delivery of labor and materials were
modified; that the delivery and completion of the work could not be done upon the request and/or
representations by the [respondent] because he failed to make available and/or to prepare the area
in a suitable manner for the work contracted, preventing the [petitioner] from complying with the
delivery schedule under the contract; that [petitioner] delivered the required materials and performed
the work despite these constraints; that the [petitioner] delivered a total of 29,209.82 sq. ft. of wood
parquet; that the [respondent] failed to provide for a safe and secure area for the materials and work
in process or worked performed, thus exposing them to the elements and destroying the materials
and/or work; that the [respondent] failed to pay the [petitioner’s] second and third billings for
deliveries and work performed in the sum of P105,425.68, which amount the [petitioner] demanded
from the [respondent] with the warning of suspension of deliveries or rescission for contract for non-
payment; that the [petitioner] was fully qualified and had the experience of at least nine years to
perform the work; and that it was the [respondent], after failing to prepare the area suitable for the
delivery and installation of the wood parquet, [respondent] xxx who advised or issued orders to the
[petitioner] to suspend the delivery and installation of the wood parquet, which created a storage
problem for the [petitioner].
Set up by the [petitioner] as special and affirmative defenses, are that the filing of the case is
premature; that the [respondent] has no cause of action; that the obligation has been
waived/extinguished; that the [respondent’s] failure to accept deliveries compelled the [petitioner] to
store the materials in his warehouse/s and to use valuable space in his premises, which he could
have utilized for the storage of materials for other customers, and also prevented him from
accepting new orders from other customer causing him actual and potential losses of income; that
the [respondent’s] extrajudicial rescission of contract is void since there is no breach or violation
thereof by the [petitioner]; and that it was [respondent] which violated the terms/conditions of the
contract, entitling [petitioner] to have the same judicially rescinded.
The [petitioner] pleaded counterclaims of rescission of contract and payment by the [respondent] of
P597,392.90 with legal interest from the filing of the complaint until fully paid or, in the alternative
payment of the cost of the billings in the sum of P105,425.68 plus legal interest; actual and
compensatory damages of P600,000.00 and P30,000.00, respectively; moral damages of
P100,000.00, attorney’s fees of P40,000.00; and litigation expenses and costs of the suit. 3 (Words in
bracket ours).
In a decision dated June 2, 1994, the trial court, upon a finding that petitioner is the one who
breached the parties’ agreement, rendered judgment for respondent, to wit:
WHEREFORE, based on the foregoing, this Court finds and so holds that the rescission of contract
effected by [respondent] is valid, and [petitioner]t is thereby ordered to pay the[respondent] the
following:
1. ₱2,111,061.69 by way of actual and compensatory damages; and,
2. ₱50,000.00, as attorney’s fees.
No pronouncement as to cost.
SO ORDERED.4
Explains the trial court in its decision:
xxx [T]he contract clearly and categorically stipulates that full delivery by [petitioner] of labor and
materials was to be in May 1990. However, as of January 30, 1991, no deliveries have been made
by [petitioner] necessitating the sending by [respondent] of a demand letter xxx. Thereafter, while
[petitioner] started mobilization, the workers assigned were insufficient resulting in the very slow
progress of the works for which reason Engr. Alcain sent a letter to [petitioner] instructing [petitioner]
to make ‘full-blast delivery’ of the materials. This, incidentally, effectively negates [petitioner’s]
contention that [respondent] had requested for the suspension of deliveries.
xxx xxx xxx
Finally, it was established that out of the total 60,973 sq. ft. of wood parquet, [petitioner] was able to
deliver only 26,727.02 sq. ft.. In this connection [petitioner] denied this and insisted that he was
actually able to deliver 29,109.82 sq. ft. Whichever of the two figures is correct, the fact remains that
[petitioner] was unable to deliver the full quantity contracted by [respondent]. For purposes of the
record, however, this Court believes the figure given by [respondent], which is supported by
[petitioner’s] own statements of account where the total amount of deliveries jibes with
[respondent’s] alleged figure.
On the basis of the foregoing findings, this Court hereby finds that [respondent] has established its
right to rescind the contract dated December 22, 1989, on the strength of Art. 1191 of the Civil
Code.
In this case, [respondent], after [petitioner’s] breach of his contractual obligations, considered the
contract as rescinded and proceeded to contract with Hilvano Quality Parquet & Sanding Services,
in order to minimize losses in view of the delay in the completion schedule of its condominium
project.5 (Words in bracket ours).
On petitioner’s appeal to the Court of Appeals in CA-G.R. CV No. 47702, the appellate court, in the
herein assailed Decision6 dated January 21, 1997, affirmed that of the trial court but modified the
same by reducing the amount of damages awarded, thus:
WHEREFORE, the decision appealed from is AFFIRMED with the MODIFICATION that the
[petitioner] be made to pay the [respondent] as actual and compensatory damages, the amount of
P1,662,003.80, with interest thereon at the legal rate from the finality of this judgment until fully paid.
SO ORDERED.  (Words in bracket ours).
In time, petitioner and respondent filed their respective Motion for Reconsideration and Motion for
Partial Reconsideration. In its Resolution dated May 20, 1998, 7 the appellate court denied
petitioner’s motion for lack of merit but found that of respondent as well-grounded. Accordingly, and
noting that "the amount of P97,699.67 xxx had already been factored in, in the computation of the
amount of P912,452.39, under the decision of the court a quo", the Court of Appeals amended its
original Decision by affirming in toto  the decision of the trial court, as follows:
WHEREFORE, [petitioner’s] appeal is dismissed. The Decision appealed from is AFFIRMED IN
TOTO. With costs against the [petitioner]. SO ORDERED.  (Words in bracket ours).
Undaunted, petitioner is now with us via the present recourse on his submissions that:
A. THE SUBJECT DECISION DECLARING THE RESCISSION OF THE QUESTIONED
CONTRACT BY PRIVATE RESPONDENT AS VALID AND HOLDING THE PETITIONER LIABLE
FOR BREACH OF CONTRACT IS CONTRARY TO OR IN VIOLATION OF ART. 1191, NEW CIVIL
CODE;
B. THE AWARD TO PRIVATE RESPONDENT OF ACTUAL AND COMPENSATORY DAMAGES
OF P1,662,003.80 WITH LEGAL INTEREST WAS NOT LEGALLY JUSTIFIED, OR PROVEN WITH
REASONABLE DEGREE OF CERTAINTY; and
C. THE SAME WAS ISSUED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
OR IN EXCESS OF JURISDICTION, AND/OR CONTRARY TO THE FACTS, EVIDENCE,
JURISPRUDENCE AND LAW.8
The petition lacks merit.
It is undisputed that under their contract, petitioner and respondent had respective obligations, i.e.,
the former to supply and deliver the contracted volume of narra wood parquet materials and install
the same at respondent’s condominium project by May, 1990, and the latter, to pay for said
materials in accordance with the terms of payment set out under the parties’ agreement. But while
respondent was able to fulfill that which is incumbent upon it by making a downpayment
representing 40% of the agreed price upon the signing of the contract and even paid the first billing
of petitioner,9 the latter failed to comply with his contractual commitment. For, after delivering only
less than one-half of the contracted materials, petitioner failed, by the end of the agreed period, to
deliver and install the remainder despite demands for him to do so. Doubtless, it is petitioner who
breached the contract.
Petitioner asserts that while he was ready to comply with his obligation to deliver and install the
remaining wood parquet, yet respondent was not ready to accept deliveries due to the unsuitability
of the work premises for the installation of the materials. Petitioner’s contention flies in the light of
the following observations of the appellate court, to which we are in full accord:
xxx no sufficient proof was presented by the [petitioner] to substantiate his allegation. On the other
hand, the [respondent] was able to prove by substantial evidence that as of May, 1990, the time
when the [petitioner] was supposed to make complete delivery ‘there was already available in the
condominium building any space from the basement to the fourteenth floor’, and the [petitioner]
could have chosen from any of those. (Words in bracket ours).
Indeed, there can be denying of petitioner’s breach of his contractual obligation, more so when, as
here, the two courts below were one in holding so. This brings to mind the settled rule of
jurisprudence that factual findings of the Court of Appeals, particularly when affirmatory of those of
the trial court, are binding upon this Court.10 Unless the evidence on record clearly do not support
such findings or that the same were arrived at based on a patent misunderstanding of
facts,11 situations which do not obtain in this case, this Court is not at liberty to disturb what has
been found below and supplant them with its own.
This is, as it should be. For, in petitions for review on certiorari as a mode of appeal under Rule 45,
only questions of law12 may be raised. This Court is not the proper venue to consider factual issues
as it is not a trier of facts.13
With the reality that petitioner has failed to comply with his prestations under his contract with
respondent, the latter is vested by law with the right to rescind the parties’ agreement, conformably
with Article 1191 of the Civil Code, which partly reads:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission even after he has chosen
fulfillment, if the latter should become impossible.
xxx xxx xxx
Explicit it is from the foregoing that "in reciprocal obligations",  or those which arise from the same
cause, and in which each party is a debtor and a creditor of the other, in the sense that the
obligation of one is dependent upon the obligation of the other,14 the right to rescind is implied such
that "absent any provision providing for a right to rescind, the parties may nevertheless rescind the
contract should the other obligor fail to comply with its obligations". 15
It must be stressed, though, that the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for
a slight or casual breach, but only for such substantial and fundamental violations as would defeat
the very object of the parties in making the agreement.16
Here, contrary to petitioner’s asseveration, the breach he committed cannot, by any measure, be
considered as "slight or casual". For sure, petitioner’s failure to make complete delivery and
installation way beyond the time stipulated despite respondent’s demands, is doubtless a
substantial and fundamental breach, more so when viewed in the light of the large amount of money
respondent had to pay another contractor to complete petitioner’s unfinished work. Again, to quote
from the challenged decision of the appellate court:
The [petitioner] also asserts that the breach was merely casual that does not warrant a rescission.
While apparently, the [petitioner] agreed to complete delivery and installation of the narra wood
parquet to the [respondent’s] condominium project by May, 1990, yet on three occasions the
[respondent’s] counsel sent letters demanding compliance with the [petitioner’s] obligation. At that
time, only 26,727.02 sq. ft. of parquet out of a total of 60, 973 sq. ft., or less than one half of the
contracted volume, had been delivered. Hence, the [respondent] was finally forced to contract the
services of another company and had to pay the sum of P1,198,609.30 for the completion of the
unfinished work. The large cost of completion of the [petitioner’s] unfinished work can only evidence
the gravity of the [petitioner’s] failure to comply with the terms of the contract.17 (Words in bracket
ours).
Likewise, contrary to petitioner’s claim, it cannot be said that he had no inkling whatsoever of
respondent’s recourse to rescission. True, "the act of a party in treating a contract as cancelled or
resolved on account of infractions by the other party must be made known to the other". 18 In this
case, however, petitioner cannot feign ignorance of respondent’s intention to rescind, fully aware, as
he was, of his non-compliance with what was incumbent upon him, not to mention the several
letters19 respondent sent to him demanding compliance with his obligation.
In fine, we thus rule and so hold that respondent acted well within its rights in unilaterally terminating
its contract with petitioner and in entering into a new one with a third person in order to minimize its
losses, without prior need of resorting to judicial action. As we once said in University of the
Philippines v. De los Angeles, 20 involving the question of whether the injured party may consider the
contract as rescinded even before any judicial pronouncement has been made to that effect:
xxx the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final
judgment of the corresponding court that will conclusively and finally settle whether the action taken
was or was not correct in law. But the law definitely does not require that the contracting party who
believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the other’s breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of rescission
is rendered when the law itself requires that he should exercise due diligence to minimize its own
damages xxx.
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by
respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation;
(Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan
de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only
the final award of the court of competent jurisdiction can conclusively settle whether the resolution
was proper or not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack
thereon should become barred by acquiescence, estoppel or prescription.
This brings us to the propriety of the award for actual or compensatory damages, attorney's fees
and litigation expenses.
Under Articles 2199 and 2200 of the Civil Code, 21 actual or compensatory damages are those
awarded in satisfaction of or in recompense for loss or injury sustained. They proceed from a sense
of natural justice and are designed to repair the wrong that has been done.
Citing Producers Bank of the Philippines vs. CA, 22 this Court, in the subsequent case of Terminal
Facilities and Services Corporation vs Philippine Ports Authority 23  ruled:
There are two kinds of actual or compensatory damages: one is the loss of what a person already
possesses, and the other is the failure to receive as a benefit that which would have pertained to
him x x x. In the latter instance, the familiar rule is that damages consisting of unrealized profits,
frequently referred as ‘ganacias frustradas’ or ‘lucrum cessans,’ are not to be granted on the basis
of mere speculation, conjecture, or surmise, but rather by reference to some reasonably definite
standard such as market value, established experience, or direct inference from known
circumstances.
Absolute certainty, however, is not necessary to establish the amount of "ganacias
frustradas" or "lucrum cessans". As we have said in Producers Bank of the Philippines, supra:
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 for this
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.
Gauged by the aforequoted test, the evidence adduced by respondent is sufficient enough to
substantiate its claim for actual or compensatory damages in the amount of P 2,111,061. 69. As
found by the trial court and affirmed by the Court of Appeals:
Clearly, [respondent] must be indemnified for the following damages it sustained by reason of
[petitioner’s] breach of contract. Finding [respondent’s] claim justified, this court awards the
following: P912, 452.39, representing [respondent’s] estimated losses on new price, unliquidated
damages and cost of money, as substantiated by Exibit ‘Q’; and P 1,198,609.30, representing the
cost incurred by [respondent] in engaging the services of Hilvano Quality Parquet and Sanding
Services for the completion of the work unfinished by [petitioner] (Exibit ‘C-4’, par. 24) xxx. 24 (Words
in bracket ours).
Finally, on the matter of attorney’s fees, respondent’s entitlement thereto is beyond cavil, what with
the fact that respondent was compelled to litigate and incurred expenses relative thereto by reason
of petitioner’s breach of his contractual obligations.
WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the
appellate court AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 123498               November 23, 2007
BPI FAMILY BANK, Petitioner,
vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.
DECISION
NACHURA, J.:
Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity.
We reiterate this exhortation in the case at bench.
Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA)
Decision1 in CA-G.R. CV No. 43424 which affirmed with modification the judgment 2 of the Regional
Trial Court, Branch 55, Manila (Manila RTC), in Civil Case No. 90-53295.
This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-
FB) allegedly by respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of
whom opened and maintained separate accounts with BPI-FB, San Francisco del Monte (SFDM)
branch, in a series of transactions.
On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and
current account with BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment
Corporation (FMIC) also opened a time deposit account with the same branch of BPI-FB with a
deposit of ₱100,000,000.00, to mature one year thence.
Subsequently, on August 31, 1989, Franco opened three accounts, namely, a
current,4 savings,5 and time deposit,6 with BPI-FB. The current and savings accounts were
respectively funded with an initial deposit of ₱500,000.00 each, while the time deposit account had
₱1,000,000.00 with a maturity date of August 31, 1990. The total amount of ₱2,000,000.00 used to
open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of
Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevesteco’s
business transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn,
the funding for the ₱2,000,000.00 check was part of the ₱80,000,000.00 debited by BPI-FB from
FMIC’s time deposit account and credited to Tevesteco’s current account pursuant to an Authority to
Debit purportedly signed by FMIC’s officers.
It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were
forged.8 On September 4, 1989, Antonio Ong,9 upon being shown the Authority to Debit, personally
declared his signature therein to be a forgery. Unfortunately, Tevesteco had already effected
several withdrawals from its current account (to which had been credited the ₱80,000,000.00
covered by the forged Authority to Debit) amounting to ₱37,455,410.54, including the ₱2,000,000.00
paid to Franco.
On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim,
BPI-FB, thru its Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit
Franco’s savings and current accounts for the amounts remaining therein.11 However, Franco’s time
deposit account could not be debited due to the capacity limitations of BPI-FB’s computer.12
In the meantime, two checks13 drawn by Franco against his BPI-FB current account were
dishonored upon presentment for payment, and stamped with a notation "account under
garnishment." Apparently, Franco’s current account was garnished by virtue of an Order of
Attachment issued by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996
(Makati Case), which had been filed by BPI-FB against Franco et al., 14 to recover the
₱37,455,410.54 representing Tevesteco’s total withdrawals from its account.
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior
to Franco’s receipt of notice that his accounts were under garnishment. 15 In fact, at the time the
Notice of Garnishment dated September 27, 1989 was served on BPI-FB, Franco had yet to be
impleaded in the Makati case where the writ of attachment was issued.
It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in
Civil Case No. 89-4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt
of such copy, Franco filed a Motion to Discharge Attachment which the Makati RTC granted on May
16, 1990. The Order Lifting the Order of Attachment was served on BPI-FB on even date, with
Franco demanding the release to him of the funds in his savings and current accounts. Jesus
Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand as the funds, as
previously stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s
computer at the SFDM Branch indicated that the current account record was "not on file."
With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a
favor to Sebastian, whereby ₱400,000.00 from his savings account was temporarily transferred to
Domingo Quiaoit’s savings account, subject to its immediate return upon issuance of a certificate of
deposit which Quiaoit needed in connection with his visa application at the Taiwan Embassy. As
part of the arrangement, Sebastian retained custody of Quiaoit’s savings account passbook to
ensure that no withdrawal would be effected therefrom, and to preserve Franco’s deposits.
On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of
₱63,189.00 from the remaining balance of the time deposit account representing advance interest
paid to him.
These transactions spawned a number of cases, some of which we had already resolved.
FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited
from its account.17 The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v.
First Metro Investment Corporation,18 we upheld the finding of the courts below that BPI-FB failed to
exercise the degree of diligence required by the nature of its obligation to treat the accounts of its
depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for the debited amount in
its time deposit. It was ordered to pay ₱65,332,321.99 plus interest at 17% per annum from August
29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989
until fully paid.
In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et
al.),19 recipients of a ₱500,000.00 check proceeding from the ₱80,000,000.00 mistakenly credited to
Tevesteco, likewise filed suit. Buenaventura et al., as in the case of Franco, were also prevented
from effecting withdrawals20 from their current account with BPI-FB, Bonifacio Market, Edsa,
Caloocan City Branch. Likewise, when the case was elevated to this Court docketed as BPI Family
Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura, et al.’s accounts
and adjudged BPI-FB liable therefor, in addition to damages.
Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the
perpetrators of the multi-million peso scam.22 In the criminal case, Franco, along with the other
accused, except for Manuel Bienvenida who was still at large, were acquitted of the crime of Estafa
as defined and penalized under Article 351, par. 2(a) of the Revised Penal Code. 23 However, the
civil case24 remains under litigation and the respective rights and liabilities of the parties have yet to
be adjudicated.
Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and
release his deposits therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In
his complaint, Franco prayed for the following reliefs: (1) the interest on the remaining balance 25 of
his current account which was eventually released to him on October 31, 1991; (2) the balance 26 on
his savings account, plus interest thereon; (3) the advance interest27 paid to him which had been
deducted when he pre-terminated his time deposit account; and (4) the payment of actual, moral
and exemplary damages, as well as attorney’s fees.
BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and
refusing to release his deposits, claiming that it had a better right to the amounts which consisted of
part of the money allegedly fraudulently withdrawn from it by Tevesteco and ending up in Franco’s
accounts. BPI-FB asseverated that the claimed consideration of ₱2,000,000.00 for the introduction
facilitated by Franco between George Daantos and Eladio Teves, on the one hand, and Jaime
Sebastian, on the other, spoke volumes of Franco’s participation in the fraudulent transaction.
On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as
follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and
against [BPI-FB], ordering the latter to pay to the former the following sums:
1. ₱76,500.00 representing the legal rate of interest on the amount of ₱450,000.00 from May 18,
1990 to October 31, 1991;
2. ₱498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990,
together with the interest thereon in accordance with the bank’s guidelines on the payment therefor;
3. ₱30,000.00 by way of attorney’s fees; and
4. ₱10,000.00 as nominal damages.
The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.
Costs against [BPI-FB].
SO ORDERED.28
Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco
confined his appeal to the Manila RTC’s denial of his claim for moral and exemplary damages, and
the diminutive award of attorney’s fees. In affirming with modification the lower court’s decision, the
appellate court decreed, to wit:
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification
ordering [BPI-FB] to pay [Franco] ₱63,189.00 representing the interest deducted from the time
deposit of plaintiff-appellant. ₱200,000.00 as moral damages and ₱100,000.00 as exemplary
damages, deleting the award of nominal damages (in view of the award of moral and exemplary
damages) and increasing the award of attorney’s fees from ₱30,000.00 to ₱75,000.00.
Cost against [BPI-FB].
SO ORDERED.29
In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to
the deposits in the subject accounts which are part of the proceeds of a forged Authority to Debit;
(2) Franco is entitled to interest on his current account; (3) Franco can recover the ₱400,000.00
deposit in Quiaoit’s savings account; (4) the dishonor of Franco’s checks was not legally in order;
(5) BPI-FB is liable for interest on Franco’s time deposit, and for moral and exemplary damages;
and (6) BPI-FB’s counter-claim has no factual and legal anchor.
The petition is partly meritorious.
We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally
freeze Franco’s accounts and preclude him from withdrawing his deposits. However, contrary to the
appellate court’s ruling, we hold that Franco is not entitled to unearned interest on the time deposit
as well as to moral and exemplary damages.
First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us
that the legal consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to
Tevesteco is its own, and considering that it was able to recover possession of the same when the
money was redeposited by Franco, it had the right to set up its ownership thereon and freeze
Franco’s accounts.
BPI-FB contends that its position is not unlike that of an owner of personal property who regains
possession after it is stolen, and to illustrate this point, BPI-FB gives the following example: where
X’s television set is stolen by Y who thereafter sells it to Z, and where Z unwittingly entrusts
possession of the TV set to X, the latter would have the right to keep possession of the property and
preclude Z from recovering possession thereof. To bolster its position, BPI-FB cites Article 559 of
the Civil Code, which provides:
Article 559. The possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover
it from the person in possession of the same.
If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid
therefor.
BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the
Civil Code pertains to a specific or determinate thing.30 A determinate or specific thing is one that is
individualized and can be identified or distinguished from others of the same kind.31
In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a
movable, is generic and fungible.32 The quality of being fungible depends upon the possibility of the
property, because of its nature or the will of the parties, being substituted by others of the same
kind, not having a distinct individuality.33
Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a
movable to recover the exact same thing from the current possessor, BPI-FB simply claims
ownership of the equivalent amount of money, i.e., the value thereof, which it had mistakenly
debited from FMIC’s account and credited to Tevesteco’s, and subsequently traced to Franco’s
account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et al. It staked its
claim on the money itself which passed from one account to another, commencing with the forged
Authority to Debit.
It bears emphasizing that money bears no earmarks of peculiar ownership, 34 and this characteristic
is all the more manifest in the instant case which involves money in a banking transaction gone
awry. Its primary function is to pass from hand to hand as a medium of exchange, without other
evidence of its title.35 Money, which had passed through various transactions in the general course
of banking business, even if of traceable origin, is no exception.
Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s
illustrative example, ostensibly based on Article 559, is inapplicable to the instant case.
There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a
legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB
conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on
simple loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor,
BPI-FB ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a
corresponding obligation to pay him an equal amount on demand. 37 Although BPI-FB owns the
deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s
obligation by drawing checks against his current account, or asking for the release of the funds in
his savings account. Thus, when Franco issued checks drawn against his current account, he had
every right as creditor to expect that those checks would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on
its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action
it pleases on deposits which it supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.
Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to
resonate, thus:
The banking system is an indispensable institution in the modern world and plays a vital role in the
economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an
ubiquitous presence among the people, who have come to regard them with respect and even
gratitude and, most of all, confidence. Thus, even the humble wage-earner has not hesitated to
entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a
modest checking account for security and convenience in the settling of his monthly bills and the
payment of ordinary expenses. x x x.
In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This has to be
done if the account is to reflect at any given time the amount of money the depositor can dispose of
as he sees fit, confident that the bank will deliver it as and to whomever directs. A blunder on the
part of the bank, such as the dishonor of the check without good reason, can cause the depositor
not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.
The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care,
always having in mind the fiduciary nature of their relationship. x x x.
Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures
of its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their
respective accounts without the appropriate court writ or a favorable final judgment.
Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature
in the Authority to Debit, effected the transfer of ₱80,000,000.00 from FMIC’s to Tevesteco’s
account, when FMIC’s account was a time deposit and it had already paid advance interest to
FMIC. Considering that there is as yet no indubitable evidence establishing Franco’s participation in
the forgery, he remains an innocent party. As between him and BPI-FB, the latter, which made
possible the present predicament, must bear the resulting loss or inconvenience.
Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its
non-compliance with the Makati RTC’s Order Lifting the Order of Attachment and the legal
consequences thereof, is a matter that ought to be taken up in that court.
The argument is tenuous. We agree with the succinct holding of the appellate court in this respect.
The Manila RTC’s order to pay interests on Franco’s current account arose from BPI-FB’s
unjustified refusal to comply with its obligation to pay Franco pursuant to their contract of mutuum.
In other words, from the time BPI-FB refused Franco’s demand for the release of the deposits in his
current account, specifically, from May 17, 1990, interest at the rate of 12% began to accrue
thereon.39
Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of
BPI-FB’s non-compliance with the Order Lifting the Order of Attachment. However, such authority
does not preclude the Manila RTC from ruling on BPI-FB’s liability to Franco for payment of interest
based on its continued and unjustified refusal to perform a contractual obligation upon demand.
After all, this was the core issue raised by Franco in his complaint before the Manila RTC.
Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart
from the factual findings of both the Manila RTC and the CA.
Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually
owned by Franco who simply accommodated Jaime Sebastian’s request to temporarily transfer
₱400,000.00 from Franco’s savings account to Quiaoit’s account.40 His testimony cannot be
characterized as hearsay as the records reveal that he had personal knowledge of the arrangement
made between Franco, Sebastian and himself.41
BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists
that the transaction with Quiaoit was not specifically alleged in Franco’s complaint before the Manila
RTC. However, it appears that BPI-FB had impliedly consented to the trial of this issue given its
extensive cross-examination of Quiaoit.
Section 5, Rule 10 of the Rules of Court provides:
Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not
raised by the pleadings are tried with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it
is now within the issues made by the pleadings, the court may allow the pleadings to be amended
and shall do so with liberality if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant a continuance to enable the
amendment to be made. (Emphasis supplied)
In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the ₱400,000.00
begs the issue. To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership
of the funds in his account, and pointed to Franco as the actual owner thereof. Clearly, Franco’s
action for the recovery of his deposits appropriately covers the deposits in Quiaoit’s account.
Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s
checks respectively dated September 11 and 18, 1989 was legally in order in view of the Makati
RTC’s supplemental writ of attachment issued on September 14, 1989. It posits that as the party
that applied for the writ of attachment before the Makati RTC, it need not be served with the Notice
of Garnishment before it could place Franco’s accounts under garnishment.
The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to
circumvent Section 4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement
on service of court papers upon the parties affected is designed to comply with the elementary
requisites of due process. Franco was entitled, as a matter of right, to notice, if the requirements of
due process are to be observed. Yet, he received a copy of the Notice of Garnishment only on
September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB on
September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Franco’s accounts
without even awaiting service of the Makati RTC’s Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made
without including in the main suit the owner of the property attached by virtue thereof. Section 5,
Rule 13 of the Rules of Court specifically provides that "no levy or attachment pursuant to the writ
issued x x x shall be enforced unless it is preceded, or contemporaneously accompanied, by service
of summons, together with a copy of the complaint, the application for attachment, on the defendant
within the Philippines."
Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to
acquire jurisdiction over the person of Franco when BPI-FB garnished his accounts.43 Effectively,
therefore, the Makati RTC had no authority yet to bind the deposits of Franco through the writ of
attachment, and consequently, there was no legal basis for BPI-FB to dishonor the checks issued
by Franco.
Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest
it deducted from Franco’s time deposit account, and for moral as well as exemplary damages, we
find it proper to reinstate the ruling of the trial court, and allow only the recovery of nominal damages
in the amount of ₱10,000.00. However, we retain the CA’s award of ₱75,000.00 as attorney’s fees.
In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary
damages, the CA attributed bad faith to BPI-FB because it (1) completely disregarded its obligation
to Franco; (2) misleadingly claimed that Franco’s deposits were under garnishment; (3)
misrepresented that Franco’s current account was not on file; and (4) refused to return the
₱400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned to
Franco.
In this regard, we are guided by Article 2201 of the Civil Code which provides:
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonable foreseen at the time the
obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation. (Emphasis
supplied.)
We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of
malevolence or ill will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and
should not be held liable for all damages now being imputed to it for its breach of obligation. For the
same reason, it is not liable for the unearned interest on the time deposit.
Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious doing of wrong; it partakes of the nature of fraud. 44 We have
held that it is a breach of a known duty through some motive of interest or ill will.45 In the instant
case, we cannot attribute to BPI-FB fraud or even a motive of self-enrichment. As the trial court
found, there was no denial whatsoever by BPI-FB of the existence of the accounts. The computer-
generated document which indicated that the current account was "not on file" resulted from the
prior debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or
even the outright refusal to honor any transaction thereon was resorted to solely for the purpose of
holding on to the funds as a security for its intended court action, 46 and with no other goal but to
ensure the integrity of the accounts.
We have had occasion to hold that in the absence of fraud or bad faith, 47 moral damages cannot be
awarded; and that the adverse result of an action does not per se make the action wrongful, or the
party liable for it. One may err, but error alone is not a ground for granting such damages.48
An award of moral damages contemplates the existence of the following requisites: (1) there must
be an injury clearly sustained by the claimant, whether physical, mental or psychological; (2) there
must be a culpable act or omission factually established; (3) the wrongful act or omission of the
defendant is the proximate cause of the injury sustained by the claimant; and (4) the award for
damages is predicated on any of the cases stated in Article 2219 of the Civil Code.49
Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil
Code,50 upon which to base his claim for moral damages.1âwphi1
Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article
2220 of the Civil Code for breach of contract.51
We also deny the claim for exemplary damages. Franco should show that he is entitled to moral,
temperate, or compensatory damages before the court may even consider the question of whether
exemplary damages should be awarded to him.52 As there is no basis for the award of moral
damages, neither can exemplary damages be granted.
While it is a sound policy not to set a premium on the right to litigate, 53 we, however, find that Franco
is entitled to reasonable attorney’s fees for having been compelled to go to court in order to assert
his right. Thus, we affirm the CA’s grant of ₱75,000.00 as attorney’s fees.
Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect
his interest,54 or when the court deems it just and equitable.55 In the case at bench, BPI-FB refused
to unfreeze the deposits of Franco despite the Makati RTC’s Order Lifting the Order of Attachment
and Quiaoit’s unwavering assertion that the ₱400,000.00 was part of Franco’s savings account. This
refusal constrained Franco to incur expenses and litigate for almost two (2) decades in order to
protect his interests and recover his deposits. Therefore, this Court deems it just and equitable to
grant Franco ₱75,000.00 as attorney’s fees. The award is reasonable in view of the complexity of
the issues and the time it has taken for this case to be resolved.56
Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as
affirmed by the CA, that BPI-FB is not entitled to recover ₱3,800,000.00 as actual damages. BPI-
FB’s alleged loss of profit as a result of Franco’s suit is, as already pointed out, of its own making.
Accordingly, the denial of its counter-claim is in order.
WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated
November 29, 1995 is AFFIRMED with the MODIFICATION that the award of unearned interest on
the time deposit and of moral and exemplary damages is DELETED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. L-13851             July 27, 1960
DEOGRACIAS F. MALONZO, petitioner,
vs.
GREGORIA T. GALANG and FRANCISCO GALANG, respondents.
Felixberto V. Castillo for petitioner.
F.M. Ejercito for respondents.
REYES, J.B.L., J.:
On October 5, 1946, Gregoria T. Galang, wife of Francisco G. Galang, received from Deogracias T.
Malonzo a loan of P5,000.00 under a check which Gregoria cashed at the drawee bank National
City bank of New York, Manila.
Subsequently, on April 17, 1947, the Rehabilitation Finance Corporation loaned to Francisco G.
Galang a check in the sum of P14,968.00 drawn against the Philippine National Bank, Galang
endorsed the check to Deogracias F. Malonzo, who cashed it on April 25, 1947. Out of the proceeds
of the check, P10,000.00 was applied to the payment of the share and participation of Francisco
Galang in a fishing venture with Malonzo. The balance of P4,968.00, together with P32.00 delivered
in cash to Malonzo, paid off, according to Galang, the loan of P5,000.00 extended by the former to
Galang's wife on October 5, 1946. However, Malonzo alleged that he returned said amount of
P4,968.00 to Galang, partly in cash (P1,000.00) and partly in check for P3,968.00 dated May 19,
1947, made payable to Gregoria T. Galang and drawn against the Philippine Trust Co.
Claiming that the P5,000.00 loan obtained from him by Gregoria T. Galang on October 5, 1946, had
remained unpaid, Malonzo sued the Galang spouses on August 27, 1955 for the payment thereof,
plus interests and attorney's fees (C.C. No. 27303, CFI of Manila).
The trial court refused to believe Malonzo's version that the loan in question had not yet been paid;
held that the same had already been liquidated as claimed by the defendant spouses; and found the
check for P3,968.00 delivered by Malonzo to Gregoria T. Galang on May 19, 1947 had nothing to do
with said loan and was in payment of another loan which she extended to Malonzo just a few days
before the check was issued. The lower court also found that the complaint was clearly unfounded,
dismissed the same, and sentenced Malonzo to pay the Galang spouses under their counterclaim
P500.00 compensatory and moral damages, and P1,000.00 attorney's fees..
On appeal to the Court of Appeals by Malonzo, the judgment of the court a quo was affirmed in toto.
From this decision, Malonzo appealed to this Court, urging that there was no legal basis for the
award to respondents of compensatory and moral damages, and of attorney's fees.
As to attorney's fees, the award is correct and proper, in view of the finding of the trial court and of
the Court of Appeals that petitioner's action against respondents is clearly unfounded, since Article
2208, par. (4), of the New Civil Code authorizes the recovery of attorney's fees "in case of a clearly
unfounded civil action or proceeding against the plaintiff". This provision applies equally in favor of a
defendant under a counterclaim for attorney's fees (as in this case), considering that a counterclaim
is a complaint by the defendant against the original plaintiff (Pongos vs. Hidalgo Enterprises, Inc., et
al., 84 Phil., 499; 47 Off. Gaz., [2] 733), wherein the defendant is the plaintiff and the original plaintiff
the defendant.
In regard to other items of compensatory damages supposedly suffered by respondents (i.e., in
addition to attorney's fees and costs that are also included in the concept of actual or compensatory
damages): assuming that they are recoverable in this case under the theory that petitioner's having
filed a clearly unfounded suit against respondents 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
omission complained of" (Art. 2202, New Code), these damages can not, however, be presumed,
but must be duly proved (Art. 2199). Neither the trial court nor the Court of Appeals has pointed out
any specific facts which afford a basis for measuring whatever compensatory or actual damages
over and above attorney's fees and costs that respondents had suffered. Upon the other hand, the
award of compensatory damages to respondents was merged by the trial court in a round sum
(P500.00) that also included moral damages, showing that this amount was not what respondents
had proved to have suffered, but simply what the court believed to be reasonably due to them for
having been made to defend what the two courts found to be a clearly unfounded suit. For this
reason, we do not think the award of compensatory damages to respondents should be allowed.
Finally, with respect to moral damages, we are inclined to agree with petitioner that these damages
are not recoverable herein, notwithstanding the finding of the trial court and the Court of Appeals
that his complaint against respondents was clearly unfounded or unreasonable. It will be observed
that unlike compensatory or actual damages which are generally recoverable in tort cases as long
as there is satisfactory proof thereof (Art. 2202), the Code has chosen to enumerate the cases in
which moral damages may be recovered (Art. 2219). A like enumeration is made in regard (Art.
2208). But the two enumerations differ in the case of a clearly unfounded suit, which is expressly
mentioned in Art. 2208 (par. 4), as justifying for award of attorney's fees, but is not included in the
enumeration of Art. 2219 in respect to moral damages. It is true that Art. 2219 also provides that
moral damages may be awarded in "analogous cases" to those enumerated, but we do not think the
Code intended "a clearly unfounded civil action or proceedings" to be one of these analogous cases
wherein moral damages may be recovered, or it would have expressly mentioned it in Art. 2219, as
it did in Art. 2208; or else incorporated in Art. 2208 by reference in Art. 2219. Besides, Art. 2219
specifically mentions "quasi-delicts causing physical injuries", as an instance when moral damages
may be allowed, thereby implying that all other quasi-delicts not resulting in physical injuries are
excluded (Strebel vs. Figueras, 96 Phil., 321), excepting, of course, the special torts referred to in
Art. 309 (par. 9, Art. 2219) and in Arts. 21, 26, 27, 28, 29, 30, 32, 34 and 35 on the chapter on
human relations (par. 10, Art. 2219).
Furthermore, while no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court (Art. 2216), it is,
nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the
damage (Art. 2217) and its causal relation to defendant's acts. This is so because moral damages,
though incapable of pecuniary estimation, are in the category of an award designed to compensate
the claimant for actual injury suffered and not to impose a penalty on the wrongdoer (Algara vs.
Sandejas, 27 Phil., 284). The trial court and the Court of Appeals both seem to be of the opinion that
the mere fact that respondent were sued without any legal foundation entitled them to an award of
moral damages, hence they made no definite finding as to what the supposed moral damages
suffered consist of. Such a conclusion would make of moral damages a penalty, which they are not,
rather than a compensation for actual injury suffered, which they are intended to be. Moral
damages, in other words, are not corrective or exemplary damages.
The foregoing discussion makes it unnecessary to further dwell on the other points raised by the
appeal.
Wherefore, the decision appealed from is modified in the sense that the award of compensatory and
moral damages to respondents is eliminated, but is affirmed in all other respects. No costs.
G.R. No. L-25913             February 29, 1969
HEIRS OF RAYMUNDO CASTRO, petitioners,
vs.
APOLONIO BUSTOS, respondent.
Sotto, Consengco and Dizon for petitioners.
Sipin, Abarcar and Baluyot for respondent.
BARREDO, J.:
Appeal from the Court of Appeals.
Respondent Apolonio Bustos was charged in the Court of First Instance of Pampanga on October
26, 1962 with the crime of murder for the killing of Raymundo Castro whose heirs are now the
petitioners. The trial court found Bustos guilty only of homicide and, crediting him with two mitigating
circumstances, namely, passion or obfuscation and voluntary surrender, sentenced him to an
indeterminate prison term of 2 years, 4 months and 1 day of prision correccional, as minimum, to 8
years and 1 day of prision mayor, as maximum, and to indemnify the petitioners, who were
represented in the case by a private prosecutor, in the sum of six thousand pesos (P6,000) "without
prejudice to whatever the accused (respondent) is entitled from the Government Service Insurance
System (GSIS) for his services of around twenty-six (26) years as a public school teacher, prior to
October 20, 1962." Both respondent and petitioners appealed to the Court of Appeals, respondent
asking that appellate, court acquit him and petitioners praying, on the other hand, that respondent
be convicted of murder, that the portion regarding what said respondent will receive from the GSIS
be deleted and that he be ordered to pay petitioners "the aggregate sum of P50,764.00 as indemnity
and actual, moral, temperate and exemplary damages." For the purposes of their appeal, petitioners
even filed unnecessarily a printed record on appeal. On October 18, 1965, the Court of Appeals
rendered judgment modifying that of the trial court insofar as it concerned (1) the amount of
damages to be awarded petitioners thus:
... Aside from the P6,000 indemnity awarded by the trial court, which we uphold, we feel justified, in
the exercise of our discretion, to award to the heirs of the deceased moral damages in the amount
of P6,000 plus P13,380.00 to compensate for the loss of earning of the decedent at the annual
salary of P2,676.00 ....
and (2) the mitigating circumstance of "obfuscation", appreciated as such by the trial court, which
was changed to "vindication of a grave offense", but affirming it in all other respects. Upon motion,
however, of respondent for the reconsideration of said decision, reiterating his plea for acquittal, or,
in the alternative, praying for the elimination of the award of moral and compensatory damages, the
Court of Appeals promulgated on November 13, 1965, an amended decision, the pertinent portions
of which are:
The arguments interposed by the appellant in his Motion for consideration to support the complete
reversal of the judgment appealed from, have been considered and passed upon in our decision,
and we see no reason to alter the same in so far as the appellant's guilt of the crime is concerned.
On the other hand, we agree with the appellant that in the interest of justice and equity and in view
of the presence of two mitigating circumstances, without any aggravating one to offset them, the
award of moral and compensatory damages should be eliminated.
WHEREFORE, the decision promulgated October 18, 1965, is hereby amended by eliminating
therefrom the award of P6,000.00 representing moral damages, and of P13,380.00 representing the
decedent's loss of earnings.
From this amended decision, only petitioners have appealed to Us. The prayer in their petition for
certiorari asks for nothing more than that the amended decision of the Court of Appeals be revoked
and reversed, and its original decision be affirmed in toto  insofar as the award of indemnity and
damages is concerned. Since We find the grounds of the appeal meritorious, We grant fully the
prayer in the petition.
This case affords this Court as appropriate an opportunity, as any other, to restate, in a more
comprehensive way, the law regarding the items of damages that are recoverable in cases of death
caused by a crime, whether the claim therefor is made in the criminal proceedings itself or in a
separate civil action. In the instant case, recovery of such damages is being sought in the criminal
proceedings but even if it were claimed otherwise, the indemnity and damages would be the same,
for generally, the items of damages are identical in both procedures, except with respect to
attorney's fees and expenses of litigation which can be awarded only when a separate civil action is
instituted. (Art. 2208, Civil Code) With the clarifications We are making herein, at least the writer of
this opinion expects that litigations regarding the aspects of the law herein passed upon may be
minimized.
As a start, it is to be noted that in the matter of damages, the original decision of the Court of
Appeals, while correct in making a particularization in the award of indemnity and damages,
nonetheless, still failed to comply strictly with the constitutional requirement that all decisions of
courts of record must state both the  facts  and the law on which they are based. (Sec. 12, Art. VIII,
Constitution) In said original decision, the Court of Appeals held:
Coming now to the damages asked by the heirs of the deceased: Aside from the P6,000.00
indemnity awarded by the trial court which we uphold, we feel justified, in the exercise of our
discretion, to award to the heirs of the deceased moral damages in the amount of P6,000 plus
P13,380.00 to compensate for the loss of earning of the decedent at the annual salary of P2,676.00
(Exh. V; p. 42 t.s.n. Vergara).
WHEREFORE, the appealed judgment is modified as above indicated in so far as it concerns the
amount of indemnity and damages to be awarded to the heirs of the deceased, and the mitigating
circumstance of vindication of a grave offense which takes the place of the circumstance of
obfuscation appreciated by the trial court; and affirmed in all other respects. Costs against the
appellant.
As can be seen, no legal or factual basis is stated therein for the award of indemnity and damages
to petitioners; worse, the impression is given that the said award is purely a matter of discretion on
the part of the court. Clearly, this is not in accordance with the law. Indeed, it must have been this
failure to refer to the pertinent legal provisions which induced the appellate court, at the mere
invocation by respondent of Art. 2204 of the Civil Code, to commit the error of readily eliminating in
the amended decision the items on moral damages and compensation for loss of earning of the
decedent which its original decision had correctly contained. Having held that it had discretion in the
premises, the court easily yielded to the argument that simply because it had credited the
respondent with two mitigating circumstances, it was already justified in eliminating the items of
damages already adverted to, presumably having in mind said Art. 2204 which provides that:
In crimes, the damages to be adjudicated may be respectively increased or lessened according to
the aggravating or mitigating circumstances.
Of course, this was clear error, inasmuch as construed literally or otherwise, the quoted provision
does not warrant a complete deletion of said items of damages. In any event the court evidently
failed to take into account that several other provisions can come into play considering the
circumstances in this case.
When the commission of a crime results in death, the civil obligations arising therefrom are
governed by the penal laws, "... subject to the provisions of Art. 2177, and of the pertinent provisions
of Chapter 2, Preliminary Title on Human Relations, and of Title XVIII of this Book (Book IV)
regulating damages." (Art. 1161, Civil Code)
Thus, "every person criminally liable for a felony is also civily liable." (Art. 100, Revised Penal
Code). This civil liability, in case the felony involves death, includes indemnification for
consequential damages (Art. 104, id.) and said consequential damages in turn include "... those
suffered by his family or by a third person by reason of the crime." (Art. 107, id.) Since these
provisions are subject, however, as above indicated, to certain provisions of the Civil Code, We will
now turn to said provisions.
The general rule in the Civil Code is that:
In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and
probable consequences of the act or omission complained of. It is not necessary that such damages
have been foreseen or could have reasonably been foreseen by the defendant. (Art. 2202)
When, however, the crime committed involves death, there is Art. 2206 which provides thus:
The amount of damages for death caused by a crime or quasi-delict shall be at least three thousand
pesos, even though there may have been mitigating circumstances. In addition:
(1) The defendant shall be liable for the loss of the earning capacity of the deceased, and the
indemnity shall be paid to the heirs of the latter; such indemnity shall in every case be assessed and
awarded by the court, unless the deceased on account of permanent physical disability not caused
by the defendant, had no earning capacity at the time of his death;
(2) If the deceased was obliged to give support according to the provisions of article 291, the
recipient who is not an heir called to the decedent's inheritance by law of testate or intestate
succession may demand support from the person causing the death, for a period not exceeding five
years, the exact duration to be fixed by the court;
(3) The spouse, legitimate and illegitimate descendants and ascendants of the deceased may
demand moral damages for mental anguish by reason of the death of the deceased.
The amount of P3,000 referred to in the above article has already been increased by this Court first,
to P6,000.00 in People v. Amansec, 80 Phil. 426, and lately to P12,000.00 in the case of People v.
Pantoja, G. R. No. L-18793, promulgated October 11, 1968, and it must be stressed that this
amount, as well as the amount of moral damages, may be adjudicated even without proof  of
pecuniary loss, the assessment of the moral damages being "left to the discretion of the court,
according to the circumstances of each case." (Art. 2216)
Exemplary damages may also be imposed as a part of this civil liability when the crime has been
committed with one or more aggravating circumstances, such damages being "separate and distinct
from fines and shall be paid to the offended party," (Art. 2230). Exemplary damages cannot however
be recovered as a matter of right; the court will decide whether or not they should be given. (Art.
2233)
In any event, save as expressly provided in connection with the indemnity for the sole fact of death
(1st par., Art. 2206) and in cases wherein exemplary damages are awarded precisely because of
the attendance of aggravating circumstances, (Art. 2230) "... damages to be adjudicated may be
respectively increased or lessened according to the aggravating or mitigating circumstances," (Art.
2204) but "the party suffering the loss or injury must exercise the diligence of a good father of a
family to minimize the damages resulting from the act or omisson in question." (Art. 2203) "Interest
as a part of the damages, may, in a proper case, be adjudicated in the discretion of the Court." (Art.
2211) As to attorneys' fees and expenses of litigation, the same may be recovered only when
exemplary damages have been granted (Art. 2208, par. 1) or, as We have already stated, when
there is a separate civil action.
Stated differently, when death occurs as a result of a crime, the heirs of the deceased are entitled to
the following items of damages:
1. As indemnity for the death of the victim of the offense — P12,000.00, without the need of any
evidence or proof of damages, and even though there may have been mitigating circumstances
attending the commission of the offense.
2. As indemnity for loss of earning capacity of the deceased — an amount to be fixed by the Court
according to the circumstances of the deceased related to his actual income at the time of death
and his probable life expectancy, the said indemnity to be assessed and awarded by the court as a
matter of duty, unless the deceased had no earning capacity at said time on account of permanent
disability not caused by the accused. If the deceased was obliged to give support, under Art. 291,
Civil Code, the recipient who is not an heir, may demand support from the accused for not more
than five years, the exact duration to be fixed by the court.
3. As moral damages for mental anguish, — an amount to be fixed by the court. This may be
recovered even by the illegitimate descendants and ascendants of the deceased.
4. As exemplary damages, when the crime is attended by one or more aggravating circumstances,
— an amount to be fixed in the discretion of the court, the same to be considered separate from
fines.
5. As attorney's fees and expresses of litigation, — the actual amount thereof, (but only when a
separate civil action to recover civil liability has been filed or when exemplary damages are
awarded).
6. Interests in the proper cases.
7. It must be emphasized that the indemnities for loss of earning capacity of the deceased and for
moral damages are recoverable separately from and in addition to the fixed sum of P12,000.00
corresponding to the indemnity for the sole fact of death, and that these damages may, however, be
respectively increased or lessened according to the mitigating or aggravating circumstances, except
items 1 and 4 above, for obvious reasons.
In the light of the foregoing discussion, it is clear that the Court of Appeals erred in eliminating in its
amended decision, the items of moral damages and compensation for loss of earning capacity of
the deceased. Indeed, as to the award of moral damages in case of death, this Court has already
held in Mercado v. Lira, etc., G. R. Nos. L-13328-29, September 29, 1961, that once the heirs of the
deceased claim moral damages and are able to prove they are entitled thereto, it becomes the duty
of the court to make the award. We held:
Art. 2206 states further that "In addition" to the amount of at least P3,000.00 to be awarded for the
death of a passenger, the spouse, legitimate and illegitimate descendants and ascendants of the
deceased may demand moral damages as a consequence of the death of their deceased kin, which
simply means that once the above-mentioned heirs of the deceased claim compensation for moral
damages and are able to prove that they are entitled to such award, it becomes the duty of the court
to award moral damages to the claimant in an amount commensurate with the mental anguish
suffered by them.
This doctrine was reiterated in Maranan v. Perez, G. R. No. L-22272, June 26, 1967:
In connection with the award of damages, the court a quo granted only P3,000 to plaintiff-appellant.
This is the minimum compensatory damages amount recoverable under Art. 1764 in connection
with Art. 2206 of the Civil Code when a breach of contract results in the passenger's death. As has
been the policy followed by this Court, this minimal award should be increased to P6,000 .... Still,
Art. 2206 and 1764 award moral damages in addition to compensatory damages, to the parents of
the passenger killed to compensate for the mental anguish they suffered. A claim therefor, having
been properly made, it becomes the court's duty to award moral damages. Plaintiff demands P5,000
as moral damages; however, in the circumstances, We consider P3,000 moral damages, in addition
to the P6,000 damages aforestated, as sufficient. Interest upon such damages are also due to
plaintiff-appellant.
Likewise, in the matter of the compensatory damages for the loss of earning capacity of the
deceased, We also held in the case of Daniel Bulante v. Chu Liante, G.R. Nos. L- 21583 and L-
21591-92, May 20, 1968 that:
The next item objected to refers to the damages awarded to the heirs of the deceased passengers
for loss of earning capacity, separately from the indemnities by reason of death. The ground for the
objection is that loss of earning capacity was not specifically pleaded or claimed in the complaint.
This item, however, may be considered included in the prayer for "actual damages" and for other
"just and equitable reliefs", especially if taken in the light of Art. 2206, in connection with Art. 1764,
of the Civil Code, which allows, in addition to an indemnity of at least P3,000 by reason of death,
recovery for loss of earning capacity on the part of the deceased, the same to be paid to his heirs "in
every case ... unless the deceased on account of permanent physical disability not caused by the
defendant, had no earning capacity at the time of his death."
To be sure, these cases of Mercado v. Lira, Maranan v. Perez and Bulante v. Chu Liante from which
We have quoted, were actions based on contracts of common carriers. But the above-mentioned
doctrines are equally applicable to civil liability ex delicto  because, after all, Art. 2206 of the Civil
Code which was applied in said cases is precisely the provision pertinent to liability arising from
crimes (and quasi-delicts). No doubt, said Article must have been relied upon by the court in the
above cases only because Art. 1764 of the Civil Code provides that said "Art. 2206 shall also apply
to the death of a passenger caused by the breach of contract of a common carrier." Accordingly, the
interpretation given to said article in those cases are applicable to the case at bar. In other words,
this must be so because under the Civil Code, the same rules on damages are generally to be
observed, whether death results from a crime or a quasi-delict or a breach of the contract of
common carriage.
As to the amount of the indemnity for moral damages and loss of earning capacity of the deceased
in the present case, the original decision of the Court of Appeals awarding them, does not afford
sufficient basis for Us to increase the amounts fixed by said court, as prayed for by appellants. As
has already been stated, the said decision failed to follow the Constitution, not only in not stating the
law on which it is based but also in not making the necessary findings of fact on which it based its
discretion in fixing the respective amounts it awarded for moral and compensatory damages.
Legally, therefore, We can, if We wish to, return this case to that court for it to supply these
constitutional omissions. We opt however, to save time and further difficulties for and damages to,
the petitioners. Extant in the records before Us is the fact that the respondent has never disputed
that petitioners are the widow and seven children of the deceased, three of whom were still minors
at the time of his death, nor that the said deceased was a public school teacher, 56 years old, and
earning P2,276.00 a year. These facts appear to have been repeatedly asserted in the briefs of
petitioners in the Court of Appeals and in this Court. No denial was ever made by the respondent.
When respondent moved for the reconsideration of the original decision of the Court of Appeals,
(Annex E of Petition for Certiorari) he only argued that in view of the mitigating circumstances
credited to him by said court, petitioners were not entitled to moral damages and to indemnity for
loss of earning capacity of the deceased; the amounts fixed therefor by said court — he never
questioned. When petitioners filed their motion for reconsideration of the amended decision of the
Court of Appeals, these facts (relationship, earnings, etc.) were reiterated. (Annex G, id.)
Respondent did not file any answer to said motion despite the resolution requiring him to do so.
(Par. 12, Petition for Certiorari) Neither has respondent filed any brief in the present instance,
notwithstanding repeated requests on his part for extension to file the same, which, incidentally,
were all granted. Under these circumstances, We feel justified in brushing aside strict technicalities
of procedure in order to accomplish substantial justice more expeditiously. Anyway, as We said at
the outset, petitioners are asking Us, in the prayer of their petition for certiorari, for nothing more
than to affirm "in toto" the original decision of the Court of Appeals, and in their lone assignment of
error in the present instance, their only claim is that "the Court of Appeals erred when it issued the
amended decision eliminating the award of P6,000 moral damages and the award of P13,380.00
loss of earnings of the deceased Raymundo Castro." In these circumstances, even if We should
award the amounts of damages just mentioned, inspite of the absence of the pertinent findings of
fact by the Court of Appeals, We would not have to reach beyond amounts that are undisputed by
the respondent.
We, therefore, overrule the prayer for additional damages in petitioners' brief and We hold that, on
the basis of the facts not questioned by respondent, they are entitled only to the P6,000.00 as moral
damages and the P13,380.00 as compensatory damages for the loss of earning capacity of the
deceased awarded in the original decision of the Court of Appeals in addition, of course, to the
indemnity for death fixed also by said court at P6,000.00. This amount of P6,000.00 We cannot
increase to P12,000.00, as allowed in People v. Pantoja, supra, and the subsequent cases, (People
v. Mongaya G. R. No. L-23708, October 31, 1968, and People v. Ramos, G. R. No. L-19143,
November 29, 1968) because in the instant suit, neither party has appealed in relation thereto. This
case is now before Us on appeal by the offended party only as to specific  portions of the civil
indemnity to be paid by the respondent. It would have been different if the whole criminal case were
up for our review because then, even without any appeal on the part of the offended party, We could
have still increased the said liability of the accused, here-in respondent. (See Mercado v.
Lira, supra.)
At this juncture, for the guidance of parties similarly situated as petitioners herein, and so that there
may be no useless expenses in appeals by offended parties in regard to the civil aspect of a
criminal case when no separate civil action has been filed by them, it should be made clear that
when there is no such separate civil action and the claim for civil indemnity is joined with the criminal
case, no record on appeal, whether printed, typewritten or mimeographed, is necessary, except
perhaps when formal pleading raising complicated questions are filed in connection therewith, and
still, this would be purely optional on the appellant because anyway the whole original record of the
case is elevated in appeals in criminal cases. It is already settled that appeals relating to the civil
aspects of a criminal case should follow the procedure for appeal required by rules of criminal
procedure. (People vs. Lorredo, 50 Phil. 209, 220-221; People v. ViIlanueva, G.R. No. L-18769,
May 27, 1966)lawphi1.nêt
WHEREFORE, the amended decision of the Court of Appeals is modified as hereinabove indicated,
in so far as the civil liability of respondent is concerned, with costs against him in this instance.
G.R. No. L-25414 July 30, 1971
LEOPOLDO ARANETA, petitioner,
vs.
BANK of AMERICA, respondent.
Gatchalian and Sison for petitioner.
Lichauco, Picazo and Agcaoili for respondent.
MAKALINTAL, J.:
Petition for review by certiorari of the decision of Court of Appeals in CA-G.R. No. L-34508-R
modifying that of the Court of First Instance of Manila in the Case No. 52442.
Leopoldo Araneta, the petitioner herein, was a local merchant engaged in the import and export
business. On June 30, 1961 he issued a check for $500 payable to cash and drawn against the San
Francisco main office of the Bank of America, where he had been maintaining a dollar current
account since 1948. At that time he had a credit balance of $523.81 in his account, confirmed by the
bank's assistant cashier in a letter to Araneta dated September 7, 1961. However, when the check
was received by the bank on September 8, 1961, a day after the date of the letter, it was dishonored
and stamped with the notation "Account Closed."
Upon inquiry by Araneta as to why his check had been dishonored, the Bank of America
acknowledged that it was an error, explaining that for some reason the check had been encoded
with wrong account number, and promising that "we shall make every effort to see that this does not
reoccur." The bank sent a letter of apology to the payee of the check, a Mr. Harry Gregory of
Hongkong, stating that "the check was returned through an error on our part and should not reflect
adversely upon Mr. Araneta." In all probability the matter would have been considered closed, but
another incident of a similar nature occurred later.
On May 25, and 31, 1962 Araneta issued Check No. 110 for $500 and Check No. 111 for $150,
respectively, both payable to cash and drawn against the Bank of America. These two checks were
received by the bank on June 3, 1962. The first check appeared to have come into the hands of
Rufina Saldana, who deposited it to her account the First National City Bank of New York, which in
turn cleared it through the Federal Reserve Bank. The second check appeared to have been
cleared through the Wells Fargo Bank. Despite the sufficiency of Araneta's deposit balance to cover
both checks, they were again stamped with the notation "Account Closed" and returned to the
respective clearing banks.
In the particular case of Check No. 110, it was actually paid by the Bank of America to the First
National City Bank. Subsequently, however, the Bank of America, claiming that the payment had
been inadvertently made, returned the check to the First National City Bank with the request that the
amount thereof be credited back to the Bank of America. In turn, the First National City Bank wrote
to the depositor of the check, Rufina Saldana, informing her about its return with the notation
"Account Closed" and asking her consent to the deduction of its amount from her deposit. However,
before Mrs. Saldana's reply could be received, the Bank of America recalled the check from the First
National City Bank and honored it.
In view of the foregoing incidents, Araneta, through counsel, sent a letter to the Bank of America
demanding damages in the sum of $20,000. While admitting responsibility for the inconvenience
caused to Araneta, the bank claimed that the amount demanded was excessive, and offered to pay
the sum of P2,000.00. The offer was rejected.
On December 11, 1962 Araneta filed the complaint in this case against the Bank of America for the
recovery of the following:
1. Actual or compensatory damages P30,000.00
2. Moral damages 20,000.00
3. Temperate damages 50,000.00
4. Exemplary damages 10,000.00
5. Attorney's fees 10,000.00
TOTAL P120,000.00
The judgment of the trial court awarded all the item prayed for, but on appeal by the defendant the
Court of Appeals eliminated the award of compensatory and temperate damages and reduced the
moral damages to P8,000.00, the exemplary damages to P1,000.00 and the attorney's fees to
P1,000.00.
Not satisfied with the decision of the appellate court the plaintiff filed the instant petition for review,
alleging two reasons why it should be allowed, as follows:
(1) The Court of Appeals erred in holding that temperate damages cannot be awarded without proof
of actual pecuniary loss. There is absolutely no legal basis for this ruling; worse yet, it runs counter
to the very provisions of ART. 2216 of the New Civil Code and to the established jurisprudence on
the matter;
(2) The Court of Appeals erred in not holding that moral damages may be recovered as an item
separate and distinct from the damages recoverable for injury to business standing and commercial
credit. This involves the application of paragraph (2) of Art. 2205 of the New Civil Code which up to
now has not yet received an authoritative interpretation from the Supreme Court. ... .
In his brief, however, the petitioner assigned five (5) errors committed by the appellate court,
namely: (1) in concluding that the petitioner, on the basis of the evidence, had not sufficiently proven
his claim for actual damages, where such evidence, both testimonial and documentary, stands
uncontradicted on the record; (2) in holding that temperate damages cannot be awarded to the
petitioner without proof of actual pecuniary loss; (3) in not granting moral damages for mental
anguish, besmirched reputation, wounded feelings, social humiliation, etc., separate and distinct
from the damages recoverable for injury to business reputation; (4) in reducing, without any
ostensible reason, the award of exemplary damages granted by the lower court; and (5) in reducing,
without special reason, the award of attorney's fees by the lower court.
We consider the second and third errors, as they present the issues raised in the petition for review
and on the basis of which it was given due course.
In disallowing the award of temperate damages, the Court of Appeals ruled:
In view of all the foregoing considerations we hold that the plaintiff has not proven his claim that the
two checks for $500 each were in partial payment of two orders for jewels worth P50,000 each. He
has likewise not proven the actual damage which he claims he has suffered. And in view of the fact
that he has not proven the existence of the supposed contract for himself to buy jewels at a profit
there is not even an occasion for an award of temperate damages on this score.
This ruling is now assailed as erroneous and without legal basis. The petitioner maintains that in an
action by a depositor against a bank for damages resulting from the wrongful dishonor of the
depositor's checks, temperate damages for injury to business standing or commercial credit may be
recovered even in the absence of definite proof of direct pecuniary loss to the plaintiff, a finding —
as it was found by the Court of Appeals — that the wrongful acts of the respondent had adversely
affected his credit being sufficient for the purpose. The following provisions of the Civil Code are
invoked:
ART. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury;
(2) For injury to the plaintiff's business standing or commercial credit.
ART. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated. The assessment of such damages, except
liquidated ones, is left to the discretion of the court, according to the circumstances of each case.
Also invoked by the petitioner is the case of Atlanta National Bank vs. Davis, 96 Ga 334, 23 SE
190;1 and the following citations in American Jurisprudence:
In some states what are called "temperate damages" are allowed in certain classes of cases,
without proof of actual or special damages, where the wrong done must in fact have caused actual
damage to the plaintiff, though from the nature of the case, he cannot furnish independent, distinct
proof thereof. Temperate damages are more than nominal damages, and, rather, are such as would
be a reasonable compensation for the injury sustained. ... . (15 Am. Jur. 400)
... . It has been generally, although not universally, held, in an action based upon the wrongful act of
a bank dishonoring checks of a merchant or trader having sufficient funds on deposit with the bank,
that substantial damages will be presumed to follow such act as a necessary and natural
consequence, and accordingly, that special damages need not be shown. One of the reasons given
for this rule is that the dishonor of a merchant's or trader's check is tantamount or analogous, to a
slander of his trade or business, imputing to him insolvency or bad faith. ... . (10 Am. Jur. 2d. 545)
On the other hand the respondent argues that since the petitioner invokes Article 2205 of the Civil
Code, which speaks of actual or compensatory damages for injury to business standing or
commercial credit, he may not claim them as temperate damages and thereby dispense with proof
of pecuniary loss under Article 2216. The respondent cites Article 2224, which provides that
"temperate or moderate damages, which are more than nominal but less than compensatory
damages may be recovered when the court finds that some pecuniary loss has been suffered but its
amount cannot, from the nature of the case, proved with certainty," and contends that the petitioner
failed to show any such loss in this case.
The question, therefore, is whether or not on the basis of the findings of the Court of Appeals, there
is reason to conclude that the petitioner did sustain some pecuniary loss although no sufficient proof
of the amount thereof has been adduced. In rejecting the claim for temperate damages the said
Court referred specifically to the petitioner's failure to prove "the existence of a supposed contract
for him to buy jewels at a profit," in connection with which he issued the two checks which were
dishonored by the respondent. This may be true as far as it goes, that is, with particular reference to
the alleged loss in that particular transaction. But it does not detract from the finding of the same
Court that actual damages had been suffered, thus:
... Obviously, the check passed the hands of other banks since it was cleared in the United States.
The adverse reflection against the credit of Araneta with said banks was not cured nor explained by
the letter of apology to Mr. Gregory.
xxx xxx xxx
... This incident obviously affected the credit of Araneta with Miss Saldana.
xxx xxx xxx
However, in so far as the credit of Araneta with the First National City Bank, with Miss Rufina
Saldana and with any other persons who may have come to know about the refusal of the
defendant to honor said checks, the harm was done ...
The financial credit of a businessman is a prized and valuable asset, it being a significant part of the
foundation of his business. Any adverse reflection thereon constitutes some material loss to him. As
stated in the case Atlanta National Bank vs. Davis, supra, citing 2 Morse Banks, Sec. 458, "it can
hardly be possible that a customer's check can be wrongfully refused payment without some
impeachment of his credit, which must in fact be an actual injury, though he cannot, from the nature
of the case, furnish independent, distinct proof thereof."
The Code Commission, in explaining the concept of temperate damages under Article 2224, makes
the following comment:
In some States of the American Union, temperate damages are allowed. There are cases where
from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss. For instance, injury to one's commercial credit or to the
goodwill of a business firm is often hard to show with certainty in terms of money. Should damages
be denied for that reason? The judge should be empowered to calculate moderate damages in such
cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act.
The petitioner, as found by the Court of Appeals, is a merchant of long standing and good reputation
in the Philippines. Some of his record is cited in the decision appealed from. We are of the opinion
that his claim for temperate damages is legally justified. Considering all the circumstances, including
the rather small size of the petitioner's account with the respondent, the amounts of the checks
which were wrongfully dishonored, and the fact that the respondent tried to rectify the error soon
after it was discovered, although the rectification came after the damage had been caused, we
believe that an award of P5,000 by way of temperate damages is sufficient.
Under the third error assigned by the petitioner in his brief, which is the second of the two reasons
relieve upon in his petition for review, he contends that moral damages should have been granted
for the injury to his business standing or commercial credit, separately from his wounded feelings
and mental anguish. It is true that under Article 2217 of the Civil Code. "besmirched reputation" is a
ground upon which moral damages may be claimed, but the Court of Appeals did take this element
into consideration in adjudging the sum of P8,000 in his favor. We quote from the decision:
... the damages to his reputation as an established and well known international trader entitled
himself to recover moral damages.
xxx xxx xxx
... It was likewise established that when plaintiff learned that his checks were not honored by the
drawee Bank, his wounded feelings and the mental anguish suffered by him caused his blood
pressure to rise beyond normal limits, thereby necessitating medical attendance for an extended
period.
The trial court awarded attorney's fees in the amount of P10,000. This was reduced by the Court of
Appeals to only P1,000. Considering the nature and extent of the services rendered by the
petitioner's counsel both in the trial and appellate courts, the amount should be increased to P4,000.
This may be done motu propio by this Court under Article 2208 of the Civil Code, which provides
that attorney's fees may be recovered in the instances therein enumerated and "in any other case
where the Court deems, it first and equitable that attorney's fees ... should be recovered," provided
the amount thereof be reasonable in all cases.
We do not entertain the first and fourth errors assigned by the petitioner. Neither of them was raised
and ruled upon as reasons for the allowance of his petition for review, as required by Section 2 of
Rule 45. Besides, the first error involves a question of fact and calls for a review of the evidence and
a reappraisal of its probative value — a task not within the appellate jurisdiction of this case. And
with respect to the fourth error, while there was gross negligence on the part of the respondent, the
record shows, as hereinbefore observed, that it tried to rectify its error soon after the same was
discovered, although not in time to prevent the damage to the petitioner.
WHEREFORE, the judgment of the Court of Appeals is modified by awarding temperate damages
to the petitioner in the sum of P5,000 and increasing the attorney's fees to P4,000; and is affirmed in
all other respects. Costs against the respondent.
G.R. No. 166869               February 16, 2010
PHILIPPINE HAWK CORPORATION, Petitioner,
vs.
VIVIAN TAN LEE, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari1 of the Decision of the Court of Appeals in CA-G.R. CV
No. 70860, promulgated on August 17, 2004, affirming with modification the Decision of the
Regional Trial Court (RTC) of Quezon City, Branch 102, dated March 16, 2001, in Civil Case No. Q-
91-9191, ordering petitioner Philippine Hawk Corporation and Margarito Avila to jointly and severally
pay respondent Vivian Tan Lee damages as a result of a vehicular accident.
The facts are as follows:
On March 15, 2005, respondent Vivian Tan Lee filed before the RTC of Quezon City a
Complaint2 against petitioner Philippine Hawk Corporation and defendant Margarito Avila for
damages based on quasi-delict, arising from a vehicular accident that occurred on March 17, 1991
in Barangay Buensoceso, Gumaca, Quezon. The accident resulted in the death of respondent’s
husband, Silvino Tan, and caused respondent physical injuries.
On June 18, 1992, respondent filed an Amended Complaint,3 in her own behalf and in behalf of her
children, in the civil case for damages against petitioner. Respondent sought the payment of
indemnity for the death of Silvino Tan, moral and exemplary damages, funeral and interment
expenses, medical and hospitalization expenses, the cost of the motorcycle’s repair, attorney’s fees,
and other just and equitable reliefs.
The accident involved a motorcycle, a passenger jeep, and a bus with Body No. 119. The bus was
owned by petitioner Philippine Hawk Corporation, and was then being driven by Margarito Avila.
In its Answer,4 petitioner denied liability for the vehicular accident, alleging that the immediate and
proximate cause of the accident was the recklessness or lack of caution of Silvino Tan. Petitioner
asserted that it exercised the diligence of a good father of the family in the selection and supervision
of its employees, including Margarito Avila.
On March 25, 1993, the trial court issued a Pre-trial Order5 stating that the parties manifested that
there was no possibility of amicable settlement between them. However, they agreed to stipulate on
the following facts:
1. On March 17, 1991, in Bgy. Buensoceso, Gumaca, Quezon, plaintiff Vivian Lee Tan and her
husband Silvino Tan, while on board a motorcycle with [P]late No. DA-5480 driven by the latter, and
a Metro Bus with [P]late No. NXR-262 driven by Margarito Avila, were involved in an accident;
2. As a result of the accident, Silvino Tan died on the spot while plaintiff Vivian Lee Tan suffered
physical injuries which necessitated medical attention and hospitalization;
3. The deceased Silvino Tan is survived by his wife, plaintiff Vivian Lee Tan and four children, three
of whom are now residents of the United States; and
4. Defendant Margarito Avila is an employee of defendant Philippine Hawk.6
The parties also agreed on the following issues:
1. Whether or not the proximate cause of the accident causing physical injuries upon the plaintiff
Vivian Lee Tan and resulting in the death of the latter’s husband was the recklessness and
negligence of Margarito Avila or the deceased Silvino Tan; and
2. Whether or not defendant Philippine Hawk Transport Corporation exercised the diligence of a
good father of the family in the selection and supervision of its driver Margarito Avila.7
Respondent testified that on March 17, 1991, she was riding on their motorcycle in tandem with her
husband, who was on the wheel, at a place after a Caltex gasoline station in Barangay Buensoceso,
Gumaca, Quezon on the way to Lopez, Quezon. They came from the Pasumbal Machine Shop,
where they inquired about the repair of their tanker. They were on a stop position at the side of the
highway; and when they were about to make a turn, she saw a bus running at fast speed coming
toward them, and then the bus hit a jeep parked on the roadside, and their motorcycle as well. She
lost consciousness and was brought to the hospital in Gumaca, Quezon, where she was confined
for a week. She was later transferred to St. Luke’s Hospital in Quezon City, Manila. She suffered a
fracture on her left chest, her left arm became swollen, she felt pain in her bones, and had high
blood pressure.8
Respondent’s husband died due to the vehicular accident. The immediate cause of his death was
massive cerebral hemorrhage.9
Respondent further testified that her husband was leasing10 and operating a Caltex gasoline station
in Gumaca, Quezon that yielded one million pesos a year in revenue. They also had a copra
business, which gave them an income of ₱3,000.00 a month or ₱36,000.00 a year.11
Ernest Ovial, the driver of the passenger jeep involved in the accident, testified that in the afternoon
of March 17, 1991, his jeep was parked on the left side of the highway near the Pasumbal Machine
Shop. He did not notice the motorcycle before the accident. But he saw the bus dragging the
motorcycle along the highway, and then the bus bumped his jeep and sped away.12
For the defense, Margarito Avila, the driver of petitioner’s bus, testified that on March 17, 1999, at
about 4:30 p.m., he was driving his bus at 60 kilometers per hour on the Maharlika Highway. When
they were at Barangay Buensoceso, Gumaca, Quezon, a motorcycle ran from his left side of the
highway, and as the bus came near, the motorcycle crossed the path of the bus, and so he turned
the bus to the right. He heard a loud banging sound. From his side mirror, he saw that the
motorcycle turned turtle ("bumaliktad"). He did not stop to help out of fear for his life, but drove on
and surrendered to the police. He denied that he bumped the motorcycle.13
Avila further testified that he had previously been involved in sideswiping incidents, but he forgot
how many times.14
Rodolfo Ilagan, the bus conductor, testified that the motorcycle bumped the left side of the bus that
was running at 40 kilometers per hour.15
Domingo S. Sisperes, operations officer of petitioner, testified that, like their other drivers, Avila was
subjected to and passed the following requirements:
(1) Submission of NBI clearance;
(2) Certification from his previous employer that he had no bad record;
(3) Physical examination to determine his fitness to drive;
(4) Test of his driving ability, particularly his defensive skill; and
(5) Review of his driving skill every six months.16
Efren Delantar, a Barangay Kagawad in Buensoceso, Gumaca, Quezon, testified that the bus was
running on the highway on a straight path when a motorcycle, with a woman behind its driver,
suddenly emerged from the left side of the road from a machine shop. The motorcycle crossed the
highway in a zigzag manner and bumped the side of the bus.17
In its Decision dated March 16, 2001, the trial court rendered judgment against petitioner and
defendant Margarito Avila, the dispositive portion of which reads:
ACCORDINGLY, MARGARITO AVILA is adjudged guilty of simple negligence, and judgment is
hereby rendered in favor of the plaintiff Vivian Lee Tan and h[er] husband’s heirs ordering the
defendants Philippine Hawk Corporation and Margarito Avila to pay them jointly and solidarily the
sum of ₱745,575.00 representing loss of earnings and actual damages plus ₱50,000.00 as moral
damages.18
The trial court found that before the collision, the motorcycle was on the left side of the road, just as
the passenger jeep was. Prior to the accident, the motorcycle was in a running position moving
toward the right side of the highway. The trial court agreed with the bus driver that the motorcycle
was moving ahead of the bus from the left side of the road toward the right side of the road, but
disagreed that the motorcycle crossed the path of the bus while the bus was running on the right
side of the road.19
The trial court held that if the bus were on the right side of the highway, and Margarito Avila turned
his bus to the right in an attempt to avoid hitting the motorcyle, then the bus would not have hit the
passenger jeep, which was then parked on the left side of the road. The fact that the bus also hit the
passenger jeep showed that the bus must have been running from the right lane to the left lane of
the highway, which caused the collision with the motorcycle and the passenger jeep parked on the
left side of the road. The trial court stated that since Avila saw the motorcycle before the collision, he
should have stepped on the brakes and slowed down, but he just maintained his speed and veered
to the left.20 The trial court found Margarito Avila guilty of simple negligence.
The trial court held petitioner bus company liable for failing to exercise the diligence of a good father
of the family in the selection and supervision of Avila, having failed to sufficiently inculcate in him
discipline and correct behavior on the road.21
On appeal, the Court of Appeals affirmed the decision of the trial court with modification in the
award of damages. The dispositive portion of the decision reads:
WHEREFORE, foregoing premises considered, the appeal is DENIED. The assailed decision dated
March 16, 2001 is hereby AFFIRMED with MODIFICATION. Appellants Philippine Hawk and Avila
are hereby ordered to pay jointly and severally appellee the following amount: (a) ₱168,019.55 as
actual damages; (b) ₱10,000.00 as temperate damages; (c) ₱100,000.00 as moral damages; (d)
₱590,000.00 as unearned income; and (e) ₱50,000.00 as civil indemnity.22
Petitioner filed this petition, raising the following issues:
1) The Court of Appeals committed grave abuse of discretion amounting to lack of jurisdiction in
passing upon an issue, which had not been raised on appeal, and which had, therefore, attained
finality, in total disregard of the doctrine laid down by this Court in Abubakar v. Abubakar, G.R. No.
134622, October 22, 1999.
2) The Court of Appeals committed reversible error in its finding that the petitioner’s bus driver saw
the motorcycle of private respondent executing a U-turn on the highway "about fifteen (15) meters
away" and thereafter held that the Doctrine of Last Clear was applicable to the instant case. This
was a palpable error for the simple reason that the aforesaid distance was the distance of the
witness to the bus and not the distance of the bus to the respondent’s motorcycle, as clearly borne
out by the records.
3) The Court of Appeals committed reversible error in awarding damages in total disregard of the
established doctrine laid down in Danao v. Court of Appeals, 154 SCRA 447 and Viron
Transportation Co., Inc. v. Delos Santos, G.R. No. 138296, November 22, 2000.23
In short, the issues raised by petitioner are: (1) whether or not negligence may be attributed to
petitioner’s driver, and whether negligence on his part was the proximate cause of the accident,
resulting in the death of Silvino Tan and causing physical injuries to respondent; (2) whether or not
petitioner is liable to respondent for damages; and (3) whether or not the damages awarded by
respondent Court of Appeals are proper.
Petitioner seeks a review of the factual findings of the trial court, which were sustained by the Court
of Appeals, that petitioner’s driver was negligent in driving the bus, which caused physical injuries to
respondent and the death of respondent’s husband.
The rule is settled that the findings of the trial court, especially when affirmed by the Court of
Appeals, are conclusive on this Court when supported by the evidence on record. 24 The Court has
carefully reviewed the records of this case, and found no cogent reason to disturb the findings of the
trial court, thus:
The Court agree[s] with the bus driver Margarito that the motorcycle was moving ahead of the bus
towards the right side from the left side of the road, but disagrees with him that it crossed the path of
the bus while the bus was running on the right side of the highway.
If the bus were on the right side of the highway and Margarito turned his bus to the right in an
attempt to avoid hitting it, then the bus would not have hit the passenger jeep vehicle which was
then parked on the left side of the road. The fact that the bus hit the jeep too, shows that the bus
must have been running to the left lane of the highway from right to the left, that the collision
between it and the parked jeep and the moving rightways cycle became inevitable. Besides,
Margarito said he saw the motorcycle before the collision ahead of the bus; that being so, an extra-
cautious public utility driver should have stepped on his brakes and slowed down. Here, the bus
never slowed down, it simply maintained its highway speed and veered to the left. This is
negligence indeed.25
Petitioner contends that the Court of Appeals was mistaken in stating that the bus driver saw
respondent’s motorcycle "about 15 meters away" before the collision, because the said distance, as
testified to by its witness Efren Delantar Ong, was Ong’s distance from the bus, and not the distance
of the bus from the motorcycle. Petitioner asserts that this mistaken assumption of the Court of
Appeals made it conclude that the bus driver, Margarito Avila, had the last clear chance to avoid the
accident, which was the basis for the conclusion that Avila was guilty of simple negligence.
A review of the records showed that it was petitioner’s witness, Efren Delantar Ong, who was about
15 meters away from the bus when he saw the vehicular accident.26 Nevertheless, this fact does not
affect the finding of the trial court that petitioner’s bus driver, Margarito Avila, was guilty of simple
negligence as affirmed by the appellate court. Foreseeability is the fundamental test of
negligence.27 To be negligent, a defendant must have acted or failed to act in such a way that an
ordinary reasonable man would have realized that certain interests of certain persons were
unreasonably subjected to a general but definite class of risks.28
In this case, the bus driver, who was driving on the right side of the road, already saw the
motorcycle on the left side of the road before the collision. However, he did not take the necessary
precaution to slow down, but drove on and bumped the motorcycle, and also the passenger jeep
parked on the left side of the road, showing that the bus was negligent in veering to the left lane,
causing it to hit the motorcycle and the passenger jeep.
Whenever an employee’s negligence causes damage or injury to another, there instantly arises a
presumption that the employer failed to exercise the due diligence of a good father of the family in
the selection or supervision of its employees.29 To avoid liability for a quasi-delict committed by his
employee, an employer must overcome the presumption by presenting convincing proof that he
exercised the care and diligence of a good father of a family in the selection and supervision of his
employee.30
The Court upholds the finding of the trial court and the Court of Appeals that petitioner is liable to
respondent, since it failed to exercise the diligence of a good father of the family in the selection and
supervision of its bus driver, Margarito Avila, for having failed to sufficiently inculcate in him
discipline and correct behavior on the road. Indeed, petitioner’s tests were concentrated on the
ability to drive and physical fitness to do so. It also did not know that Avila had been previously
involved in sideswiping incidents.
As regards the issue on the damages awarded, petitioner contends that it was the only one that
appealed the decision of the trial court with respect to the award of actual and moral damages;
hence, the Court of Appeals erred in awarding other kinds of damages in favor of respondent, who
did not appeal from the trial court’s decision.
Petitioner’s contention is unmeritorious.
Section 8, Rule 51 of the 1997 Rules of Civil Procedure provides:
SEC. 8. Questions that may be decided. -- No error which does not affect the jurisdiction over the
subject matter or the validity of the judgment appealed from or the proceedings therein will be
considered unless stated in the assignment of errors, or closely related to or dependent on an
assigned error and properly argued in the brief, save as the court pass upon plain errors and clerical
errors.
Philippine National Bank v. Rabat31 cited the book32 of Justice Florenz D. Regalado to explain the
section above, thus:
In his book, Mr. Justice Florenz D. Regalado commented on this section, thus:
1. Sec. 8, which is an amendment of the former Sec. 7 of this Rule, now includes some substantial
changes in the rules on assignment of errors. The basic procedural rule is that only errors claimed
and assigned by a party will be considered by the court, except errors affecting its jurisdiction over
the subject matter. To this exception has now been added errors affecting the validity of the
judgment appealed from or the proceedings therein.
Also, even if the error complained of by a party is not expressly stated in his assignment of errors
but the same is closely related to or dependent on an assigned error and properly argued in his
brief, such error may now be considered by the court. These changes are of jurisprudential origin.
2. The procedure in the Supreme Court being generally the same as that in the Court of Appeals,
unless otherwise indicated (see Secs. 2 and 4, Rule 56), it has been held that the latter is clothed
with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds
that their consideration is necessary in arriving at a just decision of the case. Also, an unassigned
error closely related to an error properly assigned (PCIB vs. CA, et al., L-34931, Mar. 18, 1988), or
upon which the determination of the question raised by error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as error (Ortigas, Jr. vs.
Lufthansa German Airlines, L-28773, June 30, 1975; Soco vs. Militante, et al., G.R. No. 58961, June
28, 1983).
It may also be observed that under Sec. 8 of this Rule, the appellate court is authorized to consider
a plain error, although it was not specifically assigned by the appellant (Dilag vs. Heirs of
Resurreccion, 76 Phil. 649), otherwise it would be sacrificing substance for technicalities.33
In this case for damages based on quasi-delict, the trial court awarded respondent the sum of
₱745,575.00, representing loss of earning capacity (₱590,000.00) and actual damages
(₱155,575.00 for funeral expenses), plus ₱50,000.00 as moral damages. On appeal to the Court of
Appeals, petitioner assigned as error the award of damages by the trial court on the ground that it
was based merely on suppositions and surmises, not the admissions made by respondent during
the trial.
In its Decision, the Court of Appeals sustained the award by the trial court for loss of earning
capacity of the deceased Silvino Tan, moral damages for his death, and actual damages, although
the amount of the latter award was modified.
The indemnity for loss of earning capacity of the deceased is provided for by Article 2206 of the Civil
Code.34 Compensation of this nature is awarded not for loss of earnings, but for loss of capacity to
earn money.35
As a rule, documentary evidence should be presented to substantiate the claim for damages for loss
of earning capacity.36 By way of exception, damages for loss of earning capacity may be awarded
despite the absence of documentary evidence when: (1) the deceased is self-employed and earning
less than the minimum wage under current labor laws, in which case, judicial notice may be taken of
the fact that in the deceased's line of work no documentary evidence is available; or (2) the
deceased is employed as a daily wage worker earning less than the minimum wage under current
labor laws.37
In this case, the records show that respondent’s husband was leasing and operating a Caltex
gasoline station in Gumaca, Quezon. Respondent testified that her husband earned an annual
income of one million pesos. Respondent presented in evidence a Certificate of Creditable Income
Tax Withheld at Source for the Year 1990,38 which showed that respondent’s husband earned a
gross income of P950,988.43 in 1990. It is reasonable to use the Certificate and respondent’s
testimony as bases for fixing the gross annual income of the deceased at one million pesos before
respondent’s husband died on March 17, 1999. However, no documentary evidence was presented
regarding the income derived from their copra business; hence, the testimony of respondent as
regards such income cannot be considered.
In the computation of loss of earning capacity, only net earnings, not gross earnings, are to be
considered; that is, the total of the earnings less expenses necessary for the creation of such
earnings or income, less living and other incidental expenses.39 In the absence of documentary
evidence, it is reasonable to peg necessary expenses for the lease and operation of the gasoline
station at 80 percent of the gross income, and peg living expenses at 50 percent of the net income damages by the appellate court in the amount of ₱10,000.00 was reasonable under the
(gross income less necessary expenses). circumstances.44

In this case, the computation for loss of earning capacity is as follows: The Court of Appeals also correctly awarded respondent moral damages for the physical injuries
she sustained due to the vehicular accident. Under Art. 2219 of the Civil Code,45 moral damages
Life Expectancy Reasonable and may be recovered in quasi-delicts causing physical injuries. However, the award of ₱50,000.00
Net Earning Gross Annual
= [2/3 (80-age at the time x – Necessary Expenses should be reduced to ₱30,000.00 in accordance with prevailing jurisprudence.46
Capacity Income (GAI)
of death)] (80% of GAI)
Further, the Court of Appeals correctly awarded respondent civil indemnity for the death of her
X = [2/3 (80-65)] x ₱1,000,000.00 - ₱800,000.00 husband, which has been fixed by current jurisprudence at ₱50,000.00. 47 The award is proper under
Art. 2206 of the Civil Code.48
₱100,000.00(Living
X = 2/3 (15) x ₱200,000.00 -
Expenses) In fine, the Court of Appeals correctly awarded civil indemnity for the death of respondent’s
husband, temperate damages, and moral damages for the physical injuries sustained by respondent
X = 30/3 x ₱100,000.00 in addition to the damages granted by the trial court to respondent. The trial court overlooked
awarding the additional damages, which were prayed for by respondent in her Amended Complaint.
X = 10 x ₱100,000.00 The appellate court is clothed with ample authority to review matters, even if they are not assigned
as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of
X = ₱1,000,000.00 the case.49

The Court of Appeals also awarded actual damages for the expenses incurred in connection with
the death, wake, and interment of respondent’s husband in the amount of ₱154,575.30, and the
medical expenses of respondent in the amount of ₱168,019.55.
Actual damages must be substantiated by documentary evidence, such as receipts, in order to
prove expenses incurred as a result of the death of the victim 40 or the physical injuries sustained by
the victim. A review of the valid receipts submitted in evidence showed that the funeral and related
expenses amounted only to ₱114,948.60, while the medical expenses of respondent amounted only
to ₱12,244.25, yielding a total of ₱127,192.85 in actual damages.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated August 17, 2004
in CA-G.R. CV No. 70860 is hereby AFFIRMED with MODIFICATION. Petitioner Philippine Hawk
Corporation and Margarito Avila are hereby ordered to pay jointly and severally respondent Vivian
Lee Tan: (a) civil indemnity in the amount of Fifty Thousand Pesos (₱50,000.00); (b) actual
damages in the amount of One Hundred Twenty-Seven Thousand One Hundred Ninety-Two Pesos
and Eighty-Five Centavos ( ₱127,192.85); (c) moral damages in the amount of Eighty Thousand
Pesos (₱80,000.00); (d) indemnity for loss of earning capacity in the amount of One Million Pesos
(₱1,000,000.00); and (e) temperate damages in the amount of Ten Thousand Pesos (₱10,000.00).
Costs against petitioner.

Moreover, the Court of Appeals correctly sustained the award of moral damages in the amount of SO ORDERED.
₱50,000.00 for the death of respondent’s husband. Moral damages are not intended to enrich a
plaintiff at the expense of the defendant.41 They are awarded to allow the plaintiff to obtain means, G.R. No. 116940 June 11, 1997
diversions or amusements that will serve to alleviate the moral suffering he/she has undergone due
to the defendant’s culpable action and must, perforce, be proportional to the suffering inflicted.42
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,
vs.
In addition, the Court of Appeals correctly awarded temperate damages in the amount of COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.
₱10,000.00 for the damage caused on respondent’s motorcycle. Under Art. 2224 of the Civil Code,
temperate damages "may be recovered when the court finds that some pecuniary loss has been
suffered but its amount cannot, from the nature of the case, be proved with certainty." The cost of
the repair of the motorcycle was prayed for by respondent in her Complaint. However, the evidence BELLOSILLO, J.:
presented was merely a job estimate43 of the cost of the motorcycle’s repair amounting to ₱17,
829.00. The Court of Appeals aptly held that there was no doubt that the damage caused on the This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe
motorcycle was due to the negligence of petitioner’s driver. In the absence of competent proof of the the extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer
actual damage caused on the motorcycle or the actual cost of its repair, the award of temperate to be subrogated to the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned
and operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported from Zamboanga City to Cebu City for consignee
Coca-Cola Bottlers Philippines, Inc., Cebu.1 The shipment was insured with petitioner Philippine
American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No.
100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same
day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of
1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink
bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to
file an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo
were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further
alleged that the vessel was improperly manned and that its officers were grossly negligent in failing
to take appropriate measures to proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no
right of subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event,
FELMAN had abandoned all its rights, interests and ownership over "MV Asilda" together with her
freight and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of
the Code of Commerce.2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court
of Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits.
FELMAN filed a petition for certiorari  with this Court but it was subsequently denied on 13 February
1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN.3 It ruled that "MV
Asilda" was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the
Philippine Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of
the vessel and its entire shipment could only be attributed to either a fortuitous event, in which case,
no liability should attach unless there was a stipulation to the contrary, or to the negligence of the
captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could
not recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its
implied warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to
the assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not
give PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a
subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994
respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy
as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words,
while the vessel possessed the necessary Coast Guard certification indicating its seaworthiness
with respect to the structure of the ship itself, it was not seaworthy with respect to the cargo.
Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assured's
implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
properly subrogated to the rights and interests of the shipper. Furthermore, respondent court held
that the filing of notice of abandonment had absolved the shipowner/agent from liability under the
limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the
port of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should
apply; and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which
the shipper had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain
as well as the chief mate of the vessel confirmed that the weather was fine when they left the port of
Zamboanga. According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink
bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty
boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-Cola
bottles on deck.4 The ship captain stated that around four o'clock in the morning of 7 July 1983 he
was awakened by the officer on duty to inform him that the vessel had hit a floating log. At that time
he noticed that the weather had deteriorated with strong southeast winds inducing big waves. After
thirty minutes he observed that the vessel was listing slightly to starboard and would not correct
itself despite the heavy rolling and pitching. He then ordered his crew to shift the cargo from
starboard to portside until the vessel was balanced. At about seven o'clock in the morning, the
master of the vessel stopped the engine because the vessel was listing dangerously to portside. He
ordered his crew to shift the cargo back to starboard. The shifting of cargo took about an hour
afterwhich he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide
on his next move, some of the cargo on deck were thrown overboard and seawater entered the
engine room and cargo holds of the vessel. At that instance, the master of the vessel ordered his
crew to abandon ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to
the entry of seawater through a hole in the hull caused by the vessel's collision with a partially
submerged log.5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which
was adopted by the Court of Appeals, reads —
We found in the course of our investigation that a reasonable explanation for the series of lists
experienced by the vessel that eventually led to her capsizing and sinking, was that the vessel
was top-heavy which is to say that while the vessel may not have been overloaded, yet the
distribution or stowage of the cargo on board was done in such a manner that the vessel was in top-
heavy condition at the time of her departure and which condition rendered her unstable and
unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing
vessel . . . and it was not designed to carry a substantial amount or quantity of cargo on deck.
Therefore, we believe strongly that had her cargo been confined to those that could have been
accommodated under deck, her stability would not have been affected and the vessel would not
have been in any danger of capsizing, even given the prevailing weather conditions at that time of
sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was
rendered unseaworthy for the purpose of carrying the type of cargo because the weight of the deck
cargo so decreased the vessel's metacentric height as to cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out
that ships are precisely designed to be able to navigate safely even during heavy weather and
frequently we hear of ships safely and successfully weathering encounters with typhoons and
although they may sustain some amount of damage, the sinking of ship during heavy weather is not
a frequent occurrence and is not likely to occur unless they are inherently unstable and unseaworthy
....
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V "Asilda" was
her condition of unseaworthiness arising from her having been top-heavy when she departed from
the Port of Zamboanga. Her having capsized and eventually sunk was bound to happen and was
therefore in the category of an inevitable occurrence (emphasis supplied).6
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate
cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's
allegations, evidence shows that approximately 2,500 cases of softdrink bottles were stowed on
deck. Several days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were
recovered near the vicinity of the sinking. Considering that the ship's hatches were properly
secured, the empty Coca-Cola cases recovered could have come only from the vessel's deck cargo.
It is settled that carrying a deck cargo raises the presumption of unseaworthiness unless it can be
shown that the deck cargo will not interfere with the proper management of the ship. However, in
this case it was established that "MV Asilda" was not designed to carry substantial amount of cargo
on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric
height 7 thus making it unstable. The strong winds and waves encountered by the vessel are but the
ordinary vicissitudes of a sea voyage and as such merely contributed to its already unstable and
unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.8 Simply
put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the
vessel. This liability however can be limited through abandonment of the vessel, its equipment and
freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the
ship agent could still be held answerable despite the abandonment, as where the loss or injury was
due to the fault of the shipowner and the captain.9 The international rule is to the effect that the right
of abandonment of vessels, as a legal limitation of a shipowner's liability, does not apply to cases
where the injury or average was occasioned by the shipowner's own fault. 10 It must be stressed at
this point that Art. 587 speaks only of situations where the fault or negligence is committed solely by
the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such
situation will be covered by the provisions of the Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its
unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-heavy as
an excessive amount of cargo was loaded on deck. Closer supervision on the part of the shipowner
could have prevented this fatal miscalculation. As such, FELMAN was equally negligent. It cannot
therefore escape liability through the expedient of filing a notice of abandonment of the vessel by
virtue of Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them, according to all the circumstances
of each case . . ." In the event of loss of goods, common carriers are presumed to have acted
negligently. FELMAN, the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found "MV Asilda"
unseaworthy with reference to the cargo and therefore ruled that there was breach of warranty of
seaworthiness that rendered the assured not entitled to the payment of is claim under the policy.
Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a "voluntary
payment" and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it
did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the
assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if
expressly written on the face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that
"(i)n every marine insurance upon a ship or freight, or freightage, or upon anything which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy." Under Sec. 114, a
ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary perils of
the voyage, contemplated by the parties to the policy." Thus it becomes the obligation of the cargo
owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. He may
have no control over the vessel but he has full control in the selection of the common carrier that will
transport his goods. He also has full discretion in the choice of assurer that will underwrite a
particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as
painstakingly pointed out by FELMAN to stress that subrogation will not work in this case. In policies
where the law will generally imply a warranty of seaworthiness, it can only be excluded by terms in
writing in the policy in the clearest language. 13 And where the policy stipulates that the
seaworthiness of the vessel as between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation
by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances
has dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No.
100367-PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence
Clause and/or Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of
Affreightment as between the Assured and the Company shall not prejudice the insurance. The
seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted."15
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which
states "(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby
admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two
things: (a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in
cargo policies is in recognition of the realistic fact that cargo owners cannot control the state of the
vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action
against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, 18 we said that payment by the assurer
to the assured operates as an equitable assignment to the assurer of all the remedies which the
assured may have against the third party whose negligence or wrongful act caused the loss. The
right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon
payment by the insurance company of the insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in
justice, equity and good conscience ought to pay. 19 Therefore, the payment made by PHILAMGEN
to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee
against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss
of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29
November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code. 20
SO ORDERED.
G.R. No. 190957               June 5, 2013
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner,
vs.
APAC MARKETING CORPORATION, represented by CESAR M. ONG, JR., Respondents.
DECISION
SERRENO, CJ.:
In this Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedures, the
primordial issue to be resolved is whether the Court of Appeals (CA)1 correctly affirmed the court a
quo2 in holding petitioner liable to respondent for attorney’s fees.
The Antecedent Facts
Considering that there are no factual issues involved, as the Court of Appeals (CA) adopted the
findings of fact of the Regional Trial Court (RTC) of Quezon City, Branch 96, we hereby adopt the
CA’s findings, as follows:
The present case involves a simple purchase transaction between defendant-appellant Philippine
National Construction Corporation (PNCC), represented by defendants-appellants Rogelio Espiritu
and Rolando Macasaet, and plaintiff-appellee APAC, represented by Cesar M. Ong, Jr., involving
crushed basalt rock delivered by plaintiff-appellee to defendant-appellant PNCC.
On August 17, 1999, plaintiff-appellee filed with the trial court a complaint against defendants-
appellees for collection of sum of money with damages, alleging that (i) in March 1998, defendants-
appellants engaged the services of plaintiff-appellee by buying aggregates materials from plaintiff-
appellee, for which the latter had delivered and supplied good quality crushed basalt rock; (ii) the
parties had initially agreed on the terms of payment, whereby defendants-appellants would issue the
check corresponding to the value of the materials to be delivered, or "Check Before Delivery," but
prior to the implementation of the said payment agreement, defendants-appellants requested from
plaintiff-appellee a 30-day term from the delivery date within which to pay, which plaintiff-appellee
accepted; and (iii) after making deliveries pursuant to the purchase orders and despite demands by
plaintiff-appellee, defendants appellants failed and refused to pay and settle their overdue accounts.
The complaint prayed for payment of the amount of ₱782,296.80 "plus legal interest at the rate of
not less than 6% monthly, to start in April, 1999 until the full obligation is completely settled and
paid," among others.
On November 16, 1999, defendants-appellants filed a motion to dismiss, alleging that the complaint
was premature considering that defendant-appellant PNCC had been faithfully paying its obligations
to plaintiff-appellee, as can be seen from the substantial reduction of its overdue account as of
August 1999.
In an Order dated January 17, 2000, the trial court denied the motion to dismiss. Thus, defendants-
appellants filed their answer, alleging that the obligation of defendant-appellant PNCC was only with
respect to the balance of the principal obligation that had not been fully paid which, based on the
latest liquidation report, amounted to only ₱474,095.92.
After the submission of the respective pre-trial briefs of the parties, trial was held. However, only
plaintiff-appellee presented its evidence. For their repeated failure to attend the hearings,
defendants-appellants were deemed to have waived the presentation of their evidence.
On July 10, 2006, the trial court rendered a Decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering defendants jointly and
solidarily to pay:
1. ₱782,296.80 as actual damages;
2. ₱50,000.00 as attorney’s fees, plus ₱3,000.00 per court appearance;
3. Cost of suit.
SO ORDERED.
Defendants-appellants filed a motion for reconsideration, alleging that during the pendency of the
case, the principal obligation was fully paid and hence, the award by the trial court of actual
damages in the amount of ₱782,269.80 was without factual and legal bases.
In an Order dated October 6, 2006, the trial court considered defendants-appellants’ claim of full
payment of the principal obligation, but still it ordered them to pay legal interest of twelve per cent
(12%) per annum. Thus:
"WHEREFORE, the decision dated July 10, 2006 is hereby modified, by ordering defendants jointly
and solidarily to pay plaintiff as follows, to wit:
1. ₱220,234.083
2. ₱50,000.00 as attorney’s fees, plus ₱3,000.00 per court appearance;
3. Cost of Suit.
SO ORDERED."
Defendants-appellants filed the present appeal which is premised on the following assignment of
errors:
I. THE REGIONAL TRIAL COURT GRAVELY ERRED IN AWARDING INTEREST AT THE RATE
OF 12% PER ANNUM AMOUNTING TO ₱220,234.083 AND ATTORNEY’S FEES IN FAVOR OF
PLAINTIFF-APPELLEE.
II. THE REGIONAL TRIAL COURT GRAVELY ERRED IN HOLDING DEFENDANTS ROGELIO
ESPIRITU AND ROLANDO MACASAET JOINTLY AND SOLIDARILY LIABLE WITH DEFENDANT
PNCC.
THE RULING OF THE COURT OF APPEALS
On 9 July 2009, the Special Fourth Division of the CA promulgated a Decision3 in CA-G.R. CV No.
88827, affirming with modification the assailed Decision of the court a quo. The dispositive portion of
the CA Decision reads as follows:
WHEREFORE, the appealed Order dated October 6, 2006 is affirmed, subject to the modification
that defendant-appellant PNCC is ordered to pay legal interest at six per cent (6%) per annum on
the principal obligation, computed from January 8, 1999 until its full payment in January 2001.
Defendants-appellants Rogelio Espiritu and Rolando Macasaet are absolved from liability. The
Order dated October 6, 2006 is affirmed in all other respects.
On 29 July 2009, herein petitioner filed a Motion for Reconsideration, which raised the lone issue of
the propriety of the award of attorney’s fees in favor of respondent. 4 It should be noted that in said
motion, petitioner fully agreed with the CA Decision imposing 6% legal interest per annum on the
principal obligation and absolving Rogelio Espiritu and Rolando Macasaet from any liability as
members of the board of directors of PNCC. Thus, the main focus of the Motion for Reconsideration
was on the CA’s affirmation of the court a quo’s Decision awarding attorney’s fees in favor of
respondent. However, the appellate court’s Former Special Fourth Division denied petitioner’s
Motion for Reconsideration in a Resolution dated 18 January 2010.6
THE SOLE ISSUE
Aggrieved, petitioner now assails before us the 9 July 2009 Decision of the CA by raising the sole
issue of whether the CA gravely erred in awarding attorney’s fees to respondent.
THE COURT’S RULING
The Petition is impressed with merit.
Article 2208 of the New Civil Code of the Philippines states the policy that should guide the courts
when awarding attorney’s fees to a litigant. As a general rule, the parties may stipulate the recovery
of attorney’s fees. In the absence on such stipulation, this article restrictively enumerates the
instances when these fees may be recovered, to wit:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and expenses
of litigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
In ABS-CBN Broadcasting Corp. v. CA,7 this Court had the occasion to expound on the policy
behind the grant of attorney’s fees as actual or compensatory damages:
(T)he law is clear that in the absence of stipulation, attorney’s fees may be recovered as actual or
compensatory damages under any of the circumstances provided for in Article 2208 of the Civil
Code.
The general rule is that attorney’s fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate. They are not to be awarded every
time a party wins a suit. The power of the court to award attorney’s fees under Article 2208
demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with
third persons or to incur expenses to protect his rights, still attorney’s fees may not be awarded
where no sufficient showing of bad faith could be reflected in a party’s persistence in a case other
than an erroneous conviction of the righteousness of his cause.
In Benedicto v. Villaflores,8 we explained the reason behind the need for the courts to arrive upon an
actual finding to serve as basis for a grant of attorney’s fees, considering the dual concept of these
fees as ordinary and extraordinary:
It is settled that the award of attorney's fees is the exception rather than the general rule; counsel's
fees are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. Attorney's fees, as part of damages, are not necessarily
equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney's fees represent
the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to
the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for
damages to be paid by the losing party to the prevailing party. Attorney's fees as part of damages
are awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is
necessary for the court to make findings of fact and law that would bring the case within the ambit of
these enumerated instances to justify the grant of such award, and in all cases it must be
reasonable.
We can glean from the above ruling that attorney’s fees are not awarded as a matter of course
every time a party wins. We do not put a premium on the right to litigate. On occasions that those
fees are awarded, the basis for the grant must be clearly expressed in the decision of the
court.1âwphi1
Petitioner contends that the RTC’s Decision has no finding that would fall under any of the
exceptions enumerated in Article 2208 of the new Civil Code. Further, it alleges that the court a quo
has not given any factual, legal, or equitable justification for applying paragraph 11 of Article 2208
as basis the latter’s exercise of discretion in holding petitioner liable for attorney’s fees.9
We agree with petitioner on these points.
We have consistently held that an award of attorney’s fees under Article 2208 demands factual,
legal, and equitable justification to avoid speculation and conjecture surrounding the grant
thereof.10 Due to the special nature of the award of attorney’s fees, a rigid standard is imposed on
the courts before these fees could be granted. Hence, it is imperative that they clearly and distinctly
set forth in their decisions the basis for the award thereof. It is not enough that they merely state the
amount of the grant in the dispositive portion of their decisions. 11 It bears reiteration that the award
of attorney’s fees is an exception rather than the general rule; thus, there must be compelling legal
reason to bring the case within the exceptions provided under Article 2208 of the Civil Code to
justify the award.12
We have perused the assailed CA’s Decision, but cannot find any factual, legal, or equitable
justification for the award of attorney’s fees in favor of respondent. The appellate court simply
quoted the portion of the RTC Decision that granted the award as basis for the affirmation thereof.
There was no elaboration on the basis. There is therefore an absence of an independent CA finding
of the factual circumstances and legal or equitable basis to justify the grant of attorney’s fees. The
CA merely adopted the RTC’s rational for the award, which in this case we find to be sorely
inadequate.
The RTC found as follows:
x x x since it is clear that plaintiff was compelled to hire the services of a counsel, to litigate and to
protect his interest by reason of an unjustified act of the other party, plaintiff is entitled to recover
attorney’s fees in the amount of ₱50,000.00 which it paid as acceptance fee and ₱3,000.00 as
appearance fee.13
The only discernible reason proffered by the trial court in granting the award was that respondent,
as complainant in the civil case, was forced to litigate to protect the latter’s interest. Thus, we find
that there is an obvious lack of a compelling legal reason to consider the present case as one that
falls within the exception provided under Article 2208 of the Civil Code. Absent such finding, we hold
that the award of attorney’s fees by the court a quo, as sustained by the appellate court, was
improper and must be deleted.
WHEREFORE, the foregoing Petition is GRANTED. The assailed Decision dated 9 July 2009 of the
Court of Appeals in CA-G.R. CV No. 88827 is MODIFIED, in that the award of attorney’s fees in the
amount of ₱50,000 as acceptance fee and ₱3,000 as appearance fee, in favor of respondent APAC
Marketing Incorporated, is hereby DELETED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 183804               September 11, 2013
S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION, Petitioner,
vs.
ENGR. LUIS U. PARADA, represented by ENGR. LEONARDO A. PARADA of GENLITE
INDUSTRIES, Respondent.
DECISION
REYES, J.:
Before us on appeal by certiorari1 is the Decision2 dated April 30, 2008 of the Court of Appeals (CA)
in CA-G.R. CV No. 83811 which upheld the Decision3 dated May 8, 2004 of the Regional Trial Court
(RTC) of Quezon City, Branch 100, in Civil Case No. Q-01-45212.
Factual Antecedents
S.C. Megaworld Construction and Development Corporation (petitioner) bought electrical lighting
materials from Gentile Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna. The petitioner was unable to pay for
the above purchase on due date, but blamed it on its failure to collect under its sub-contract with the
Enviro KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to
agree to settle its above purchase, but after paying the respondent ₱250,000.00 on June 2,
1999,4 Enviro Kleen stopped making further payments, leaving an outstanding balance of
₱816,627.00. It also ignored the various demands of the respondent, who then filed a suit in the
RTC, docketed as Civil Case No.Q-01-45212, to collect from the petitioner the said balance, plus
damages, costs and expenses, as summarized in the RTC’s decision, as follows:
The petitioner in its answer denied liability, claiming that it was released from its indebtedness to the
respondent by reason of the novation of their contract, which, it reasoned, took place when the latter
accepted the partial payment of Enviro Kleen in its behalf, and thereby acquiesced to the
substitution of Enviro Kleen as the new debtor in the petitioner’s place. After trial, the RTC rendered
judgment6 on May 28, 2004 in favor of the respondent, the fallo of which reads, as follows:
WHEREFORE, judgment is hereby rendered for the respondent. The petitioner is hereby ordered to
pay the respondent the following:
A. the sum of ₱816,627.00 representing the principal obligation due;
B. the sum equivalent to twenty percent (20%)per month of the principal obligation due from date of
judicial demand until fully paid as and for interest; and
C. the sum equivalent to twenty-five percent (25%) of the principal sum due as and for attorney’s
fees and other costs of suits. The compulsory counterclaim interposed by the petitioner is hereby
ordered dismissed for lack of merit.
SO ORDERED.7 (Emphasis supplied)
On appeal to the CA, the petitioner maintained that the trial court erred in ruling that no novation of
the contract took place through the substitution of Enviro Kleen as the new debtor. But for the first
time, it further argued that the trial court should have dismissed the complaint for failure of the
respondent to implead Genlite Industries as "a proper party in interest", as provided in Section 2 of
Rule 3 of the 1997 Rules of Civil Procedure. The said section provides:
SEC. 2. Parties in interest. — A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise
authorized by law or these Rules, every action must be prosecuted or defended in the name of the
real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided that the defendant may move to
dismiss the suit on the ground that it was not brought in the name of or against the real party in
interest, with the effect that the complaint is then deemed to state no cause of action.
In dismissing the appeal, the CA noted that the petitioner in its answer below raised only the
defense of novation, and that at no stage in the proceedings did it raise the question of whether the
suit was brought in the name of the real party in interest. Moreover, the appellate court found from
the sales invoices and receipts that the respondent is the sole proprietor of Genlite Industries, and
therefore the real party-plaintiff. Said the CA:
Settled is the rule that litigants cannot raise an issue for the first time on appeal as this would
contravene the basic rules of fair play and justice.
In any event, there is no question that respondent Engr.Luis U. Parada is the proprietor of Genlite
Industries, as shown on the sales invoice and delivery receipts. There is also no question that a
special power of attorney was executed by respondent Engr.Luis U. Parada in favor of Engr.
Leonardo A. Parada authorizingthe latter to file a complaint against the petitioner.8 (Citations
omitted)
The petitioner also contended that a binding novation of the purchase contract between the parties
took place when the respondent accepted the partial payment of Enviro Kleen of ₱250,000.00 in its
behalf, and thus acquiesced to the substitution by Enviro Kleen of the petitioner as the new debtor.
But the CA noted that there is nothing in the two (2) letters of the respondent to Enviro Kleen, dated
April 14, 1999 and June 16, 1999, which would imply that he consented to the alleged novation,
and, particularly, that he intended to release the petitioner from its primary obligation to pay him for
its purchase of lighting materials. The appellate court cited the RTC’s finding9 that the respondent
informed Enviro Kleen in his first letter that he had served notice to the petitioner that he would take
legal action against it for its overdue account, and that he retained his option to pull out the lighting
materials and charge the petitioner for any damage they might sustain during the pull-out:
Respondent x x x has served notice to the petitioner that unless the overdue account is paid, the
matter will be referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It
was likewise stated therein that incidental damages that may result to the structure in the course of
the pull-out will be to the account of the petitioner.10
The CA concurred with the RTC that by retaining his option to seek satisfaction from the petitioner,
any acquiescence which the respondent had made was limited to merely accepting Enviro Kleen as
an additional debtor from whom he could demand payment, but without releasing the petitioner as
the principal debtor from its debt to him.
On motion for reconsideration,11 the petitioner raised for the first time the issue of the validity of the
verification and certification of non-forum shopping attached to the complaint. On July 18, 2008, the
CA denied the said motion for lack of merit.12
Petition for Review in the Supreme Court
In this petition, the petitioner insists, firstly, that the complaint should have been dismissed outright
by the trial court for an invalid non-forum shopping certification; and, secondly, that the appellate
court erred in not declaring that there was a novation of the contract between the parties through
substitution of the debtor, which resulted in the release of the petitioner from its obligation to pay the
respondent the amount of its purchase.13
Our Ruling
The petition is devoid of merit.
The verification and certification of
non-forum shopping in the
complaint is not a jurisdictional but
a formal requirement, and any
objection as to non-compliance
therewith should be raised in the
proceedings below and not for the
first time on appeal.
"It is well-settled that no question will be entertained on appeal unless it has been raised in the
proceedings below. Points of law, theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body, need not be considered by are viewing
court, as they cannot be raised for the first time at that late stage. Basic considerations of fairness
and due process impel this rule. Any issue raised for the first time on appeal is barred by
estoppel."14
Through a Special Power of Attorney (SPA), the respondent authorized Engr. Leonardo A. Parada
(Leonardo), the eldest of his three children, to perform the following acts in his behalf: a) to file a
complaint against the petitioner for sum of money with damages; and b) to testify in the trial thereof
and sign all papers and documents related thereto, with full powers to enter into stipulation and
compromise.15 Incidentally, the respondent, a widower, died of cardio-pulmonary arrest on January
21,2009,16 survived by his legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all
surnamed Parada. They have since substituted him in this petition, per the Resolution of the
Supreme Court dated September 2, 2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine Parada
executed an SPA authorizing their brother Leonardo to represent them in the instant petition.18
In the verification and certification of non-forum shopping attached to the complaint in Civil Case No.
Q01-45212, Leonardo as attorney-in-fact of his father acknowledged as follows:
xxxx
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are true and correct to the best of
my/our knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA that the above verification is
invalid, since the SPA executed by the respondent did not specifically include an authority for
Leonardo to sign the verification and certification of non-forum shopping, thus rendering the
complaint defective for violation of Sections 4 and 5 of Rule 7. The said sections provide, as follows:
Sec. 4. Verification. — A pleading is verified by an affidavit that the affiant has read the pleading and
that the allegations therein are true and correct of his personal knowledge or based on authentic
records.
Sec. 5. Certification against forum shopping. –– The plaintiff or principal party shall certify under
oath in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has not thereto fore commenced any
action or filed any claim involving the same issues in any court, or tribunal x x x and, to the best of
his knowledge, no such other action or claim is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present status thereof; and (c) if he should thereafter
learn that the same or similar action or claim has been filed or is pending, he shall report that fact x
x x to the court wherein his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing.
The petitioner’s argument is untenable. The petitioner failed to reckon that any objection as to
compliance with the requirement of verification in the complaint should have been raised in the
proceedings below, and not in the appellate court for the first time.20 In KILUSAN-OLALIA v. CA,21 it
was held that verification is a formal, not a jurisdictional requisite:
We have emphasized, time and again, that verification is a formal, not a jurisdictional requisite, as it
is mainly intended to secure an assurance that the allegations therein made are done in good faith
or are true and correct and not mere speculation. The Court may order the correction of the
pleading, if not verified, or act on the unverified pleading if the attending circumstances are such
that a strict compliance with the rule may be dispensed with in order that the ends of justice may be
served.
Further, in rendering justice, courts have always been, as they ought to be, conscientiously guided
by the norm that on the balance, technicalities take a backseat vis-à-vis substantive rights, and not
the other way around. x x x.22 (Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of forum shopping cannot be
raised in the CA and in the Supreme Court, since such an issue must be raised at the earliest
opportunity in a motion to dismiss or a similar pleading. The high court even warned that "invoking it
in the later stages of the proceedings or on appeal may result in the dismissal of the action x x x."24
Moreover, granting that Leonardo has no personal knowledge of the transaction subject of the
complaint below, Section 4 of Rule 7 provides that the verification need not be based on the
verifier’s personal knowledge but even only on authentic records. Sales invoices, statements of
accounts, receipts and collection letters for the balance of the amount still due to the respondent
from the petitioner are such records. There is clearly substantial compliance by the respondent’s
attorney-in-fact with the requirement of verification.
Lastly, it is well-settled that a strict compliance with the rules may be dispensed with in order that
the ends of substantial justice may be served. 25 It is clear that the present controversy must be
resolved on its merits, lest for a technical oversight the respondent should be deprived of what is
justly due him.
A sole proprietorship has no
juridical personality separate and
distinct from that of its owner, and
need not be impleaded as a party-
plaintiff in a civil case.
On the question of whether Genlite Industries should have been impleaded as a party-plaintiff,
Section 1 of Rule 3 of the Rules of Court provides that only natural or juridical persons or entities
authorized by law may be parties in a civil case. Article 44 of the New Civil Code enumerates who
are juridical persons:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or purpose, created by law; their
personality begins as soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or purpose to which the law
grants a juridical personality, separate and distinct from that of each shareholder, partner or
member.
Genlite Industries is merely the DTI-registered trade name or style of the respondent by which he
conducted his business. As such, it does not exist as a separate entity apart from its owner, and
therefore it has no separate juridical personality to sue or be sued. 26 As the sole proprietor of Genlite
Industries, there is no question that the respondent is the real party in interest who stood to be
directly benefited or injured by the judgment in the complaint below. There is then no necessity for
Genlite Industries to be impleaded as a party-plaintiff, since the complaint was already filed in the
name of its proprietor, Engr. Luis U. Parada. To heed the petitioner’s sophistic reasoning is to permit
a dubious technicality to frustrate the ends of substantial justice.
Novation is never presumed but
must be clearly and unequivocally
shown.
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor.27 It is "the substitution of a new contract, debt, or obligation for an existing one between the
same or different parties."28 Article 1293 of the Civil Code defines novation as follows:
Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives him rights mentioned in Articles 1236and 1237.
Thus, in order to change the person of the debtor, the former debtor must be expressly released
from the obligation, and the third person or new debtor must assume the former’s place in the
contractual relation.29 Article 1293 speaks of substitution of the debtor, which may either be in the
form of expromision or delegacion, as seems to be the case here. In both cases, the old debtor
must be released from the obligation, otherwise, there is no valid novation. As explained in Garcia30:
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from—and may even be
made without the knowledge of—the debtor, since it consists of a third person’s assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and unequivocal consent by the
respondent to the release of the petitioner from the obligation to pay the cost of the lighting
materials. In fact, from the letters of the respondent to Enviro Kleen, it can be said that he retained
his option to go after the petitioner if Enviro Kleen failed to settle the petitioner’s debt. As the trial
court held:
The fact that Enviro Kleen Technologies, Inc. made payments to the respondent and the latter
accepted it does not ipso facto result innovation. Novation to be given its legal effect requires that
the creditor should consent to the substitution of a new debtor and the old debtor be released from
its obligation (Art. 1293, New Civil Code). A reading of the letters dated 14 April 1999 (Exh. 1) and
dated 16 June 1999 (Exhs. 4 &4-a) sent by the respondent to Enviro Kleen Technologies, Inc.
clearly shows that there was nothing therein that would evince that the[respondent] has consented
to the exchange of the person of the debtor from the petitioner to Enviro Kleen Technologies, Inc.
xxxx
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies, Inc., the respondent expressly
stated that it has served notice to the petitioner that unless the overdue account is paid, the matter
will be referred to its lawyers and there may be a pull-out of the delivered lighting fixtures. It was
likewise stated therein that incident damages that may result to the structure in the course of the
pull-out will be to the account of the petitioner.
It is evident from the two (2) aforesaid letters that there is no indication of the respondent’s intention
to release the petitioner from its obligation to pay and to transfer it to Enviro Kleen Technologies,
Inc. The acquiescence of Enviro Kleen Technologies, Inc. to assume the obligation of the petitioner
to pay the unpaid balance of [P]816,627.00 to the respondent when there is clearly no agreement to
release the petitioner will result merely to the addition of debtors and not novation. Hence, the
creditor can still enforce the obligation against the original debtor x x x. A fact which points strongly
to the conclusion that the respondent did not assent to the substitution of Enviro Kleen
Technologies, Inc. as the new debtor is the present action instituted by the respondent against the
petitioner for the fulfillment of its obligation. A mere recital that the respondent has agreed or
consented to the substitution of the debtor is not sufficient to establish the fact that there was a
novation. x x x.32
The settled rule is that novation is never presumed,33 but must be clearly and unequivocally
shown.34 In order for a new agreement to supersede the old one, the parties to a contract must
expressly agree that they are abrogating their old contract in favor of a new one. 35 Thus, the mere
substitution of debtors will not result innovation,36 and the fact that the creditor accepts payments
from a third person, who has assumed the obligation, will result merely in the addition of debtors
and not novation, and the creditor may enforce the obligation against both debtors. 37 If there is no
agreement as to solidarity, the first and new debtors are considered obligated jointly.38 As explained
in Reyes v. CA39:
The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s
consent in conventional subrogation in order that a novation shall legally take place. The mere
circumstance of AFP-MBAI receiving payments from respondent Eleazar who acquiesced to
assume the obligation of petitioner under the contract of sale of securities, when there is clearly no
agreement to release petitioner from her responsibility, does not constitute novation. At most, it only
creates a juridical relation of co-debtorship or surety ship on the part of respondent Eleazar to the
contractual obligation of petitioner to AFP-MBAI and the latter can still enforce the obligation against
the petitioner. In Ajax Marketing and Development Corporation vs. Court of Appeals which is
relevant in the instant case, we stated that —
"In the same vein, to effect a subjective novation by a change in the person of the debtor, it is
necessary that the old debtor be released expressly from the obligation, and the third person or new
debtor assumes his place in the relation. There is no novation without such release as the third
person who has assumed the debtor’s obligation becomes merely a co-debtor or surety. xxx.
Novation arising from a purported change in the person of the debtor must be clear and express
xxx."
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the
Roman Law jurisprudence, the principle – novatio non praesumitur — that novation is never
presumed. At bottom, for novation to be a jural reality, its animus must be ever present, debitum pro
debito — basically extinguishing the old obligation for the new one.40 (Citation omitted)
The trial court found that the respondent never agreed to release the petitioner from its obligation,
and this conclusion was upheld by the CA. We generally accord utmost respect and great weight to
factual findings of the trial court and the CA, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked, or the significance of which has
been misinterpreted, that if considered would have affected the result of the case.41 We find no such
oversight in the appreciation of the facts below, nor such a misinterpretation thereof, as would
otherwise provide a clear and unequivocal showing that a novation has occurred in the contract
between the parties resulting in the release of the petitioner.
Pursuant to Article 2209 of the
Civil Code, except as provided
under Central Bank Circular
No. 905, and now under Bangko
Sentral ng Pilipinas Circular
No. 799, which took effect on
July 1, 2013, the respondent may
be awarded interest of six percent
(6%) of the judgment amount by
way of actual and compensatory
damages.
It appears from the recital of facts in the trial court’s decision that the respondent demanded interest
of two percent (2%) per month upon the balance of the purchase price of ₱816,627.00, from judicial
demand until full payment. There is then an obvious clerical error committed in the fallo of the trial
court’s decision, for it incorrectly ordered the defendant there into pay "the sum equivalent to twenty
percent (20%) per month of the principal obligation due from date of judicial demand until fully paid
as and for interest."42
A clerical mistake is one which is visible to the eyes or obvious to the understanding; an error made
by a clerk or a transcriber; a mistake in copying or writing.43 The Latin maxims Error placitandi
aequitatem non tollit ("A clerical error does not take away equity"), and Error scribentis nocere non
debit ("An error made by a clerk ought not to injure; a clerical error may be corrected") are apt in this
case.44 Viewed against the landmark case of Medel v. CA 45, an award of interest of 20% per month
on the amount due is clearly excessive and iniquitous. It could not have been the intention of the
trial court, not to mention that it is way beyond what the plaintiff had prayed for below.
It is settled that other than in the case of judgments which are void ab initio for lack of jurisdiction, or
which are null and void per se, and thus may be questioned at any time, when a decision is final,
even the court which issued it can no longer alter or modify it, except to correct clerical errors or
mistakes.46
The foregoing notwithstanding, of more important consideration in the case before us is the fact that
it is nowhere stated in the trial court’s decision that the parties had in fact stipulated an interest on
the amount due to the respondent. Even granting that there was such an agreement, there is no
finding by the trial court that the parties stipulated that the outstanding debt of the petitioner would
be subject to two percent (2%) monthly interest. The most that the decision discloses is that the
respondent demanded a monthly interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that "if the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the
legal interest, which is six percent per annum." Pursuant to the said provision, then, since there is
no finding of a stipulation by the parties as to the imposition of interest, only the amount of 12% per
annum47 may be awarded by the court by way of damages in its discretion, not two percent(2%) per
month, following the guidelines laid down in the landmark case of Eastern Shipping Lines v. Court of
Appeals,48 to wit:
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained).The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or forbearance of money, goods or
credit describes a contractual obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or debt then due and payable.51 Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central
Bank (CB) Circular No. 416 shall be adjudged only in cases involving the loan or forbearance of
money. And for transactions involving payment of indemnities in the concept of damages arising
from default in the performance of obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of the Civil
Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:
"Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
per annum."
The term "forbearance," within the context of usury law, has been described as a contractual
obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower
or debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the
applicable rate, as follows: The12% per annum rate under CB Circular No. 416 shall apply only to
loans or forbearance of money, goods, or credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general," with the application of both
rates reckoned "from the time the complaint was filed until the adjudged amount is fully paid." In
either instance, the reckoning period for the commencement of the running of the legal interest shall
be subject to the condition "that the courts are vested with discretion, depending on the equities of
each case, on the award of interest."52 (Citations omitted and emphasis ours)
Pursuant, then, to Central Bank Circular No. 416, issued on July 29,1974,53 in the absence of a
written stipulation, the interest rate to be imposed in judgments involving a forbearance of credit
shall be 12% per annum, up from 6% under Article 2209 of the Civil Code. This was reiterated in
Central Bank Circular No. 905, which suspended the effectivity of the Usury Law from January 1,
1983.54 But if the judgment refers to payment of interest as damages arising from a breach or delay
in general, the applicable interest rate is 6% per annum, following Article 2209 of the Civil
Code.55 Both interest rates apply from judicial or extrajudicial demand until finality of the judgment.
But from the finality of the judgment awarding a sum of money until it is satisfied, the award shall be
considered a forbearance of credit, regardless of whether the award in fact pertained to one, and
therefore during this period, the interest rate of 12% per annum for forbearance of money shall
apply.56
But notice must be taken that in Resolution No. 796 dated May 16,2013, the Monetary Board of the
Bangko Sentral ng Pilipinas approved the revision of the interest rate to be imposed for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest. Thus, under BSP Circular No.799, issued on June 21,
2013 and effective on July 1, 2013, the said rate of interest is now back at six percent (6%), viz:
BANGKO SENTRAL NG PILIPINAS
OFFICE OF THE GOVERNOR
CIRCULAR NO. 799
Series of 2013
Subject: Rate of interest in the absence of stipulation
The monetary Board, in its Resolution No. 796 dated 16 May 2013,approved the following revisions
governing the rate of interest in the absence of stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and
Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial
Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
FOR THE MONETARY BOARD:
DIWA C. GUINIGUNDO
Officer-In-Charge
The award of attorney’s fees is not proper.
Other than to say that the petitioner "unjustifiably failed and refused to pay the respondent," the trial
court did not state in the body of its decision the factual or legal basis for its award of attorney’s fees
to the respondent, as required under Article 2208 of the New Civil Code, for which reason we have
resolved to delete the same. The rule is settled that the trial court must state the factual, legal or
equitable justification for its award of attorney’s fees.57 Indeed, the matter of attorney’s fees cannot
be stated only in the dispositive portion, but the reasons must be stated in the body of the court’s
decision.58 This failure or oversight of the trial court cannot even be supplied by the CA. As concisely
explained in Frias v. San Diego-Sison59:
Article 2208 of the New Civil Code enumerates the instances where such may be awarded and, in
all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney’s fees
as part of damages are not meant to enrich the winning party at the expense of the losing litigant.
They are not awarded every time a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. The award of attorney’s fees is the exception rather than the
general rule. As such, it is necessary for the trial court to make findings of facts and law that would
bring the case within the exception and justify the grant of such award. The matter of attorney’s fees
cannot be mentioned only in the dispositive portion of the decision. They must be clearly explained
and justified by the trial court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the trial court failed to discuss in its
Decision the reasons for awarding the same.1âwphi1 Consequently, the award of attorney’s fees
should be deleted.60 (Citations omitted)
WHEREFORE, premises considered, the Decision dated April 30, 2008 of the Court of Appeals in
CA-G.R. CV No. 83811 is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld
Construction and Development Corporation is ordered to pay respondent Engr. Luis A. Parada,
represented by Engr. Leonardo A. Parada, the principal amount due of ₱816,627.00, plus interest at
twelve percent (12%) per annum, reckoned from judicial demand until June 30, 2013, and six
percent (6%) per an own from July 1, 2013 until finality hereof, by way of actual and compensatory
damages. Thereafter, the principal amount due as adjusted by interest shall likewise earn interest at
six percent (6%) per annum until fully paid. The award of attorney's fees is DELETED.
SO ORDERED.
G.R. No. 143584             March 10, 2004
SPOUSES ANTONIO and SOLEDAD CONSING, petitioners,
vs.
COURT OF APPEALS and SUGAR PRODUCERS COOPERATIVE MARKETING
ASSOCIATION, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a petition for review1 of the 29 November 1999 Decision2 and 5 June 2000 Resolution
of the Court of Appeals in CA-G.R. CV No. 41604. The Court of Appeals affirmed the 19 June 1989
Decision3 of the Regional Trial Court of Negros Occidental, Branch 44, Bacolod City in Civil Case
No. 13514.
The Antecedent Facts
Petitioner-spouses Antonio and Soledad Consing ("Antonio and Soledad") were sugar-farm
landowners. Antonio and Soledad mortgaged their properties to the Philippine National Bank
("PNB") Victorias Branch. Antonio and Soledad also had an annual agricultural crop loan with PNB.
A portion of this loan was for a fertilizer line.
Private respondent Sugar Producers’ Cooperative Marketing Association ("SPCMA") is a
cooperative engaged in assisting planters-members procure fertilizer and other farm needs.
In 1975, Antonio and Soledad purchased on credit various grades of fertilizer through SPCMA on
the strength of the documents presented by Antonio and Soledad. The documents consisted of a
certification issued by PNB and a promissory note chargeable against PNB. The certification of PNB
stated that Antonio and Soledad "have a 1975-76 Agricultural Crop Loan line of ₱3,907,000.00 out
of which has [sic] a Fertilizer allotment of ₱1,389,400.00," and that PNB would hold for SPCMA’s
account the proceeds of said allotment "as soon as the same has been processed and approved by
us." The promissory note was for ₱481,660.52, payable to the order of PNB as payment for the
anticipated fertilizer allotment.
When SPCMA presented the promissory note, PNB refused to honor the note as Antonio and
Soledad no longer had a fertilizer line with PNB.
On 8 November 1977, SPCMA filed a complaint for collection of sum of money against Antonio and
Soledad with the Regional Trial Court of Negros Occidental, Bacolod City.
On 19 June 1989, the trial court ruled in favor of SPCMA.
Dissatisfied with the decision of the trial court, Antonio and Soledad appealed to the Court of
Appeals.
On 29 November1999, the Court of Appeals affirmed the decision of the trial court. On 5 June 2000,
the Court of Appeals denied Antonio and Soledad’s motion for reconsideration.
The Ruling of the Trial Court
We quote in full the two-page decision of the trial court, as follows:
Before this Court is a complaint for sum of money filed by plaintiff Sugar Producers’ Cooperative
Marketing Association, Inc., and against defendant-spouses Antonio and Soledad Consing.
The record shows that sometime in 1975, defendant-spouses purchased on account various grades
of fertilizers from plaintiff cooperative, as shown in Exhibits "B", "C", "D", "E", "F", "G", "H", and "I".
The total purchase price of which was ₱544,054.00 as shown in Exhibit "K". Defendant-spouses
however failed to pay their obligation to plaintiff, hence the present suit.
On the other hand, the defendant-spouses in their answer, admit their indebtedness with plaintiff
regarding the cost of fertilizers but deny the accuracy of the account, other charges and expenses
alleged in the complaint. That the promissory note executed by defendant-spouses in favor of
plaintiff was novated by a subsequent agreement.
It appears that defendant-spouses had a 1975-76 Agricultural Sugar Crop Loan Line of
₱3,907,000.00, with the Philippine National Bank, with a Fertilizer allotment of ₱1,389,400.00, as
shown in Exhibit "A". That on the strength of the assurance of defendant-spouses by presenting the
Philippine National Bank Certification (Exh. A), and Promissory Note (Exh. "J"), plaintiff delivered
voluminous fertilizers of various grades to defendants, as shown in Exhibits "B", "C", "D", "E", "F",
"G", "H" and "I". That when plaintiff presented for payment the Promissory Note to the Philippine
National Bank, the said note was dishonored by the bank for reason that defendants have no more
fertilizer line out of their alleged agricultural crop loan with the Philippine National Bank. When
plaintiff demanded payment from defendant-spouses, the latter offered some temporary payment
arrangement with the plaintiff (Exh. "O") by assigning one truck load of sugarcane daily, which
defendants failed to comply. That as of April 30, 1983, the total obligations due to plaintiff by
defendant-spouses amounted to ₱1,243,325.25, as shown in Exhibit "Q".
WHEREFORE, premises considered, the Court hereby renders judgment, ordering defendant
spouses Antonio and Soledad Consing to be jointly and severally liable to pay the plaintiff SPCMA
the sum of ₱1,243,325.25 with legal rate of interest from November 8, 1977, date of the filing of the
complaint until fully paid; ordering defendant-spouses Antonio and Soledad Consing to pay plaintiff
SPCMA jointly and severally 10% of the total unpaid obligation as attorney’s fees; and to pay the
costs of this suit.
SO ORDERED. 4
The Ruling of the Court of Appeals
The Court of Appeals ruled that based on the documentary evidence, Antonio and Soledad were the
purchasers in the transaction. Antonio signed the Fertilizer Order. Antonio bound himself and his
wife, Soledad, to pay or reimburse SPCMA for the price, including delivery expenses and taxes, of
the fertilizers. The invoices, delivery order and record of deliveries bear the name of Antonio as the
recipient or transferee of the goods. None of these actionable documents, the genuineness and due
execution of which Antonio and Soledad did not controvert, show that PNB assumed responsibility
for Antonio and Soledad’s obligations.
The Court of Appeals held that PNB was not the guarantor or surety of Antonio and Soledad. Citing
Article 2055 of the Civil Code, the Court of Appeals ruled that a guaranty cannot be presumed but
must be express. The PNB certification does not show that PNB guaranteed the transaction as the
certification merely embodied the following undertaking:
In this connection, we will hold for your account after we have been duly informed of any fertilizer
advances you may have extended to Judge & Mrs. Antonio Consing for the 1976-77 crop against
his fertilizer allotment for this aforementioned 1976-77 as soon as the same has been processed
and approved by us.5
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, finding no reversible error in the appealed decision, the same is hereby AFFIRMED.
SO ORDERED.6
The Court of Appeals denied the motion for reconsideration of Antonio and Soledad as it saw no
cogent reason to set aside its decision. The dispositive portion of the appellate court’s resolution
reads:
WHEREFORE, the subject motion for reconsideration is hereby DENIED for lack of merit.
SO ORDERED.7
The Issues
Antonio and Soledad raise the following issues in their memorandum:
1. THE COURT OF APPEALS GROSSLY ERRED IN HOLDING THAT PETITIONERS ARE LIABLE
FOR THE CLAIM OF PRIVATE RESPONDENT, IT BEING PHILIPPINE NATIONAL BANK, WHICH
IS PRIMARILY LIABLE THEREFOR.
2. THE COURT OF APPEALS GRAVELY ERRED IN ORDERING PETITIONERS TO PAY
PRIVATE RESPONDENT ₱1,243,325.25 WITH LEGAL INTERESTS FROM NOVEMBER 8, 1977,
THE DATE OF FILING OF THE COMPLAINT, AS THIS WILL AMOUNT TO DOUBLE IMPOSITION
OF INTERESTS.8
On the other hand, SPCMA believes that the issues for resolution are as follows:
1. WHETHER THE TRIAL COURT, WHICH TRIED AND DECIDED THE CASE ON THE MERITS
AND THE COURT OF APPEALS WHICH AFFIRMED ITS DECISION, ERRED IN HOLDING THAT
THE PETITIONERS ARE LIABLE FOR THE CLAIM OF SPCMA AMOUNTING TO ₱1,243,325.25
WITH THE LEGAL RATE OF INTEREST FROM NOVEMBER 8, 1977 UNTIL FULLY PAID;
2. WHETHER PETITIONERS ARE ALLOWED TO CHANGE THEIR THEORY OF THE CASE ON
APPEAL;
3. WHETHER THE FINDINGS OF FACT OF THE TRIAL COURT AND THE COURT OF APPEALS
WHICH AFFIRMED ITS DECISION ARE BINDING ON THE SUPREME COURT;
4. WHETHER THE INSTANT PETITION FOR REVIEW IS PRO FORMA. HAVING FAILED TO
COMPLY WITH THE 1997 RULES OF PROCEDURE, AS AMENDED, REQUIRING THAT THE
PETITION SHALL BE ACCOMPANIED BY CERTIFIED TRUE COPIES, AMONG OTHERS, OF
ALL PERTINENT PLEADINGS AND DOCUMENTS (RULE 65, SEC. 1).9
The Ruling of the Court
The petition is without merit.
Petition Complies with the Requirements of the Rules of Court
SPCMA moves for the outright dismissal of the petition on the ground that it failed to comply with the
1997 Rules of Court requiring petitions for review under Rule 45 to be accompanied by certified true
copies of "all pleadings and documents pertinent thereto."
We disagree. In Cadayona v. Court of Appeals,10 we held that in appeals by certiorari under Rule
45,11 what the rules require is a certified true copy of the questioned judgment, final order or
resolution.
The present petition is accompanied by the certified true copies of the decision of the trial court and
the decision and resolution of the Court of Appeals. The petition therefore does not suffer from any
infirmity.
Decision of the Regional Trial Court Failed to State the
Legal Basis of its Ruling
Antonio and Soledad draw our attention to the two-page decision of the trial court penned by Judge
Cicero U. Querubin ("Judge Querubin"). While Judge Querubin mentioned his factual findings, the
legal basis of his ruling is not set out in the decision. Judge Querubin failed to meet faithfully the
requirement demanded by the Constitution from the courts in rendering their decisions.
Section 14, Article VIII of the Constitution declares that:
Sec. 14. No decision shall be rendered by any court without expressing therein clearly and distinctly
the facts and the law on which it is based.
No petition for review or motion for reconsideration of a decision of the court shall be refused due
course or denied without stating the legal basis therefor. (Emphasis supplied)
The court must inform the parties to a case of the legal basis for the court’s decision so that if a
party appeals, it can point out to the appellate court the points of law to which it disagrees.12 Every
judge should know the constitutional mandate and the rationale behind it. Judge Querubin should
have known the exacting standard imposed on courts by Section 14, Article VIII of the Constitution
and should not have sacrificed the constitutional standard for brevity’s sake.
The failure of the trial court decision to measure up to the standard set by the Constitution is too
gross to ignore as it is in stark contrast to the Court of Appeals’ decision. The Court of Appeals’
decision, while also brief, being only three pages long, laid down the factual and legal reasons why
Antonio and Soledad are the ones liable to SPCMA, and not PNB. The Court of Appeals’ discussion
of the merits of this case enabled the parties to pinpoint the proper issues that we now review.
Antonio and Soledad are Solely Liable for the Value of the
Fertilizers they Purchased on Credit through SPCMA
We find no ground to overturn the factual finding of the trial court and Court of Appeals. The records
support the trial and appellate courts’ finding that Antonio and Soledad purchased on credit the
fertilizers through SPCMA. The obligation to pay is solely that of Antonio and Soledad’s since they
failed to prove that PNB was their guarantor or surety.
We will not allow Antonio and Soledad to adopt a new defense at this very late stage of the case. To
permit them to do so would not only be unfair to the other party but it would also be offensive to the
basic rules of fair play, justice and due process.13 Thus, we will not delve into Antonio and Soledad’s
new claim that PNB should be liable to SPCMA because PNB managed their farm. The fact that
Antonio and Soledad are introducing this unsubstantiated claim for the very first time is proof that
this defense is just an afterthought.
Total Amount Due to SPCMA
Antonio and Soledad contest the ₱1,243,325.25 and the legal interest the trial and appellate courts
awarded to SPCMA. Antonio and Soledad argue that the total claim of SPCMA in its complaint
amounted to only ₱607,950.49, which is the value of the unpaid fertilizers. The ₱607,950.49 should
have been the basis of the award and not the ₱1,243,325.25 which already includes the principal,
interest, liquidated damages and attorney’s fees. Antonio and Soledad insist that there was a double
imposition of interest when the trial and appellate courts ordered them to pay SPCMA
₱1,243,325.25 with legal interest from 8 November 1977, the date of filing of the complaint until full
payment. Antonio and Soledad implore us to correct this reversible error.
Antonio and Soledad raised the issue of double imposition of interest in their appeal before the
Court of Appeals but the appellate court did not pass upon this issue. We modify the award made by
the trial and appellate courts. We do not base our modification of the decisions of the two courts on
Antonio and Soledad’s theory of double imposition of interest, but on the ground that the trial and
appellate courts awarded attorney’s fees twice. We also clarify the imposition of legal interest.
The records reveal that as of 30 April 1983, the total claim of SPCMA against Antonio and Soledad
is ₱1,243,325.25.14 While SPCMA alleged in the complaint that the unpaid fertilizer account of
Antonio and Soledad was ₱607,950.49, SPCMA however further alleged in the complaint that:
it has been stipulated that in case of delay in the payment of the aforesaid obligation, defendants
[Antonio and Soledad] shall pay plaintiff [SPCMA], aside from the rate of 1% per month from the
date said obligation became overdue, another sum equivalent to twenty five (25%) percent of the
amount as attorney’s fees and expenses of collection plus (10%) percent of the indebtedness as
liquidated damages which, in either case, shall not be less than ₱250 in addition to the costs of
litigation.15
The terms and conditions of the contract embodied in the Fertilizer Order are also clear. Antonio, on
behalf of Soledad, agreed to the following terms:
I hereby agree and firmly bind myself to pay or reimburse the Sugar Producer’s Marketing
Association, Inc., the prices for which these fertilizers have been contracted for plus handling and
delivery expenses, taxes and all other charges, incidental or otherwise, it being agreed and hereby
stipulated that my fertilizer account shall automatically become overdue if not paid on actual delivery
of the fertilizer ordered if delivery is made in full and on actual delivery of each part of the whole
order, if delivery is partially made, it being further agreed and likewise hereby stipulated that interest
at the rate of one (1%) per cent a month shall be charged on all my overdue accounts beginning or
effective from the date when my aforesaid fertilizer accounts shall be considered as automatically
overdue. Notification, correspondence or other communications from the Sugar Producer’s
Marketing Association, Inc., to the corresponding planter or planters’ association shall be
considered and accepted as notification to the undersigned planter himself and any act, gesture or
representation by the planters association shall be considered as the personal actuations, gesture
or representation by the undersigned planter himself.
xxx
In the event of the planter’s failure to pay the herein fertilizer account together with the
corresponding expenses, taxes and other charges as they are considered as automatically due, the
planter hereby binds himself to further pay the Sugar Producer’s Marketing Association, Inc., an
additional sum equivalent to twenty-five (25%) per cent of the total amount due, for and as
attorney’s fees plus 10% of the indebtedness as liquidated damages, in either case not to be less
than ₱250.00 in addition to costs of collection or suit irrespective of whether the case is settled
judicially or extrajudicially. xxx16 (Emphasis ours)
Antonio and Soledad did not only bind themselves to pay the principal amount, they also promised
to pay (1) the interest of 1% per month on all the overdue accounts, (2) the additional sum of 25% of
the total amount due as attorney’s fees, and (3) 10% of the indebtedness as liquidated damages
which, in either case, shall not be less than ₱250. Since Antonio and Soledad freely entered into the
contract, the stipulations in the contract are binding on them.
The law allows a party to recover attorney’s fees under a written agreement. Article 2208 of the Civil
Code provides that an award of attorney’s fees is proper if the parties stipulate it. 17 The parties in
this case agreed in writing that Antonio and Soledad are liable for 25% attorney’s fees. The total
amount finally adjudged by the trial and appellate courts, which is ₱1,243,325.25, already includes
the stipulated 25% attorney’s fees. Yet, the trial and appellate courts still made another award of
10% attorney’s fees.
We delete the separate award of 10% attorney’s fees, as there is no basis in awarding attorney’s
fees twice. The trial and appellate courts also failed to lay down the legal and equitable reasons for
the second award of attorney’s fees. The second award of attorney’s fees, which the parties did not
stipulate, is not one of those cases enumerated in Article 2208 that would justify the award of
attorney’s fees.
The trial and appellate courts imposed legal interest on the ₱1,243,325.25 without specifying the
legal rate of interest. In Eastern Shipping Lines, Inc. v. Court of Appeals ("Eastern Shipping"), 18 we
laid down the following guidelines on the imposition of legal interest:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due is that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum xxx
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
The obligation in this case is not a loan or forbearance of money, but one that involves a contract
where SPCMA did not receive full payment for the fertilizers that it purchased for Antonio and
Soledad. Based on Article 2210 of the Civil Code19 and Eastern Shipping, the court in its discretion
may award interest at the rate of 6% per annum on the amount of damages.
We, however, find no ground to impose a legal interest of 6% per annum on the amount of damages
awarded in this case.20 Antonio and Soledad and SPCMA had already agreed in writing that all of
the overdue accounts of Antonio and Soledad should earn interest at the rate of 1% per month or
12% per annum. SPCMA also made provisions for Antonio and Soledad’s payment of 25%
attorney’s fees and 10% liquidated damages in case of their default. SPCMA has undoubtedly
amply protected itself.
The stipulated interest in this case is 1% per month or 12% per annum. As of 30 April 1983, the total
account of Antonio and Soledad amounted to ₱1,243,325.25. From then on, the ₱1,243,325.25
should have earned the stipulated interest of 1% per month or 12% per annum.
Once the judgment in this case becomes final and executory and the amount adjudged is still not
satisfied, legal interest at the rate of 12% per annum can then apply until full payment. The rate of
12% per annum is proper because the "interim period from the finality of judgment awarding a
monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of
credit."21 The actual base for the computation of this 12% interest is the amount due upon finality of
this decision.22
WHEREFORE, the appealed Decision dated 29 November 1999 of the Court of Appeals in CA-G.R.
CV No. 41604 is AFFIRMED with MODIFICATION. Petitioners Antonio and Soledad Consing are
ordered to pay ₱1,243,325.25 to Sugar Producer’s Cooperative Marketing Association, Inc. with
interest at 1% per month or 12% per annum counted from 30 April 1983 until the finality of this
decision. After this decision becomes final and executory, interest at 12% per annum shall be
additionally imposed on the total obligation until full payment. No costs.
SO ORDERED.
G.R. No. 141217. September 26, 2003
PEOPLE OF THE PHILIPPINES, appellee, v. EUSEBIO DUBAN y DOMINGO @ JUN, appellant.
DECISION
CARPIO-MORALES, J.:
From the decision1 of the Regional Trial Court, Branch 18, Manila finding appellant Eusebio Duban y
Domingo guilty beyond reasonable doubt of murder for the killing of Dionisio Barboza (the victim)
and sentencing him to suffer the penalty of reclusion perpetua, he comes to this Court on appeal.
In an information2 dated October 28, 1997, appellant was indicted as follows:
That on or about October 9, 1997 at 11:00 am, in the City of Manila, Philippines, the said accused
did then and there willfully, unlawfully and feloniously, with intent to kill and with treachery and
evident premeditation, attack, assault and use personal violence upon DIONISIO BARBOZA by then
and there striking him with a stone at the back of his head, thereby causing traumatic head injury
which cause (sic) his death thereafter.
Contrary to law.
Upon arraignment3 on November 18, 1997, appellant, assisted by counsel de oficio, entered a plea
of not guilty. Thereafter, trial on the merits ensued.
On October 9, 1997, at 11:00 a.m., appellant admittedly hurled at the victim a stone estimated to
weigh one kilo, hitting the victim at the right rear portion of his head and ear, causing him to fall on
the ground unconscious. The victim died hours later after he was brought to the Jose Reyes
Memorial Medical Center.
Appellant claimed self-defense, however. The prosecution claimed otherwise, alleging that it was
plain murder.
From the evidence of the prosecution, the following version is established. While prosecution
witness Dionisio Poquiz, a jeepney driver, was outside his house at Ramon Magsaysay Boulevard,
Sta. Mesa, Manila, the victim, a coconut vendor, passed by, pushing a cart loaded with coconuts.
Poquiz bought coconut juice and repaired to the rear seat of his parked jeepney where he sat. As
Poquiz was drinking the coconut juice, appellant approached the victim who was standing and
waiting for a customer beside his cart. When appellant, a jeepney barker, was about a meter away
from the victim, he suddenly hurled the stone which hit the right rear portion of his head and ear.
Appellant then speedily left, foiling Poquizs attempt to apprehend him.
The postmortem examination conducted on the victim by Dr. Ravell Ronald R. Baluyot of the
National Bureau of Investigation Medico-Legal Division showed the following findings:
Cyanosis, lips and nailbeds.
Blood, oozing from right ear.
Lacerated wound, stellate 2.6 x 1.5 cms., scalp, post-auricular area, right.
Scalp Hematoma, right, extensive.
Fracture, skill bones: middle and posterior fossae, linear, right.
Intracranial hemorrhage: Epidural, right parietal area; Subdural and subarachnoid right cerebral
hemisphere, extensive.
Visceral organs, congested.
4
Stomach, contains a small amount of brownish fluid.  (Underscoring supplied)
Upon the other hand, appellant detailed his self-defense as follows:
At about 12:00 noon of October 9, 1997, after alighting from a jeepney at the de la Fuente jeepney
station, as he was walking on his way home, a jeepney driver whose name he no longer
remembers, asked him to drink liquor with him. He declined the invitation as he had not yet eaten.
The drunk companion of the driver (the victim) whom he met for the first time got a glass of gin,
however, and echoed the offer, but he just the same declined it, prompting the victim to throw the
contents of the glass at his face.
Appellant thus shouted invectives at the victim who then took a bolo from the jeepney which he tried
to hit him with, but which he (appellant) was able to evade.
[ATTY. OSORIO:]
Q: So what did you do when that somebody tried to hit you but missed it (sic)?
A: They were inside the jeepney at the time drinking and they alighted from the jeep.
COURT
Q: How about you what did you do?
A: I also got off from the jeep and I evaded the blows of the bolo aimed at me.5cräläwvirtualibräry
Continuing, appellant claimed that as the victim ran after him, he ran around the jeepney because
there was an obstruction. Appellant thus took a stone placed under the tire of the jeep and with his
right hand he threw it at the victim while the latter was approaching him at a distance of about 3
meters. The stone hit the victim on the [r]ight side of his head,6 thus causing him to fall down.
Appellant thereafter ran away and went home.
Brushing aside appellants claim of self-defense, the trial court found him guilty beyond reasonable
doubt of murder by Decision of November 15, 1999, the dispositive portion of which is
quoted verbatim:
WHEREFORE, the Court finds the accused, Eusebio Duban y Domingo, guilty beyond reasonable
doubt of the crime of murder under Article 248 of the Revised Penal Code and hereby sentences
him to suffer the penalty of reclusion perpetua with all the accessory penalties provided by law and
to pay the costs.
On the civil liability of the accused, the Court further sentences him to pay the legal heirs of the
victim, Dionisio Barboza, moral and nominal damages in the respective sums of P200,000.00
and P70,000.00, and an additional sum of P50,000.00, for the loss of the victims life with interest
thereon at the legal rate of 6% per annum from today until fully paid.
SO ORDERED.
Hence, the present appeal anchored on the following assigned errors:7cräläwvirtualibräry
THE TRIAL COURT ERRED IN CONVICTING ACCUSED-APPELLANT WHEN HIS GUILT HAS
NOT BEEN PROVEN BEYOND REASONABLE DOUBT.
ASSUMING ARGUENDO THAT ACCUSED-APPELLANT IS GUILTY, THE TRIAL COURT ERRED
IN CONVICTING HIM WITH THE CRIME OF MURDER WHEN THE QUALIFYING
CIRCUMSTANCE OF TREACHERY HAS NOT BEEN PROVEN BEYOND REASONABLE DOUBT.
(Underscoring supplied)
Appellant contends that the testimony of eyewitness Poquiz, even if he was not shown to have been
actuated by any improper motive, is full of improbabilities, hence, it cannot prevail over his
(appellants) testimony.8cräläwvirtualibräry
Appellant cites Poquizs testimony that he (appellant) was one arms length away from the victim as
was Poquiz from the victim. If that were the case, appellant argues, there would have been no need
for him to throw the stone at the victim9 and Poquiz could have easily apprehended him (appellant).
Whether Poquiz estimated the correct distance from where he was in relation to where appellant
and the victim were is immaterial, however, appellant having himself admitted throwing the stone at
the victim.
Admittedly, Poquiz was not prompted by ill motive to falsely testify against appellant, hence, his
testimony should be entitled to full faith and credit.10cräläwvirtualibräry
Additionally, by appellants account, he, who is right-handed,11 threw the stone at the victim who was
about 3 meters away, while the latter was facing and approaching him with a bolo. But the victim
was admittedly hit at the right rear portion of the head,12 a fact confirmed by the above-stated result
of the postmortem examination of the victim. As thus observed by the trial court, appellants version
cannot be believed. For, it is highly improbable that the victim could be hit at the right rear portion of
his head if he and appellant were facing each other and appellant threw the stone with
his right hand,13 or that the victim could be hit at the same right rear portion of his head if he were
chasing appellant.
Neither can appellants claim that the victim was very drunk and armed with a bolo be believed. The
result of the postmortem examination of the victim gave no indication that he was drunk. As for the
claim that the victim was armed with a bolo, why appellant did not take the bolo, if indeed he had,
after the victim fell down on being hit, is contrary to human experience. For an innocent man under
similar circumstances would naturally take it with him to prove his claim of self-defense. Such
course of action is fatal to such claim of appellant.14 And so is his running away from the scene of
the incident, for a truly innocent person would normally report the matter to the police.15 But
appellant did not. Instead, he immediately fled.
And while appellant claimed during direct examination that he told his side of the incident when he
was arrested two weeks later,16 the police progress report17 accomplished on his arrest shows that
he, after being apprised of his constitutional rights and of the charge against him, opted to remain
silent.
Persons who act in legitimate defense of their persons or rights invariably surrender themselves to
the authorities and describe fully and in all candor all that has happened with a view to justify their
acts.18 But appellant did not.
In fine, appellants version of the incident and his actuations soon after do not speak of his
innocence.
The trial court did not err thus in not crediting appellants claim of self-defense. Neither did it err in
appreciating the presence of treachery in the killing.
The essence of treachery is that the attack is deliberate and without warning, done in a swift and
unexpected manner of execution, affording the hapless and unsuspecting victim no chance to resist
or escape.19 In the case at bar, the victim was standing and selling coconut,20 totally oblivious of any
impending harm when appellant suddenly threw the stone from behind him.
There is no doubt then that appellant is guilty of murder, penalized under Article 248 of the Revised
Penal Code, as amended by Republic Act No. 7569. There being neither mitigating nor aggravating
circumstance, the lesser penalty of reclusion perpetua was correctly imposed by the trial court,
pursuant to Article 63(2) of the Revised Penal Code.21cräläwvirtualibräry
As to the civil aspect of the case, in line with prevailing jurisprudence, the award of indemnity to the
heirs of the victim in the amount of P50,000.00 is affirmed, it being awarded without need of proof
other than the fact that a crime was committed resulting in the death of the victim and that the
accused was responsible therefor.22cräläwvirtualibräry
As for the award by the trial court of moral damages to the legal heirs of the victim in the amount
of P200,000.00, not only is the amount exorbitant, there is also no evidence to show that the legal
heirs of the victim suffered any mental anguish or serious anxiety arising from the victims death.
The award of P70,000.00 for nominal damages must be deleted for lack of factual and legal basis.
This Court notes that while Rolly Barboza, the victims brother, testified that the victims family
incurred medical and funeral expenses in the amount of P65,000.00, he, in support thereof,
presented a list23 of expenses. Only substantiated and proven expenses, however, or those that
appear to have been genuinely incurred in connection with the death, wake or burial of the victim
will be recognized in court.24 A list of expenses is not considered a competent proof and cannot
replace the official receipts necessary to justify the award of actual damages. 25 Neither can the
funeral contract26 submitted in evidence by the prosecution be sufficient, it not being proof that what
was stipulated therein was eventually paid.27cräläwvirtualibräry
Nonetheless, where no sufficient proof of actual damages is presented in the trial court (or when the
actual damages proven is less than P25,000.00), the amount of P25,000.00 as temperate damages
may be awarded, it being reasonable to presume that when death occurs, the family of the victim
necessarily incurs expenses for the wake and funeral.28cräläwvirtualibräry
Under Article 2206 of the Civil Code, the heirs of the victim are entitled to indemnity for loss of
earning capacity. Ordinarily, documentary evidence is necessary for the purpose. By way of
exception, testimonial evidence may suffice if the victim was either (1) self-employed, earning less
than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in
the victims line of work, no documentary evidence is available; or (2) employed as a daily-wage
worker earning less than the minimum wage under current labor laws.29 In the case at bar, however,
while the victims brother testified that the victim earned P300.00, he did not indicate whether the
same referred to the victims hourly, daily, monthly or annual income.30cräläwvirtualibräry
Indemnification for loss of earning capacity partakes of the nature of actual damages which must be
duly proven31 by competent proof and the best obtainable evidence thereof.32cräläwvirtualibräry
Exemplary damages must be awarded too in accordance with Article 2230 of the Civil Code, the
qualifying circumstance of treachery being present.33cräläwvirtualibräry
Finally, the award by the trial court of interest on damages at the legal rate of 6% per annum is in
accordance with Article 2211 of the Civil Code which states that in crimes and quasi-delicts, interest
as part of damages may, in proper cases, be adjudicated in the discretion of the court, and none
has been shown that there has been abuse in the exercise thereof.34cräläwvirtualibräry
WHEREFORE, the decision of the Regional Trial Court of Manila, Branch 18, finding appellant
EUSEBIO DUBAN y DOMINGO guilty beyond reasonable doubt of Murder and sentencing him to
suffer the penalty of reclusion perpetua is hereby AFFIRMED. The civil aspect of the case is
MODIFIED to read as follows: Appellant is hereby ORDERED to pay the heirs of Dionisio Barboza
the amounts of P50,000.00 as civil indemnity for his death, P25,000.00 as temperate damages,
and P25,000.00 as exemplary damages, with legal interest to be paid at SIX PERCENT (6%) on the
amount due computed from the promulgation of the decision of the trial court on November 15,
1999.
SO ORDERED.
G.R. No. 168736             April 19, 2006
SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, Petitioners,
vs.
SPOUSES RENATO CUYCO and FILIPINA CUYCO, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the Decision1 of the Court of Appeals (CA) in CA G.R.
CV No. 62352 dated November 5, 2003 which modified the Decision 2 of the Regional Trial Court
(RTC) of Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as
the Resolution3 dated June 28, 2005 denying the motion for reconsideration thereof.
The facts of the case are as follows:
Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00
from respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per
annum, and secured by a Real Estate Mortgage 4 over a parcel of land with improvements thereon
situated in Cubao, Quezon City covered by TCT No. RT-43723 (188321).5
Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount
of P1,250,000.00, broken down as follows: (1) P150,000.00 on May 30, 1992; (2) P150,000.00 on
July 1, 1992; (3) P500,000.00 on September 5, 1992; (4) P200,000.00 on October 29, 1992; and (5)
P250,000.00 on January 13, 1993.6
Petitioners made payments amounting to P291,700.00,7 but failed to settle their outstanding loan
obligations. Thus, on September 10, 1997, respondents filed a complaint8 for foreclosure of
mortgage with the RTC of Quezon City, which was docketed as Civil Case No. Q-97-32130. They
alleged that petitioners’ loans were secured by the real estate mortgage; that as of August 31, 1997,
their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly;
and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate
mortgage.
Petitioners filed a motion to dismiss9 on the ground that the complaint states no cause of action
which was denied by the RTC10 for lack of merit.
In their answer,11 petitioners admitted their loan obligations but argued that only the original loan of
P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no
agreement that the same will be compounded monthly.
On January 27, 1999, the RTC rendered judgment12 in favor of the respondents, the dispositive
portion of which reads:
WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor of
the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of
P6,332,019.84, plus interest until fully paid, P25,000.00 as attorney’s fees, and costs of suit, within a
period of one hundred and twenty (120) days from the entry of judgment, and in case of default of
such payment and upon proper motion, the property shall be ordered sold at public auction to satisfy
the judgment. Further, defendants[’] counterclaim is dismissed.
SO ORDERED.13
Petitioners appealed to the CA reiterating their previous claim that only the amount of
P1,500,000.00 was secured by the real estate mortgage. 14 They also contended that the RTC erred
in ordering the foreclosure of the real estate mortgage to satisfy the total indebtedness of
P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and in imposing legal interest of
12% per annum on the stipulated interest of 18% from the filing of the case until fully paid.15
On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar
as the amount of the loan obligations secured by the real estate mortgage. It held that by express
intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the
subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5,
1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January
13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate
tribunal held that the parties never intended the same to be secured by the real estate mortgage.
The Court of Appeals also found that the trial court properly imposed 12% legal interest on the
stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision
reads:
WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional
Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130 is hereby MODIFIED to read:
"WHEREFORE, in the light of the foregoing, the Court renders judgment on the Complaint in favor
of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount
of P2,149,113.92[,] representing the total outstanding principal loan of the said defendants, plus the
stipulated interest at the rate of 18% per annum accruing thereon until fully paid, within a period of
one hundred and twenty days from the entry of judgment, and in case of default of such payment
and upon motion, the property, subject of the real estate mortgage contract, shall be ordered sold at
public auction in satisfaction of the mortgage debts.1avvphil.net
Defendants are further, ordered to pay the plaintiffs the following:
1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum,
computed from the filing of the complaint until fully paid;
2. the sum of P25,000.00 as and for attorney’s fees; and
3. the costs of suit."
SO ORDERED.16
Hence, the instant petition for review on the sole issue:
WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12%
PER ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE
FILING OF THE COMPLAINT UNTIL FULL PAID.17
Petitioners contend that the imposition of the 12% legal interest per annum on the stipulated interest
of 18% per annum computed from the filing of the complaint until fully paid was not provided in the
real estate mortgage contract, thus, the same has no legal basis.
We are not persuaded.
While a contract is the law between the parties,18 it is also settled that an existing law enters into and
forms part of a valid contract without the need for the parties expressly making reference to
it.19 Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the
imposition of the legal interest on the stipulated interest due. It reads:
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
The foregoing provision has been incorporated in the comprehensive summary of existing rules on
the computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of
Appeals,20 to wit:
1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied)
In the case at bar, the evidence shows that petitioners obtained several loans from the respondent,
some of which as held by the CA were secured by real estate mortgage and earned an interest of
18% per annum. Upon default thereof, respondents demanded payment from the petitioners by
filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule
stated in paragraph 1.
Applying the rules in the computation of interest, the principal amount of loans subject of the real
estate mortgage must earn the stipulated interest of 18% per annum, which  interest, as long as
unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the
complaint on September 10, 1997 until finality of the Court’s Decision. Such interest is not due to
stipulation but due to the mandate of the law 21 as embodied in Article 2212 of the Civil Code. From
such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.22
Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no
longer be true upon the finality of this Court’s decision. In accordance with the rules laid down
in Eastern Shipping Lines, Inc. v. Court of Appeals, we derive the following formula23 for the RTC’s
guidance:
TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made
Interest = principal x 18 % per annum x no. of years from due date until finality of judgment
Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12%
x no. of years until finality of judgment
Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until
fully paid.
In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,24 this Court held
that the total amount due on the contracts of loan may be easily determined by the trial court
through a simple mathematical computation based on the formula specified above. Mathematics is
an exact science, the application of which needs no further proof from the parties.
As regards what loans were secured by the real estate mortgage, respondents contended that all
five additional loans were intended by the parties to be secured by the real estate mortgage. Thus,
the CA erred in ruling that only two of the five additional loans were secured by the real estate
mortgage when the documents evidencing said loans would show at least three loans were secured
by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000.00
obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.25
In their Reply, petitioners alleged that their petition only raised the sole issue of interest on the
interest due, thus, by not filing their own petition for review, respondents waived their privilege to
bring matters for the Court’s review that do not deal with the sole issue raised.
Procedurally, the appellate court in deciding the case shall consider only the assigned errors,
however, it is equally settled that the Court is clothed with ample authority to review matters not
assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just
disposition of the case.26
Moreover, as an exception to the rule that findings of facts of the CA are conclusive and binding on
the Court,27 an independent evaluation of facts may be done by it when the findings of facts are
conflicting,28 as in this case.
The RTC held that all the additional loans were secured by the real estate mortgage, thus:
There is, therefore, a preponderance of evidence to show that the parties agreed that the additional
loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh.
B) was not amended and thereafter annotated at the back of the title (Exh. C) because under Article
2125 of the Civil Code, if the instrument of mortgage is not recorded, the mortgage is nevertheless
binding between the parties. It is extremely difficult for the court to perceive that the plaintiffs
required the defendants to execute a mortgage on the first loan and thereafter fail to do so on the
succeeding loans. Such contrary behavior is unlikely.29
The CA modified the RTC decision holding that:
However, the real estate mortgage contract was supplemented by the express intention of the
mortgagors (defendants-appellants) to secure the subsequent loans they obtained from the
mortgagees (plaintiffs-appellees), on 01 July 1992, in the amount of P150,000.00, and on 05
September 1992, in the amount of P500,000.00. The mortgagors’ (defendants-appellants) intention
to secure a larger amount than that stated in the real estate mortgage contract was unmistakable in
the acknowledgment receipts they issued on the said loans. The acknowledgment receipts read:
"July 1, [1]992
"Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150,000.00 July
1/92 as additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C.
(SGD) Adelina S. Cuyco"
"Sept. 05/92
"Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PCIB Ck #
468657 as additional loan from mortgage property TCT RT-43723.
(SGD) Adelina S. Cuyco"
In such case, the specific amount mentioned in the real estate mortgage contract no longer controls.
By express intention of the mortgagors (defendants-appellants) the real estate mortgage contract,
as supplemented, secures the P1,500,000.00 loan obtained on 25 November 1991; the
P150,000.00 loan obtained on 01 July 1992; and the P500,000.00 loan obtained on 05 September
1992. All these loans are subject to stipulated interest of 18% per annum provided in the real estate
mortgage contract.
With respect to the other subsequent loans of the defendants-appellants in the amount of
P150,000.00, obtained on 31 May 1992; in the amount of P200,000.00, obtained on 29 October
1992; and, in the amount of P250,000.00, obtained on 13 January 1993, nothing in the records
remotely suggests that the mortgagor (defendants-appellants), likewise, intended the said loans to
be secured by the real estate mortgage contract. Consequently, we rule that the trial court did err in
declaring said loans to be secured by the real estate mortgage contract.30
As a general rule, a mortgage liability is usually limited to the amount mentioned in the
contract.31 However, the amounts named as consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if from the four corners of the instrument the
intent to secure future and other indebtedness can be gathered. This stipulation is valid and binding
between the parties and is known in American Jurisprudence as the "blanket mortgage clause," also
known as a "dragnet clause." 32
A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes
available additional funds without their having to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.33
While a real estate mortgage may exceptionally secure future loans or advancements, these future
debts must be sufficiently described in the mortgage contract. An obligation is not secured by a
mortgage unless it comes fairly within the terms of the mortgage contract.34
The pertinent provisions of the November 26, 1991 real estate mortgage reads:
That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE
THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is hereby
acknowledged and confessed, payable within a period of one year, with interest at the rate of
eighteen percent (18%) per annum;
That for and in consideration of said indebtedness, the MORTGAGOR does hereby convey and
deliver by way of MORTGAGE unto said MORTGAGEE, the latter’s heirs and assigns, the following
realty together with all the improvements thereon and situated at Cubao, Quezon City, and
described as follows:
xxxx
PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto the
MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED
THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the agreed interest thereon,
within the agreed term of one year on a monthly basis then this MORTGAGE shall be discharged,
and rendered of no force and effect, otherwise it shall subsist and be subject to foreclosure in the
manner and form provided by law.
It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the
mortgaged realty shall also secure future loans and advancements. Thus, what applies is the
general rule above stated.
Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992,
P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on September 5, 1992 to be
secured by the same real estate mortgage, as shown in the acknowledgement receipts, it is not
sufficient in law to bind the realty for it was not made substantially in the form prescribed by law.
In order to constitute a legal mortgage, it must be executed in a public document, besides being
recorded. A provision in a private document, although denominating the agreement as one of
mortgage, cannot be considered as it is not susceptible of inscription in the property registry. A
mortgage in legal form is not constituted by a private document, even if such mortgage be
accompanied with delivery of possession of the mortgage property.35 Besides, by express provisions
of Section 127 of Act No. 496, a mortgage affecting land, whether registered under said Act or not
registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the
land unless made substantially in the form therein prescribed. It is required, among other things, that
the document be signed by the mortgagor executing the same, in the presence of two witnesses,
and acknowledged as his free act and deed before a notary public. A mortgage constituted by
means of a private document obviously does not comply with such legal requirements.36
What the parties could have done in order to bind the realty for the additional loans was to execute
a new real estate mortgage or to amend the old mortgage conformably with the form prescribed by
the law. Failing to do so, the realty cannot be bound by such additional loans, which may be
recovered by the respondents in an ordinary action for collection of sums of money.
Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the
stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a
stipulation that the legal interest on the stipulated interest due, attorney’s fees, and costs of suit
must be paid first before the same may be discharged.37
We do not agree.
Section 2, Rule 68 of the Rules of Court provides:
SEC. 2. Judgment on foreclosure for payment or sale. — If upon the trial in such action the court
shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the
plaintiff upon the mortgage debt or obligation, including interest and other charges as
approved by the court, and costs, and shall render judgment for the sum so found due and order
that the same be paid to the court or to the judgment obligee within a period of not less than ninety
(90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in
default of such payment the property shall be sold at public auction to satisfy the judgment.
(Emphasis added)
Indeed, the above provision of the Rules of Court provides that the mortgaged property may be
charged not only for the mortgage debt or obligation but also for the interest, other charges and
costs approved by the court. Thus, to discharge the real estate mortgage, petitioners must pay the
respondents (1) the total amount due, as computed in accordance with the formula indicated above,
that is, the principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the
stipulated interest due of 12% computed from the filing of the complaint until finality of the decision
less partial payments made, (2) the 12% legal interest on the total amount due from finality until fully
satisfied, (3) the reasonable attorney’s fees of P25,000.00 and (4) the costs of suit, within the period
specified by the Rules. Should the petitioners default in the payment thereof, the property shall be
sold at public auction to satisfy the judgment.
WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No.
62352 dated November 5, 2003, which modified the Decision of the Regional Trial Court of Quezon
City, Branch 105, in Civil Case No. Q-97-32130, is AFFIRMED with the MODIFICATIONS that
petitioners are ordered to pay the respondents (1) the total amount due, as computed by the RTC in
accordance with the formula specified above, (2) the legal interest of 12% per annum on the total
amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorney’s
fees, and (4) the costs of suit, within a period of not less than 90 days nor more than 120 days from
the entry of judgment, and in case of default of such payment the property shall be sold at public
auction to satisfy the judgment.
SO ORDERED.
G.R. No. 125817            January 16, 2002
ABELARDO LIM and ESMADITO GUNNABAN, petitioners,
vs.
COURT OF APPEALS and DONATO H. GONZALES, respondents.
BELLOSILLO, J.:
When a passenger jeepney covered by a certificate of public convenience is sold to another who
continues to operate it under the same certificate of public convenience under the so-
called kabit system, and in the course thereof the vehicle meets an accident through the fault of
another vehicle, may the new owner sue for damages against the erring vehicle? Otherwise stated,
does the new owner have any legal personality to bring the action, or is he the real party in interest
in the suit, despite the fact that he is not the registered owner under the certificate of public
convenience?
Sometime in 1982 private respondent Donato Gonzales purchased an Isuzu passenger jeepney
from Gomercino Vallarta, holder of a certificate of public convenience for the operation of public
utility vehicles plying the Monumento-Bulacan route. While private respondent Gonzales continued
offering the jeepney for public transport services he did not have the registration of the vehicle
transferred in his name nor did he secure for himself a certificate of public convenience for its
operation. Thus Vallarta remained on record as its registered owner and operator.1âwphi1.nêt
On 22 July 1990, while the jeepney was running northbound along the North Diversion Road
somewhere in Meycauayan, Bulacan, it collided with a ten-wheeler-truck owned by petitioner
Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnaban owned responsibility
for the accident, explaining that while he was traveling towards Manila the truck suddenly lost its
brakes. To avoid colliding with another vehicle, he swerved to the left until he reached the center
island. However, as the center island eventually came to an end, he veered farther to the left until
he smashed into a Ferroza automobile, and later, into private respondent's passenger jeepney
driven by one Virgilio Gonzales. The impact caused severe damage to both the Ferroza and the
passenger jeepney and left one (1) passenger dead and many others wounded.
Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated the heirs of the
deceased passenger, and had the Ferroza restored to good condition. He also negotiated with
private respondent and offered to have the passenger jeepney repaired at his shop. Private
respondent however did not accept the offer so Lim offered him ₱20,000.00, the assessment of the
damage as estimated by his chief mechanic. Again, petitioner Lim's proposition was rejected;
instead, private respondent demanded a brand-new jeep or the amount of ₱236,000.00. Lim
increased his bid to ₱40,000.00 but private respondent was unyielding. Under the circumstances,
negotiations had to be abandoned; hence, the filing of the complaint for damages by private
respondent against petitioners.
In his answer Lim denied liability by contending that he exercised due diligence in the selection and
supervision of his employees. He further asserted that as the jeepney was registered in Vallarta’s
name, it was Vallarta and not private respondent who was the real party in interest.1 For his part,
petitioner Gunnaban averred that the accident was a fortuitous event which was beyond his control.2
Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and decay. Private
respondent explained that although he wanted to take his jeepney home he had no capability,
financial or otherwise, to tow the damaged vehicle.3
The main point of contention between the parties related to the amount of damages due private
respondent. Private respondent Gonzales averred that per estimate made by an automobile repair
shop he would have to spend ₱236,000.00 to restore his jeepney to its original condition. 4 On the
other hand, petitioners insisted that they could have the vehicle repaired for ₱20,000.00.5
On 1 October 1993 the trial court upheld private respondent's claim and awarded him ₱236,000.00
with legal interest from 22 July 1990 as compensatory damages and ₱30,000.00 as attorney's fees.
In support of its decision, the trial court ratiocinated that as vendee and current owner of the
passenger jeepney private respondent stood for all intents and purposes as the real party in
interest. Even Vallarta himself supported private respondent's assertion of interest over the jeepney
for, when he was called to testify, he dispossessed himself of any claim or pretension on the
property. Gunnaban was found by the trial court to have caused the accident since he panicked in
the face of an emergency which was rather palpable from his act of directing his vehicle to a
perilous streak down the fast lane of the superhighway then across the island and ultimately to the
opposite lane where it collided with the jeepney.
On the other hand, petitioner Lim's liability for Gunnaban's negligence was premised on his want of
diligence in supervising his employees. It was admitted during trial that Gunnaban doubled as
mechanic of the ill-fated truck despite the fact that he was neither tutored nor trained to handle such
task.6
Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996, affirmed the
decision of the trial court. In upholding the decision of the court a quo the appeals court concluded
that while an operator under the kabit system could not sue without joining the registered owner of
the vehicle as his principal, equity demanded that the present case be made an exception. 7 Hence
this petition.
It is petitioners' contention that the Court of Appeals erred in sustaining the decision of the trial court
despite their opposition to the well-established doctrine that an operator of a vehicle continues to be
its operator as long as he remains the operator of record. According to petitioners, to recognize an
operator under the kabit system as the real party in interest and to countenance his claim for
damages is utterly subversive of public policy. Petitioners further contend that inasmuch as the
passenger jeepney was purchased by private respondent for only ₱30,000.00, an award of
₱236,000.00 is inconceivably large and would amount to unjust enrichment.8
Petitioners' attempt to illustrate that an affirmance of the appealed decision could be supportive of
the pernicious kabit system does not persuade. Their labored efforts to demonstrate how the
questioned rulings of the courts a quo are diametrically opposed to the policy of the law requiring
operators of public utility vehicles to secure a certificate of public convenience for their operation is
quite unavailing.
The kabit system is an arrangement whereby a person who has been granted a certificate of public
convenience allows other persons who own motor vehicles to operate them under his license,
sometimes for a fee or percentage of the earnings. 9 Although the parties to such an agreement are
not outrightly penalized by law, the kabit system is invariably recognized as being contrary to public
policy and therefore void and inexistent under Art. 1409 of the Civil Code.
In the early case of Dizon v. Octavio10 the Court explained that one of the primary factors considered
in the granting of a certificate of public convenience for the business of public transportation is the
financial capacity of the holder of the license, so that liabilities arising from accidents may be duly
compensated. The kabit  system renders illusory such purpose and, worse, may still be availed of by
the grantee to escape civil liability caused by a negligent use of a vehicle owned by another and
operated under his license. If a registered owner is allowed to escape liability by proving who the
supposed owner of the vehicle is, it would be easy for him to transfer the subject vehicle to another
who possesses no property with which to respond financially for the damage done. Thus, for the
safety of passengers and the public who may have been wronged and deceived through the
baneful kabit system, the registered owner of the vehicle is not allowed to prove that another person
has become the owner so that he may be thereby relieved of responsibility. Subsequent cases
affirm such basic doctrine.11
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to
penalize the parties but to identify the person upon whom responsibility may be fixed in case of an
accident with the end view of protecting the riding public. The policy therefore loses its force if the
public at large is not deceived, much less involved.
In the present case it is at once apparent that the evil sought to be prevented in enjoining
the kabit  system does not exist. First, neither of the parties to the pernicious kabit  system is being
held liable for damages. Second, the case arose from the negligence of another vehicle in using the
public road to whom no representation, or misrepresentation, as regards the ownership and
operation of the passenger jeepney was made and to whom no such representation, or
misrepresentation, was necessary. Thus it cannot be said that private respondent Gonzales and the
registered owner of the jeepney were in estoppel for leading the public to believe that the jeepney
belonged to the registered owner. Third, the riding public was not bothered nor inconvenienced at
the very least by the illegal arrangement. On the contrary, it was private respondent himself who
had been wronged and was seeking compensation for the damage done to him. Certainly, it would
be the height of inequity to deny him his right.
In light of the foregoing, it is evident that private respondent has the right to proceed against
petitioners for the damage caused on his passenger jeepney as well as on his business. Any effort
then to frustrate his claim of damages by the ingenuity with which petitioners framed the issue
should be discouraged, if not repelled.
In awarding damages for tortuous injury, it becomes the sole design of the courts to provide for
adequate compensation by putting the plaintiff in the same financial position he was in prior to the
tort. It is a fundamental principle in the law on damages that a defendant cannot be held liable in
damages for more than the actual loss which he has inflicted and that a plaintiff is entitled to no
more than the just and adequate compensation for the injury suffered. His recovery is, in the
absence of circumstances giving rise to an allowance of punitive damages, limited to a fair
compensation for the harm done. The law will not put him in a position better than where he should
be in had not the wrong happened.12
In the present case, petitioners insist that as the passenger jeepney was purchased in 1982 for only
₱30,000.00 to award damages considerably greater than this amount would be improper and
unjustified. Petitioners are at best reminded that indemnification for damages comprehends not only
the value of the loss suffered but also that of the profits which the obligee failed to obtain. In other
words, indemnification for damages is not limited to  damnum emergens or actual loss but extends
to lucrum cessans or the amount of profit lost.13
Had private respondent's jeepney not met an accident it could reasonably be expected that it would
have continued earning from the business in which it was engaged. Private respondent avers that
he derives an average income of ₱300.00 per day from his passenger jeepney and this earning was
included in the award of damages made by the trial court and upheld by the appeals court. The
award therefore of ₱236,000.00 as compensatory damages is not beyond reason nor speculative as
it is based on a reasonable estimate of the total damage suffered by private
respondent, i.e. damage wrought upon his jeepney and the income lost from his transportation
business. Petitioners for their part did not offer any substantive evidence to refute the estimate
made by the courts a quo.
However, we are constrained to depart from the conclusion of the lower courts that upon the award
of compensatory damages legal interest should be imposed beginning 22 July 1990, i.e.  the date of
the accident. Upon the provisions of Art. 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." It is axiomatic that if the suit were for damages, unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof, interest at the rate of six percent
(6%) per annum should be from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to be reasonably ascertained).14
In this case, the matter was not a liquidated obligation as the assessment of the damage on the
vehicle was heavily debated upon by the parties with private respondent's demand for ₱236,000.00
being refuted by petitioners who argue that they could have the vehicle repaired easily for
₱20,000.00. In fine, the amount due private respondent was not a liquidated account that was
already demandable and payable.
One last word. We have observed that private respondent left his passenger jeepney by the
roadside at the mercy of the elements. Article 2203 of the Civil Code exhorts parties suffering from
loss or injury to exercise the diligence of a good father of a family to minimize the damages resulting
from the act or omission in question. One who is injured then by the wrongful or negligent act of
another should exercise reasonable care and diligence to minimize the resulting damage. Anyway,
he can recover from the wrongdoer money lost in reasonable efforts to preserve the property injured
and for injuries incurred in attempting to prevent damage to it.15
However we sadly note that in the present case petitioners failed to offer in evidence the estimated
amount of the damage caused by private respondent's unconcern towards the damaged vehicle. It
is the burden of petitioners to show satisfactorily not only that the injured party could have mitigated
his damages but also the amount thereof; failing in this regard, the amount of damages awarded
cannot be proportionately reduced.
WHEREFORE, the questioned Decision awarding private respondent Donato Gonzales
₱236,000.00 with legal interest from 22 July 1990 as compensatory damages and ₱30,000.00 as
attorney's fees is MODIFIED. Interest at the rate of six percent (6%) per annum shall be computed
from the time the judgment of the lower court is made until the finality of this Decision. If the
adjudged principal and interest remain unpaid thereafter, the interest shall be twelve percent (12%)
per annum computed from the time judgment becomes final and executory until it is fully
satisfied.1âwphi1.nêt
Costs against petitioners.
SO ORDERED.
G.R. No. L-48250 December 28, 1979
GRAND UNION SUPERMARKET, INC. and NELIA SANTOS FANDINO, petitioners,
vs.
JOSE J. ESPINO JR., and THE HONORABLE COURT OF APPEALS, respondents.
GUERRERO, J.
This is a petition tor certiorari by way of appeal from the decision of the Court of Appeals 1 dated
September 26, 1977 rendered in CA-G.R. No. 55186-R entitled "Jose J. Espino, Jr., plaintiff-
appellant. versus Grand Union Supermarket, Inc. and Nelia Santos-Fandino, defendants-appellees,"
the dispositive portion of which states;
WHEREFORE, the appealed judgment is hereby reversed and set aside. Defendants are ordered to
pay plaintiff-jointly and severally, the sum of Seventy-Five Thousand Pesos (P75,000.00) by way of
moral damages. Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages, and Five
Thousand Pesos (P5,000.00) as attorney's fee, Costs of both instances shall be taxed against the
defendant defendants.
The facts of the case are as stated in the decision of the respondent court to wit:
"Upon the evidence, and from the findings of the lower court, it appears that in the morning of
August 22, 1970, plaintiff Jose J. Espino. Jr., a civil engineer and an executive of Procter and
Gamble Philippines, Inc., and his wife and their two daughters went to shop at the defendants'
South Supermarket in Makati. While his wife was shopping at the groceries section, plaintiff
browsed around the other parts of the market. Finding a cylindrical "rat tail" file which he needed in
his hobby and had been wanting to buy, plaintiff picked up that item from one of the shelves. He
held it in his hand thinking that it might be lost, because of its tiny size, if he put it in his wife's
grocery cart. In the course of their shopping, plaintiff and his wife saw the maid of plaintiff's aunt.
While talking to this maid, plaintiff stuck the file into the front breast pocket of his shirt with a good
part of the merchandise exposed.
"At the check-out counter, the plaintiff paid for his wife's purchases which amounted to P77.00, but
he forgot to pay for the file. As he was leaving by the exit of the supermarket on his way to his car,
carrying two bags of groceries and accompanied by his wife and two daughter, plaintiff was
approached by a uniformed guard of the supermarket who said: "Excuse me, Mr., I think you have
something in your pocket which you have not paid for." (p. 5, tsn, Aug. 13, 1971), pointing to his left
front breast pocket. Suddenly reminded of the file, plaintiff apologized thus: "I am sorry," and he
turned back toward the cashier to pay for the file. But the guard stopped him and led him instead
toward the rear of the supermarket. The plaintiff protested but the guard was firm saying: "No, Mr.,
please come with me. It is the procedure of the supermarket to bring people that we apprehend to
the back of the supermarket" (p. 8, Ibid). The time was between 9 and 10 o'clock. A crowd of
customers on their way into the supermarket saw the plaintiff being stopped and led by a uniformed
guard toward the rear of the supermarket. Plaintiff acquiesced and signaled to his wife and
daughters to wait.
"Into a cubicle which was immediately adjacent to the area where deliveries to the supermarket
were being made, the plaintiff was ushered. The guard directed him to a table and gave the file to
the man seated at the desk. Another man stood beside the plaintiff. The man at the desk looked at
the plaintiff and the latter immediately explained the circumstances that led to the finding of the file
in his possession. The man at the desk pulled out a sheet of paper and began to ask plaintiff's
name, age, residence and other personal data. Plaintiff was asked to make a brief statement, and
on the sheet of paper or "Incident Report" he wrote down the following: "While talking to my aunt's
maid with my wife, I put this item in my shirt pocket. I forgot to check it out with my wife's items"
(Exhibit A). Meanwhile, the plaintiff's wife joined him and asked what had taken him so long.
"The guard who had accosted plaintiff took him back inside the supermarket in the company of his
wife. Plaintiff and his wife were directed across the main entrance to the shopping area, down the
line of check-out counters, to a desk beside the first checkout counter. To the woman seated at the
desk, who turned out to be defendant Nelia Santos-Fandino, the guard presented the incident report
and the file, Exhibit B. Defendant Fandino read the report and addressing the guard remarked:
"Ano, nakaw na naman ito" (p. 22, Id.). Plaintiff explained and narrated the incident that led to the
finding of the file in his pocket, telling Fandino that he was going to pay for the file because he
needed it. But this defendant replied: "That is all they say, the people whom we cause not paying for
the goods say... They all intended to pay for the things that are found to them." (p. 23, Id). Plaintiff
objected and said that he was a regular customer of the supermarket.
"Extracting a P5.00 bill from his pocket, plaintiff told Fandino that he was paying for the file whose
cost was P3.85. Fandino reached over and took the P5.00 bill from plaintiff with these words: "We
are fining you P5.00. That is your the fine." Plaintiff was shocked. He and his wife objected
vigorously that he was not a common criminal, and they wanted to get back the P5.00. But Fandino
told them that the money would be given as an incentive to the guards who apprehend pilferers.
People were milling around them and staring at the plaintiff. Plaintiff gave up the discussion. He
drew a P50.00 bill and took back the file. Fandino directed him to the nearest check-out counter
where he had to fall in line. The people who heard the exchange of words between Fandino and
plaintiff continued to stare at him. At the trial, plaintiff expressed his embarrassment and humiliation
thus: " I felt as though I wanted to disappear into a hole on the ground" (p. 34, Id.). After paying for
the file, plaintiff and his wife walked as fast as they could out of the supermarket. His first impulse
was to go back to the supermarket that night to throw rocks at its glass windows. But reason
prevailed over passion and he thought that justice should take its due course.
"Plaintiff was certain during the trial that when he signed the incident report, Exhibit A, inside the
cubicle at the back of the supermarket only his brief statement of the facts (Exhibit A-2), aside from
his name and personal circumstances, was written thereon. He swore that the following were not in
the incident report at, the time he signed it:
Exhibit A-I which says opposite the stenciled word SUBJECT "Shoplifting"
Exhibit A-3 which says opposite the stenciled words Action Taken: Released by Mrs. Fandino after
paying the item.
Exhibit A-4 which says opposite the stenciled words Remarks Noted: "Grd. Ebreo requested Grd.
Paunil to apprehend subject shoplifter.
Private respondent's complaint filed on October 8, 1970 is founded on Article 21 in relation to Article
2219 of the New Civil Code and prays for moral damages, exemplary damages, attorney s fees and
'expenses of litigation, costs of the suit and the return of the P5.00 fine. After trial, the Court of First
Instance of Pasig, Rizal, Branch XIX dismissed the complaint, Interposing the appeal to the Court of
Appeals, the latter reversed and set aside the appealed judgment, granting and damages as earlier
stated.
Not satisfied with the decision of the respondent court, petitioners instituted the present petition and
submits the following grounds and/or assignment of errors, to wit:
I pocket which you have not paid for," Espino, immediately apologized and answered, "I am sorry,"
Respondent Court of Appeals erred in awarding moral and exemplary damages to the respondent
Espino under Articles 19 and 21 in relation to Article 2219 of the Civil Code, considering that —
A. Respondent Espino was guilty of theft;
B. Petitioners legitimately exercised their right of defense of property within the context of Article
429 of the Civil Code negating the application of Articles 19 and 21 of the same Code;
C. Petitioners acted upon probable cause in stopping and investigating respondent Espino for
shoplifting and as held in various decisions in the United States on shoplifting, a merchant who acts
upon probable cause should not be held liable in damages by the suspected shoplifter;
D. Petitioners did not exercise their right maliciously, wilfully or in bad faith; and/or
E. The proximate cause of respondent Espino's alleged injury or suffering was his own negligence
or forgetfulness; petitioners acted in good faith.
II
Assuming arguendo that petitioners are hable for moral and exemplary damages, the award of
P75,000.00 for moral damages and P25,000.00 for exemplary damages by the respondent Court of
Appeals is not legally justified and/or is grossly excessive in the premises.
III
The award of P5,000.00 for attorney's fees by the respondent Court of Appeals is unjustified and
unwarranted under Article 2199 of the Civil Code.
We agree with the holding of the respondent appellate court that "the evidence sustains the court's
finding that the plaintiff had absolutely no intention to steal the file." The totality of the facts and
circumstances as found by the Court of Appeals unerringly points to the conclusion that private
respondent did not intend to steal the file and that is act of picking up the file from the open shelf
was not criminal nor done with malice or criminal intent for on the contrary, he took the item with the
intention of buying and paying for it.
This Court needs only to stress the following undisputed facts which strongly and convincingly
uphold the conclusion that private respondent was not "shoplifting." Thus, the facts that private
respondent after picking the cylindrical "rat-tail" file costing P3.85 had placed it inside his left front
breast pocket with a good portion of the item exposed to view and that he did not conceal it in his
person or hid it from sight as well as the fact that he paid the purchases of his wife amounting to
P77.00 at the checkout counter of the Supermarket, owed that he was not acting suspiciously or
furtively. And the circumstance that he was with his family consisting of his wife Mrs. Caridad Jayme
Espino, and their two daughters at the time negated any criminal intent on his part to steal.
Moreover, when private respondent was approached by the guard of the Supermarket as he was
leaving by the exit to his car who told him, "Excuse me, Mr., I think you have something in your
which indicated his sincere apology or regrets. He turned back towards the cashier to pay for the file
which proved his honesty sincerity and good faith in buying the item, and not to shoplift the same.
His brief statement on the sheet of paper called the Incident Report where private respondent wrote
the following: "While talking to my aunt's maid with my wife, I put this item in in my shirt pocket. I
forgot to check it out with my wife's item," was an instant and contemporaneous explanation of the
incident.
Considering further the personal circumstances of the private respondent. his education, position
and character showing that he is a graduate Mechanical Engineer from U.P. Class 1950, employed
as an executive of Proctor & Gamble Phils., Inc., a corporate manager incharge of motoring and
warehousing therein; honorably discharged from the Philippine Army in 1946; a Philippine
government pensionado of the United States for six months; member of the Philippine veterans
Legion; author of articles published in the Manila Sunday Times and Philippines Free Press;
member of the Knights of Columbus, Council No. 3713; son of the late Jose Maria Espino, retired
Minister, Department of Foreign Affairs at the Philippine Embassy Washington, We are fully
convinced, as the trial and appellate courts were, that private respondent did not intend to steal the
article costing P3.85. Nothing in the records intimates or hints whatsoever that private respondent
has had any police record of any sort much less suspicion of stealing or shoplifting.
We do not lay down here any hard-and-fast rule as to what act or combination of acts constitute the
crime of shoplifting for it must be stressed that each case must be considered and adjudged on a
case-to-case basis and that in the determination of whether a person suspected of shoplifting has in
truth and in fact committed the same, all the attendant facts and circumstances should be
considered in their entirety and not from any single fact or circumstance from which to impute the
stigma of shoplifting on any person suspected and apprehended therefor.
We likewise concur with the Court of Appeals that "(u)pon the facts and under the law, plaintiff has
clearly made the cause of action for damages against the defendants. Defendants wilfully caused
loss or injury to plaintiff in a manner that was contrary to morals, good customs or public policy,
making them amenable to damages under Articles 19 and 21 in relation to Article 2219 of the Civil
Code." 2
That private respondent was falsely accused of shoplifting is evident. The Incident Report (Exhibit
A) with the entries thereon under Exhibit A-1 which says opposite the stenciled word SUBJECT:
"Shoplifting," Exhibit A-3 which says opposite the stenciled words Action Taken: Relesed by Mrs.
Fandino after paying the item," Exhibit A-4 which says opposite the stenciled words Remarks Noted:
Grd. Ebreo requested Grd. Paunil to apprehend subject shoplifter," established the opinion,
judgment or thinking of the management of petitioner's supermarket upon private respondent's act
of picking up the file. ln plain words, private respondent was regarded and pronounced a shoplifter
and had committed "shoplifting."
We also affirm the Court of Appeals' finding that petitioner Nelia Santos Fandino, after reading the
incident report, remarked the following: "Ano, nakaw na naman ito". Such a remark made in the
presence of private respondent and with reference to the incident report with its entries, was
offensive to private respondent's dignity and defamatory to his character and honesty. When Espino
explained that he was going to pay the file but simply forgot to do so, Fandino doubted the
explanation. saying: "That is all what they say, the people whom we caught not paying for the goods
say... they all intended to pay for the things that are found to them." Private respondent objected
and said that he was a regular customer of the Supermarket.
The admission of Fandino that she required private respondent to pay a fine of P5.00 and did in fact
take the P5.00 bill of private respondent tendered by the latter to pay for the file, as a fine which
would be given as an incentive to the guards who apprehend pilferers clearly proved that Fandino
branded private respondent as a thief which was not right nor justified.
The testimony of the guard that management instructed them to bring the suspected customers to
the public area for the people to see those kind of customers in order that they may be embarassed
(p. 26, tsn, Sept. 30, 1971); that management wanted "the customers to be embarrassed in public
so that they will not repeat the stealing again" (p. 2, tsn, Dec. 10, 1971); that the management asked
the guards "to bring these customers to different cashiers in order that they will know that they are
pilferers" (p. 2, Ibid.) may indicate the manner or pattern whereby a confirmed or self-confessed
shoplifter is treated by the Supermarket management but in the case at bar, there is no showing that
such procedure was taken in the case of the private respondent who denied strongly and
vehemently the charge of shoplifting.
Nonetheless, the false accusation charged against the private respondent after detaining and
interrogating him by the uniformed guards and the mode and manner in which he was subjected,
shouting at him, imposing upon him a fine, threatening to call the police and in the presence and
hearing of many people at the Supermarket which brought and caused him humiliation and
embarrassment, sufficiently rendered the petitioners liable for damages under Articles 19 and 21 in
relation to Article 2219 of the Civil Code. We rule that under the facts of the case at bar, petitioners
wilfully caused loss or injury to private respondent in a manner that was contrary to morals, good
customs or public policy. It is against morals, good customs and public policy to humiliate,
embarrass and degrade the dignity of a person. Everyone must respect the dignity, personality,
privacy and peace of mind of his neighbors and other persons (Article 26, Civil Code). And one must
act with justice, give everyone his due and observe honesty and good faith (Article 19, Civil Code).
Private respondent is entitled to damages but We hold that the award of Seventy-Five Thousand
Pesos (P75,000.00) for moral damages and Twenty-Five Thousand Pesos (P25,000.00, for
exemplary damages is unconscionable and excessive.
While no proof of pecuniary loss is necessary in order that moral, nominal, temperate, liquidated or
exemplary damages may be adjudicated, the assessment of such damages, except liquidated ones,
is left to the discretion of the court, according to the circumstances of each case (Art. 2216, New
Civil Code). In the case at bar, there is no question that the whole incident that befell respondent
had arisen in such a manner that was created unwittingly by his own act of forgetting to pay for the
file. It was his forgetfullness in checking out the item and paying for it that started the chain of
events which led to his embarassment and humiliation thereby causing him mental anguish,
wounded feelings and serious anxiety. Yet, private respondent's act of omission contributed to the
occurrence of his injury or loss and such contributory negligence is a factor which may reduce the
damages that private respondent may recover (Art. 2214, New Civil Code). Moreover, that many
people were present and they saw and heard the ensuing interrogation and altercation appears to
be simply a matter of coincidence in a supermarket which is a public place and the crowd of
onlookers, hearers or bystanders was not deliberately sought or called by management to witness
private respondent's predicament. We do not believe that private respondent was intentionally
paraded in order to humiliate or embarrass him because petitioner's business depended for its
success and patronage the good will of the buying public which can only be preserved and
promoted by good public relations.
As succinctly expressed by Mr. Justice J. B. L. Reyes in his concurring and dissenting opinion in
Pangasinan Transportation Company, Inc, vs. Legaspi, 12 SCRA 598, the purpose of moral
damages is essentially indemnity or reparation, both punishment or correction. Moral damages are
emphatically not intended to enrich a complainant at the expense of a defendant; they are awarded
only to enable the injured party to obtain means, diversion or amusements that will serve to alleviate
the moral suffering he has undergone, by reason of the defendant's culpable action. In other words,
the award of moral damages is aimed at a restoration, within the limits of the possible, of the
spiritual status quo ante  and, it must be proportionate to the suffering inflicted.
In Our considered estimation and assessment, moral damages in the amount of Five Thousand
Pesos (P5,000.00) is reasonable and just to award to private respondent.
The grant of Twenty-Five Thousand Pesos (P25,000.00) as exemplary damages is unjustified.
Exemplary or corrective damages are imposed by way of example or correction for the public good,
in addition to the moral, temperate, liquidated or compensatory damages (Art. 2229, New Civil
Code). Exemplary damages cannot be recovered as a matter of right; the court will decide whether
or not they could be adjudicated (Art. 2223, New Civil Code). Considering that exemplary damages
are awarded for wanton acts, that they are penal in character granted not by way of compensation
but as a punishment to the offender and as a warning to others as a sort of deterrent, We hold that
the facts and circumstances of the case at bar do not warrant the grant of exemplary damages.
Petitioners acted in good faith in trying to protect and recover their property, a right which the law
accords to them. Under Article 429, New Civil Code, the owner or lawful possessor of a thing has a
right to exclude any person from the enjoyment and disposal thereof and for this purpose, he may
use such force as may be reasonably necessary to repel or prevent an actual or threatened unlawful
physical invasion or usurpation of his property. And since a person who acts in the fulfillment of a
duty or in the lawful exercise of a right or office exempts him from civil or criminal liability, petitioner
may not be punished by imposing exemplary damages against him. We agree that petitioners acted
upon probable cause in stopping and investigating private respondent for taking the file without
paying for it, hence, the imposition of exemplary damages as a warning to others by way of a
deterrent is without legal basis. We, therefore, eliminate the grant of exemplary damages to the
private respondent.
In the light of the reduction of the damages, We hereby likewise reduce the original award of Five
Thousand Pesos (P5,000.00) as attorney's fees to Two Thousand Pesos (P2,000.00).
WHEREFORE, IN VIEW OF THE FOREGOING, the judgment of the Court of Appeals is hereby
modified. Petitioners are hereby ordered to pay, jointly and severally, to private respondent moral
damages in the sum of Five Thousand Pesos (P5,000.00) and the amount of Two Thousand Pesos
(P2,000.00) as and for attorney's fees; and further, to return the P5.00 fine to private respondent. No
costs.
SO ORDERED.
G.R. No. 149140             September 12, 2006
VICTORIA ONG, petitioner,
vs.
ERNESTO BOGÑALBAL1 and HON. COURT OF APPEALS, respondents.
DECISION
CHICO-NAZARIO, J.:
In this Special Civil Action for Certiorari under Rule 65 of the Rules of Court, petitioner seeks the
nullification of a 22 May 2001 Court of Appeals Resolution denying her Motion for Reconsideration
of a 31 March 2000 Decision.2
The Court of Appeals found the facts to be as follows:
On January 2, 1995, [herein respondent] Ernesto Bogñalbal, an architect-contractor doing business
under the name and style of E.B. Bogñalbal Construction, entered into an "Owner-Contractor
Agreement" with [herein petitioner] Victoria Ong, a businesswoman, for the construction of a
proposed boutique owned by the latter to be known as Les Galeries de Paris located at the 3rd
Floor of the Shangri-La Plaza, Epifanio Delos Santos Avenue corner Shaw Boulevard, Mandaluyong
City (Exhibits "A" and "1", pp. 100-102, ibid). The agreement provides that in consideration of the
sum of two hundred thousand pesos (P200,000.00), the contractor agrees to furnish labor, tools and
equipment to complete the work on the boutique as per specification within forty-five (45) days
excluding Sundays from the date of delivery of the construction materials. Payment by the owner
shall be made by progress billing to be collected every two (2) weeks based on the accomplishment
of work value submitted by the contractor to the owner as certified for payment by the architect
assigned on site. The agreement likewise provides for a change order as a result of fluctuation in
the cost of labor. Moreover, should the owner require the contractor to perform work over and above
that required, the additional cost shall be added to the contract amount and if ordered to omit work
as required by their agreement, the cost of work omitted shall be deducted from the contract
amount.
Actual work on the project commenced on January 19, 1995. For work accomplished during the
period January 19 to 28, 1995, [respondent Bogñalbal] submitted and was paid his progress billing
no. 1 in the sum of P35,950.00 equivalent to 17.975% of the total job to be performed (Exh. "E", p.
106, ibid). Partial billing nos. 2 and 3 for the period from January 29 to February 15, 1995 and
February 16 to March 3, 1995 in the sum of P69,000.00 and P41,500.00, equivalent to 34.65% and
20.63% of the total job, respectively, were likewise made to respondent and paid for by the latter
(Exhs. "F" and "G", pp. 107-108, ibid.).
It is with respect to progress billing no. 4 that the present controversy arose. When [respondent
Bogñalbal] submitted the fourth progress billing on March 31, 1995 for the period covering March 4
to 18, 1995, in the sum of P30,950.00 equivalent to 15.47% of the total job (Exh. "B", p. 103, ibid.),
[petitioner Ong] refused to pay the same. As in the previous three billings, the fourth billing was first
evaluated and recommended for payment by Supervising Architect John Noel R. Cano, an
employee of Balce-Sindac and Associates, the principal designer of the [petitioner Ong's] boutique
(Exh. "H-1", p. 110, ibid.).
The reason for [petitioner Ong's] refusal to pay the fourth (4th) progress billing is not clear on the
record. It is [respondent Bogñalbal's] contention that [petitioner Ong] refused to pay since she was
insisting that the flooring, which she asked to be changed from vinyl tiles to kenzo flooring where
polyurethane is to be used as coating, be first completed within three (3) days from April 22, 1995.
[Respondent Bogñalbal], however, insisted that the same is not possible because the floor needed
to be cured first to avoid adverse chemical reaction of the polyurethane on the color of the flooring.
Due to the insistence of [petitioner Ong] that the flooring be finished in time for the arrival of the
furniture from abroad, [respondent Bogñalbal] proceeded with the work but the rushed work resulted
in the reddish reaction of the polyurethane on the floor, which was not acceptable to respondent
(TSN, March 28, 1996, pp. 30-32; June 21, 1996, pp. 15-18).
On the other hand, [petitioner Ong] contends that her refusal to pay was because the fourth billing
was allegedly in excess and over the value of the work accomplished during the period. To settle
the matter, the parties purportedly met whereby [respondent Bogñalbal] supposedly agreed to finish
the kenzo flooring on or before April 24, 1995 before [petitioner Ong] would pay the fourth (4th)
progress billing. However, instead of complying with his commitment, [respondent Bogñalbal]
abandoned the project on April 24, 1995 when it became apparent that he could not complete the
kenzo flooring on the date agreed upon.
Due to [petitioner Ong's] continued refusal to pay [respondent Bogñalbal's] fourth (4th) progress
billing despite written demands from his counsel (Exhs. "C" and "D", pp. 104-105, ibid), the latter
was constrained to file an action for sum of money with damages with the Metropolitan Trial Court
(MeTC) of Caloocan City.
The complaint, which was docketed as Civil Case No. 22143 and raffled to Branch 49 of the court,
prayed for actual damages in the total sum of P50,450.00 representing P30,950.00 (4th progress
billing), P16,000.00 on the change order from vinyl tiles to kenzo flooring and an unidentified
amount. It likewise prayed for moral and exemplary damages, as well as attorney's fees.
In her answer with counterclaim, [petitioner Ong] refused payment of the fourth (4th) progress billing
since [respondent Bogñalbal] failed to perform what was incumbent upon him under their
agreement, but instead abandoned the job to her great damage and prejudice. As to the P16,000.00
value of the change order, she alleged that the same was premature since she had never received
any billing for said change order duly certified for payment and approved by the Architect assigned
on site. Besides, [petitioner Ong] averred that the P16,000.00 being charged by [respondent
Bogñalbal] was grossly disproportionate with the quantity of the work actually accomplished by the
former. By way of counterclaim, [petitioner Ong] prayed for actual damages by reason of
[respondent Bogñalbal's] refusal to finish the job agreed upon which forced her to hire a new
contractor to complete the same for which she paid the sum of P78,000.00 and for loss of business
opportunity in the amount of P50,000.00. She likewise prayed for moral, exemplary and liquidated
damages, as well as attorney's fees.
After trial on the merits, the [MeTC], in a Decision dated June 18, 1998, ruled in favor of [respondent
Bogñalbal,] awarding to him the sum of P30,950.00 representing the fourth progress billing,
P13,000.00 representing the value of the accomplished work on the kenzo flooring, P15,000.00 as
attorney's fees, P20,000.00 and P25,000.00 as moral and exemplary damages, respectively (p. 175,
ibid.).
Aggrieved by the decision of the court, [petitioner Ong] elevated the case on appeal to the Regional
Trial Court (RTC) of Caloocan City. The appeal was docketed as Civil Case No. C-18466 and raffled
to Branch 126 thereof.
The court a quo, after requiring the parties to submit their respective memoranda, reversed and set
aside the ruling of the MTC and rendered judgment in favor of [petitioner Ong] in a Decision dated
February 18, 1999 (p. 407, ibid.). It is worthy to note that although the RTC ruled in favor of
[petitioner Ong], it did not specify the relief granted to her in the dispositive portion of its decision.3
Respondent Bogñalbal then filed a Petition for Review with the Court of Appeals. On 31 March
2000, the Court of Appeals granted the Petition, disposing of the case as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The Decision of
the Regional Trial Court dated February 18, 1999 is REVERSED and SET ASIDE, and the Decision
of the Metropolitan Trial Court dated June 18, 1998 is REINSTATED. No pronouncement as to
costs.4
The dispositive portion of the reinstated 18 June 1998 Metropolitan Trial Court (MeTC) Decision is
as follows:
WHEREFORE, after a careful consideration of the foregoing evidence, the Court finds the same to
strongly preponderates (sic) in favor of the plaintiff and hereby orders defendant Victoria Ong to pay
plaintiff Ernesto Bognalbal the amount of THIRTY THOUSAND NINE HUNDRED FIFTY PESOS
(P30,950.00) representing the value of his accomplished work for the period from March 4 to March
18, 1995, the amount of (P13,000.00) THIRTEEN THOUSAND PESOS representing the value of
his accomplished work on the kenzo flooring equivalent to 60% of the agreed fee of P25,000.00
minus the amount of P2,000.00 paid under the third progress billing, the amount of FIFTEEN
THOUSAND (P15,000.00) PESOS as and for attorney's fees, the amount of TWENTY THOUSAND
(P20,000.00) PESOS AS MORAL damages and the amount of TWENTY-FIVE THOUSAND
(P25,000.00) PESOS as exemplary damages. Defendant is further ordered to pay the costs of this
suit.
For lack of sufficient basis, the counterclaim of the defendant is hereby dismissed.5
On 22 May 2001, the Court of Appeals denied petitioner Ong's Motion for Reconsideration in the
assailed Resolution, a copy of which was received by petitioner, through counsel, on 11 June 2001.
In the instant Petition for Certiorari, filed on 10 August 2001, petitioner Ong alleges that:
THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION IN DENYING THE MOTION FOR RECONSIDERATION AND IN
RESOLVING THE ABOVE-ENTITLED CASE IN FAVOR OF THE PRIVATE RESPONDENT.6
Propriety/Impropriety of Special Civil Action
for Certiorari under Rule 65
Petitioner claims that a special civil action for certiorari is proper since appeal by certiorari under
Rule 45 is limited only to questions of law. This is wrong. The writ of certiorari is proper to correct
errors of jurisdiction committed by the lower court, or grave abuse of discretion which is tantamount
to lack of jurisdiction. Where the error is not one of jurisdiction but an error of law or fact which is a
mistake of judgment, appeal is the remedy.7
It is true that, as a general rule, in the exercise of the Supreme Court's power of review, the Court is
not a trier of facts and does not normally undertake the re-examination of the evidence presented by
the contending parties during the trial of the case considering that the findings of facts of the Court
of Appeals are conclusive and binding on the Court. However, the Court had recognized several
exceptions to this rule, to wit: (1) when the findings are grounded entirely on speculation, surmises
or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings
are conclusions without citation of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.8
If the allegedly erroneous findings of fact by the Court of Appeals amounts to grave abuse of
discretion amounting to lack of or excess of jurisdiction, the proper remedy would indeed be a
petition for certiorari under Rule 65. However, if the allegedly erroneous findings of fact constitute
only a mistake of judgment, the proper remedy is a petition for review on certiorari under Rule 45.
Since the petition filed in the case at bar is one under Rule 65, we would be constrained to dismiss 1995 March
the same if we find a mere error of judgment.
       
Credibility of Architect Noel Cano Total P 181,700.00 88.850 %

The contract between petitioner and respondent provides:

As earlier stated, this controversy arose with respect to the fourth partial billing. Petitioner Ong
claims that the fourth partial billing is not yet due and demandable, since only 60% of the work has
4.01 Progress Billing will commence 15 days after the Contractor receive[s] the notice to proceed been accomplished. Petitioner Ong claims that Architect Cano's certification as to the
from the Owner. accomplishment of the work cannot be trusted, since Architect Cano was allegedly biased in favor of
respondent Bogñalbal.11
4.02 Balance will be collected every 2-weeks, based on the accomplishment of work value
submitted by the contractor to the Owner and to be certified for payment by the architect assigned Petitioner Ong claims that "Arch. Cano was an associate of [respondent Bogñalbal] in his
on site. construction business, and because of this, he was partial, biased and unprofessional about his
work."12 Petitioner Ong adds that work was conducted on the job site seven days a week, but
4.03 Final and full payment of the consideration herein above-mentioned shall be made by the Architect Cano was present only twice or thrice a week, and therefore "[h]e was in no position to
owner to the contractor upon fulfilling the condition set forth and approved by the architect assigned determine whether or not [respondent Bogñalbal] performed as claimed."13
on site.9
The afore-quoted Article 4.02 of the Owner-Contractor Agreement between petitioner Ong and
Pursuant thereto, the architect on site, Architect John Noel Cano, certified for payment four progress respondent Bogñalbal, which provides that the "[b]alance shall be collected every 2-weeks, based
billings, which petitioner Ong paid on the following dates10: on the accomplishment of work value submitted by the contractor to the Owner and to be certified
for payment by the architect on site,"14 makes the second paragraph of the following provision of the
Civil Code applicable:
Partial Date Sent Covered Amount Part of Project Date of Date of
Progress Period Accomplished Partial Full Art. 1730. If it is agreed that the work shall be accomplished to the satisfaction of the proprietor, it is
Billing (contract Payment Payment understood that in case of disagreement the question shall be subject to expert judgment.
price: P 200,000.00)
If the work is subject to the approval of a third person, his decision shall be final, except in case of
1st 28 19-28 P 35,950.00 17.975 % --- 6 fraud or manifest error.
January January February
1995 1995 The existence of fraud or manifest error, being an exception to the finality of the decision of a third
person under Article 1730, should be adequately proven by petitioner Ong.

2nd 15 29 P 69,300.00 34.650 % 22 4 March Petitioner Ong, however, miserably failed to prove the same. Petitioner Ong's allegation that "the
February January February 1995 certifications may have been purposely doctored or engineered in such a fashion as to unduly favor
1995 to 15 1995 [respondent Bogñalbal], in the desire of Architect Cano to return a favor or repay a debt of
February gratitude"15 is a bare speculation that cannot be given any credence. It is utterly inappropriate for
petitioner Ong to paint Architect Cano as "biased, partial, and unprofessional" just because Architect
Cano's architectural firm, Balce-Sindac & Associates, was allegedly recommended to her by
3rd 8 March 16 P 41,500.00 20.750 % 24 March 6 April
respondent Bogñalbal. The fact remains that it was petitioner Ong and Balce-Sindac & Associates
1995 February 1995 1995
which had privity of contract with each other, petitioner Ong having contracted with the latter firm for
to 3
its project architectural design and plan. Balce-Sindac & Associates, in turn, assigned Architect
March
Cano as supervising architect on site. The alleged recommendation by respondent Bogñalbal is
enormously inadequate to prove bad faith on the part of Architect Cano. Good faith is always
4th 31 March 4-18 P 30,950.00 15.475 % --- --- presumed.16 It is the one who alleges bad faith who has the burden to prove the same.17
Neither was petitioner able to prove manifest error on the part of Architect Cano. The presence of
Architect Cano only twice or thrice a week was not adequately proven to have made him
incompetent to determine the completion of the project. Determination of project completion requires
inspection of a product rather than a process. Besides, whereas Architect Cano provided a detailed
progress report that substantiate respondent Bogñalbal's allegation that 88.45% of the project had
been accomplished,18 petitioner Ong was not able to demonstrate her repeated claim that only 60%
of the project has been completed.19 Petitioner Ong alleged that the same was admitted by
respondent Bogñalbal in the pleadings filed with this Court,20 but we were unable to find any such
admission. It seems that petitioner Ong was referring to the Kenzo flooring, 60% of which
respondent claims to have finished.21
Time and again, this Court has ruled that the findings of the lower court respecting the credibility of
witnesses are accorded great weight and respect since it had the opportunity to observe the
demeanor of the witnesses as they testified before the court. Unless substantial facts and
circumstances have been overlooked or misunderstood by the latter which, if considered, would
materially affect the result of the case, this Court will undauntedly sustain the findings of the lower
court.22 In the case at bar, the credibility of Architect Cano was upheld by the MeTC, which had the
opportunity to observe Architect Cano's demeanor as he testified. Neither the Court of Appeals, nor
the RTC, questioned such credibility, the RTC having ruled in favor of petitioner Ong pursuant to an
interpretation of law.23
Alleged novation of the Owner-Contractor Agreement
Petitioner Ong also claims, as a defense against payment of the fourth progress billing, that "the
only reason why the fourth billing was not paid was because [respondent Bogñalbal] himself agreed
and committed to collect the fourth progress billing after he completed the Kenzo
flooring."24 Petitioner Ong claims that, because of this promise, her obligation to pay respondent
Bogñalbal has not yet become due and demandable.25
The Court of Appeals rejected this argument, ruling that respondent Bogñalbal's stoppage of work
on the project prior to its completion cannot justify petitioner Ong's refusal to pay the fourth progress
billing and the value of respondent Bogñalbal's accomplished work on the Kenzo flooring. On the
contrary, according to the Court of Appeals, respondent Bogñalbal was justified to refuse to
continue the project due to petitioner Ong's failure to pay the fourth progress billing.26 According to
the Court of Appeals:
Records reveal that [herein respondent Bogñalbal] submitted his fourth (4th) progress billing for
work accomplished on [herein petitioner Ong's] boutique for the period covering March 4 to 18, 1995
(Exh. "B", ibid.). Said billing was in accordance with the parties' agreement that it will be collected
every two (2) weeks, based on the accomplishment of work value submitted by the contractor to the
owner and certified for payment by the architect assigned on site (Article 4.02, Owner-contractor
Agreement; Exh. "A-1", p. 101, ibid.). However, [petitioner Ong], immediately upon her receipt of
said billing, refused to pay the same since it was allegedly "in excess and over the value of the work
accomplished during the period." This was, in fact, part of the statement/findings of the facts of the
lower court's decision (p. 2, RTC Decision; p. 400, ibid.).
[Petitioner Ong], at the very outset, refused to pay the fourth (4th) billing despite actual work
accomplished on her botique which was certified by the architect on site, John Noel Cano, all in
accordance with the agreement of the parties. [Respondent Bogñalbal's] eventual decision not
to proceed anymore with the contract cannot be used as a reason to justify [petitioner Ong's]
refusal to pay her obligation. This notwithstanding the parties' supposed verbal agreement
that collection of said billing will be held on abeyance until after [respondent Bogñalbal]
finished the work on the kenzo flooring which [petitioner Ong] requested to be changed from
its original plan of vinyl tile flooring. The proven fact is that there was work accomplished on
[petitioner Ong's] boutique equivalent to the bill being charged her in the fourth (4th) progress billing
in accordance with their contract. While the fourth (4th) billing covered the accomplished work
therefor as certified by the architect assigned on site, the agreement as to the kenzo flooring is
subject to another bill covered by the change order. (Emphasis supplied.)27
The Court of Appeals is in error. If the parties indeed had a verbal agreement that collection of said
billing will be held on abeyance until after respondent Bogñalbal finished the work on the Kenzo
flooring, there would have been a novation of petitioner Ong's obligation to pay the price covered by
the fourth billing by changing the principal conditions therefor. This falls under the first type of
novation under Article 1291 of the Civil Code which provides:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
While the subject of novation is, in the Civil Code, included in Book IV, Title I, Chapter 4, which
refers to extinguishment of obligations, the effect of novation may be partial or total. There is partial
novation when there is only a modification or change in some principal conditions of the obligation. It
is total, when the obligation is completely extinguished.28 Also, the term principal conditions in Article
1291 should be construed to include a change in the period to comply with the obligation. Such a
change in the period would only be a partial novation, since the period merely affects the
performance, not the creation of the obligation.29
If petitioner Ong's allegation was true, then the fourth partial billing's principal condition -- that the
"(b)alance shall be collected every 2-weeks, based on the accomplishment of work value submitted
by the contractor to the Owner and to be certified for payment by the architect assigned on site"30 –
would have been modified to include another condition, that of the finishing of the Kenzo flooring by
respondent Bogñalbal.
As previously discussed, the Court of Appeals did not bother to review the evidence on petitioner
Ong's allegation of respondent Bogñalbal's promise to finish the Kenzo flooring before the fourth
progress billing shall be paid. The Court of Appeals instead brushed off the contention with its
explanation that "[respondent Bogñalbal's] eventual decision not to proceed anymore with the
contract cannot be used as a reason to justify [petitioner Ong's] refusal to pay her obligation, x x x
notwithstanding the parties' supposed verbal agreement that collection of said billing will be held on
abeyance until after [respondent Bogñalbal] finished the work on the kenzo flooring which [petitioner
Ong] requested to be changed from its original plan of vinyl tile flooring."
Novation is never presumed. Unless it is clearly shown either by express agreement of the parties
or by acts of equivalent import, this defense will never be allowed.31
The evidence preponderates in favor of respondent Bogñalbal that there had been no novation of
the contract. At best, what was proven was a grudging accommodation on the part of respondent
Bogñalbal to continue working on the project despite petitioner Ong's failure to pay the fourth
progress billing. Respondent Bogñalbal's fourth partial billing demand letters dated 21 April 1995
and 15 May 1995, both of which were served upon petitioner Ong after the alleged 20 April 1995
meeting,32 is inconsistent with the theory that the meeting had produced a novation of the petitioner
Ong's obligation to pay the subject billing.
More importantly, assuming that there was indeed a novation of the obligation of petitioner Ong to
pay the fourth billing so as to include as additional condition the completion of the Kenzo flooring,
such new condition would, nevertheless, be deemed fulfilled. This is pursuant to Article 1186 of the
Civil Code, which provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.
According to petitioner Ong herself:
Petitioner sent [respondent Bogñalbal] letters demanding that he should return to the jobsite with his
people and comply with his commitment. When the demand letters were ignored, petitioner was
constrained to hire the services of another contractor, for which she had to unnecessarily incur
expenses in the amount of P78,000.00. But just the same, the completion of the project was
delayed for eighty two (82) days, which also caused petitioner additional damages.33
The Civil Code indeed provides that, "(i)f a person obliged to do something fails to do it, the same
shall be executed at his cost. This same rule shall be observed if he does it in contravention of the
tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be
undone."34 There is no question, however, that such allegation constitutes an admission that
Petitioner Ong had voluntarily prevented the fulfillment of the condition which should have given rise
to her obligation to pay the amount of the fourth billing. Respondent Bogñalbal would no longer have
the opportunity to finish the Kenzo flooring if another contractor had already finished the same. Such
condition would, hence, be deemed fulfilled under Article 1186 of the Civil Code, and, therefore,
petitioner Ong's obligation to pay the amount of the fourth billing has been converted to a pure
obligation.
Authority of respondent Bogñalbal to abandon work
This Court has held that, even if respondent Bogñalbal unjustifiably withdrew from the project,
petitioner Ong's obligation is nevertheless due and demandable because of the third-party
certification by Architect Cano on the completion of the fourth project billing as required by their
contract. This Court has also held that petitioner Ong has not sufficiently proven the alleged contract
novation adding a new condition for her payment of the fourth progress billing.
The following arguments of petitioner Ong are already inconsequential as to whether she should be
held liable for the fourth billing: (1) that the power to resolve contracts under Article 1191 35 of the
Civil Code cannot be invoked extrajudicially in the absence of stipulation to the contrary;36 (2) that
petitioner never rushed respondent Bogñalbal to complete the Kenzo flooring in three days;37 (3)
and that respondent Bogñalbal failed to complete the Kenzo flooring on time because of his
incompetence.38 All these arguments merely amplify petitioner Ong's primary contention that
respondent Bogñalbal was not justified in abandoning the project.39
The issue of whether or not respondent Bogñalbal is justified in abandoning the project is relevant to
the resolution of petitioner Ong's counterclaim against respondent Bogñalbal.
The Court rules in favor of petitioner Ong on this score. There is nothing in the record which would
justify respondent Bogñalbal's act of abandoning the project.
However, contrary to the finding of the RTC, Article 1724 is inapplicable to this case. Article 1724
provides:
Art. 1724. The contractor who undertakes to build a structure or any other work for a stipulated
price, in conformity with plans and specifications agreed upon with the landowner, can neither
withdraw from the contract nor demand an increase in the price on account of the higher cost of
labor or materials, save when there has been a change in the plans and specifications, provided:
(1) Such change has been authorized by the proprietor in writing; and
(2) The additional price to be paid to the contractor has been determined in writing by both parties.
According to the RTC, the exception in Article 1724 (change in plans and specifications authorized
by the proprietor in writing, and the additional price therefor being determined by the proprietor in
writing) applies only with respect to the prohibition to "demand an increase in the price on account of
the higher cost of labor or materials" and not with respect to the prohibition to "withdraw from the
contract." There is therefore no exception allowed by law insofar as withdrawal from the contract is
concerned, and, hence, respondent Bogñalbal cannot claim the change order as a justification for
his abandonment of the project. 40
This is incorrect. According to this Court in Arenas v. Court of Appeals,41 Article 1724 contemplates
disputes arising from increased costs of labor and materials. Article 1724 should, therefore, be read
as to prohibit a contractor from perpetrating two acts: (1) withdrawing from the contract on account
of the higher cost of the labor or materials; and (2) demanding an increase in the price on account
of the higher cost of the labor or materials.42 This focus on disputes arising from increased cost of
labor and materials is even more evident when the origin of Article 1754 is reviewed. Article 1754 of
the 1950 Civil Code is based on Article 159343 of the Spanish Civil Code, which states:
Art. 1593. An architect or contractor who, for a lump sum, undertakes the construction of a building,
or any other work to be done in accordance with a plan agreed upon with the owner of the ground,
may not demand an increase of the price, even if the cost of the materials or labor has increased;
but he may do so when any change increasing the work is made in the plans, provided the owner
has given his consent thereto.
Article 1593 of the Spanish Civil Code did not contain a similar prohibition against abandonment,
and was entirely focused on its apparent objective to providing an exception to the rule that a
contracting party cannot unilaterally amend (by increasing the contract price) the contract despite
supervening circumstances.
Neither party is claiming that the abandonment arose from increased costs of labor and materials.
Petitioner Ong claims that respondent Bogñalbal failed to complete the Kenzo flooring on time
because of his incompetence.44 Respondent Bogñalbal claims, on the other hand, that he
abandoned the work because of petitioner Ong's continuing refusal to pay the fourth progress billing
in violation of their contract.45 Since the dispute has nothing to do with increased costs of labor and
materials, Article 1724 is not applicable.46
Thus, it is the general rules on contracts which are applicable. Expounding on the argument by
respondent Bogñalbal, the Court of Appeals held:
It should be noted that the power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him (par. 1, Art. 1191, Civil Code).
[Herein petitioner Ong's] breach of contract was her failure to pay what she was legally bound to pay
under her contract with [respondent Bogñalbal]. Payment, being the very consideration of the
contract, is certainly not a mere casual or slight breach but a very substantial and fundamental
breach as to defeat the object of the parties making the agreement, due to which rescission of the
contract may be had (Ang vs. Court of Appeals, 170 SCRA 286, 296). [Petitioner Ong's] contention
that [respondent Bogñalbal] should have had more capital to absorb a little delay in her payment is
not quite tenable (TSN, June 21 1996; p. 7).47
This Court, however, has held in Tan v. Court of Appeals,48 that:
[T]he power to rescind obligations is implied in reciprocal ones in case one of the obligors should
not comply with what is incumbent upon him x x x. However, it is equally settled that, in the absence
of a stipulation to the contrary, this power must be invoked judicially; it cannot be exercised
solely on a party's own judgment that the other has committed a breach of the obligation.
Where there is nothing in the contract empowering [a party] to rescind it without resort to
the courts, [such party's] action in unilaterally terminating the contract x x x is unjustified.
In the case at bar, there is nothing in the Owner-Contractor Agreement empowering either party to
rescind it without resort to the courts. Hence, respondent Bogñalbal's unilateral termination the
contract without a court action is unjustified.
Petitioner Ong's Counterclaim
Since respondent Bogñalbal is unjustified in abandoning the project, should this Court award
damages to petitioner Ong? Considering that both parties committed a breach of their respective
obligations, Article 1192 of the Civil Code is on all fours:
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties
first violated the contract, the same shall be deemed extinguished, and each shall bear his own
damages.
Under this provision, the second infractor is not liable for damages at all; 49 the damages for the
second breach, which would have been payable by the second infractor to the first infractor, being
compensated instead by the mitigation of the first infractor's liability for damages arising from his
earlier breach. The first infractor, on the other hand, is liable for damages, but the same shall be
equitably tempered by the courts, since the second infractor also derived or thought he would derive
some advantage by his own act or neglect. 50 Article 2215, however, seems contradictory, as it gives
the court the option whether or not to equitably mitigate the damages, and does not take into
account which infractor first committed breach:
Art. 2215. In contracts, quasi-contracts, and quasi-delicts, the court may equitably mitigate the
damages under circumstances other than the case referred to in the preceding article, 51 as in the
following instances:
(1) That the plaintiff himself has contravened the terms of the contract; x x x
It is a cardinal principle that a statute must be so construed as to harmonize all apparent conflicts,
and give effect to all its provisions whenever possible.52
Articles 1192 and 2215 of the Civil Code are not irreconcilably conflicting. The plaintiff referred to in
Article 2215(1) should be deemed to be the second infractor, while the one whose liability for
damages may be mitigated is the first infractor. Furthermore, the directions to equitably temper the
liability of the first infractor in Articles 1192 and 2215 are both subject to the discretion of the court,
despite the word "shall" in Article 1192, in the sense that it is for the courts to decide what is
equitable under the circumstances.
In the case at bar, both respondent Bogñalbal and petitioner Ong claim that it was the other party
who first committed a breach of contractual obligations.53 Considering this Court's finding that there
had been no contract novation requiring respondent Bogñalbal to finish the Kenzo flooring before
the fourth progress billing shall be paid, it is crystal clear that it was petitioner Ong who first violated
the contract. As such, it is petitioner Ong who is liable to pay damages, which may, however, be
reduced, depending on what is equitable under the circumstances. On the other hand, since
respondent Bogñalbal is the second infractor, he is not liable for damages in petitioner Ong's
counterclaim.
Care must, however, be judiciously taken when applying Article 1192 of the Civil Code to contracts
such as this where there has been partial performance on the part of either or both reciprocal
obligors. Article 1192, in making the first infractor liable for mitigated damages and in exempting the
second infractor from liability for damages, presupposes that the contracting parties are on equal
footing with respect to their reciprocal principal obligations. Actual damages representing
deficiencies in the performance of the principal obligation should be taken out of the equation.54
In the case at bar, the partial performance of respondent Bogñalbal (88.85% 55 of the original
contract and 60% of the Kenzo flooring) is more than the partial payment of petitioner Ong
(73.375%56 of the original contract and 0% of the Kenzo flooring).
For reference, the MeTC Decision, which was reinstated by the Court of Appeals, awarded the
following to respondent Bogñalbal:
Value of accomplished work on the original contract P 30,950.00
for the period 4 to 18 March 1995:
Value of accomplished work on the Kenzo flooring P 13,000.00
(60% of the agreed fee of P 25,000, minus P2,000
paid under the third progress billing)
Moral damages P 20,000.00
Exemplary damages P 25,000.00
TOTAL P 88,950.00
Petitioner Ong should first be obliged to pay the value of the accomplished work (P30,950.00
and P13,000.00), before the damage scheme under Article 1192 of the Civil Code is applied.
Therefore, this Court would have been limited to determining how much of the moral and exemplary
damages, for which petitioner Ong is liable, may be mitigated by the amount of damages caused by
respondent Bogñalbal, as provided under Article 1192.
As earlier discussed, however, this mitigation is subject to the discretion of the court, depending on
what is equitable under the circumstances. It would have been within this Court's power to mitigate
the moral and exemplary damages for which petitioner Ong is liable if she had only filed an ordinary
appeal under Rule 45 of the Rules of Court. It would be an exaggeration to consider such non-
mitigation by the Court of Appeals as grave abuse of discretion leading to lack of or excess of
jurisdiction, which would have been reviewable by this Court in a certiorari proceeding under Rule
65.57 Grave abuse of discretion implies a capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or, when the power is exercised in an arbitrary or despotic manner
by reason of passion or personal hostility, and it must be so patent and gross as to amount to an
evasion of positive duty enjoined or to act at all in contemplation of law.58 Mere abuse of discretion is
not enough -- it must be grave.59
All of the foregoing shows that while there had been some errors of law on the part of the Court of
Appeals, the Petition would still fail even if it were a Petition for Review under Rule 45. With more
reason is this Court constrained to dismiss a Petition for Certiorari under Rule 65, which requires not
a mere error in judgment, but a grave abuse of discretion amounting to lack of or excess of
jurisdiction.
Finally, this Court notices that the prayer in the instant Petition for Certiorari only seeks to nullify the
Resolution of the Court of Appeals on petitioner Ong's Motion for Reconsideration, without praying
for the nullification of the Decision itself sought to be reconsidered. The reason seems to be the fact
that petitioner Ong, through counsel, received the Decision more than sixty days prior to the filing of
the Petition. A Petition seeking to nullify such Decision was, thus, perceived to be violative of
Section 4, Rule 65 of the 1997 Rules of Civil Procedure, which originally provides:
SEC. 4. Where petition filed. – The petition may be filed not later than sixty (60) days from notice of
the judgment, order or resolution sought to be assailed in the Supreme Court or, if it relates to the
acts or omissions of a lower court or of a corporation, board, officer or person, in the Regional Trial
Court exercising jurisdiction over the territorial area as defined by the Supreme Court. It may also be
filed in the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, x x x.
Section 4, Rule 65 was, however, amended on 1 September 2000, several months before the filing
of this Petition, to insert the following provision:
In case a motion for reconsideration or new trial is timely filed, whether such motion is required or
not, the sixty (60) day period shall be counted from notice of the denial of said motion.
This insertion gives petitioner Ong a fresh 60-day period to assail the Decision via a Petition
for Certiorari, which is what this Petition really seeks and which is how this Court has treated the
same.
WHEREFORE, the Decision of the Court of Appeals reinstating the Decision of the Metropolitan
Trial Court holding petitioner Victoria Ong liable for damages is affirmed. The instant Petition
for Certiorari is hereby DISMISSED for lack of merit. Costs against petitioner.
SO ORDERED.
G.R. No. 173227               January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court seeking to set
aside the Decision,2 dated 16 December 2005, and Resolution,3 dated 19 June 2006 of the Court of
Appeals in CA-G.R. CV No. 71814, which affirmed in toto the Decision,4 dated 26 January 2001, of
the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
5
On 30 March 1998, respondent Alicia Villanueva filed a complaint  for sum of money against
petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255,
docketed as Civil Case No. LP-98-0068. Respondent alleged that she was a businesswoman
engaged in supplying office materials and equipments to the Philippine Navy Office (PNO) located
at Fort Bonifacio, Taguig City, while petitioner was a military officer and comptroller of the PNO from
1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered
to loan her the amount of ₱540,000.00. Since she needed capital for her business transactions with
the PNO, she accepted petitioner’s proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the loan.6
On 31 August 1993, respondent issued a check worth ₱500,000.00 to petitioner as partial payment
of the loan. On 31 October 1993, she issued another check in the amount of ₱200,000.00 to
petitioner as payment of the remaining balance of the loan. Petitioner told her that since she paid a
total amount of ₱700,000.00 for the ₱540,000.00 worth of loan, the excess amount of ₱160,000.00
would be applied as interest for the loan. Not satisfied with the amount applied as interest, petitioner
pestered her to pay additional interest. Petitioner threatened to block or disapprove her transactions
with the PNO if she would not comply with his demand. As all her transactions with the PNO were
subject to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might
block or unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid
additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for
the payments but petitioner told her that it was not necessary as there was mutual trust and
confidence between them. According to her computation, the total amount she paid to petitioner for
the loan and interest accumulated to ₱1,200,000.00.7
Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan
despite absence of agreement to that effect. Her lawyer told her that petitioner could not validly
collect interest on the loan because there was no agreement between her and petitioner regarding
payment of interest. Since she paid petitioner a total amount of ₱1,200,000.00 for the ₱540,000.00
worth of loan, and upon being advised by her lawyer that she made overpayment to petitioner, she
sent a demand letter to petitioner asking for the return of the excess amount of ₱660,000.00.
Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement.8
Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1)
₱660,000.00 plus legal interest from the time of demand; (2) ₱300,000.00 as moral damages; (3)
₱50,000.00 as exemplary damages; and (4) an amount equivalent to 25% of ₱660,000.00 as
attorney’s fees.9
In his answer10 to the complaint, petitioner denied that he offered a loan to respondent. He averred
that in 1992, respondent approached and asked him if he could grant her a loan, as she needed
money to finance her business venture with the PNO. At first, he was reluctant to deal with
respondent, because the latter had a spotty record as a supplier of the PNO. However, since
respondent was an acquaintance of his officemate, he agreed to grant her a loan. Respondent paid
the loan in full.11
Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay
the previous loan in full, he agreed to grant her another loan. Later, respondent requested him to
restructure the payment of the loan because she could not give full payment on the due date. He
acceded to her request. Thereafter, respondent pleaded for another restructuring of the payment of
the loan. This time he rejected her plea. Thus, respondent proposed to execute a promissory note
wherein she would acknowledge her obligation to him, inclusive of interest, and that she would issue
several postdated checks to guarantee the payment of her obligation. Upon his approval of
respondent’s request for restructuring of the loan, respondent executed a promissory note dated 12
September 1994 wherein she admitted having borrowed an amount of ₱1,240,000.00, inclusive of
interest, from petitioner and that she would pay said amount in March 1995. Respondent also
issued to him six postdated checks amounting to ₱1,240,000.00 as guarantee of compliance with
her obligation. Subsequently, he presented the six checks for encashment but only one check was
honored. He demanded that respondent settle her obligation, but the latter failed to do so. Hence,
he filed criminal cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against
respondent. The cases were assigned to the Metropolitan Trial Court of Makati City, Branch 65
(MeTC).12
Petitioner insisted that there was no overpayment because respondent admitted in the latter’s
promissory note that her monetary obligation as of 12 September 1994 amounted to ₱1,240,000.00
inclusive of interests. He argued that respondent was already estopped from complaining that she
should not have paid any interest, because she was given several times to settle her obligation but
failed to do so. He maintained that to rule in favor of respondent is tantamount to concluding that the
loan was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss
respondent’s complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an
overpayment of her loan obligation to petitioner and that the latter should refund the excess amount
to the former. It ratiocinated that respondent’s obligation was only to pay the loaned amount of
₱540,000.00, and that the alleged interests due should not be included in the computation of
respondent’s total monetary debt because there was no agreement between them regarding
payment of interest. It concluded that since respondent made an excess payment to petitioner in the
amount of ₱660,000.00 through mistake, petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti.13
The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded
feelings experienced by respondent. Further, petitioner should pay exemplary damages by way of
example or correction for the public good, plus attorney’s fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and
jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff and against the
defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of ₱660,000.00 plus legal interest of 12% per
annum computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of ₱300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount of ₱50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of ₱660,000.00 as attorney’s
fees; and
(5) Ordering defendant to pay the costs of suit.14
Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court
promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed
decision [is] AFFIRMED in toto.15
Petitioner filed a motion for reconsideration of the appellate court’s decision but this was
denied.16 Hence, petitioner lodged the instant petition before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE
TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO
INDEBITI.17
Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred
to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity
for damages. This is called compensatory interest.18 The right to interest arises only by virtue of a
contract or by virtue of damages for delay or failure to pay the principal loan on which interest is
demanded.19
Article 1956 of the Civil Code, which refers to monetary interest,20 specifically mandates that no
interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the
foregoing provision, payment of monetary interest is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.21
It appears that petitioner and respondent did not agree on the payment of interest for the loan.
Neither was there convincing proof of written agreement between the two regarding the payment of
interest. Respondent testified that although she accepted petitioner’s offer of loan amounting to
₱540,000.00, there was, nonetheless, no verbal or written agreement for her to pay interest on the
loan.22
Petitioner presented a handwritten promissory note dated 12 September 1994 23 wherein respondent
purportedly admitted owing petitioner "capital and interest." Respondent, however, explained that it
was petitioner who made a promissory note and she was told to copy it in her own handwriting; that
all her transactions with the PNO were subject to the approval of petitioner as comptroller of the
PNO; that petitioner threatened to disapprove her transactions with the PNO if she would not pay
interest; that being unaware of the law on interest and fearing that petitioner would make good of his
threats if she would not obey his instruction to copy the promissory note, she copied the promissory
note in her own handwriting; and that such was the same promissory note presented by petitioner
as alleged proof of their written agreement on interest.24 Petitioner did not rebut the foregoing
testimony. It is evident that respondent did not really consent to the payment of interest for the loan
and that she was merely tricked and coerced by petitioner to pay interest. Hence, it cannot be
gainfully said that such promissory note pertains to an express stipulation of interest or written
agreement of interest on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and
respondent agreed on the payment of 7% rate of interest on the loan; that the agreed 7% rate of
interest was duly admitted by respondent in her testimony in the Batas Pambansa Blg. 22 cases he
filed against respondent; that despite such judicial admission by respondent, the RTC and the Court
of Appeals, citing Article 1956 of the Civil Code, still held that no interest was due him since the
agreement on interest was not reduced in writing; that the application of Article 1956 of the Civil
Code should not be absolute, and an exception to the application of such provision should be made
when the borrower admits that a specific rate of interest was agreed upon as in the present case;
and that it would be unfair to allow respondent to pay only the loan when the latter very well knew
and even admitted in the Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of
interest on the loan.25
We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein
that petitioner and respondent agreed on the payment of interest at the rate of 7% for the loan. The
RTC clearly stated that although petitioner and respondent entered into a valid oral contract of loan
amounting to ₱540,000.00, they, nonetheless, never intended the payment of interest
thereon.26 While the Court of Appeals mentioned in its Decision that it concurred in the RTC’s ruling
that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider
this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of
Appeals ruled that petitioner is not entitled to the payment of interest on the loan. The rule is that
factual findings of the trial court deserve great weight and respect especially when affirmed by the
appellate court.27 We found no compelling reason to disturb the ruling of both courts.
Petitioner’s reliance on respondent’s alleged admission in the Batas Pambansa Blg. 22 cases that
they had agreed on the payment of interest at the rate of 7% deserves scant consideration. In the
said case, respondent merely testified that after paying the total amount of loan, petitioner ordered
her to pay interest.28 Respondent did not categorically declare in the same case that she and
respondent made an express stipulation in writing as regards payment of interest at the rate of 7%.
As earlier discussed, monetary interest is due only if there was an express stipulation in writing for
the payment of interest.
There are instances in which an interest may be imposed even in the absence of express
stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that
if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal
interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the
payment of interest was agreed upon. Likewise, Article 2212 of the Civil Code provides that interest
due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent on this point.
All the same, the interest under these two instances may be imposed only as a penalty or damages
for breach of contractual obligations. It cannot be charged as a compensation for the use or
forbearance of money. In other words, the two instances apply only to compensatory interest and
not to monetary interest.29 The case at bar involves petitioner’s claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan. Also, as earlier found, no interest was due on
the loan because there was no written agreement as regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not
apply to the instant case. Thus, he cannot be compelled to return the alleged excess amount paid
by respondent as interest.30
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no
stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied.
Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if
something is received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created
under a quasi-contract whereby the payor becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person who has no right to receive such payment
becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself unjustly at the expense of another. 31 The principle
of solutio indebiti applies where (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received the payment; and (2) the
payment is made through mistake, and not through liberality or some other cause.32 We have held
that the principle of solutio indebiti applies in case of erroneous payment of undue interest.33
It was duly established that respondent paid interest to petitioner. Respondent was under no duty to
make such payment because there was no express stipulation in writing to that effect. There was no
binding relation between petitioner and respondent as regards the payment of interest. The payment
was clearly a mistake. Since petitioner received something when there was no right to demand it, he
has an obligation to return it.
We shall now determine the propriety of the monetary award and damages imposed by the RTC
and the Court of Appeals.
Records show that respondent received a loan amounting to ₱540,000.00 from
petitioner.34 Respondent issued two checks with a total worth of ₱700,000.00 in favor of petitioner as
payment of the loan.35 These checks were subsequently encashed by petitioner. 36 Obviously, there
was an excess of ₱160,000.00 in the payment for the loan. Petitioner claims that the excess of
₱160,000.00 serves as interest on the loan to which he was entitled. Aside from issuing the said two
checks, respondent also paid cash in the total amount of ₱175,000.00 to petitioner as
interest.37 Although no receipts reflecting the same were presented because petitioner refused to
issue such to respondent, petitioner, nonetheless, admitted in his Reply-Affidavit 38 in the Batas
Pambansa Blg. 22 cases that respondent paid him a total amount of ₱175,000.00 cash in addition
to the two checks. Section 26 Rule 130 of the Rules of Evidence provides that the declaration of a
party as to a relevant fact may be given in evidence against him. Aside from the amounts of
₱160,000.00 and ₱175,000.00 paid as interest, no other proof of additional payment as interest was
presented by respondent. Since we have previously found that petitioner is not entitled to payment
of interest and that the principle of solutio indebiti applies to the instant case, petitioner should return
to respondent the excess amount of ₱160,000.00 and ₱175,000.00 or the total amount of
₱335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC and the Court
of Appeals should be reduced from ₱660,000.00 to ₱335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22
against respondent. In the said cases, the MeTC found respondent guilty of violating Batas
Pambansa Blg. 22 for issuing five dishonored checks to petitioner. Nonetheless, respondent’s
conviction therein does not affect our ruling in the instant case. The two checks, subject matter of
this case, totaling ₱700,000.00 which respondent claimed as payment of the ₱540,000.00 worth of
loan, were not among the five checks found to be dishonored or bounced in the five criminal cases.
Further, the MeTC found that respondent made an overpayment of the loan by reason of the
interest which the latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation and similar injury. Respondent testified that she experienced
sleepless nights and wounded feelings when petitioner refused to return the amount paid as interest
despite her repeated demands. Hence, the award of moral damages is justified. However, its
corresponding amount of ₱300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant
and should be equitably reduced. Article 2216 of the Civil Code instructs that assessment of
damages is left to the discretion of the court according to the circumstances of each case. This
discretion is limited by the principle that the amount awarded should not be palpably excessive as to
indicate that it was the result of prejudice or corruption on the part of the trial court. 40 To our mind,
the amount of ₱150,000.00 as moral damages is fair, reasonable, and proportionate to the injury
suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary
damages may be imposed if the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and threatened to block her transactions
with the PNO if she would not pay interest. This forced respondent to pay interest despite lack of
agreement thereto. Thus, the award of exemplary damages is appropriate. The amount of
₱50,000.00 imposed as exemplary damages by the RTC and the Court is fitting so as to deter
petitioner and other lenders from committing similar and other serious wrongdoings.41
Jurisprudence instructs that in awarding attorney’s fees, the trial court must state the factual, legal
or equitable justification for awarding the same.42 In the case under consideration, the RTC stated in
its Decision that the award of attorney’s fees equivalent to 25% of the amount paid as interest by
respondent to petitioner is reasonable and moderate considering the extent of work rendered by
respondent’s lawyer in the instant case and the fact that it dragged on for several years. 43 Further,
respondent testified that she agreed to compensate her lawyer handling the instant case such
amount.44 The award, therefore, of attorney’s fees and its amount equivalent to 25% of the amount
paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount
refundable to respondent computed from 3 March 1998 until its full payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 45 that when an obligation, not
constituting a loan or forbearance of money is breached, an interest on the amount of damages
awarded may be imposed at the rate of 6% per annum. We further declared that when the judgment
of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether it is a loan/forbearance of money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a forbearance of credit.
In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and not
from a loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the
amount to be refunded as well as on the damages awarded and on the attorney’s fees, to be
computed from the time of the extra-judicial demand on 3 March 1998, 46 up to the finality of this
Decision. In addition, the interest shall become 12% per annum from the finality of this Decision up
to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 December
2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the amount of ₱660,000.00 as
refundable amount of interest is reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS
(₱335,000.00); (2) the amount of ₱300,000.00 imposed as moral damages is reduced to ONE
HUNDRED FIFTY THOUSAND PESOS (₱150,000.00); (3) an interest of 6% per annum is imposed
on the ₱335,000.00, on the damages awarded and on the attorney’s fees to be computed from the
time of the extra-judicial demand on 3 March 1998 up to the finality of this Decision; and (4) an
interest of 12% per annum is also imposed from the finality of this Decision up to its satisfaction.
Costs against petitioner.
SO ORDERED.
G.R. No. 184315               November 28, 2011
ALFONSO T. YUCHENGCO, Petitioner,
vs.
THE MANILA CHRONICLE PUBLISHING CORPORATION, NOEL CABRERA, GERRY
ZARAGOZA, DONNA GATDULA, RODNEY P. DIOLA, RAUL VALINO, THELMA SAN JUAN and
ROBERT COYIUTO, JR., Respondents.
R E S O L U T I ON
PERALTA, J.:
For resolution is the Motion for Reconsideration 1 dated January 15, 2010, filed by the respondents,
and the Supplemental Motion for Reconsideration2 of respondent Robert Coyiuto, Jr., dated March
17, 2010, from the Decision rendered in favor of petitioner Alfonso T. Yuchengco, dated November
25, 2009.
At the outset, a brief narration of the factual and procedural antecedents that transpired and led to
the filing of the motions is in order.
The present controversy arose when in the last quarter of 1993, several allegedly defamatory
articles against petitioner were published in The Manila Chronicle by Chronicle Publishing
Corporation. Consequently, petitioner filed a complaint against respondents before the Regional
Trial Court (RTC) of Makati City, Branch 136, docketed as Civil Case No. 94-1114, under three
separate causes of action, namely: (1) for damages due to libelous publication against Neal H.
Cruz, Ernesto Tolentino, Noel Cabrera, Thelma San Juan, Gerry Zaragoza, Donna Gatdula, Raul
Valino, Rodney P. Diola, all members of the editorial staff and writers of The Manila Chronicle, and
Chronicle Publishing; (2) for damages due to abuse of right against Robert Coyiuto, Jr. and
Chronicle Publishing; and (3) for attorney’s fees and costs against all the respondents.
On November 8, 2002, the trial court rendered a Decision3 in favor of petitioner.
Aggrieved, respondents sought recourse before the Court of Appeals (CA). On March 18, 2008, the
CA rendered a Decision4 affirming in toto the decision of the RTC.
Respondents then filed a Motion for Reconsideration 5 praying that the CA reconsider its earlier
decision and reverse the decision of the trial court. On August 28, 2008, the CA rendered an
Amended Decision6 reversing the earlier Decision.
Subsequently, petitioner filed the present recourse before this Court which puts forth the following
assignment of errors:
A. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN
RULING THAT THE CASE OF ARTURO BORJAL, ET AL. V. COURT OF APPEALS, ET AL.,
CITED BY RESPONDENTS IN THEIR MOTION FOR RECONSIDERATION, WARRANTED THE
REVERSAL OF THE CA DECISION DATED MARCH 18, 2008.
B. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN
RULING THAT THE SUBJECT ARTICLES IN THE COMPLAINT FALL WITHIN THE CONCEPT OF
PRIVILEGED COMMUNICATION.
C. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE REVERSIBLE ERROR IN
RULING THAT PETITIONER IS A PUBLIC OFFICIAL OR PUBLIC FIGURE.7
On November 25, 2009, this Court rendered a Decision partially granting the petition.
Respondents later filed a Motion for Reconsideration dated January 15, 2010, which the Court
denied in the Resolution8 dated March 3, 2010.
Meanwhile, respondent Coyiuto, Jr. also filed a Motion for Leave to File Supplemental Motion for
Reconsideration with Attached Supplemental Motion, both dated March 17, 2010.
On April 21, 2010, this Court issued a Resolution9 resolving to recall the Resolution dated March 3,
2010; grant Coyiuto, Jr.’s motion for leave to file supplemental motion for reconsideration; note the
supplemental motion for reconsideration; and require petitioner to comment on the motion for
reconsideration and supplemental motion for reconsideration.
On June 22, 2010, petitioner filed his Comment on the Motion for Reconsideration10 dated January
15, 2010 and Comment on respondent Coyiuto, Jr.’s Supplemental Motion for
Reconsideration11 dated 17 March 2010.
In the Motion for Reconsideration, respondents moved for a reconsideration of the earlier decision
on the following grounds:
1. MALICE-IN-FACT HAS NOT BEEN PROVEN.
2. PETITIONER IS A "PUBLIC FIGURE."
3. THE SUBJECT OF THE PUBLICATIONS CONSTITUTES FAIR COMMENTS, ON PUBLIC
ISSUES, ON MATTERS OF PUBLIC INTEREST AND NATIONAL CONCERN.
4. RESPONDENTS DID NOT ACT IN A RECKLESS MANNER OR IN COMPLETE DISREGARD
OF THE TRUTH OF THE MATTERS COVERED BY THE SUBJECT PUBLICATIONS.
5. THE PROTECTIVE MANTLE OF QUALIFIED PRIVILEGED COMMUNICATIONS PROTECTS
THE SUBJECT PUBLICATIONS.
6. THERE IS NO LEGAL OR EVIDENTIARY BASIS TO HOLD DONNA GATDULA, JOINTLY AND
SEVERALLY, LIABLE FOR THE SUBJECT PUBLICATIONS, TOGETHER WITH THE EDITORS
AND STAFF OF THE NEWSPAPER.
7. THERE IS NO EVIDENCE TO HOLD THELMA SAN JUAN RESPONSIBLE FOR THE SUBJECT
PUBLICATIONS.
8. THE "QUICK NOTES" COLUMN OF MR. RAUL VALINO ARE BASED ON FACTS; THUS, NOT
LIBELOUS.
9. ROBERT COYIUTO, JR. IS NOT IMPLEADED WITH THE EDITORS AND STAFF MEMBERS
OF THE MANILA CHRONICLE, BUT IS SUED IN "HIS PERSONAL CAPACITY" FOR AN "ABUSE
OF RIGHT" AND NO EVIDENCE LINKS HIM TO THE SUBJECT PUBLICATIONS.
10. THE AWARDED DAMAGES ARE EXCESSIVE, EQUITABLE AND UNJUSTIFIED.12
In his Supplemental Motion for Reconsideration, Coyiuto, Jr. raises the following arguments:
I.
WITH ALL DUE RESPECT, THIS HONORABLE COURT OBVIOUSLY OVERLOOKED THE FACT
THAT IN PETITIONER’S AMENDED COMPLAINT (DATED OCTOBER 17, 1994), RESPONDENT
ROBERT COYIUTO, JR. WAS NOT SUED FOR DAMAGES ALLEGEDLY DUE TO "LIBELOUS
PUBLICATIONS" (FIRST CAUSE OF ACTION). HE WAS SUED, HOWEVER, IN HIS PERSONAL
CAPACITY FOR "ABUSE OF RIGHT" (SECOND CAUSE OF ACTION) ALLEGEDLY, AS
"CHAIRMAN" OF THE BOARD, "OFFICER," "PRINCIPAL OWNER," OF THE MANILA
CHRONICLE PUBLISHING CORPORATION UNDER ARTICLES 19 AND 20 OF THE CIVIL CODE.
AS SUCH, THE IMPOSITION OF MORAL (₱25 MILLION PESOS) AND EXEMPLARY (₱10
MILLION PESOS) DAMAGES AGAINST RESPONDENT COYIUTO, JR. HAS NO BASIS IN LAW
AND CONTRARY TO THE SPECIFIC PROVISIONS OF ARTICLES 2219 AND 2229, IN
RELATION TO ARTICLE 2233, RESPECTIVELY, OF THE CIVIL CODE AS WILL BE
ELUCIDATED HEREUNDER.
II.
WITH ALL DUE RESPECT, APART FROM THE SELF-SERVING/UNILATERAL ALLEGATION IN
PARAGRAPH 3.11 OF THE AMENDED COMPLAINT (ANNEX "C" OF PETITION FOR REVIEW),
NO IOTA OF EVIDENCE WAS ADDUCED ON TRIAL IN SUPPORT OF THE ALLEGATION THAT
RESPONDENT COYIUTO, JR. WAS "CHAIRMAN", "PRINCIPAL OWNER" AND "OFFICER" OF
RESPONDENT MANILA CHRONICLE PUBLISHING CORPORATION. SEC DOCUMENTS SHOW
THE CONTRARY, AS WILL BE DISCUSSED HEREUNDER. SO HOW COULD RESPONDENT
COYIUTO, JR. BE IMPLEADED TO HAVE "ABUSED HIS RIGHT AS A NON-CHAIRMAN, NON-
STOCKHOLDER, NON-OFFICER OF RESPONDENT MANILA CHRONICLE PUBLISHING
CORPORATION? IT IS FUNDAMENTAL THAT THE BURDEN OF PROOF RESTS ON THE
PARTY ASSERTING A FACT OR ESTABLISHING A CLAIM (RULE 131, REVISED RULES OF
COURT).13
From the foregoing, it is apparent that the motion for reconsideration generally restates and
reiterates the arguments, which were previously advanced by respondents and does not present
any substantial reasons, which were not formerly invoked and passed upon by the Court.
However, from the supplemental motion for reconsideration, it is apparent that Coyiuto, Jr. raises a
new matter which has not been raised in the proceedings below. This notwithstanding, basic equity
dictates that Coyiuto, Jr. should be given all the opportunity to ventilate his arguments in the present
action, but more importantly, in order to write finis to the present controversy. It should be noted that
the Resolution denying the Motion for Reconsideration was later recalled by this Court in the
Resolution dated March 3, 2010, and therein, petitioner was given the opportunity to refute Coyiuto,
Jr.’s arguments by filing his comment on the motion for reconsideration and the supplemental
motion for reconsideration, which petitioner complied with.
From these Comments and contrary to Coyiuto, Jr.’s contention, it was substantially established that
he was the Chairman of Manila Chronicle Publishing Corporation when the subject articles were
published. Coyiuto, Jr. even admitted this fact in his Reply and Comment on Request for
Admission,14 to wit:
4. Defendant Robert Coyiuto Jr. ADMITS that he was the Chairman of the Board but not President
of the Manila Chronicle during the period Novemeber (sic) to December 1993.
5. Defendant Robert Coyiuto Jr. DENIES paragraph 11. He has already conveyed such denial to
plaintiff in the course of the pre-trial. It was The Manila Chronicle, a newspaper of general
circulation, of which he is, admittedly Chairman of the Board, that published the items marked as
plaintiff’s Exhibits A, B, C, D, E, F, and G.
xxxx
12. This case, based on plaintiff’s Amended Complaint, is limited to the publications in The Manila
Chronicle marked plaintiff’s Exhibits "A" to "G", consecutively, published by defendant Manila
Chronicle. Thus, only the question of whether Mr. Robert Coyiuto, Jr. was Chairman and President
of defendant Manila Chronicle, during these publications and whether he caused these publications,
among all of plaintiffs’ queries, are relevant and material to this case. And defendant Robert
Coyiuto, Jr. has answered that: "Yes", he was Chairman of the Board. "No", he was never President
of The Manila Chronicle. "No", he did not cause the publications in The Manila Chronicle: it was the
Manila Chronicle that published the news items adverted to.15
Both the trial court and the CA affirmed this fact. We reiterate that factual findings of the trial court,
when adopted and confirmed by the CA, are binding and conclusive on this Court and will generally
not be reviewed on appeal. While this Court has recognized several exceptions 16 to this rule, none
of these exceptions exists in the present case. Accordingly, this Court finds no reason to depart
from the findings of fact of the trial court and the CA.
More importantly and contrary again to Coyiuto, Jr.’s contention, the cause of action of petitioner
based on "abuse of rights," or Article 19, in relation to Article 20 of the Civil Code, warrants the
award of damages.
The principle of abuse of rights as enshrined in Article 19 of the Civil Code provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
This provision of law sets standards which must be observed in the exercise of one’s rights as well
as in the performance of its duties, to wit: to act with justice; give everyone his due; and observe
honesty and good faith.17
In Globe Mackay Cable and Radio Corporation v. Court of Appeals,18 it was elucidated that while
Article 19 "lays down a rule of conduct for the government of human relations and for the
maintenance of social order, it does not provide a remedy for its violation. Generally, an action for
damages under either Article 20 or Article 21 would be proper." The Court said:
One of the more notable innovations of the New Civil Code is the codification of "some basic
principles that are to be observed for the rightful relationship between human beings and for the
stability of the social order." [REPORT ON THE CODE COMMISSION ON THE PROPOSED CIVIL
CODE OF THE PHILIPPINES, p. 39]. The framers of the Code, seeking to remedy the defect of the
old Code which merely stated the effects of the law, but failed to draw out its spirit, incorporated
certain fundamental precepts which were "designed to indicate certain norms that spring from the
fountain of good conscience" and which were also meant to serve as "guides for human conduct
[that] should run as golden threads through society, to the end that law may approach its supreme
ideal, which is the sway and dominance of justice." (Id.) Foremost among these principles is that
pronounced in Article 19 which provides:
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act
with justice, give everyone his due, and observe honesty and good faith.
This article, known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which must be observed not only in the exercise of one's rights, but also in the
performance of one's duties. These standards are the following: to act with justice; to give everyone
his due; and to observe honesty and good faith. The law, therefore, recognizes a primordial
limitation on all rights; that in their exercise, the norms of human conduct set forth in Article 19 must
be observed. A right, though by itself legal because recognized or granted by law as such, may
nevertheless become the source of some illegality. When a right is exercised in a manner which
does not conform with the norms enshrined in Article 19 and results in damage to another, a legal
wrong is thereby committed for which the wrongdoer must be held responsible. But while Article 19
lays down a rule of conduct for the government of human relations and for the maintenance of social
order, it does not provide a remedy for its violation. Generally, an action for damages under either
Article 20 or Article 21 would be proper.19
Corollarilly, Article 20 provides that "every person who, contrary to law, willfully or negligently
causes damage to another shall indemnify the latter for the same." It speaks of the general
sanctions of all other provisions of law which do not especially provide for its own sanction. When a
right is exercised in a manner which does not conform to the standards set forth in the said
provision and results in damage to another, a legal wrong is thereby committed for which the
wrongdoer must be responsible.20 Thus, if the provision does not provide a remedy for its violation,
an action for damages under either Article 20 or Article 21 of the Civil Code would be proper.
The question of whether or not the principle of abuse of rights has been violated resulting in
damages under Article 20 or other applicable provision of law, depends on the circumstances of
each case. In the present case, it was found that Coyiuto, Jr. indeed abused his rights as Chairman
of The Manila Chronicle, which led to the publication of the libelous articles in the said newspaper,
thus, entitling petitioner to damages under Article 19, in relation to Article 20.
Consequently, the trial court and the CA correctly awarded moral damages to petitioner. Such
damages may be awarded when the transgression is the cause of petitioner’s anguish. 21 Further,
converse to Coyiuto, Jr.’s argument, although petitioner is claiming damages for violation of Articles
19 and 20 of the Civil Code, still such violations directly resulted in the publication of the libelous
articles in the newspaper, which, by analogy, is one of the ground for the recovery of moral
damages under (7) of Article 2219.22
However, despite the foregoing, the damages awarded to petitioner appear to be too excessive and
warrants a second hard look by the Court.
While there is no hard-and-fast rule in determining what would be a fair and reasonable amount of
moral damages, the same should not be palpably and scandalously excessive. Moral damages are
not intended to impose a penalty to the wrongdoer, neither to enrich the claimant at the expense of
the defendant.23
Even petitioner, in his Comment24 dated June 21, 2010, agree that moral damages "are not awarded
in order to punish the respondents or to make the petitioner any richer than he already is, but to
enable the latter to find some cure for the moral anguish and distress he has undergone by reason
of the defamatory and damaging articles which the respondents wrote and published."25 Further,
petitioner cites as sufficient basis for the award of damages the plain reason that he had to "go
through the ordeal of defending himself everytime someone approached him to ask whether or not
the statements in the defamatory article are true."
In Philippine Journalists, Inc. (People’s Journal) v. Thoenen, 26 citing Guevarra v. Almario,27 We
noted that the damages in a libel case must depend upon the facts of the particular case and the
sound discretion of the court, although appellate courts were "more likely to reduce damages for
libel than to increase them." So it must be in this case.
Moral damages are not a bonanza. They are given to ease the defendant’s grief and suffering.
Moral damages should be reasonably approximate to the extent of the hurt caused and the gravity
of the wrong done.28 The Court, therefore, finds the award of moral damages in the first and second
cause of action in the amount of ₱2,000,000.00 and ₱25,000,000.00, respectively, to be too
excessive and holds that an award of ₱1,000,000.00 and ₱10,000,000.00, respectively, as moral
damages are more reasonable.
As for exemplary damages, Article 2229 provides that exemplary damages may be imposed by way
of example or correction for the public good. Nonetheless, exemplary damages are imposed not to
enrich one party or impoverish another, but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions.29 On this basis, the award of exemplary damages in
the first and second cause of action in the amount of ₱500,000.00 and ₱10,000,000.00,
respectively, is reduced to ₱200,000.00 and ₱1,000,000.00, respectively.
On the matter of attorney’s fees and costs of suit, Article 2208 of the same Code provides, among
others, that attorney’s fees and expenses of litigation may be recovered in cases when exemplary
damages are awarded and where the court deems it just and equitable that attorney’s fees and
expenses of litigation should be recovered. In any event, however, such award must be reasonable,
just and equitable.30 Thus, the award of attorney’s fees and costs is reduced from ₱1,000,000.00 to
₱200,000.00.
One final note, the case against respondent was one for damages based on the publication of
libelous articles against petitioner; hence, only civil in nature. The rule is that a party who has the
burden of proof in a civil case must establish his cause of action by a preponderance of evidence.
Thus, respondents’ liability was proven only on the basis of preponderance of evidence, which is
quite different from a criminal case for libel where proof beyond reasonable doubt must be
established.
Corollarilly, under Article 360 of the Revised Penal Code, the person who "caused the publication"
of a defamatory article shall be responsible for the same. Hence, Coyiuto, Jr. should have been held
jointly and solidarily liable with the other respondents in the first cause of action under this article
and not on the basis of violation of the principle of abuse of rights founded on Articles 19 and 20 of
the Civil Code. Because of the exclusion of Coyiuto, Jr. in the first cause of action for libel, he
cannot be held solidarily liable with the other respondents in the first cause of action. Nonetheless,
since damage to petitioner was in fact established warranting the award of moral and exemplary
damages, the same could only be awarded based on petitioner’s second cause of action impleading
Coyiuto, Jr. for violation of the principle of abuse of right.
It did not escape the attention of the Court that in filing two different causes of action based on the
same published articles, petitioner intended the liability of Coyiuto, Jr. to be different from the other
respondents. It can be inferred that if Coyiuto, Jr. was impleaded in the first cause of action for
recovery of the civil liability in libel, petitioner could not have prayed for higher damages, considering
that the other respondents, who are jointly and severally liable with one another, are not in the same
financial standing as Coyiuto, Jr. Petitioner, in effect, had spared the other respondents from paying
such steep amount of damages, while at the same time prayed that Coyiuto, Jr. pay millions of
pesos by way of moral and exemplary damages in the second cause of action.
WHEREFORE, the Motion for Reconsideration and Supplemental Motion for Reconsideration are
PARTIALLY GRANTED.1âwphi1 The Decision of this Court, dated November 25, 2009, is
MODIFIED to read as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. On the First Cause of Action, ordering defendants Chronicle Publishing, Neil H. Cruz, Ernesto
Tolentino, Noel Cabrera, Thelma San Juan, Gerry Zaragoza, Donna Gatdula, Raul Valino and
Rodney Diola, to pay plaintiff Yuchengco, jointly and severally:
a. the amount of One Million Pesos (₱1,000,000.00) as moral damages; and
b. the amount of Two Hundred Thousand Pesos (₱200,000.00) as exemplary damages;
2. On the Second Cause of Action, ordering defendants Robert Coyiuto, Jr. and Chronicle
Publishing to pay plaintiff Yuchengco, jointly and severally:
a. the amount of Ten Million Pesos (₱10,000,000.00) as moral damages; and
b. the amount of One Million Pesos (₱1,000,000.00) as exemplary damages;
3. On the Third Cause of Action, ordering all defendants to pay plaintiff Yuchengco, jointly and
severally, the amount of Two Hundred Thousand Pesos (₱200,000.00) as attorney’s fee and legal
costs.
Costs against respondents.
SO ORDERED.
G.R. No. 114791 May 29, 1997
NANCY GO AND ALEX GO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, HERMOGENES ONG and JANE C.
ONG, respondents.
ROMERO, J.:
No less than the Constitution commands us to protect marriage as an inviolable social institution
and the foundation of the family. 1 In our society, the importance of a wedding ceremony cannot be
underestimated as it is the matrix of the family and, therefore, an occasion worth reliving in the
succeeding years.
It is in this light that we narrate the following undisputed facts:
Private respondents spouses Hermogenes and Jane Ong were married on June 7, 1981, in
Dumaguete City. The video coverage of the wedding was provided by petitioners at a contract price
of P1,650.00. Three times thereafter, the newlyweds tried to claim the video tape of their wedding,
which they planned to show to their relatives in the United States where they were to spend their
honeymoon, and thrice they failed because the tape was apparently not yet processed. The parties
then agreed that the tape would be ready upon private respondents' return.
When private respondents came home from their honeymoon, however, they found out that the tape
had been erased by petitioners and therefore, could no longer be delivered.
Furious at the loss of the tape which was supposed to be the only record of their wedding, private
respondents filed on September 23, 1981 a complaint for specific performance and damages
against petitioners before the Regional Trial Court, 7th Judicial District, Branch 33, Dumaguete City.
After a protracted trial, the court a quo rendered a decision, to wit:
WHEREFORE, judgment is hereby granted:
1. Ordering the rescission of the agreement entered into between plaintiff Hermogenes Ong and
defendant Nancy Go;
2. Declaring defendants Alex Go and Nancy Go jointly and severally liable to plaintiffs Hermogenes
Ong and Jane C. Ong for the following sums:
a) P450.00 , the down payment made at contract time;
b) P75,000.00, as moral damages;
c) P20,000.00, as exemplary damages;
d) P5,000.00, as attorney's fees; and
e) P2,000.00, as litigation expenses;
Defendants are also ordered to pay the costs.
SO ORDERED.
Dissatisfied with the decision, petitioners elevated the case to the Court of Appeals which, on
September 14, 1993, dismissed the appeal and affirmed the trial court's decision.
Hence, this petition.
Petitioners contend that the Court of Appeals erred in not appreciating the evidence they presented
to prove that they acted only as agents of a certain Pablo Lim and, as such, should not have been
held liable. In addition, they aver that there is no evidence to show that the erasure of the tape was
done in bad faith so as to justify the award of damages. 2
The petition is not meritorious.
Petitioners claim that for the video coverage, the cameraman was employed by Pablo Lim who also
owned the video equipment used. They further assert that they merely get a commission for all
customers solicited for their principal. 3
This contention is primarily premised on Article 1883 of the Civil Code which states thus:
Art. 1883. If an agent acts in his own name, the principal has no right of action against the persons
with whom the agent has contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things belonging to
the principal.
x x x           x x x          x x x
Petitioners' argument that since the video equipment used belonged to Lim and thus the contract
was actually entered into between private respondents and Lim is not deserving of any serious
consideration. In the instant case, the contract entered into is one of service, that is, for the video
coverage of the wedding. Consequently, it can hardly be said that the object of the contract was the
video equipment used. The use by petitioners of the video equipment of another person is of no
consequence.
It must also be noted that in the course of the protracted trial below, petitioners did not even present
Lim to corroborate their contention that they were mere agents of the latter. It would not be
unwarranted to assume that their failure to present such a vital witness would have had an adverse
result on the case. 4
As regards the award of damages, petitioners would impress upon this Court their lack of malice or
fraudulent intent in the erasure of the tape. They insist that since private respondents did not claim
the tape after the lapse of thirty days, as agreed upon in their contract, the erasure was done in
consonance with consistent business practice to minimize losses. 5
We are not persuaded.
As correctly observed by the Court of Appeals, it is contrary to human nature for any newlywed
couple to neglect to claim the video coverage of their wedding; the fact that private respondents filed
a case against petitioners belies such assertion. Clearly, petitioners are guilty of actionable delay for
having failed to process the video tape. Considering that private respondents were about to leave
for the United States, they took care to inform petitioners that they would just claim the tape upon
their return two months later. Thus, the erasure of the tape after the lapse of thirty days was
unjustified.
In this regard, Article 1170 of the Civil Code provides that "those who in the performance of their
obligations are guilty of fraud, negligence or delay, and those who is any manner contravene the
tenor thereof, are liable for damages."
In the instant case, petitioners and private respondents entered into a contract whereby, for a fee,
the former undertook to cover the latter's wedding and deliver to them a video copy of said event.
For whatever reason, petitioners failed to provide private respondents with their tape. Clearly,
petitioners are guilty of contravening their obligation to said private respondents and are thus liable
for damages.
The grant of actual or compensatory damages in the amount of P450.00 is justified, as
reimbursement of the downpayment paid by private respondents to petitioners. 6
Generally, moral damages cannot be recovered in an action for breach of contract because this
case is not among those enumerated in Article 2219 of the Civil Code. However, it is also accepted
in this jurisdiction that liability for a quasi-delict may still exist despite the presence of contractual
relations, that is, the act which violates the contract may also constitute a quasi-
delict. 7 Consequently, moral damages are recoverable for the breach of contract
which was palpably wanton, reckless, malicious or in bad faith, oppressive or abusive. 8
Petitioners' act or omission in recklessly erasing the video coverage of private respondents' wedding
was precisely the cause of the suffering private respondents had to undergo.
As the appellate court aptly observed:
Considering the sentimental value of the tapes and the fact that the event therein recorded — a
wedding which in our culture is a significant milestone to be cherished and remembered — could no
longer be reenacted and was lost forever, the trial court was correct in awarding the appellees moral
damages albeit in the amount of P75,000.00, which was a great reduction from plaintiffs' demand in
the complaint in compensation for the mental anguish, tortured feelings, sleepless nights and
humiliation that the appellees suffered and which under the circumstances could be awarded as
allowed under Articles 2217 and 2218 of the Civil Code. 9
Considering the attendant wanton negligence committed by petitioners in the case at bar, the award
of exemplary damages by the trial court is justified 10 to serve as a warning to all entities engaged in
the same business to observe due diligence in the conduct of their affairs.
The award of attorney' s fees and litigation expenses are likewise proper, consistent with Article
2208 11 of the Civil Code.
Finally, petitioner Alex Go questions the finding of the trial and appellate courts holding him jointly
and severally liable with his wife Nancy regarding the pecuniary liabilities imposed. He argues that
when his wife entered into the contract with private respondent, she was acting alone for her sole
interest. 12
We find merit in this contention. Under Article 117 of the Civil Code (now Article 73 of the Family
Code), the wife may exercise any profession, occupation or engage in business without the consent
of the husband. In the instant case, we are convinced that it was only petitioner Nancy Go who
entered into the contract with private respondent. Consequently, we rule that she is solely liable to
private respondents for the damages awarded below, pursuant to the principle that contracts
produce effect only as between the parties who execute them. 13
WHEREFORE, the assailed decision dated September 14, 1993 is hereby AFFIRMED with the
MODIFICATION that petitioner Alex Go is absolved from any liability to private respondents and that
petitioner Nancy Go is solely liable to said private respondents for the judgment award. Costs
against petitioners.
SO ORDERED.
ERWIN TULFO, GR 161032
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson, The Facts

CARPIO MORALES, On the complaint of Atty. Carlos "Ding" So of the Bureau of Customs, four (4) separate informations
were filed on September 8, 1999 with the Regional Trial Court in (RTC) Pasay City. These were
VELASCO, JR., assigned to Branch 112 and docketed as Criminal Case Nos. 99-1597 to 99-1600, and charged
petitioners Erwin Tulfo, as author / writer, Susan Cambri, as managing editor, Rey Salao, as
national editor, Jocelyn Barlizo, as city editor, and Philip Pichay, as president of the Carlo
PEOPLE OF THE PHILIPPINES NACHURA, * and Publishing House, Inc., of the daily tabloid Remate , with the crime of libel in connection with the
publication of the articles in the "Direct Hit" column in the May 11, 1999 issues; May 12, 1999; May
and ATTY. CARLOS T. SO, BRION, JJ. 19, 1999; and June 25, 1999. 1 The four informations read as follows:

Respondents. Criminal Case No. 99-1598

x ------------------------------------------- x That on or about the 11th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating
SUSAN CAMBRI, REY SALAO, GR No. 161176 together and mutually helping one another, being then the columnist, publisher and managing
editor, respectively of "REMATE", a tabloid published daily and of general circulation in the
JOCELYN BARLIZO, v Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to
discredit or dishonor complainant, ATTY. CARLOS "DING" SO, and with the malicious intent of
injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in
PHILIP PICHAY, the regular issue of said publication on May 11, 1999, its daily column "DIRECT HIT", quoted
hereunder, to wit:
Petitioners,
CUSTOMS WANTED
- versus -
This is Atty. Ding So of the Intelligence Division of the Bureau of Customs and [sic] richest
COURT OF APPEALS, PEOPLE government official in the entire country just plundered it in South Harbor.

OF THE PHILIPPINES, and Promulgated: The mad attorney cannot be fired because it is strong in the Church of Christ.

CARLOS SO,
Respondents. September 16, 2008
x ------------------------------------------------- ---------------------------------------- x
DECISION
VELASCO, JR., J.:
The freedom of the press is one of the cherished hallmarks of our democracy; but even as we strive
to protect and respect the fourth estate, the freedom it enjoys must be balanced with
responsibility. There is a fine line between freedom of expression and libel, and it falls on the courts
to determine whether or not that line has been crossed.
Hey, So! . . you are embarrassed by INCs, you are obviously the hardest and most stealing
member of it.
My news is that the church is about to get rid of you for your antics.
Watch out for So's rackets at BOC.
WHEREIN said the complainant was indicated as an extortionist, a corrupt public official, smuggler
and having illegally acquired wealth, all as already stated, with the object of destroying his
reputation, discrediting and ridiculing him before the bar of public opinion. 2
Criminal Case No. 99-1599
That on or about the 12th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the
 jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating
together and mutually helping one another, being then the columnist, publisher and managing
editor, respectively of "REMATE", a tabloid published daily and of general circulation in the
Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to
discredit or dishonor complainant, ATTY. CARLOS "DING" SO, and with the malicious intent of
injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in
the regular issue of said publication on May 12, 1999, in daily column "DIRECT HIT", quoted
hereunder, to wit:
SI ATTY. SO OF BOC
"LINTEK" was also involved in the scandal of Ding So of the Bureau of Customs Intelligence Unit in
South Harbor.
So corrupt and greedy So has hundreds of thousands of pesos to importers who refuse to declare
the true contents of containers to avoid paying huge customs duties and taxes.
So oversees the inspections of these containers. Of course - he also gives other agencies money to
just shut up and shut their [sic] mouth on the BOC bucks.
I feel sorry for our government. Bankrupt already, robbed by thieves like So.
Am I here for Atty. So, why not just set up his own robbery-hold-up gang to earn more money.
Hey So .. being a lawyer doesn't matter to you. . . It is more important for you to be in a tie and
holdaper. You're a thief So !! "
WHEREIN said the complainant was indicated as an extortionist, a corrupt public official, smuggler
and having illegally acquired wealth, all as already stated, with the object of destroying his
reputation, discrediting and ridiculing him before the bar of public opinion. 3
Criminal Case No. 99-1600
That on or about 19th day of May, 1999 in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating
together and mutually helping one another, being then the columnist, publisher and managing
editor, respectively of "REMATE", a tabloid published daily and of general circulation in the
Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to
discredit or dishonor complainant, ATTY. CARLOS "DING" SO, and with the malicious intent of
injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in
the regular issue of said publication on May 19, 1999, in daily column "DIRECT HIT", quoted
hereunder, to wit:
xxxx
"Like Mr. Ding So of the Bureau of Customs Intelligence Division, Daniel Aquino is also out in force
with the Presidential Anti-Smuggling Unit assigned to South Harbor.
Like So, Aquino is a real thief.
Asking for money to brokers, its the go.
If the brokers do not provide the money, the release of their shipment will be delayed. "
WHEREIN said the complainant was indicated as an extortionist, a corrupt public official, smuggler
and having illegally acquired wealth, all as already stated, with the object of destroying his
reputation, discrediting and ridiculing him before the bar of public opinion. 4
Criminal Case No. 99-1597
That on or about the 25th day of June, 1999 in Pasay City, Metro Manila, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, conspiring and confederating
together and mutually helping one another, being then the columnist, publisher and managing
editor, respectively of "REMATE", a tabloid published daily and of general circulation in the
Philippines, did then and there willfully, unlawfully and feloniously and with malicious intent to
discredit or dishonor complainant, ATTY. CARLOS "DING" T. SO, and with the malicious intent of
injuring and exposing said complainant to public hatred, contempt and ridicule, write and publish in
the regular issue of said publication on June 25, 1999, its daily column "DIRECT HIT" , quoted
hereunder, to wit:
xxxx
A P10 M filed a libel suit against Atty. Carlos So of the Bureau of Customs against your servant and
some Remate officers in Pasay City Court. Atty. So, because I met him and expounded his
frustration with the BOC.
Hey, So. . . increase your theft because I will not look after you. You're still burning your soul in hell.
WHEREIN said the complainant was indicated as an extortionist, a corrupt public official, smuggler
and having illegally acquired wealth, all as already stated, with the object of destroying his
reputation, discrediting and ridiculing him before the bar of public opinion. 5
On November 3, 1999, Tulfo, Salao, and Cambri were arraigned, while Barlizo and Pichay were
arraigned on December 15, 1999. They all pleaded not guilty to the offenses charged.
At pre-trial, the following were admitted by petitioners: (1) that during the four dates of the
publication of the questioned articles, the complaining witness was not assigned at South
Harbor; (2) that the accused and complaining witness did not know each other during all the time
material to the four dates of publication; (3) that Remate is a newspaper / tabloid of general
circulation in the Philippines; (4) the existence and genuineness of the Remate newspaper; (5) the
column therein and its authorship and the alleged libelous statement as well as the editorial post
containing the designated positions of the other accused; and (6) the prosecution's qualified
admission that it is the duty of media persons to expose corruption. 6
The prosecution presented four witnesses, namely: Oscar M. Ablan, Atty. James Fortes, Jr., Gladys
Fontanilla, and complainant Atty. So. The prosecution presented documentary evidence as well.
Ablan testified that he had read the four columns written by Tulfo, and that the articles were untrue
because he had known Atty. So since 1992 and had worked with him in the Customs Intelligence
and Investigation Service Division of the Bureau of Customs. He further testified that upon reading
the articles written by Tulfo, he concluded that they referred to Atty. So because the subject articles
identified "Atty. Carlos" as "Atty. 'Ding' So" of the Customs Intelligence and Investigation Service
Division, Bureau of Customs and there was only one Atty. Carlos "Ding" So of the Bureau of
Customs. 7
Fontanilla, Records Officer I of the Bureau of Customs, testified that she issued a certification in
connection with these cases upon the request of Atty. So. 8 This certification stated that as per
records available in her office, there was only one employee by the name of "Atty. Carlos T. So"
who was also known as "Atty. Ding So" in the Intelligence Division of the Customs Intelligence and
Investigation Service or in the entire Bureau of Customs. 9
Atty. Fortes testified that he knew Atty. As a fellow member of the Church of Christ and as a lawyer,
and having read the articles of Tulfo, he believed that these were untrue, as he knew Atty. Carlos
"Ding" So. 10
Atty. So testified that he was the private complainant in these consolidated cases. He further
testified that he is also known as Atty. "Ding" So, that he had been connected with the Bureau of
Customs since October 1981, and that he was assigned as Officer-in-Charge (OIC) of the Customs
Intelligence and Investigation Service Division at the Manila International Container Port since
December 27 , 1999. He executed two complaint-affidavits, one dated June 4, 1999 and the other
dated July 5, 1999, for Criminal Case Nos. 99-1598 to 99-1600. Prior to this, he also filed 14 cases
of libel against Raffy Tulfo, brother of petitioner Erwin Tulfo. He testified that petitioner Tulfo's act of
imputing upon him criminality, assailing his honesty and integrity, caused him dishonor, discredit,
and contempt among his co-members in the legal profession, co-officers of the Armed Forces of the
Philippines, co-members and peers in the Church of Christ, his co-officers and employees and
superior officers in the Bureau of Customs, and our ordinary persons who had read said articles. He
said it also caused him and his family sleepless nights, mental anguish, wounded feelings,
intrigues, and embarrassment. He further testified that he included in his complaint for libel the
officers of Remate such as the publisher, managing editor, city editor, and national editor because
under Article 360 of the Revised Penal Code (RPC), they are equally responsible and liable to the
same extent as if they were the author of the articles. He also testified that "Ding" is his nickname
and that he is the only person in the entire Bureau of Customs who goes by the name of
Atty. Carlos T. So or Atty.11
In his defense, petitioner Tulfo testified that he did not write the subject articles with malice, that he
neither knew Atty. So nor met him before the publication of the articles. He testified that his criticism
of a certain Atty. So of the South Harbor was not directed against the complainant, but against a
person by the name of Atty. "Ding" So at the South Harbor. Tulfo claimed that it was the practice of
certain people to use other people's names to advance their corrupt practices. He also claimed that
his articles had neither discredited nor dishonored the complainant because as per his source in the
Bureau of Customs, Atty. So had been promoted. He further testified that he did not do any
research on Atty. So before the subject articles, because as a columnist, he had to rely on his
source,12
Petitioner Salao testified that he came to know Atty. Carlos "Ding" So when the latter filed a case
against them. He testified that he is an employee of Carlo Publishing House, Inc.; that he was
designated as the national editor of the newspaper Remate since December 1999; that the duties of
the position are to edit, evaluate, encode, and supervise the layout of the news from the
provinces; and that Tulfo was under the supervision of Rey Briones, Vice President for Editorial and
Head of the Editorial Division. Salao further testified that he had no participation in the subject
articles of Tulfo, nor had he anything to do with the latter's column. 13
Petitioner Cambri, managing editor of Remate, testified that she classifies the news articles written
by the reporters, and that in the Editorial Division, the officers are themselves; Briones, her
supervisor; Lydia Bueno, as news and city editor; and Salao as national editor. She testified that
petitioner Barlizo is her subordinate, whose duties and responsibilities are the typesetting, editing,
and layout of the page assigned to her, the Metro page. She further testified that she had no
participation in the writing, editing, or publication of the Tulfo column because the column was not
edited. She claimed that none among her co-accused from the Remate newspaper edited the
columns of Tulfo, that the publication and editing of the subject articles were the responsibility of
Tulfo, and that he was given blanket authority to write what he wanted to write. She also testified
that the page wherein Tulfo's column appeared was supervised by Bueno as news editor.14
Petitioner Pichay testified that he had been the president of Carlo Publishing House, Inc. since
December 1998. He testified that the company practice was to have the columnists report directly to
the vice-president of editorials, that the columnists were given autonomy on their columns, and that
the vice-president for editorials is the one who would decide what articles are to be published and
what are not. He further testified that Tulfo was already a regular contributor. 15
The Ruling of the RTC
In a Decision dated November 17, 2000, the RTC found petitioners guilty of the crime of Libel. The
dispositive portion reads as follows:
WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO,
JOCELYN BARLIZO and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the
crime of LIBEL, as defined in Article 353 of the Revised Penal Code, and penalized by prision
correccional in its minimum and medium periods, or a fine ranging from P200.00 Pesos to
P6,000.00 Pesos or both, under Article 355 of the same Code.
Applying the Indeterminate Sentence Law, the Court hereby sentences EACH of the accused to
suffer imprisonment of SIX (6) MONTHS of arresto mayor, as minimum, to FOUR (4) YEARS and
TWO (2) MONTHS of prision correccional, as maximum, for EACH count with accessory penalties
provided by law.
Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo and Philip
Pichay wrote and published the four (4) defamatory articles with reckless disregard, being, in the
mind of the Court, of whether it was false or not, the said articles libelous per se , they are hereby
ordered to pay, jointly and severally, the sum of EIGHT HUNDRED THOUSAND (P800,000.00)
PESOS, as actual damages, the sum of ONE MILLION PESOS (P1,000,000.00), as moral
damages, and an additional amount of FIVE HUNDRED THOUSAND PESOS (P500,000.00), by
way of exemplary damages, all with subsidiary imprisonment, in case of insolvency, and to pay the
costs.
SO ORDERED. 16
The Ruling of the Court of Appeals
Before the Court of Appeals (CA), Tulfo assigned the following errors:
1. THE LOWER COURT ERRED IN IGNORING THE UNREBUTTED TESTIMONY OF THE
APPELLANT THAT HE DID NOT CRITICIZE THE PRIVATE COMPLAINANT WORKING AT THE
NAIA. HE CRITICIZED ANOTHER PERSON WORKING AT THE SOUTH HARBOR. HENCE, THE
ELEMENT OF IDENTITY IS LACKING.
2. THE LOWER COURT ERRED IN IGNORING THE LACK OF THE ESSENTIAL ELEMENT OF
DISCREDIT OR DISHONOR, AS DEFINED BY JURISPRUDENCE.
3. THERE WAS NO MALICE AGAINST THE PRIVATE COMPLAINANT ATTY. CARLOS "DING"
SO. 17
His co-accused assigned the following errors:
A
The trial court seriously erred in holding accused Susan Cambri, Rey Salao, Jocelyn Barlizo and
Philip Pichay liable for the defamations contained in the questioned articles despite the fact that the
trial court did not have any finding as to their participation in the writing, editing and / or publication
of the questioned articles.
B
The trial court seriously erred in concluding that libel was committed by all of the accused on the
basis of its finding that the elements of libel have been satisfactorily established by evidence on
record.
C
The trial court seriously erred in considering the complainant to be the one referred to by Erwin
Tulfo in his articles in question. 18
In a Decision 19 dated June 17, 2003, the Eighth Division of the CA dismissed the appeal and
affirmed the judgment of the trial court. A motion for reconsideration dated June 30, 2003 was filed
by Tulfo, while the rest of his co-accused filed a motion for reconsideration dated July 2, 2003. In a
Resolution dated December 11, 2003, both motions were denied for lack of merit . 20
Petitions for Review on Certiorari under Rule 45
Tulfo brought this petition docketed as GR No. 161032, seeking to reverse the Decision of the CA in
CA-GR CR No. 25318 which affirmed the decision of the RTC. Petitioners Cambri, Salao, Barlizo,
and Pichay brought a similar petition docketed as GR No. 161176, seeking the nullification of the
same CA decision.
In a Resolution dated March 15, 2004, the two cases were consolidated since both cases arise from
the same set of facts, involve the same parties, assail the same decision of the CA, and seek
identical reliefs. 21
Assignment of Errors
Petitioner Tulfo submitted the following assignment of errors:
I
Assuming that the Prosecution presented credible and relevant evidence, the Honorable CA erred
in not declaring the assailed articles as privileged; the CA erred in concluding that malice in law
exists by the court's having incorrectly reasoned out that malice was presumed in the instant case.
II
Even assuming that the articles complained of are not privileged, the lower court, nonetheless,
committed gross error as defined by the provisions of Section 6 of Rule 45 by its misappreciation of
the evidence presented on matters substantial and material to the guilt or innocence of the
petitioner. 22
Petitioners Cambri, Salao, Barlizo, and Pichay submitted their own assignment of errors, as follows:
A - The Court of Appeals Seriously Erred In Its Application Of Article 360 Of The Revised Penal
Code By Holding Cambri, Salao And Barlizo Liable For The Defamatory Articles In The May 11, 12,
19 And June 25, 1999 Issues Of Remate Simply Because They Were Managing Editor, National
Editor And City Editor Respectively Of Remate And By Holding Pichay Also Liable For Libel Merely
Because He Was The President Of Carlo Publishing House, Inc. Without Taking Into Account The
Unrebutted Evidence That Petitioners Had No Participation In The Editing Or Publication Of The
Defamatory Articles In Question.
B - The Court Of Appeals Committed Grave Abuse Of Discretion In Manifestly Disregarding The
Unrebutted Evidence That Petitioners Had No Participation In The Editing Or Publication Of The
Defamatory Articles In Question.
C - The Court Of Appeals Seriously Misappreciated The Evidence In Holding That The Person
Referred To In The Published Articles Was Private Complainant Atty. Carlos So. 23
Our Ruling
The petitions must be dismissed.
The assignment of errors of petitioner Tulfo shall be discussed first.
In his appeal, Tulfo claims that the CA erred in not applying the ruling in Borjal v. Court of
Appeals. 24 In essence, he argues that the subject articles fall under "qualifiedly privileged
communication" under Borjal and that the presumption of malice in Art. 354 of the RPC does not
apply. He argues that it is the burden of the prosecution to prove malice in fact.
This case must be distinguished from Borjal on several points, the first being that Borjal stemmed
from a civil action for damages based on libel, and was not a criminal case. Second, the ruling in
Borjal was that there was no sufficient identification of the complainant, which shall be differentiated
from the present case in discussing the second assignment of error of Tulfo. Third, the subject in
Borjal was a private citizen, whereas in the present case, the subject is a public official. Finally, it
was held in Borjal that the articles written by Art Borjal were "fair commentaries on matters of public
interest." 25 It shall be discussed and has yet to be determined whether or not the articles fall under
the category of "fair commentaries."
In passing, it must be noted that the defense of Tulfo's articles being qualifiedly privileged
communication is raised for the first time in the present petition, and this particular issue was never
brought before either the RTC or the CA. Thus, neither the RTC nor the CA had a chance to
properly consider and evaluate this defense. Tulfo now draws parallels between his case and that
of Art Borjal, and argues that the prosecution should have proved malice in fact, and it was error on
the part of the trial and appellate courts to use the presumption of malice in law in Art. 354 of the
RPC. This lays an unusual burden on the part of the prosecution, the RTC, and the CA to refute a
defense that Tulfo had never raised before them. Whether or not the subject articles are privileged
communications must first be established by the defense, which it failed to do at the level of the
RTC and the CA. Even so, it shall be dealt with now, considering that an appeal in a criminal
proceeding throws the whole case open for review.
There is no question of the status of Atty. So as a public official, who served as the OIC of the
Bureau of Customs Intelligence and Investigation Service at the Ninoy Aquino International Airport
(NAIA) at the time of the printing of the allegedly libelous articles. Likewise, it cannot be refuted that
the goings-on at the Bureau of Customs, a government agency, are matters of public interest. It is
now a matter of establishing whether the articles of Tulfo are protected as qualified privileged
communication or are defamatory and written with malice, for which he would be liable.
Freedom of the Press v. Responsibility of the Press
The Court has long respected the freedom of the press, and upheld the same when it came to
commentaries made on public figures and matters of public interest. Even in cases where the
freedom of the press was given greater weight over the rights of individuals, the Court, however,
has stressed that such freedom is not absolute and unbounded. The exercise of this right or any
right enshrined in the Bill of Rights, indeed, comes with an equal burden of responsible exercise of
that right. The recognition of a right is not free license for the one claiming it to run roughshod over
the rights of others.
The Journalist's Code of Ethics adopted by the National Union of Journalists of the Philippines
shows that the press recognizes that it has standards to follow in the exercise of press
freedom; that this freedom carries duties and responsibilities. Art. I of said code states that
journalists "recognize the duty to air the other side and the duty to correct substantive errors
promptly." Art. VIII states that journalists "shall presume persons accused of crime of being innocent
until proven otherwise."
In the present case, it cannot be said that Tulfo followed the Journalist's Code of Ethics and
exercised his journalistic freedom responsibly.
In his series of articles, he targeted one Atty. "Ding" So of the Bureau of Customs as being involved
in criminal activities, and was using his public position for personal gain. He went even further than
that, and called Atty. So an embarrassment to his religion, saying "you are the hardest and most
robbery of its members." 26 He accused Atty. So of stealing from the government with his alleged
corrupt activities. 27 And when Atty. So filed a libel suit against him, Tulfo wrote another article,
challenging Atty. So, saying, "Atty's angry guy. So because I'm watching over him and exposing him
to the [Bureau of Customs]." 28
In his testimony, Tulfo admitted that he did not personally know Atty. So, and had neither met nor
known him prior to the publication of the subject articles. He also admitted that he did not conduct a
more in-depth research of his allegations before he published them, and relied only on his source at
the Bureau of Customs.
In his defense before the trial court, Tulfo claimed knowledge of people using the names of others
for personal gain, and even stated that he had been the victim of such a practice. He argued then
that it may have been someone else using the name of Atty. So for corrupt practices at the South
Harbor, and this person was the target of his articles. This argument weakens his case further, for
even with the knowledge that he may be in error, even knowing of the possibility that someone else
may have used Atty. So's name, as Tulfo surmised, he made no effort to verify the information
given by his source or even to ascertain the identity of the person he was accusing.
The trial court found Tulfo's accusations against Atty. So to be false, but Tulfo argues that the falsity
of contents of articles does not affect their privileged character. It may be that the falsity of the
articles does not prove malice. Neither did Borjal give journalists carte blanche with regard to their
publications. It cannot be said that a false article accusing a public figure would always be covered
by the mantle of qualified privileged communication. The portion of Borjal cited by Tulfo must be
scrutinized further:
Even assuming that the contents of the articles are false, mere error, inaccuracy or even falsity
alone does not prove actual malice. Errors or misstatements are inevitable in any scheme of truly
free expression and debate. Consistent with good faith and reasonable care, the press should not
be held to account, to a point of suppression, for honest mistakes or imperfections in the choice of
language. There must be some room for misstatement of fact as well as for misjudgment. Only by
giving them much leeway and tolerance can they courageously and effectively function as critical
agencies in our democracy. In Bulletin Publishing Corp. v.  Noel we held -
A newspaper especially one national in reach and coverage, should be free to report on events and
developments in which the public has a legitimate interest with minimum fear of being hauled to
court by one group or another on criminal or civil charges for libel, so long as the newspaper
respects and keeps within the standards of morality and civility prevailing within the general
community.
To avoid self-censorship that would necessarily accompany strict liability for erroneous statements,
rules governing liability for injury to reputation are required to allow an adequate margin of error by
protecting some inaccuracies. It is for the same reason that the New York Times doctrinerequires
that liability for defamation of a public official or public figure may not be imposed in the absence of
proof of "actual malice" on the part of the person making the libelous statement. 29 (Emphasis
supplied.)
Reading more deeply into the case, the exercise of press freedom must be done "consistent with
good faith and reasonable care." This was clearly abandoned by Tulfo when he wrote the subject
articles. This is no case of mere error or honest mistake, but a case of a journalist abdicating his
responsibility to verify his story and instead misinforming the public. Journalists may be allowed an
adequate margin of error in the exercise of their profession, but this margin does not expand to
cover every defamatory or injurious statement they may make in the furtherance of their profession,
nor does this margin cover total abandonment of responsibility.
Borjal may have expanded the protection of qualified privileged communication beyond the
instances given in Art. 354 of the RPC, but this expansion does not cover Tulfo. The addition to the
instances of qualified privileged communications is reproduced as follows:
To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid
defense in an action for libel or slander. The doctrine of fair comment means that while in general
every discreditable imputation publicly made is deemed false, because every man is presumed
innocent until his guilt is judicially proved, and every false imputation is deemed malicious,
nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of fact or a comment based on a false
supposition. If the comment is an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken,30 (Emphasis supplied.)
The expansion speaks of "fair commentaries on matters of public interest." While Borjal places fair
commentaries within the scope of qualified privileged communication, the mere fact that the subject
of the article is a public figure or a matter of public interest does not automatically exclude the
author from liability. Borjal allows that for a discreditable imputation to a public official to be
actionable, it must be a false allegation of fact or a comment based on a false supposition. As
previously mentioned, the trial court found that the allegations against Atty. So were false and that
Tulfo did not exert effort to verify the information before publishing his articles.
Tulfo offered no proof for his accusations. He claimed to have a source in the Bureau of Customs
and relied only on this source for his columns, but did no further research on his story. The records
of the case are bereft of any showing that Atty. So was indeed the villain Tulfo pictured him to
be. Tulfo's articles related no specific details or acts committed to prove Atty. So was indeed a
corrupt public official. These columns were unsubstantiated attacks on Atty. So, and cannot be
countenanced as being privileged simply because the target was a public official. Although wider
latitude is given to defamatory utterances against public officials in connection with or relevant to
their performance of official duties, or against public officials in relation to matters of public interest
involving them,31 Journalists still bear the burden of writing responsibly when practicing their
profession, even when writing about public figures or matters of public interest. As held in In Re:
Emil P. Jurado:
Surely it cannot be postulated that the law protects a journalist who deliberately prints lies or distorts
the truth; or that a newsman may ecape liability who publishes derogatory or defamatory allegations
against a person or entity, but recognizes no obligation bona fide to establish beforehand the
factual basis of such imputations and refuses to submit proof thereof when challenged to do so. It
outrages all notions of fair play and due process, and reduces to uselessness all the injunctions of
the Journalists' Code of Ethics to allow a newsman, with all the potential of his profession to
influence popular belief and shape public opinion, to make shameful and offensive charges
destructive of personal or institutional honor and repute, and when called upon to justify the same,32
The prosecution showed that Tulfo could present no proof of his allegations against Atty. So, only
citing his one unnamed source. It is not demanded of him that he name his source. The
confidentiality of sources and their importance to journalists are accepted and respected. What
cannot be accepted are journalists making no efforts to verify the information given by a source, and
using that unverified information to throw wild accusations and besmirch the name of possibly an
innocent person. Journalists have a responsibility to report the truth, and in doing so must at least
investigate their stories before publication, and be able to back up their stories with proof. The
rumors and gossips spread by unnamed sources are not truth. Journalists are not storytellers or
novelists who may just spin tales out of fevered imaginings, and pass them off as reality. There
must be some foundation to their reports; these reports must be warranted by facts.
Jurado also established that the journalist should exercise some degree of care even when writing
about public officials. The case stated:
Clearly, the public interest involved in the freedom of speech and the individual interest of judges
(and for that matter, all other public officials) in the maintenance of private honor and reputation
need to be accommodated one to the other. And the point of adjustment or accommodation
between these two legitimate interests is precisely found in the norm which requires those who,
invoking freedom of speech, publish statements which are clearly defamatory to identifiable judges
or other public officials to exercise bona fide care in ascertaining the truth of the statements they
publish. The norm does not require that a journalist guarantee the truth of what he says or
publishes. But the norm does prohibit the reckless disregard of private reputation by publishing or
circulating defamatory statements without any bona fide effort to ascertain the truth thereof. That
this norm represents the generally accepted point of balance or adjustment between the two
interests involved is clear from a consideration of both the pertinent civil law norms and the Code of
Ethics adopted by the journalism profession in the Philippines.33
Tulfo has clearly failed in this regard. His articles cannot even be considered as qualified privileged
communication under the second paragraph of Art. 354 of the RPC which exempts from the
presumption of malice "a fair and true report, made in good faith, without any comments or remarks,
of any judicial, legislative, or other official proceedings which are not of confidential nature, or any
statement, report, or speech delivered in said proceedings, or of any other act performed by public
officers in the exercise of their functions. " This particular provision has several elements which
must be present in order for the report to be exempt from the presumption of malice. The provision
can be dissected as follows:
In order that the publication of a report of an official proceeding may be considered privileged, the
following conditions must exist:
(a) That it is a fair and true report of a judicial, legislative, or other official proceedings which are not
of confidential nature, or of a statement, report or speech delivered in said proceedings, or of any
other act performed by a public officer in the exercise of his functions;
(b) That it is made in good faith; and
(c) That it is without any comments or remarks. 34
The articles clearly are not the fair and true reports contemplated by the provision. They provide no
details of the acts committed by the subject, Atty. So. They are plain and simple baseless
accusations, backed up by the word of one unnamed source. Good faith is lacking, as Tulfo failed to
substantiate or even attempt to verify his story before publication. Tulfo goes even further to attack
the character of the subject, Atty. So, even calling him a disgrace to his religion and the legal
profession. As none of the elements of the second paragraph of Art. 354 of the RPC is present in
Tulfo's articles, it cannot thus be argued that they are qualified privileged communications under the
RPC.
Breaking down the provision further, looking at the terms "fair" and "true," Tulfo's articles do not
meet the standard. "Fair" is defined as "having the qualities of impartiality and honesty." 35 "True" is
defined as "conformable to fact; correct; exact; actual; genuine; honest." 36 Tulfo failed to satisfy
these requirements, as he did not do any research before making his allegations, and it has been
shown that these allegations were baseless. The articles are not "fair and true reports," but merely
wild accusations.
Even assuming that the subject articles are covered by the shield of qualified privileged
communication, this would still not protect Tulfo.
In claiming that his articles were covered by qualified privileged communication, Tulfo argues that
the presumption of malice in law under Art. 354 of the RPC is no longer present, placing upon the
prosecution the burden of proving malice in fact. He then argues that for him to be liable, there
should have been evidence that he was motivated by ill will or spite in writing the subject articles.
The test to be followed is that laid down in New York Times Co. v. Sullivan, 37 and reiterated in Flor
v. People, which should be to determine whether the defamatory statement was made with actual
malice, that is, with knowledge that it was false or with reckless disregard of whether it was false or
not. 38
The trial court found that Tulfo had in fact written and published the subject articles with reckless
disregard of whether the same were false or not, as proven by the prosecution. There was the
finding that Tulfo failed to verify the information on which he based his writings, and that the
defense presented no evidence to show that the accusations against Atty. So were true. Tulfo
cannot argue that because he did not know the subject, Atty. So, personally, there was no malice
attendant in his articles. The test laid down is the "reckless disregard" test, and Tulfo has failed to
meet that test.
The fact that Tulfo published another article lambasting respondent Atty. So can be considered as
further evidence of malice, as held in US vs. Montalvo, 39 wherein publication after the
commencement of an action was taken as further evidence of a malicious design to injure the
victim. Tulfo did not relent nor did he pause to consider his actions, but went on to continue
defaming respondent Atty. So. This is a clear indication of his intent to malign Atty. So, no matter
the cost, and is proof of malice.
Leaving the discussion of qualified privileged communication, Tulfo also argues that the lower court
misappreciated the evidence presented as to the identity of the complainant: that Tulfo wrote about
Atty. "Ding" So, an official of the Bureau of Customs who worked at the South Harbor, whereas the
complainant was Atty. Carlos So who worked at the NAIA. He claims that there has arisen a cloud
of doubt as to the identity of the real party referred to in the articles.
This argument is patently without merit.
The prosecution was able to present the testimonies of two other witnesses who identified Atty. So
from Tulfo's articles. There is the certification that there is only one Atty. So in the Bureau of
Customs. And most damning to Tulfo's case is the last column he wrote on the matter, referring to
the libel suit against him by Atty. So of the Bureau of Customs. In this article, Tulfo launched further
attacks against Atty. So, stating that the libel case was due to the exposés Tulfo had written on the
corrupt acts committed by Atty. So in the Bureau of Customs. This last article is an admission on
the part of Tulfo that Atty. So was in fact the target of his attacks. He cannot now point to a putative
"Atty. Ding So" at South Harbor, or someone else using the name of Atty. So as the real subject of
his attacks, when he did not investigate the existence or non-existence of an Atty. So at South
Harbor, nor investigating the alleged corrupt acts of Atty. So of the Bureau of Customs. Tulfo cannot
say that there is doubt as to the identity of the Atty. So referred to in his articles, when all the
evidence points to one Atty. So, the complainant in the present case.
Having discussed the issue of qualified privileged communication and the matter of the identity of
the person referred to in the subject articles, there remains the petition of the editors and president
of Remate, the paper on which the subject articles appeared.
In sum, petitioners Cambri, Salao, Barlizo, and Pichay all claim that they had no participation in the
editing or writing of the subject articles, and are thus not liable.
The argument must fail.
The language of Art. 360 of the RPC is plain. It lists the persons responsible for libel:
Art. 360. Persons responsible. — Any person who shall publish, exhibit, or cause the publication or
exhibition of any defamation in writing or by similar means, shall be responsible for the same.
The author or editor of a book or pamphlet, or the editor or business manager of a daily newspaper,
magazine or serial publication, shall be responsible for the defamations contained therein to the
same extent as if he were the author thereof.
The claim that they had no participation does not shield them from liability. The provision in the
RPC does not provide absence of participation as a defense, but rather plainly and specifically
states the responsibility of those involved in publishing newspapers and other periodicals. It is not a
matter of whether or not they conspired in preparing and publishing the subject articles, because
the law simply so states that they are liable as they were the author.
Neither the publisher nor the editors can disclaim liability for libelous articles that appear on their
paper by simply saying they had no participation in the preparation of the same. They cannot say
that Tulfo was all alone in the publication of Remate, on which the subject articles appeared, when
they themselves hold positions of authority in the newspaper, or in the case of Pichay, as the
president in the publishing company.
As Tulfo cannot simply say that he is not liable because he did not fulfill his responsibility as a
journalist, the other petitioners cannot simply say that they are not liable because they did not fulfill
their responsibilities as editors and publishers. An editor or manager of a newspaper, who has
active charge and control of its management, conduct, and policy, generally is held to be equally
liable with the owner for the publication therein of a libelous article. 40 On the theory that it is the
duty of the editor or manager to know and control the contents of the paper, 41 it is held that said
person cannot evade responsibility by abandoning the duties to employees, 42so that it is immaterial
whether or not the editor or manager knew the contents of the publication. 43 In Fermin v. People of
the Philippines, 44 the Court held that the publisher could not escape liability by claiming lack of
participation in the preparation and publication of a libelous article. The Court cited US v. Ocampo,
stating the rationale for holding the persons enumerated in Art. 360 of the RPC is criminally liable,
and it is worth reiterating:
According to the legal doctrines and jurisprudence of the United States, the printer of a publication
containing libelous matter is liable for the same by reason of his direct connection therewith and his
cognizance of the contents thereof. With regard to a publication in which a libel is printed, not only is
the publisher but also all other persons who in any way participate in or have any connection with its
publication are liable as publishers.
xxxx
In the case of State vs. Mason (26 LRA, 779; 26 Oreg., 273, 46 Am. St. Rep., 629), the question of
the responsibility of the manager or proprietor of a newspaper was discussed. The court said,
among other things (pp. 782, 783):
"The question then recurs as to whether the manager or proprietor of a newspaper can escape
criminal responsibility solely on the ground that the libelous article was published without his
knowledge or consent. When a libel is published in a newspaper, such fact alone is sufficient
evidence prima facie to charge the manager or proprietor with the guilt of its publication.
"The manager and proprietor of a newspaper, we think ought to be held prima facie criminally for
whatever appears in his paper; and it should be no defense that the publication was made without
his knowledge or consent, xx x.
"One who furnishes the means for carrying on the publication of a newspaper and entrusts its
management to servants or employees whom he selects and controls may be said to cause to be
published what actually appears, and should be held responsible therefore, whether he was
individually concerned in the publication or not, xx x. Criminal responsibility for the acts of an agent
or servant in the course of his employment necessarily implies some degree of guilt or delinquency
on the part of the publisher; xx x.
"We think, therefore, the mere fact that the libelous article was published in the newspaper without
the knowledge or consent of its proprietor or manager is no defense to a criminal prosecution
against such proprietor or manager."
In the case of Commonwealth vs. Morgan (107 Mass., 197), this same question was considered
and the court held that in the criminal prosecution of a publisher of a newspaper in which a libel
appears, he is prima facie presumed to have published the libel, and that the exclusion of an offer
by the defendant to prove that he never saw the libel and was not aware of its publication until it
was pointed out to him and that an apology and retraction were afterwards published in the same
paper, giving him no ground for exception. In this same case, Mr. Justice Colt, speaking for the
court, said:
"It is the duty of the proprietor of a public paper, which may be used for the publication of improper
communications, to use reasonable caution in the conduct of his business that no libels be
published." (Wharton's Criminal Law, secs. 1627, 1649; 1 Bishop's Criminal Law, secs. 219, 221;
People vs. Wilson, 64 Ill., 195; Commonwealth vs. Damon, 136 Mass., 441.)
The above doctrine is also the doctrine established by the English courts. In the case of Rex
vs. Walter (3 Esp., 21) Lord Kenyon said that he was "clearly of the opinion that the proprietor of a
newspaper was answerable criminally as well as civilly for the acts of his servants or agents for
misconduct in the management of the paper."
This was also the opinion of Lord Hale, Mr. Justice Powell, and Mr. Justice Foster.
Lofft, an English author, in his work on Libel and Slander, said:
"An information for libel will lie against the publisher of a papers, although he did not know of its
being put into the paper and stopped the sale as soon as he discovered it."
In the case of People vs. Clay (86 Ill., 147) the court held that -
"A person who makes a defamatory statement to the agent of a newspaper for publication, is liable
both civilly and criminally, and his liability is shared by the agent and all others who aid in publishing
it." 45
Under Art. 360 of the RPC, as Tulfo, the author of the subject articles, has been found guilty of libel,
so too must Cambri, Salao, Barlizo, and Pichay.
Although we find petitioners guilty of the crime charged, the punishment must still be tempered with
justice. Petitioners are to be punished for libel for the first time. They did not apply for probation to
avoid service of sentence possibly in the belief that they have not committed any crime. In Buatis,
Jr. v. People, 46 the Court, in a criminal case for libel, removed the penalty of imprisonment and
instead imposed a fine as penalty. In Sazon v. Court of Appeals, 47the accused was merely fined in
lieu of the original penalty of imprisonment and fine. Freedom of expression as well as freedom of
the press may not be unrestrained, but neither must it be reined in too harshly. In light of this,
considering the necessity of a free press balanced with the necessity of a responsible press, the
penalty of a fine of PhP 6,000 for each count of libel, with subsidiary imprisonment in case of
insolvency, should suffice. 48 Lastly, the responsibilities of the members of the press
notwithstanding, the difficulties and hazards they encounter in their line of work must also be taken
into consideration.
The award of damages by the lower court must be modified. Art. 2199 of the Civil Code provides,
"Except as provided by law or by stipulation, one is entitled to an adequate compensation only for
such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as
actual or compensatory damages." There was no showing of any pecuniary loss suffered by the
complainant Atty. So. Without proof of actual loss that can be measured, the award of actual
damages cannot stand.
In Del Mundo v. Court of Appeals, it was held, as regards actual and moral damages:
A party is entitled to an adequate compensation for such pecuniary loss actually suffered by him as
he has duly proved. Such damages, to be recoverable, must not only be capable of proof, but must
actually be proved with a reasonable degree of certainty. We have emphasized that these damages
cannot be presumed, and courts, in making an award must point out specific facts which could
provide a basis for measuring whatever compensatory or actual damages are borne.
Moral damages, upon the other hand, may be awarded to compensate one for manifold injuries
such as physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded
feelings and social humiliation. These damages must be understood to be in the concept of grants,
not punitive or corrective in nature, calculated to compensate the claimant for the injury
suffered. Although incapable of exactness and no proof of pecuniary loss is necessary in order that
moral damages may be awarded, the amount of indemnity being left to the sound discretion of the
court, it is imperative, nevertheless, that (1) injury must have been suffered by the claimant, and (2)
such injury must have sprung from any of the cases expressed in Article 2219 and Article 2220 of
the Civil Code. A causal relation, in fine, must exist between the act or omission referred to in the
Code which underlies, or gives rise to, the case or proceeding on the one hand, and the resulting
injury, on the other hand; ie the first must be the proximate cause and the latter the direct
consequence thereof.49
It was the articles of Tulfo that caused injury to Atty. So, and for that Atty. So deserves the award of
moral damages. Justification for the award of moral damages is found in Art. 2219 (7) of the Civil
Code, which states that moral damages may be recovered in cases of libel, slander, or any other
form of defamation. As the cases involved are criminal cases of libel, they fall squarely within the
ambit of Art. 2219 (7).
Moral damages can be awarded even in the absence of actual or compensatory damages. The fact
that no actual or compensatory damage was proven before the trial court does not adversely affect
the offended party's right to recover moral damages. 50
And while on the subject of moral damages, it may not be amiss to state at this juncture that Tulfo's
libelous articles are abhorrent not only because of its vilifying and demeaning effect on Atty. So
himself, but also because of their impact on members of his family, especially on the children and
possibly even the children's children.
The Court can perhaps take judicial notice that the sense of kinship runs deeply in a typical Filipino
family, such that the whole family usually suffers or rejoices at the misfortune or good fortune, as
the case may be, of any of its members. Accordingly, any attempt to dishonor or besmirch the name
and reputation of the head of the family, as here, invariably puts the other members in a state of
disrepute, distress, or anxiety. This reality adds an imperative dimension to the award of moral
damages to the defamed party.
The award of exemplary damages, however, cannot be justified. Under Art. 2230 of the Civil Code,
"In criminal offenses, exemplary damages as a part of civil liability may be imposed when the crime
was committed with one or more aggravating circumstances. Such damages are separate and
distinct from fines and shall be paid to the offended party. " No aggravating circumstances
accompanied the commission of the libelous acts; thus, no exemplary damages can be awarded.
Conclusion
The press wields enormous power. Through its widespread reach and the information it imparts, it
can mold and shape the thoughts and opinions of the people. It can turn the tide of public opinion
for or against someone, it can build up heroes or create villains.
It is in the interest of society to have a free press, to have liberal discussion and dissemination of
ideas, and to encourage people to engage in healthy debate. It is through this that society can
progress and develop.
Those who would publish under the aegis of freedom of the press must also acknowledge the
corollary duty to publish responsibly. To show that they have exercised their freedom responsibly,
they must go beyond merely relying on unfounded rumors or shadowy anonymous sources. There
must be further investigation conducted, some shred of evidence found to support allegations of
misconduct or even criminal activity. It is in fact too easy for journalists to destroy the reputation and
honor of public officials, if they are not required to make the slightest effort to verify their
accusations. Journalists are supposed to be reporters of facts, not fiction, and must be able to back
up their stories with solid research. The power of the press and the corresponding duty to exercise
that power judiciously cannot be understated.
But even with the need for a free press, the necessity that it be free does not mean that it be totally
unfettered. It is still acknowledged that freedom can be abused, and for the abuse of freedom, there
must be a corresponding sanction. It falls on the press to wield such enormous power
responsibly. It may be a cliché that the pen is mightier than the sword, but in this particular case,
the lesson to be learned is that such a mighty weapon should not be wielded recklessly or
thoughtlessly, but always guided by conscience and careful thought.
A robust and independent free press is undoubtedly one of the most effective checks on
government power and abuses. Hence, it behooves government functionaries to respect the value
of openness and refrain from concealing from media corruption and other anomalous practices
occurring within their backyard. On the other hand, public officials also deserve respect and
protection against false innuendoes and unfounded accusations of official wrongdoing from an
abusive press. As it were, the law and jurisprudence on libel heavily tilt in favor of press
freedom. The common but most unkind perception is that government institutions and their officers
and employees are fair game to official and personal attacks and even ridicule. And the practice on
the ground is just as disconcerting. Reports and accusations of official misconduct often times merit
front page or primetime treatment, while defenses set up, retraction issued, or acquittal rendered
get no more, if ever, perfunctory coverage. The unfairness needs no belaboring. The balm of clear
conscience is sometimes not enough.
Perhaps lost in the traditional press freedom versus government impasse is the fact that a
maliciously false imputation of corruption and dishonesty against a public official, as here, leaves a
stigmatizing mark not only on the person but also the office to which he belongs. In the ultimate
analysis, public service also unduly suffers.
WHEREFORE, in view of the foregoing, the petitions in GR Nos. 161032 and 161176 are
DISMISSED. The CA Decision dated June 17, 2003 in CA-GR CR No. 25318 is hereby AFFIRMED
with the MODIFICATIONS that in lieu of imprisonment, the penalty to be imposed upon petitioners
shall be a fine of six thousand pesos (PhP 6,000) for each count of libel, with subsidiary
imprisonment in case of insolvency, while the award of actual damages and exemplary damages
are DELETED . The Decision dated November 17, 2000 of the RTC, Branch 112 in Pasay City in
Criminal Case Nos. 99-1597 to 99-1600 is modified to read as follows:
WHEREFORE, the Court finds the accused ERWIN TULFO, SUSAN CAMBRI, REY SALAO,
JOCELYN BARLIZO, and PHILIP PICHAY guilty beyond reasonable doubt of four (4) counts of the
crime of LIBEL, as defined in Article 353 of the Revised Penal Code, and sentences EACH of the
accused to pay a fine of SIX THOUSAND PESOS (PhP 6,000) per count of libel with subsidiary
imprisonment, in case of insolvency.
Considering that the accused Erwin Tulfo, Susan Cambri, Rey Salao, Jocelyn Barlizo, and Philip
Pichay wrote and published the four (4) defamatory articles with reckless disregard whether it was
false or not, the said articles being libelous per se, they are hereby ordered to pay complainant
Atty. Carlos T. So, jointly and severally, the sum of ONE MILLION PESOS (PhP 1,000,000) as
moral damages. The claim of actual and exemplary damages is denied for lack of merit.
Costs against petitioners.
SO ORDERED.
G.R. No. 163280               February 2, 2010
DORIS U. SUNBANUN, Petitioner,
vs.
AURORA B. GO, Respondent.
DECISION
CARPIO, J.:
The Case
This petition for review on certiorari1 assails the 30 September 2003 Decision2 and the 18 March
2004 Resolution3 of the Court of Appeals in CA-G.R. CV No. 67836.
The Facts
Petitioner Doris U. Sunbanun is the owner of a residential house located at No. 68-F Junquera 1. ₱45,000.00 as compensation for actual damages;
Street, Cebu City. On 7 July 1995, respondent Aurora B. Go leased the entire ground floor of
petitioner’s residential house for one year which was to expire on 7 July 1996. As required under the 2. ₱50,000.00 as moral damages;
lease contract, respondent paid a deposit of ₱16,000 to answer for damages and unpaid rent. To
earn extra income, respondent accepted lodgers, mostly her relatives, from whom she received a
monthly income of ₱15,000. Respondent paid the monthly rental until March 1996 when petitioner 3. ₱50,000.00 as exemplary damages;
drove away respondent’s lodgers by telling them that they could stay on the rented premises only
until 15 April 1996 since she was terminating the lease. The lodgers left the rented premises by 15 4. ₱8,000.00 as Attorney’s Fees;
April 1996, and petitioner then padlocked the rooms vacated by respondent’s lodgers.
5. Cost of the suit.
On 10 May 1996, respondent filed an action for damages against petitioner. Respondent alleged
that she lost her income from her lodgers for the months of April, May, and June 1996 totaling SO ORDERED.5
₱45,000. Respondent, who worked in Hongkong, also incurred expenses for plane fares and other
travel expenses in coming to the Philippines and returning to Hongkong. The Court of Appeals’ Ruling

On the other hand, petitioner argued that respondent violated the lease contract when she
subleased the rented premises. Besides, the lease contract was not renewed after its expiration on
7 July 1996; thus, respondent had no more right to stay in the rented premises. Petitioner also
moved to dismiss the complaint in the trial court for failure to comply with prior barangay
conciliation.
During the pre-trial, petitioner moved for the case to be submitted for judgment on the pleadings
considering that the only disagreement between the parties was the correct interpretation of the
lease contract. Respondent did not object to petitioner’s motion. The trial court then directed the
parties to submit their respective memoranda, after which the case would be considered submitted
for decision.4
In its decision dated 28 March 2000, the trial court held that the case is not covered by the barangay
conciliation process since respondent is a resident of Hongkong. The trial court noted that petitioner
did not controvert respondent’s allegation that petitioner ejected respondent’s lodgers sometime in
March 1996 even if the contract of lease would expire only on 7 July 1996. The trial court found
untenable petitioner’s contention that subleasing the rented premises violated the lease contract.
The trial court held that respondent’s act of accepting lodgers was in accordance with the lease
contract which allows the lessee "to use the premises as a dwelling or as lodging house." Thus, the
trial court ordered petitioner to pay respondent actual damages of ₱45,000 for respondent’s lost
income from her lodgers for the months of April, May, and June 1996, and attorney’s fees of ₱8,000.
Both parties appealed before the Court of Appeals. On 30 September 2003, the Court of Appeals
rendered its decision in favor of respondent and modified the trial court’s decision. Aside from actual
damages and attorney’s fees, the Court of Appeals also ordered petitioner to pay moral and
exemplary damages and the cost of the suit. The dispositive portion of the Court of Appeals’
decision reads:
WHEREFORE, premises considered, the assailed Decision of the trial court is hereby MODIFIED by
ordering defendant-appellant [Doris U. Sunbanun] to pay plaintiff-appellant [Aurora B. Go] the
following amounts:
The Court of Appeals held that petitioner’s act of forcibly ejecting respondent’s lodgers three months
prior to the termination of the lease contract without valid reason constitutes breach of contract.
Petitioner also violated Article 1654 of the Civil Code which states that "the lessor is obliged to
maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the
contract." The Court of Appeals awarded ₱50,000 as moral damages to respondent for breach of
contract and for petitioner’s act of pre-terminating the lease contract without valid reason, which
shows bad faith on the part of petitioner. The Court of Appeals also awarded respondent ₱50,000
as exemplary damages for petitioner’s oppressive act.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD OF ACTUAL DAMAGES BY
THE TRIAL COURT.
II. THE COURT OF APPEALS ERRED IN MODIFYING THE JUDGMENT OF THE TRIAL COURT
AND AWARDING MORAL AND EXEMPLARY DAMAGES AND COSTS OF SUIT IN FAVOR OF
RESPONDENT.
III. THE COURT OF APPEALS ERRED IN AFFIRMING THE AWARD OF ATTORNEY’S FEES IN
FAVOR OF RESPONDENT.6
The Ruling of the Court
We find the petition without merit.
In this case, the trial court rendered a judgment on the pleadings. Section 1, Rule 34 of the Rules of
Court reads:
SECTION 1. Judgment on the pleadings. – Where an answer fails to tender an issue, or otherwise
admits the material allegations of the adverse party’s pleading, the court may, on motion of that
party, direct judgment on such pleading. However, in actions for declaration of nullity or annulment
of marriage or for legal separation, the material facts alleged in the complaint shall always be
proved.
The trial court has the discretion to grant a motion for judgment on the pleadings filed by a party if
there is no controverted matter in the case after the answer is filed. 7 A judgment on the pleadings is
a judgment on the facts as pleaded,8 and is based exclusively upon the allegations appearing in the
pleadings of the parties and the accompanying annexes.
This case is unusual because it was petitioner, and not the claimant respondent, who moved for a
judgment on the pleadings during the pre-trial. This is clear from the trial court’s Order 9 dated 7
October 1997 which reads:
ORDER
When this case was called for pre-trial, parties appeared together with counsel. Defendant [Doris U.
Sunbanun] moved that considering that there is no dispute as far as the contract is concerned and
the only disagreement between the parties is on the interpretation of the contract so that the issue
boils down on to which of the parties are correct on their interpretation. With the conformity of the
plaintiff [Aurora B. Go], this case is therefore considered closed and submitted for judgment on the
pleadings. x x x (Emphasis supplied)
Petitioner, in moving for a judgment on the pleadings without offering proof as to the truth of her own
allegations and without giving respondent the opportunity to introduce evidence, is deemed to have
admitted the material and relevant averments of the complaint, and to rest her motion for judgment
based on the pleadings of the parties.10 As held in Tropical Homes, Inc. v. CA:111avvphi1
As to the amount of damages awarded as a consequence of this violation of plaintiff’s rights, the
lower court based its award from the allegations and prayer contained in the complaint. The
defendant, however, questions this award for the reason that, according to the defendant, the
plaintiff, in moving for judgment on the pleadings, did not offer proof as to the truth of his own
allegations with respect to the damages claimed by him, and gave no opportunity for the appellant
to introduce evidence to refute his claims. We find this objection without merit. It appears that when
the plaintiff moved to have the case decided on the pleadings, the defendant interposed no
objection and has practically assented thereto. The defendant, therefore, is deemed to have
admitted the allegations of fact of the complaint, so that there was no necessity for plaintiff to submit
evidence of his claim.
In this case, it is undisputed that petitioner ejected respondent’s lodgers three months before the
expiration of the lease contract on 7 July 1996. Petitioner maintains that she had the right to
terminate the contract prior to its expiration because respondent allegedly violated the terms of the
lease contract by subleasing the rented premises. Petitioner’s assertion is belied by the provision in
the lease contract12 which states that the lessee can "use the premises as a dwelling or as lodging
house." Furthermore the lease contract clearly provides that petitioner leased to respondent the
ground floor of her residential house for a term of one year commencing from 7 July 1995. Thus, the
lease contract would expire only on 7 July 1996. However, petitioner started ejecting respondent’s
lodgers in March 1996 by informing them that the lease contract was only until 15 April 1996.
Clearly, petitioner’s act of ejecting respondent’s lodgers resulted in respondent losing income from
her lodgers. Hence, it was proper for the trial court and the appellate court to order petitioner to pay
respondent actual damages in the amount of ₱45,000.
We likewise sustain the award of moral damages in favor of respondent. In this case, moral
damages may be recovered under Article 2219 and Article 2220 of the Civil Code in relation to
Article 21. The pertinent provisions read:
Art. 2219. Moral damages may be recovered in the following and analogous cases:
xxx
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Art. 2220. Wilfull injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied)
Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
We agree with the appellate court that petitioner’s act of ejecting respondent’s lodgers three months
before the lease contract expired without valid reason constitutes bad faith. What aggravates the
situation was that petitioner did not inform respondent, who was then working in Hongkong, about
petitioner’s plan to pre-terminate the lease contract and evict respondent’s lodgers. Moral damages
may be awarded when the breach of contract was attended with bad faith.13
Furthermore, we affirm the award of exemplary damages and attorney’s fees. Exemplary damages
may be awarded when a wrongful act is accompanied by bad faith or when the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner which would justify an award of
exemplary damages under Article 223214 of the Civil Code.15 Since the award of exemplary
damages is proper in this case, attorney’s fees and cost of the suit may also be recovered as
provided under Article 220816 of the Civil Code.17
WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 30 September 2003
Decision and the 18 March 2004 Resolution of the Court of Appeals in CA-G.R. CV No. 67836.
SO ORDERED.
G.R. No. 193914               November 26, 2014
SEVEN BROTHERS SHIPPING CORPORATION, Petitioner,
vs.
DMC-CONSTRUCTION RESOURCES, INC., Respondent.
 DECISION
SERENO, CJ:
This is a Rule 45 appeal1 dated 18 November 2010 assailing the Decision2 and Resolution3 of the
Court of Appeals (CA) in CA-G.R. CV No. 69819, which affirmed with modifications the Decision 4 of
the Regional Trial Court (RTC), Branch 132, Makati City in Civil Case No. 98-699, finding petitioner
liable to respondent for damages.
Petitioner Seven Brothers Shipping Corporation is the owner of the cargo ship M/V "Diamond
Rabbit," (vessel), while respondent DMC Construction Resource, Inc. is the owner of coal-conveyor
facility, which was destroyed when the vessel became uncontrollable and unmanueverable during a
storm.5
We reproduce the narration of facts culled by the CA,6 as follows:
On 23 February 1996, the cargo ship M/V "Diamond Rabbit" (the Vessel) owned and operated by
defendant Seven Brothers Shipping Corporation (Seven Brothers),was at the PICOP Pier in
Mangagoy, Bislig, Surigao del Sur to dock there. According to the record, the weather that day was
windy with a wind force of 10 to 20 knots, and the sea condition was rough, with waves 6 to 8 feet
high. However, the parties also stipulated during pre-trial that prior to the occurrence of the incident,
the vessel was anchored at the cause way of the port of Bislig, where it was safe from inclement
weather.
According to the report of the Master, it heaved its anchor and left the causeway in order to dock at
the PICOP Pier. A lifeboat pulled the vessel towards the Pier with a heaving line attached to the
vessel’s astern mooring rope, when suddenly, the heaving line broke loose, causing the astern
mooring rope to drift freely. The mooring rope got entangled in the vessel’s propeller, thereby
choking and disabling it, and preventing the further use of its main engine for maneuvering.
In order to stop the vessel from further drifting and swinging, its Master dropped her starboard
anchor. To help secure the vessel, its forward mooring rope was sent ashoreand secured at the
mooring fender. However, because of the strong winds and rough seas, the vessel’s anchor and the
mooring rope could not hold the vessel.
Under the influence of the wind and current, the dead weight of the vessel caused it to swung from
side to side until the fender, where the mooring rope was attached, collapsed. The uncontrollable
and unmaneuverable vessel drifted and dragged its anchor until it hit several structures at the Pier,
including the coal conveyor facility owned by DMC Construction Equipment Resources, Inc. (DMC).
(Emphasis in the original)
On 5 March 1996, respondent sent a formal demand letter to petitioner, claiming the amount above-
stated for the damages sustained by their vessel.7
When petitioner failed to pay, respondent filed with the RTC a Complaint for damages against
respondent on 23 March 1998. Based on the pieces of evidence presented by both parties, the RTC
ruled that as a result of the incident, the loading conveyor and related structures of respondent were
indeed damaged.8 In the course of the destruction, the RTC found that no force majeure existed,
considering that petitioner’s captain was well aware of the bad weather, and yet proceeded against
the strong wind and rough seas, instead of staying at the causeway and waiting out the passage of
the typhoon.9 It further concluded that "there was negligence on the part of the captain; hence,
defendant [petitioner] as his employer and owner of the vessel shall be liable for damages caused
thereby."10
Regarding liability, the RTC awarded respondent actual damages in the amount of ₱3,523,175.92
plus legal interest of 6%, based on the testimony of respondent’s engineer, Loreto Dalangin (Engr.
Dalangin). The value represented 50% of the ₱7,046,351.84 claimed by the respondent as the fair
and reasonable valuation of the structure at the time of the loss,11 because as manifested by Engr.
Dalangin at the time of the incident, the loading conveyor and related structures were almost five
years old, with a normal useful life of 10 years.12
Thus, on 18 January 2001, the RTC issued a Decision13 to wit:
WHEREFORE, judgment is hereby rendered ordering defendant to pay plaintiff:
(a) Actual damages in the amount of ₱3,523,175.92 plus legal interest of 6% per annum from the
date of the filing of this complaint until the same is fully paid; and
(b) Costs of suit.
Aggrieved, petitioner appealed via a Notice of Appeal on 5 February 2001. 14 The appeal was
dismissed by the CA in a Decision dated 30 April 2010, 15 the dispositive portion of which is quoted
herein:
WHEREFORE, the appeal is DISMISSED, and the Decision dated 18 January 2001 of the Regional
Trial Court, Branch 132, Makati City in Civil Case No. 98-699, is AFFIRMED with modification in that
Seven Brothers Shipping Corporation is found liable to DMC Construction Equipment Resources,
Inc. for nominal damages in the amount of 3,523,175.92 due to the destruction of the latter’s coal
conveyor post and terminal by the cargo ship M/V "Diamond Rabbit." (Emphasis in the original)
The CA affirmed the RTC’s Decision with respect to the finding of negligence on the part of the
vessel’s captain. However, the appellate court modified the nature of damages awarded (from
actual to nominal), on the premise that actual damages had not been proved. Respondent merely
relied on estimates to prove the cost of replacing the structures destroyed by the vessel, as no
actual receipt was presented.16
On 19 May 2010, petitioner filed a Motion for Partial Reconsideration. 17 Respondent filed a
Commenton the Motion on 22 June 2010,18 and the former, a Reply on 29 June 2010.19 In a
Resolution promulgated on 24 September 2010,20 the CA denied petitioner’s Motion. Hence, the
instant Petition.
This Court noted respondent’s Comment dated 27 April 2011; 21 respondent’s Manifestation dated 4
May 2011;22 and petitioner’s Reply dated 2 June 2011.23
ISSUE
From the foregoing, the sole issue proffered to us by petitioner is whether or not the CA erred in
awarding nominal damages to respondent after having ruled that the actual damages awarded by
the RTC was unfounded.
THE COURT’S RULING
24
Petitioner argues that under Articles 2221 and 2223 of the Civil Code,  nominal damages are only
awarded to vindicate or recognize a right that has been violated, and not to indemnify a party for any
loss suffered by the latter. They are not awarded as a simple replacement for actual damages that
were not duly proven during trial.25 Assuming further that nominal damages were properly awarded
by the CA, petitioner is of the belief that the amount thereof must be equal or at least commensurate
to the injury sustained by the claimant, as ruled in PNOC Shipping and Transportation Corp. v.
Court of Appeals (PNOC).26 Considering that respondent allegedly failed to substantiate its actual
loss, it was therefore improper for the CA to award nominal damages of ₱3,523,175.92, which was
based on respondent’s "highly speculative claims."27
Respondent, on the other hand, alleges that nominal damages were rightly assessed, since there
was a categorical finding that its "property right was indubitably invaded and violated when damage
to its conveyor and port equipment due to petitioner’s negligence," 28 was inflicted. Nominal damages
are recoverable where some injury has been done, but the evidence fails to show the corresponding
amount thereof. Accordingly, the assessment of damages is left to the discretion of the
court.29 Respondent asserts that the CA’s award of ₱3,523,175.92 is not unreasonable, following the
amounts awarded in PNOC.
We rule that temperate, and not nominal, damages should be awarded to respondent in the amount
of ₱3,523,175.92.
Factual findings of appellate and trial courts are entitled to great weight and respect on appeal,
especially when established by unrebutted testimonial and documentary evidence.
To resolve the issue at hand, we must first determine whether there was indeed a violation of
petitioner’s right. In this light, we are inclined to adopt the factual findings of the RTC and the CA as
"[t]his Court has repeatedly held that petitions for review under Rule 45 of the Rules of Court may be
brought only on questions of law, not on questions of fact. Moreover, the factual findings of trial
courts are entitled to great weight and respect on appeal, especially when established by unrebutted
testimonial and documentary evidence. And the findings of facts of the Court of Appeals are
conclusive and binding on the Supreme Court except when they conflict with the findings of the trial
court."30
In this case, two facts have been established by the appellate and trial courts: that respondent
suffered a loss caused by petitioner; and that respondent failed to sufficiently establish the amount
due to him, as no actual receipt was presented.
Temperate or moderate damages may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be provided with certainty.
Under the Civil Code, when an injury has been sustained, actual damages may be awarded under
the following condition:
Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred
to as actual or compensatory damages. (Emphasis ours)
As we have stated in Dee Hua Liong Electrical Equipment Corp., v. Reyes, 31 "[a]ctual or
compensatory damages cannot be presumed, but must be duly proved, and proved with a
reasonable degree of certainty. A court cannot rely on speculation, conjecture or guess work as to
the fact and amount of damages, but must depend upon competent proof that they have suffered
and on evidence of the actual amount thereof. If the proof is flimsy and unsubstantial, no damages
will be awarded."
Jurisprudence has consistently heldthat "[t]o justify an award of actual damages x x x credence can
be given only to claims which are duly supported by receipts." 32 We take this to mean by credible
evidence. Otherwise, the law mandates that other forms of damages must be awarded, to wit:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages, may be adjudicated. The assessment of suchdamages, except
liquidated ones, is left to the discretion of the court, according to the circumstances of each case.
Under Article 2221 of the Civil Code, nominal damages may be awarded in order that the plaintiff’s
right, which has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered. We have laid down the concept
of nominal damages in the following wise:
Nominal damages are ‘recoverable where a legal right is technically violated and must be vindicated
against an invasion that has produced no actual present loss of any kind or where there has been a
breach of contract and no substantial injury or actual damages whatsoever have been or can be
shown.’33
Thus, in Saludo v. Court of Appeals,34 nominal damages were granted because while petitioner
suffered no substantial injury, his right to be treated with due courtesy was violated by the
respondent, Transworld Airlines, Inc. Nominal damages were likewise awarded in Northwestern
Airlines v. Cuenca,35 Francisco v. Ferrer,36 and Areola v. Court of Appeals,37 where a right was
violated, but produced no injury or loss to the aggrieved party. In contrast, under Article 2224,
temperate or moderate damages may be recovered when the court finds that some pecuniary loss
has been suffered but its amount cannot, from the nature of the case, be provided with certainty.
This principle was thoroughly explained in Araneta v. Bank of America,38 which cited the Code
Commission, to wit:
The Code Commission, in explaining the concept of temperate damages under Article 2224, makes
the following comment:
In some States of the American Union, temperate damages are allowed. There are cases where
from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is
convinced that there has been such loss.For instance, injury to one's commercial credit or to the
goodwill of a business firm is often hard to show with certainty in terms of money. Should damages
be denied for that reason? The judge should be empowered to calculate moderate damages in such
cases, rather than that the plaintiff should suffer, without redress from the defendant's wrongful act.
(Emphasis ours)
39
Thus, in Tan v. OMC Carriers, Inc.,  temperate damages were rightly awarded because plaintiff
suffered a loss, although definitive proof of its amount cannot be presented as the photographs
produced as evidence were deemed insufficient. Established in that case, however, was the fact
that respondent’s truck was responsible for the damage to petitioner’s property and that petitioner
suffered some form of pecuniary loss. In Canada v. All Commodities Marketing
Corporation,40 temperate damages were also awarded wherein respondent’s goods did not reach
the Pepsi Cola Plant at Muntinlupa City as a result of the negligence of petitioner in conducting its
trucking and hauling services, even ifthe amount of the pecuniary loss had not been proven. In
Philtranco Services Enterprises, Inc. v. Paras,41 the respondent was likewise awarded temperate
damages in an action for breach of contract of carriage, even if his medical expenses had not been
established with certainty. In People v. Briones,42 in which the accused was found guilty of murder,
temperate damages were given even if the funeral expenses for the victim had not been sufficiently
proven.
Given these findings, we are of the belief that temperate and not nominal damages should have
been awarded, considering that it has been established that respondent herein suffered a loss, even
if the amount thereof cannot be proven with certainty.
The amount of temperate damages to be awarded is usually left to the discretion of the courts, but
such amount must be reasonable.
Consequently, in computing the amount of temperate or moderate damages, it is usually left to the
discretion of the courts, but the amount must be reasonable, bearing in mind that temperate
damages should be more than nominal but less than compensatory.43
Here, we are convinced that respondent sustained damages to its conveyor facility due to
petitioner's negligence. Nonetheless, for failure of respondent to establish by competent evidence
the exact amount of damages it suffered, we are constrained to award temperate damages.
Considering that the lower courts have factually established that the conveyor facility had a
remaining life of only five of its estimated total life of ten years during the time of the collision, then
the replacement cost of ₱7,046,351.84 should rightly be reduced to 50% or ₱3,523, 175.92. This is
a fair and reasonable valuation, having taking into account the remaining useful life of the facility.
WHEREFORE, the Petition for Review on Certiorari is hereby DISMISSED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 69819, are hereby MODIFIED, in that
temperate damages in the amount of ₱3,523,175.92 are awarded, in lieu of nominal damages.
SO ORDERED.
G.R. No. 160191             June 8, 2006
TWIN ACE HOLDINGS CORPORATION, Petitioner,
vs.
RUFINA AND COMPANY, Respondent.
DECISION
CHICO-NAZARIO, J.:
From the records, it appears that on 3 December 1991, Twin Ace Holdings Corporation (Twin Ace)
filed a Complaint1 for recovery of possession of personal property, permanent injunction and
damages with prayer for the issuance of a writ of replevin, temporary restraining order and a writ of
preliminary injunction against Rufina and Company (Rufina).
As alleged in the complaint, Twin Ace is a private domestic corporation engaged in the manufacture
of rhum, wines and liquor under the name and style "Tanduay Distillers." It has registered its mark of
ownership of its bottles with the Bureau of Patent, Trademarks and Technology Transfer under
Republic Act No. 623. In the conduct of its business, it sells its products to the public excluding the
bottles. It makes substantial investments in brand new bottles which it buys from glass factories and
which they use for about five times in order to recover the cost of acquisition. Twin Ace thus
retrieves its used empty bottles, washes and uses them over and over again as containers for its
products.
On the other hand, Rufina is engaged in the production, extraction, fermentation and manufacture of
patis and other food seasonings and is engaged in the buying and selling of all kinds of foods,
merchandise and products for domestic use or for export to other countries. In producing patis and
other food seasonings, Rufina uses as containers bottles owned by Twin Ace without any authority
or permission from the latter. In the process, Rufina is unduly benefited from the use of the bottles.
Upon the posting of Twin Ace of the required bond, the Regional Trial Court (RTC) of Manila,
Branch 26, issued an Order dated 5 February 1992 granting the application for the issuance of a
writ of replevin.2 Upon the implementation of the said writ, Deputy Sheriff Amado P. Sevilla was able
to seize a total of 26,241 empty bottles marked "TANDUAY DISTILLERY, INC.,"3 at the address of
Rufina.
In its Answer with counter-application for a Writ of Preliminary Injunction, Rufina claimed that the
marked bottles it used as containers for its products were purchased from junk dealers; hence, it
became the owner thereof.
After hearing, the trial court rendered its decision dated 20 May 1995 the dispositive portion of which
states:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of the defendant
as follows:
a) dismissing the complaint for lack of merit;
b) dissolving the order of replevin;
c) ordering the plaintiff to return 26,241 bottles to the defendant in the place where the bottles were
seized at the expense of the plaintiff within 48 hours from receipt hereof;
d) ordering the plaintiff to pay the defendant the sum of P100,000.00 as actual damages sustained
by the latter to be taken from the replevin bond;
e) ordering the plaintiff to pay the defendant the sum of P1,000,000.00 as damages for besmirched
reputation;
f) ordering the plaintiff to pay the sum of P100,00.00 as nominal damages;
g) ordering the plaintiff to pay the defendant the sum of P50,000.00 as attorney’s fee; and
h) ordering the plaintiff to pay the cost of the suit.4
Twin Ace appealed to the Court of Appeals. On 27 September 2002, the appellate court rendered its
decision5 modifying the decision of the trial court as follows:
WHEREFORE, in view of all the foregoing, the appealed decision dated May 20, 1995 of Branch 26,
Regional Trial Court, Manila, in Civil Case No. 92-59862 is MODIFIED, in that the award of
damages, except nominal damages, and attorney’s fees is DELETED for lack of legal and factual
basis. The award of nominal damages is reduced to P50,000.00. In all other respects, the assailed
decision is AFFIRMED.
Costs against plaintiff-appellant.6
7
A motion for reconsideration dated 19 October 2002  filed by Twin Ace was denied in a resolution of
the Court of Appeals dated 29 September 2003.8 Hence, this Petition for Review.
For resolution are the following issues:
I.
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT RESPONDENT RUFINA IS
NOT COVERED WITHIN THE EXEMPTION PROVIDED BY SECTION 6 OF R.A. 623, AS
AMENDED BY R.A. 5700.
II.
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING NOMINAL DAMAGES
AGAINST PETITIONER TWIN ACE CONSIDERING THAT IT WAS THE ONE WHOSE RIGHTS
HAVE BEEN VIOLATED OR INVADED BY RESPONDENT RUFINA.
III.
THE HONORABLE COURT OF APPEALS ERRED IN NOT FINDING THAT PETITIONER AS
OWNER OF THE SUBJECT BOTTLES IS ENTITLED TO COMPENSATION FOR ITS
UNAUTHORIZED USE BY RESPONDENT RUFINA.9
Pertinent provision of Republic Act No. 623, 10 as amended by Republic Act No. 5700, 11 is quoted
hereunder for clarity:
Sec. 2. It shall be unlawful for any person, without the written consent of the manufacturer, bottler,
or seller, who has successfully registered the marks of ownership in accordance with the provisions
of the next preceding section, to fill such bottles, boxes, kegs, barrels, steel cylinders, tanks, flasks,
accumulators, or other similar containers so marked or stamped, for the purpose of sale, or to sell,
dispose of, buy or traffic in, or wantonly destroy the same, whether filled or not to use the same for
drinking vessels or glasses or drain pipes, foundation pipes, for any other purpose than that
registered by the manufacturer, bottler or seller. Any violation of this section shall be punished by a
fine of not more than one thousand pesos or imprisonment of not more than one year or both.
Sec. 3. The use by any person other than the registered manufacturer, bottler or seller, without
written permission of the latter of any such bottle, cask, barrel, keg, box, steel cylinders, tanks,
flasks, accumulators, or other similar containers, or the possession thereof without written
permission of the manufacturer, by any junk dealer or dealer in casks, barrels, kegs, boxes, steel
cylinders, tanks, flasks, accumulators, or other similar containers, the same being duly marked or
stamped and registered as herein provided, shall give rise to a prima facie presumption that such
use or possession is unlawful.12
Sec. 4. The criminal action provided in this Act shall in no way affect any civil action to which the
registered manufacturer, bottler, or seller, may be entitled by law or contract.
Sec. 5. No action shall be brought under this Act against any person to whom the registered
manufacturer, bottler, or seller, has transferred by way of sale, any of the containers herein referred
to, but the sale of the beverage contained in the said containers shall not include the sale of the
containers unless specifically so provided.
Sec. 6. The provisions of this Act shall not be interpreted as prohibiting the use of bottles as
containers for "sisi," "bagoong," "patis," and similar native products.13
In sum, Twin Ace asserts that the provision under the law affords protection only to small scale
producers/manufacturers who do not have the capacity to buy new bottles for use in their products
and cannot extend to Rufina which had unequivocably admitted in its Answer14 and affirmed in the
decision of the trial court that it is engaged, on a large scale basis, in the production and
manufacture of food seasonings.
For its part, Rufina counters that the law did not really distinguish between large scale
manufacturers and small time producers.
The petition is not meritorious.
The earlier case of Twin Ace Holdings Corporation v. Court of Appeals, 15 applies to the present
petition. In said case, Twin Ace filed a Complaint for Replevin against Lorenzana Food Corporation
to recover three hundred eighty thousand bottles allegedly owned by Twin Ace but detained and
used by Lorenzana Food Corporation as containers for its native products without its express
permission, in violation of the law. In that case, this Court acknowledged that the exemption under
the law is unqualified as the law did not make a distinction that it only applies to small scale
industries but not to large scale manufacturers. Thus, even if the court in said case held that the
exemption is primarily meant to give protection to small scale industries, it did not qualify that the
protection therein was intended and limited only to such. The Court held:
Petitioner itself alleges that respondent LORENZANA uses the subject 350 ml., 375 ml. and 750 ml.
bottles as containers for processed foods and other related products such as patis, toyo, bagoong,
vinegar and other food seasonings. Hence, Sec. 6 squarely applies in private respondent’s favor.
Obviously, the contention of TWIN ACE that the exemption refers only to criminal liability but not to
civil liability is without merit. It is inconceivable that an act specifically allowed by law, in other words
legal, can be the subject of injunctive relief and damages. Besides, the interpretation offered by
petitioner defeats the very purpose for which the exemption was provided.
Republic Act No. 623, "An Act to Regulate the Use of Duly Stamped or Marked Bottles, Boxes,
Casks, Kegs, Barrels and Other Similar Containers," as amended by RA No. 5700, was meant to
protect the intellectual property rights of the registrants of the containers and prevent unfair trade
practices and fraud on the public. However, the exemption granted in Sec. 6 thereof was deemed
extremely necessary to provide assistance and incentive to the backyard, cottage and small-scale
manufacturers of indigenous native products such as patis, sisi and toyo who do not have the
capital to buy brand new bottles as containers nor afford to pass the added cost to the majority of
poor Filipinos who use the products as their daily condiments or viands. If the contention of
petitioner is accepted, i.e., to construe the exemption as to apply to criminal liability only but not to
civil liability, the very purpose for which the exemption was granted will be defeated. None of the
small-scale manufacturers of the indigenous native products protected would possibly wish to use
the registered bottles if they are vulnerable to civil suits. The effect is a virtual elimination of the
clear and unqualified exemption embodied in Sec. 6. It is worthy to note that House Bill No. 20585
was completely rejected because it sought to expressly and directly eliminate that which petitioner
indirectly proposes to do with this petition.16 (Emphasis supplied.)
It is worth noting that Lorenzana Food Corporation which prevailed in the case filed by Twin Ace
against it is certainly not a small scale industry. Just like Rufina, Lorenzana Food Corporation also
manufactures and exports processed foods and other related products, e.g., patis, toyo, bagoong,
vinegar and other food seasonings.
It is a basic rule in statutory construction that when the law is clear and free from any doubt or
ambiguity, there is no room for construction or interpretation. As has been our consistent ruling,
where the law speaks in clear and categorical language, there is no occasion for interpretation;
there is only room for application.17
Notably, attempts to amend the protection afforded by Section 6 of Republic Act No. 623, by giving
protection only to small scale manufacturers or those with a capitalization of five hundred thousand
pesos or less (P500,000.00), through then House Bill No. 20585,18 and subsequently through House
Bill No. 30400,19 proved unsuccessful as the amendment proposed in both Bills was never passed.
In view of these considerations, we find and so hold that the exemption contained in Section 6 of
Rep. Act No. 623 applies to all manufacturers of sisi, bagoong, patis and similar native products
without distinction or qualification as to whether they are small, medium or large scale.
On the issue of nominal damages, Article 2222 of the Civil Code 20 states that the court may award
nominal damages in every obligation arising from any source enumerated in Article 1157, 21 or in
every other case where any property right has been invaded. 22 Nominal damages are given in order
that a right of the plaintiff, which has been violated or invaded by the defendant, may be vindicated
or recognized, and not for the purpose of indemnifying the plaintiff for any loss suffered by him. 23 In
another case,24 this Court held that when plaintiff suffers some species of injury not enough to
warrant an award of actual damages, the court may award nominal damages. Considering the
foregoing, we find that the award of nominal damages to Rufina in the amount of fifty thousand
pesos (P50,000.00) is reasonable, warranted and justified.
As to the third issue, Rule 60, Section 2(a), of the Revised Rules of Court mandates that a party
praying for the recovery of possession of personal property must show by his own affidavit or that of
some other person who personally knows the facts that he is the owner of the property claimed,
particularly describing it, or is entitled to the possession thereof.25 It must be borne in mind that
replevin is a possessory action the gist of which focuses on the right of possession that, in turn, is
dependent on a legal basis that, not infrequently, looks to the ownership of the object sought to be
replevied.26 Wrongful detention by the defendant of the properties sought in an action for replevin
must be satisfactorily established. If only a mechanistic averment thereof is offered, the writ should
not be issued.27 In this case, Twin Ace has not shown that it is entitled to the possession of the
bottles in question and consequently there is thus no basis for the demand by it of due
compensation. As stated by the court in the earlier case of Twin Ace Holdings Corporation v. Court
of Appeals28 :
Petitioner cannot seek refuge in Sec. 5 of RA No. 623 to support its claim of continuing ownership
over the subject bottles. In United States v. Manuel [7 Phil. 221 (1906)] we held that since the
purchaser at his discretion could either retain or return the bottles, the transaction must be regarded
as a sale of the bottles when the purchaser actually exercised that discretion and decided not to
return them to the vendor. We also take judicial notice of the standard practice today that the cost of
the container is included in the selling price of the product such that the buyer of liquor or any such
product from any store is not required to return the bottle nor is the liquor placed in a plastic
container that possession of the bottle is retained by the store.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit and the
decision dated 27 September 2002 and resolution dated 29 September 2003, in CA-G.R. CV No.
52852, both of the Court of Appeals are Affirmed.
SO ORDERED.
G.R. No. 165679               October 5, 2009
ENGR. APOLINARIO DUEÑAS, Petitioner,
vs.
ALICE GUCE-AFRICA, Respondent.
DECISION
DEL CASTILLO, J.:
Time and again, we have held that in a petition for review on certiorari filed under Rule 45 of the
Rules of Court, we cannot review or pass upon factual matters, save under exceptional
circumstances, none of which obtains in the present case. Petitioner endeavors in vain to convince
us that the trial court and the Court of Appeals erred in finding him negligent in the construction of
respondent’s house and holding him liable for breach of contract.
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to reverse
and set aside the April 29, 2004 Decision 2 of the Court Appeals in CA-G.R. CV No. 70757, which
affirmed the December 21, 2000 Decision3 of the Regional Trial Court, Branch 157, Pasig City, in an
action for breach of contract with damages4 filed by respondent against petitioner.
THE FACTS
For respondent and her family, April 18, 1998 was supposed to be a special occasion and a time for
family reunion. It was the wedding date of her sister Sally Guce, and respondent’s other siblings
from the United States of America, as well as her mother, were expected to return to the country.
The wedding ceremony was set to be held at the family’s ancestral house at San Vicente, Banay-
banay, Lipa City, where respondent’s relatives planned to stay while in the Philippines.
Respondent found the occasion an opportune time to renovate their ancestral house. Thus, in
January 1998 she entered into a Construction Contract5 with petitioner for the demolition of the
ancestral house and the construction of a new four-bedroom residential house. The parties agreed
that respondent would pay ₱500,000.00 to the petitioner, who obliged himself to furnish all the
necessary materials and labor for the completion of the project. Petitioner likewise undertook to
finish all interior portions of the house on or before March 31, 1998, or more than two weeks before
Sally’s wedding.
On April 18, 1998, however, the house remained unfinished. The wedding ceremony was thus held
at the Club Victorina and respondent’s relatives were forced to stay in a hotel. Her mother lived with
her children, transferring from one place to another.
On July 27, 1998, respondent filed a Complaint 6 for breach of contract and damages against
petitioner before the Regional Trial Court of Pasig City. She alleged, among others, that petitioner
started the project without securing the necessary permit from the City Engineer’s Office of Lipa
City. Respondent likewise alleged that, all in all, she gave petitioner ₱550,000.00 (which is
₱50,000.00 more than the contract price). However, and despite knowledge that the construction of
the house was intended for the forthcoming marriage of respondent’s sister, petitioner unjustly and
fraudulently abandoned the project leaving it substantially unfinished and incomplete. Several
demands were made, but petitioner obstinately refused to make good his contractual obligations.
Worse, petitioner’s workmanship on the incomplete residential house was substandard.
Respondent prayed for the return of the ₱50,000.00 overpayment. She also prayed for an award of
₱100,000.00 for the purpose of repairing what had been poorly constructed and at least
₱200,000.00 to complete the project.
In his Answer with Counterclaim,7 petitioner asserted that it was respondent who undertook to
secure the necessary government permits.8 With regard to the alleged overpayment, petitioner
claimed that the amount of ₱50,000.00 was in payment for the additional works which respondent
requested while the construction was still on going. In fact, the estimated cost for the additional
works amounted to ₱133,960.00, over and above the ₱500,000.00 contract price.
Petitioner likewise alleged that the delay in the construction of the house was due to circumstances
beyond his control, namely: heavy rains, observance of Holy Week, and celebration
of barangay fiesta. Ultimately, he was not able to complete the project because on May 27, 1998,
respondent went to his house and told him to stop the work.
He maintained that he cannot be held liable for the amounts claimed by the respondent in her
complaint considering that he had faithfully complied with the
terms and conditions of the Construction Contract.
On February 19, 1999, pre-trial conference was conducted. Thereafter, trial ensued.
Respondent testified on the material points alleged in her complaint. She also presented the
testimony of her brother Romeo Guce, who declared on the witness stand that petitioner confided to
him that he had to stop the construction because he could no longer pay his workers. He also
testified that petitioner asked for additional amount of about ₱20,000.00 to finish the house. He
relayed this to the respondent who refused to release any additional amount because of petitioner’s
unsatisfactory and substandard work. But later on, respondent acceded and gave petitioner
₱20,000.00.
To establish the status of the project and determine the amount necessary for the repair and
completion of the house, respondent presented Romeo Dela Cruz, a licensed realtor and a graduate
of an engineering course at the Technological Institute of the Philippines. Dela Cruz testified that he - 200,000.00 for the completion of the construction;
conducted an ocular inspection on the construction site in November 1998 and found that only
about 60% of the project had been accomplished. Some parts of the project, according to the - 50,000.00 as and for attorney’s fees;
witness, were even poorly done. He likewise testified that in order to repair the poorly constructed
portion of the house, respondent would need to spend about ₱100,000.00 and another ₱200,000.00
to complete it. - and costs of suit.

Petitioner also took the witness stand and testified on matters relative to the defenses he raised in Plaintiff’s claim for moral, nominal and exemplary damages are hereby denied for lack of sufficient
his answer. basis.

On December 21, 2000, the RTC rendered a Decision9 in favor of the SO ORDERED.11

respondent and against the petitioner. The RTC gave more credence to respondent’s version of the Both parties were unsatisfied. They thus brought the matter to the Court of Appeals assailing the
facts, finding that- Decision of the RTC. The appellate court, however, found no cogent reason to depart from the trial
court’s conclusion. Thus, on April 29, 2004, it rendered the herein assailed Decision 12 affirming with
modification the RTC’s ruling, viz:
Clearly, Dueñas [herein petitioner] failed to tender performance in accordance with the terms and
conditions of the construction contract he executed with Africa [herein respondent]. He failed to
construct a four-bedroom residential house suitable and ready for occupancy on a stipulated date. WHEREFORE, in view of the foregoing, the Decision of the Regional Trial Court of Pasig City,
Dueñas was fully aware that Africa needed the new house for a long scheduled family event Branch 157, dated 21 December 2000, is hereby AFFIRMED WITH MODIFICATION that the award
precisely a completion date was included and specified in the transaction. Despite knowledge and of attorney’s fees is hereby DELETED.
receipt of payment from Africa, Dueñas failed to deliver what was incumbent upon him under the
undertaking. He unjustifiably incurred delay in the construction of the new building and wrongfully SO ORDERED.13
deprived Africa and her family of the use and enjoyment of the subject property. Bad weather,
observance of the Holy Week and barangay fiesta are insufficient excuses. As a building contractor ISSUES
Dueñas should have provided for such contingencies. Mere inconvenience or unexpected
impediments will not relieve a party of his obligation. Granting that he was not yet fully paid for the Feeling aggrieved but still undeterred, petitioner interposes the present recourse anchored on the
additional work by Africa, provisions or arrangements should have been made to ensure completion following grounds:
of the project within the agreed period.
I.
Moreover, Dueñas negligently abandoned the unfinished structure shortly after a confrontation with
Africa and family. Rain water sipped[sic] into the house because Dueñas failed to secure the roofing
and wall flushing. The house remained [un]habitable because fixtures and devises were yet to be THE COSTS OF ACTUAL DAMAGES AWARDED ARE BASED ON MERE SPECULATIONS AND
installed. Dueñas failed to exercise the required diligence as a contractor and is guilty of negligence CONJECTURES.14
and delay. He must be made responsible for the foreseen effect of the exposure of the new
structure to the elements. II.

Significantly, the poor construction performance manifested in the structure after Dueñas in bad THE RULINGS THAT DUEÑAS ABANDONED THE WORK AND INCURRED DELAY ARE
faith abandoned it. Indeed, the newly constructed edifice needs significant repairs if only to make it CONTRARY TO THE EVIDENCE.15
habitable for its occupants.10
III.
Consequently, the fallo of the RTC decision reads:
THE DAMAGES CAUSED BY RAIN WATER WERE NOT DUE TO APOLINARIO DUEÑAS’ FAULT
WHEREFORE, judgment is hereby rendered in favor of plaintiff Alice G. Africa and against OR NEGLIGENCE.16
defendant Apolinario Dueñas who is hereby directed to pay plaintiff:
OUR RULING
- ₱100,000.00 for the necessary repair of the structure;
For purposes of clarity, we shall tackle simultaneously the second and third arguments raised by the
petitioner.
Instant petition not available to determine whether petitioner violated the contract or abandoned the
construction of the house
Petitioner contends that he neither abandoned the project nor violated the contract. He maintains
that continuous rains caused the delay in the construction of the house and that he was not able to
finish the project because respondent ordered him to stop the work. In fact, there was no reason for
him to stop the project because he still had available workers and materials at that time, as well as
collectibles from the respondent. Petitioner likewise contends that the Court of Appeals erred in
upholding the trial court’s finding that he was guilty of negligence.
The contentions lack merit.
Petitioner endeavors to convince us to determine, yet again, the weight, credence, and probative
value of the evidence presented. This cannot be done in this petition for review on certiorari under
Rule 45 of the Rules of Court where only questions of law may be raised by the parties and passed
upon by us. In Fong v. Velayo,17 we defined a question of law as distinguished from a question of
fact, viz:
A question of law arises when there is doubt as to what the law is on a certain state of facts, while
there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the questioned posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given to such question by the party raising the
same; rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of fact.
It has already been held that the determination of the existence of a breach of contract is a factual
matter not usually reviewable in a petition filed under Rule 45.18 We will not review, much less
reverse, the factual findings of the Court of Appeals especially where, as in this case, such findings
coincide with those of the trial court, since we are not a trier of facts. 19 The established rule is that
the factual findings of the Court of Appeals affirming those of the RTC are conclusive and binding on
us. We are not wont to review them, save under exceptional circumstances as: (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the findings are grounded entirely on speculations, surmises or conjectures; (4)
when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (6) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (7) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (8) when the findings of fact of the
Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.20
Except with respect to the first ground advanced by the petitioner which will be discussed later,
none of the above exceptions obtain in this case. Hence, we find no cogent reason to disturb the
findings of the RTC and affirmed by the Court of Appeals that petitioner was negligent in the
construction of respondent’s house and thus liable for breach of contract.
Respondent not entitled to actual damages for want of evidentiary proof
Petitioner further argues that the appellate court erred in affirming the RTC’s award of actual
damages for want of evidentiary foundation. He maintains that actual damages must be proved with
reasonable degree of certainty. In the case at bench, petitioner argues that the trial and the
appellate courts awarded the amounts of ₱100,000.00 and ₱200,000.00 as actual damages based
merely on the testimonies of respondent and her witness.
We agree. Article 2199 of the Civil Code provides that "one is entitled to an adequate compensation
only for such pecuniary loss suffered by him as he has duly proved." In Ong v. Court of
Appeals,21 we held that "(a)ctual damages are such compensation or damages for an injury that will
put the injured party in the position in which he had been before he was injured. They pertain to
such injuries or losses that are actually sustained and susceptible of measurement." To be
recoverable, actual damages must not only be capable of proof, but must actually be proved with
reasonable degree of certainty. We cannot simply rely on speculation, conjecture or guesswork in
determining the amount of damages. Thus, it was held that before actual damages can be awarded,
there must be competent proof of the actual amount of loss, and credence can be given only to
claims which are duly supported by receipts.22
Here, as correctly pointed out by petitioner, respondent did not present documentary proof to
support the claimed necessary expenses for the repair and completion of the house. In awarding the
amounts of ₱100,000.00 and ₱200,000.00, the RTC and the Court of Appeals merely relied on the
testimonies of the respondent and her witness. Thus:
As to the award of ₱100,000.00 as cost of repair and ₱200,000.00 as the amount necessary to
complete the house, the Court finds the same to be in the nature of actual damages. It is settled that
actual damages must be supported by best evidence available x x x. In the case at bar, the Court
finds that the testimony of the plaintiff-appellant in this regard is supported by the testimony of
Romeo dela Cruz, a realtor, who inspected the structure after it remained unfinished. Said
testimonies are sufficient to establish the claim. x x x
Respondent entitled to temperate damages in lieu of actual damages
Nonetheless, in the absence of competent proof on the amount of actual damages suffered, a party
is entitled to temperate damages. Articles 2216, 2224 and 2225 of the Civil Code provide:
Art. 2216. No proof of pecuniary loss is necessary in order that moral, nominal, temperate,
liquidated or exemplary damages may be adjudicated. The assessment of such damages, except
liquidated ones, is left to the discretion of the court, according to the circumstances of each case.
Art. 2224. Temperate or moderate damages, which are more than nominal but less than
compensatory damages, may be recovered when the court finds that some pecuniary loss has been
suffered but its amount can not, from the nature of the case, be proved with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.
Temperate or moderate damages may be recovered when some pecuniary loss has been suffered
but its amount cannot, from the nature of the case, be proved with certainty. 23 The amount thereof is
usually left to the discretion of the courts but the same should be reasonable, bearing in mind that
temperate damages should be more than nominal but less than compensatory. 24
There is no doubt that respondent sustained damages due to the breach committed by the
petitioner. The transfer of the venue of the wedding, the repair of the substandard work, and the
completion of the house necessarily entailed expenses. However, as earlier discussed, respondent
failed to present competent proof of the exact amount of such pecuniary loss. To our mind, and in
view of the circumstances obtaining in this case, an award of temperate damages equivalent to 20%
of the original contract price of ₱500,000.00, or ₱100,000.00 (which, incidentally, is equivalent to 1/3
of the total amount claimed as actual damages), is just and reasonable.
WHEREFORE, the instant petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
dated April 29, 2004 in CA-G.R. CV No. 70757 is AFFIRMED with modification that the award of
actual damages is deleted and, in lieu thereof, petitioner is ordered to pay respondent temperate
damages in the amount of ₱100,000.00.
SO ORDERED.
G.R. No.138980 September 20, 2005
FILINVEST LAND, INC., Petitioners,
vs.
HON. COURT OF APPEALS, PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, and
PACIFIC EQUIPMENT CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
This is a petition for review on certiorari  of the Decision1 of the Court of Appeals dated 27 May 1999
affirming the dismissal by the Regional Trial Court of Makati, Branch 65, 2 of the complaint for
damages filed by Filinvest Land, Inc. (Filinvest) against herein private respondents Pacific
Equipment Corporation (Pecorp) and Philippine American General Insurance Company.
The essential facts of the case, as recounted by the trial court, are as follows:
On 26 April 1978, Filinvest Land, Inc. ("FILINVEST", for brevity), a corporation engaged in the
development and sale of residential subdivisions, awarded to defendant Pacific Equipment
Corporation ("PACIFIC", for brevity) the development of its residential subdivisions consisting of two
(2) parcels of land located at Payatas, Quezon City, the terms and conditions of which are contained
in an "Agreement". (Annex A, Complaint). To guarantee its faithful compliance and pursuant to the
agreement, defendant Pacific posted two (2) Surety Bonds in favor of plaintiff which were issued by
defendant Philippine American General Insurance ("PHILAMGEN", for brevity). (Annexes B and C,
Complaint).
Notwithstanding three extensions granted by plaintiff to defendant Pacific, the latter failed to finish
the contracted works. (Annexes G, I and K, Complaint). On 16 October 1979, plaintiff wrote
defendant Pacific advising the latter of its intention to takeover the project and to hold said
defendant liable for all damages which it had incurred and will incur to finish the project. (Annex "L",
Complaint).
On 26 October 1979, plaintiff submitted its claim against defendant Philamgen under its
performance and guarantee bond (Annex M, Complaint) but Philamgen refused to acknowledge its
liability for the simple reason that its principal, defendant Pacific, refused to acknowledge liability
therefore. Hence, this action.
In defense, defendant Pacific claims that its failure to finish the contracted work was due to
inclement weather and the fact that several items of finished work and change order which plaintiff
refused to accept and pay for caused the disruption of work. Since the contractual relation between
plaintiff and defendant Pacific created a reciprocal obligation, the failure of the plaintiff to pay its
progressing bills estops it from demanding fulfillment of what is incumbent upon defendant Pacific.
The acquiescence by plaintiff in granting three extensions to defendant Pacific is likewise a waiver
of the former’s right to claim any damages for the delay. Further, the unilateral and voluntary action
of plaintiff in preventing defendant Pacific from completing the work has relieved the latter from the
obligation of completing the same.
On the other hand, Philamgen contends that the various amendments made on the principal
contract and the deviations in the implementation thereof which were resorted to by plaintiff and co-
defendant Pacific without its (defendant Philamgen’s) written consent thereto, have automatically
released the latter from any or all liability within the purview and contemplation of the coverage of
the surety bonds it has issued. Upon agreement of the parties to appoint a commissioner to assist
the court in resolving the issues confronting the parties, on 7 July 1981, an order was issued by then
Presiding Judge Segundo M. Zosa naming Architect Antonio Dimalanta as Court Commissioner
from among the nominees submitted by the parties to conduct an ocular inspection and to
determine the amount of work accomplished by the defendant Pacific and the amount of work done
by plaintiff to complete the project.
On 28 November 1984, the Court received the findings made by the Court Commissioner. In
arriving at his findings, the Commissioner used the construction documents pertaining to the project
as basis. According to him, no better basis in the work done or undone could be made other than
the contract billings and payments made by both parties as there was no proper procedure followed
in terminating the contract, lack of inventory of work accomplished, absence of appropriate record of
work progress (logbook) and inadequate documentation and system of construction management.
Based on the billings of defendant Pacific and the payments made by plaintiff, the work
accomplished by the former amounted to ₱11,788,282.40 with the exception of the last billing
(which was not acted upon or processed by plaintiff) in the amount of ₱844,396.42. The total
amount of work left to be accomplished by plaintiff was based on the original contract amount less
value of work accomplished by defendant Pacific in the amount of ₱681,717.58 (12,470,000-
11,788,282.42).
As regards the alleged repairs made by plaintiff on the construction deficiencies, the Court
Commissioner found no sufficient basis to justify the same. On the other hand, he found the
additional work done by defendant Pacific in the amount of ₱477,000.00 to be in order.
On 01 April 1985, plaintiff filed its objections to the Commissioner’s Resolution on the following
grounds:
a) Failure of the commissioner to conduct a joint survey which according to the latter is
indispensable to arrive at an equitable and fair resolution of the issues between the parties;
b) The cost estimates of the commissioner were based on pure conjectures and contrary to the
evidence; and,
c) The commissioner made conclusions of law which were beyond his assignment or capabilities.
In its comment, defendant Pacific alleged that the failure to conduct joint survey was due to
plaintiff’s refusal to cooperate. In fact, it was defendant Pacific who initiated the idea of conducting a
joint survey and inventory dating back 27 November 1983. And even assuming that a joint survey
were conducted, it would have been an exercise in futility because all physical traces of the actual
conditions then obtaining at the time relevant to the case had already been obliterated by plaintiff.
On 15 August 1990, a Motion for Judgment Based on the Commissioner’s Resolution was filed by
defendant Pacific.
On 11 October 1990, plaintiff filed its opposition thereto which was but a rehash of objections to the
commissioner’s report earlier filed by said plaintiff.3
On the basis of the commissioner’s report, the trial court dismissed Filinvest’s complaint as well as
Pecorp’s counterclaim. It held:
In resolving this case, the court observes that the appointment of a Commissioner was a joint
undertaking among the parties. The findings of facts of the Commissioner should therefore not only
be conclusive but final among the parties. The court therefore agrees with the commissioner’s
findings with respect to
1. Cost to repair deficiency or defect – ₱532,324.02
2. Unpaid balance of work done by defendant - ₱1,939,191.67
3. Additional work/change order (due to defendant) – ₱475,000.00
The unpaid balance due defendant therefore is ₱1,939,191.67. To this amount should be added
additional work performed by defendant at plaintiff’s instance in the sum of ₱475,000.00. And from
this total of ₱2,414,191.67 should be deducted the sum of ₱532,324.01 which is the cost to repair
the deficiency or defect in the work done by defendant. The commissioner arrived at the figure of
₱532,324.01 by getting the average between plaintiff’s claim of ₱758,080.37 and defendant’s
allegation of ₱306,567.67. The amount due to defendant per the commissioner’s report is therefore
₱1,881,867.66.
Although the said amount of ₱1,881,867.66 would be owing to defendant Pacific, the fact remains
that said defendant was in delay since April 25, 1979. The third extension agreement of September
15, 1979 is very clear in this regard. The pertinent paragraphs read:
a) You will complete all the unfinished works not later than Oct. 15, 1979. It is agreed and
understood that this date shall DEFINITELY be the LAST and FINAL extension & there will be no
further extension for any cause whatsoever.
b) We are willing to waive all penalties for delay which have accrued since April 25,
1979 provided that you are able to finish all the items of the contracted works as per revised CPM;
otherwise you shall continue to be liable to pay the penalty up to the time that all the contracted
works shall have been actually finished, in addition to other damages which we may suffer by
reason of the delays incurred.
Defendant Pacific therefore became liable for delay when it did not finish the project on the date
agreed on October 15, 1979. The court however, finds the claim of ₱3,990,000.00 in the form of
penalty by reason of delay (₱15,000.00/day from April 25, 1979 to Jan. 15, 1980) to be excessive. A
forfeiture of the amount due defendant from plaintiff appears to be a reasonable penalty for the
delay in finishing the project considering the amount of work already performed and the fact that
plaintiff consented to three prior extensions.
The foregoing considered, this case is dismissed. The counterclaim is likewise dismissed.
No Costs.4
The Court of Appeals, finding no reversible error in the appealed decision, affirmed the same.
Hence, the instant petition grounded solely on the issue of whether or not the liquidated damages
agreed upon by the parties should be reduced considering that: (a) time is of the essence of the
contract; (b) the liquidated damages was fixed by the parties to serve not only as penalty in case
Pecorp fails to fulfill its obligation on time, but also as indemnity for actual and anticipated damages
which Filinvest may suffer by reason of such failure; and (c) the total liquidated damages sought is
only 32% of the total contract price, and the same was freely and voluntarily agreed upon by the
parties.
At the outset, it should be stressed that as only the issue of liquidated damages has been elevated
to this Court, petitioner Filinvest is deemed to have acquiesced to the other matters taken up by the
courts below. Section 1, Rule 45 of the 1997 Rules of Court states in no uncertain terms that this
Court’s jurisdiction in petitions for review on certiorari is limited to "questions of law which must be
distinctly set forth."5 By assigning only one legal issue, Filinvest has effectively cordoned off any
discussion into the factual issue raised before the Court of Appeals. 6 In effect, Filinvest has yielded
to the decision of the Court of Appeals, affirming that of the trial court, in deferring to the factual
findings of the commissioner assigned to the parties’ case. Besides, as a general rule, factual
matters cannot be raised in a petition for review on certiorari. This Court at this stage is limited to
reviewing errors of law that may have been committed by the lower courts.7 We do not perceive
here any of the exceptions to this rule; hence, we are restrained from conducting further scrutiny of
the findings of fact made by the trial court which have been affirmed by the Court of Appeals. Verily,
factual findings of the trial court, especially when affirmed by the Court of Appeals, are binding and
conclusive on the Supreme Court.8 Thus, it is settled that:
(a) Based on Pecorp’s billings and the payments made by Filinvest, the balance of work to be
accomplished by Pecorp amounts to ₱681,717.58 representing 5.47% of the contract work. This
means to say that Pecorp, at the time of the termination of its contract, accomplished 94.53% of the
contract work;
(b) The unpaid balance of work done by Pecorp amounts to ₱1,939,191.67;
(c) The additional work/change order due Pecorp amounts to ₱475,000.00;
(d) The cost to repair deficiency or defect, which is for the account of Pecorp, is ₱532,324.02; and
(e) The total amount due Pecorp is ₱1,881,867.66.
Coming now to the main matter, Filinvest argues that the penalty in its entirety should be respected
as it was a product of mutual agreement and it represents only 32% of the ₱12,470,000.00 contract
price, thus, not shocking and unconscionable under the circumstances. Moreover, the penalty was
fixed to provide for actual or anticipated liquidated damages and not simply to ensure compliance
with the terms of the contract; hence, pursuant to Laureano v. Kilayco,9 courts should be slow in
exercising the authority conferred by Art. 1229 of the Civil Code.
We are not swayed.
There is no question that the penalty of ₱15,000.00 per day of delay was mutually agreed upon by
the parties and that the same is sanctioned by law. A penal clause is an accessory undertaking to
assume greater liability in case of breach.10 It is attached to an obligation in order to insure
performance11 and has a double function: (1) to provide for liquidated damages, and (2) to
strengthen the coercive force of the obligation by the threat of greater responsibility in the event of
breach.12 Article 1226 of the Civil Code states:
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.
As a general rule, courts are not at liberty to ignore the freedom of the parties to agree on such
terms and conditions as they see fit as long as they are not contrary to law, morals, good customs,
public order or public policy.13 Nevertheless, courts may equitably reduce a stipulated penalty in the
contract in two instances: (1) if the principal obligation has been partly or irregularly complied; and
(2) even if there has been no compliance if the penalty is iniquitous or unconscionable in
accordance with Article 1229 of the Civil Code which provides:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
In herein case, the trial court ruled that the penalty charge for delay – pegged at ₱15,000.00 per day
of delay in the aggregate amount of ₱3,990,000.00 -- was excessive and accordingly reduced it to
₱1,881,867.66 "considering the amount of work already performed and the fact that [Filinvest]
consented to three (3) prior extensions." The Court of Appeals affirmed the ruling but added as well
that the penalty was unconscionable "as the construction was already not far from completion." Said
the Court of Appeals:
Turning now to plaintiff’s appeal, We likewise agree with the trial court that a penalty interest of
₱15,000.00 per day of delay as liquidated damages or ₱3,990,000.00 (representing 32% penalty of
the ₱12,470,000.00 contract price) is unconscionable considering that the construction was already
not far from completion. Penalty interests are in the nature of liquidated damages and may be
equitably reduced by the courts if they are iniquitous or unconscionable (Garcia v. Court of Appeals,
167 SCRA 815, Lambert v. Fox, 26 Phil. 588). The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with by the debtor. Even if there has
been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable (Art. 1229, New Civil Code). Moreover, plaintiff’s right to indemnity due to
defendant’s delay has been cancelled by its obligations to the latter consisting of unpaid works.
This Court finds no fault in the cost estimates of the court-appointed commissioner as to the cost to
repair deficiency or defect in the works which was based on the average between plaintiff’s claim of
₱758,080.37 and defendant’s ₱306,567.67 considering the following factors: that "plaintiff did not
follow the standard practice of joint survey upon take over to establish work already accomplished,
balance of work per contract still to be done, and estimate and inventory of repair" (Exhibit "H"). As
for the cost to finish the remaining works, plaintiff’s estimates were brushed aside by the
commissioner on the reasoned observation that "plaintiff’s cost estimate for work (to be) done by the
plaintiff to complete the project is based on a contract awarded to another contractor (JPT), the
nature and magnitude of which appears to be inconsistent with the basic contract between
defendant PECORP and plaintiff FILINVEST."14
We are hamstrung to reverse the Court of Appeals as it is rudimentary that the application of Article
1229 is essentially addressed to the sound discretion of the court.15 As it is settled that the project
was already 94.53% complete and that Filinvest did agree to extend the period for completion of the
project, which extensions Filinvest included in computing the amount of the penalty, the reduction
thereof is clearly warranted.
Filinvest, however, hammers on the case of Laureano v. Kilayco,16 decided in 1915, which cautions
courts to distinguish between two kinds of penalty clauses in order to better apply their authority in
reducing the amount recoverable. We held therein that:
. . . [I]n any case wherein there has been a partial or irregular compliance with the provisions in a
contract for special indemnification in the event of failure to comply with its terms, courts
will rigidly apply the doctrine of strict construction against the enforcement in its entirety of
the indemnification, where it is clear from the terms of the contract that the amount or
character of the indemnity is fixed without regard to the probable damages which might be
anticipated as a result of a breach of the terms of the contract; or, in other words, where the
indemnity provided for is essentially a mere penalty having for its principal object the enforcement of
compliance with the contract. But the courts will be slow in exercising the jurisdiction
conferred upon them in article 1154 17 so as to modify the terms of an agreed upon indemnification
where it appears that in fixing such indemnification the parties had in mind a fair and reasonable
compensation for actual damages anticipated as a result of a breach of the contract, or, in other
words, where the principal purpose of the indemnification agreed upon appears to have been to
provide for the payment of actual anticipated and liquidated damages rather than the penalization of
a breach of the contract. (Emphases supplied)
Filinvest contends that the subject penalty clause falls under the second type, i.e., the principal
purpose for its inclusion was to provide for payment of actual anticipated and liquidated damages
rather than the penalization of a breach of the contract. Thus, Filinvest argues that had Pecorp
completed the project on time, it (Filinvest) could have sold the lots sooner and earned its projected
income that would have been used for its other projects.
Unfortunately for Filinvest, the above-quoted doctrine is inapplicable to herein case. The Supreme
Court in Laureano instructed that a distinction between a penalty clause imposed essentially as
penalty in case of breach and a penalty clause imposed as indemnity for damages should be
made in cases where there has been neither partial nor irregular compliance with the terms of the
contract. In cases where there has been partial or irregular compliance, as in this case, there will be
no substantial difference between a penalty and liquidated damages insofar as legal results are
concerned.18 The distinction is thus more apparent than real especially in the light of certain
provisions of the Civil Code of the Philippines which provides in Articles 2226 and Article 2227
thereof:
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract to be paid in case
of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
Thus, we lamented in one case that "(t)here is no justification for the Civil Code to make an
apparent distinction between a penalty and liquidated damages because the settled rule is that
there is no difference between penalty and liquidated damages insofar as legal results are
concerned and that either may be recovered without the necessity of proving actual damages and
both may be reduced when proper."19
Finally, Filinvest advances the argument that while it may be true that courts may mitigate the
amount of liquidated damages agreed upon by the parties on the basis of the extent of the work
done, this contemplates a situation where the full amount of damages is payable in case of total
breach of contract. In the instant case, as the penalty clause was agreed upon to answer for delay
in the completion of the project considering that time is of the essence, "the parties thus clearly
contemplated the payment of accumulated liquidated damages despite, and precisely because of,
partial performance."20 In effect, it is Filinvest’s position that the first part of Article 1229 on partial
performance should not apply precisely because, in all likelihood, the penalty clause would kick in in
situations where Pecorp had already begun work but could not finish it on time, thus, it is being
penalized for delay in its completion.
The above argument, albeit sound,21 is insufficient to reverse the ruling of the Court of Appeals. It
must be remembered that the Court of Appeals not only held that the penalty should be reduced
because there was partial compliance but categorically stated as well that the penalty was
unconscionable. Otherwise stated, the Court of Appeals affirmed the reduction of the penalty not
simply because there was partial compliance per se  on the part of Pecorp with what was incumbent
upon it but, more fundamentally, because it deemed the penalty unconscionable in the light of
Pecorp’s 94.53% completion rate.
In Ligutan v. Court of Appeals,22 we pointed out that the question of whether a penalty is reasonable
or iniquitous can be partly subjective and partly objective as its "resolution would depend on such
factors as, but not necessarily confined to, the type, extent and purpose of the penalty, the nature of
the obligation, the mode of breach and its consequences, the supervening realities, the standing
and relationship of the parties, and the like, the application of which, by and large, is addressed to
the sound discretion of the court."23
In herein case, there has been substantial compliance in good faith on the part of Pecorp which
renders unconscionable the application of the full force of the penalty especially if we consider that
in 1979 the amount of ₱15,000.00 as penalty for delay per day was quite steep indeed. Nothing in
the records suggests that Pecorp’s delay in the performance of 5.47% of the contract was due to it
having acted negligently or in bad faith. Finally, we factor in the fact that Filinvest is not free of
blame either as it likewise failed to do that which was incumbent upon it, i.e., it failed to pay Pecorp
for work actually performed by the latter in the total amount of ₱1,881,867.66. Thus, all things
considered, we find no reversible error in the Court of Appeals’ exercise of discretion in the instant
case.
Before we write finis to this legal contest that had spanned across two and a half decades, we take
note of Pecorp’s own grievance. From its Comment and Memorandum, Pecorp, likewise, seeks
affirmative relief from this Court by praying that not only should the instant case be dismissed for
lack of merit, but that Filinvest should likewise be made to pay "what the Court Commissioner found
was due defendant" in the "total amount of ₱2,976,663.65 plus 12% interest from 1979 until full
payment thereof plus attorneys fees."24 Pecorp, however, cannot recover that which it seeks as we
had already denied, in a Resolution dated 21 June 2000, its own petition for review of the 27 May
1999 decision of the Court of Appeals. Thus, as far as Pecorp is concerned, the ruling of the Court
of Appeals has already attained finality and can no longer be disturbed.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 27 May 1999 is
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
G.R. No. L-12376             August 22, 1958
JOE'S RADIO and ELECTRICAL SUPPLY, plaintiff-appellee,
vs.
ALTO ELECTRONICS CORPORATION and ALTO SURETY and INSURANCE CO.,
INC., defendants-appellants.
Jose W. Diokno for appellee.
Manuel P. Calanog for appellant Alto Electronics Corporation.
Aristorenas and Relova for appellant Alto Surety and Insurance Co., Inc.
REYES, J.B.L., J.:
Appeal from a judgment of the Court of First Instance of Manila, in its Civil Case No. 21805,
ordering the defendants to pay jointly and severally to the plaintiff, the sum of P49,378.77, plus 6
per cent interest per annum from July 2, 1954, plus the further sum of P39,780 as liquidated
damages, with legal interest from the filing of the complaint, provided, however, that the liability of
the defendant surety company shall not exceed P66,150, in accordance with the surety bond.
The facts of this case are practically undisputed, and may be substantially stated as follows:
On May 23, 1953, the plaintiff and appellee and the Bolinao Electronics Corporation entered into a
"dealership agreement", (Exhibit "A"), whereby the latter bound itself to sell and deliver to the former
500 television sets (RCA TV Model 21T-303, 21" KERBY) at the price of P1,134.00 each, in two
shipments of 250 sets, the first shipment to be made within 90 days from May 23, 1953, and the
next shipment within 60 days after the completion of the first shipment. On its part, the appellee,
Joe's Radio & Electrical Supply, agreed to deposit 1/3 of the total price of the first shipment, minus a
discount of 30 per cent, upon signing the contract; 1/3 of the total price of the second shipment,
minus a discount of 30 per cent, immediately after its receipt of the first shipment; and the balance
of the total price of each shipment (minus the discounts) immediately after making the performance
test of each set in each shipment. To secure the true and faithful compliance of the agreement by
the Bolinao Electronics Corporation, it agreed to put up a surety bond, in an amount sufficient to
cover the advance payment to be made by appellee, and also that, should the Bolinao Electronics
Corporation fail to comply with the terms of the agreement within the period specified, it would return
to appellee upon demand whatever amount or amounts had been deposited by the latter, with
interest at the rate of 6% per annum, plus damages equivalent to 20 per cent of the total cost of 250
television sets.
The defendant and appellant Alto Electronics Corporation was subrogated to the rights and
obligations of the Bolinao Electronics Corporation in the "dealership agreement" on August 31,
1953; and on the same date, the other defendant-appellant Alto Surety & Insurance Co., Inc., issued
in favor of appellee a surety bond in the amount of P66,150 to guarantee the full and faithful
performance by the appellant Alto Electronics Corporation under the agreement.
The first shipment of 250 television sets was totally delivered, and totally paid for. Thereafter,
appellee deposited with appellant Alto Electronics Corporation the sum of P66,150, the sum
required under the "dealership agreement" as advance partial payment for the 250 sets of the
second delivery. No delivery having been made on this second batch, suit was commenced against
the defendants and appellants on January 30, 1954.
During the pendency of the case, but before trial was held, the appellee and the Alto Electronics
Corporation entered into another agreement, dated July 2, 1954, wherein the latter admitted having
received from the former the sum of P66,150, as advance partial payment, as aforementioned, for
the remaining 250 television sets slated for delivery by the Alto Electronics Corporation to the
appellee under the dealership agreement; and that, as of the date of the additional agreement, said
sum, together with interest thereon, amounted to P70,008.75. Under the terms of the second
instrument, the said appellant agreed to liquidate this indebtedness by delivering to appellee 66
television sets of various models, delivery to commence within five days after the signing of the
agreement and to be completed within 90 days thereafter. With this agreement, the Alto Surety &
Insurance Co., Inc. signed in conformity.
However, of the 66 television sets required to be delivered under the agreement, appellant Alto
Electronics Corporation was only able to deliver 13 sets, with a total value of P20,629.98, leaving an
unpaid balance of P49,378.77. Besides these 13 television sets, said appellant also delivered to
appellee two other sets with a total value of P2,928.24, which were accepted by the latter as
"deposit pending receipt of letter of approval from the appellant surety company" presumably
(fearing a release of the surety bond should said delivery be accepted without the surety company's
consent), because delivery was made after the lapse of the period provided in the second
agreement.
In view of such failure of the appellant Alto Electronics Corporation to comply fully with the said
additional agreement, appellee reactivated the present suit and on April 2, 1955, filed an amended
and supplemental complaint alleging the above facts.
As already indicated, the trial court rendered judgment in favor of the plaintiff and appellee. Against
this decision, the defendants-appellants, Alto Electronics Corporation and Alto Surety & Insurance
Co., Inc., appealed to the Court of Appeals, which certified the case to this Court, in view of section
17, paragraph 2, of the Judiciary Act of 1948, since the amount involved is far in excess of P50,000.
Appellants, Alto Electronics Corporation and Alto Surety & Insurance Co., Inc., now urge that: —
1. The lower court erred in not crediting the appellants with the sum of P2,928.24, representing the
cost (current price less 40 per cent and 2 per cent discount) of three (3) TV sets delivered to and
accepted by the appellee.
2. The lower court erred in holding that the subsequent agreement Exhibit "G" is a supplement to
the original dealership agreement and not a novation thereof.
3. The lower court erred in holding that the stipulation for liquidated damages and interest contained
in the original dealership agreement was tacitly carried over to the subsequent agreement, Exhibit
"G."
4. The lower court erred in holding that the appellants are jointly and severally liable for the principal
sum of P49,378.77, with interest at 6% per annum from July 2, 1954, plus 20 per cent of the total
cost of undelivered sets or the sum of P39,780 as liquidated damages, with interest at 6 per cent
per annum from the filing of the complaint on January 30, 1954.
On the first assignment of error, it is urged by appellants that the value of two television sets which
were accepted by appellee as "deposit pending receipt of letter of approval from the Alto Surety &
Insurance Co., Inc.," should be credited to the principal amount owned by appellant Alto Electronics
Corporation. They cite in this regard a statement from the Corpus Juris (Vol. 12, p. 320) to the effect
that:
Where a tender is made on condition that it shall be received in settlement of a disputed claim, it is
the duty of the party to whom it is made either to refuse it or accept it on the terms as made. He has
no right to accept the tender and prescribe the terms of the acceptance. Where a tender thus made
is accepted, it is binding, although the acceptance is under protest or with the express declaration
that it is received in part satisfaction only.
Aside from the fact that this rule would seem to have application only in cases where the thing
offered is tendered by the debtor with the condition that it shall be in full satisfaction or settlement of
a claim (which does not appear to be the case here), it is qualified thus:
The rule that the retention of payment made on condition that they shall be in full satisfaction of the
claim does not apply where the amount accepted does not purport to cover the amount in
controversy (Bryant Lumber Co. vs. Cappock-Warner Lumber Co., 79 S.E. 282), when there is
nothing to show that the payment was accepted as definite and final settlement (94 A.L.R.), (or),
when the amount is transmitted under circumstances showing that it was tendered as a payment of
indebtedness which was thereafter to be adjusted by the parties. . . . (15 C.J.S., section 7, pp. 720-
721)
Certainly, the delivery of the two television sets in question could not have been intended by either
of the parties to be the full and final settlement of appellee's claim.
Upon the other hand, it would seem that the general principles on payment under the Civil
Code1 sanctions such kind of acceptance, as where the performance of the obligation
is incomplete or irregular. Observe that the delivery of the two television sets was made after the
prescribed period fixed in the agreement of the parties. Lest the appellee be misunderstood as
having granted an extension of the obligation that might release the surety company from its
undertaking under the surety bond2 , it was not improper nor unreasonable for it to subject its
acceptance to the said delivery upon the surety company's consent. It should be noted further that
when appellee imposed such condition, no objection was interposed by the appellant Alto
Electronics Corporation, thereby at least implying its concurrence to it.
Pending the receipt of a letter of approval from the surety company, appellee could not have
disposed of the two television sets in the ordinary course of business, its possession of the objects
being merely in the nature of a deposit. Appellant Alto Electronics Corporate could have, at any
time, if it wanted to, retake them prior to the said approval. Until such delivery was confirmed by the
surety, no unqualified acceptance had been made, and ownership remained with the Alto
Electronics Corporation, as the depositor.
As regards the appellant Alto Electronics Corporation, there is another reason why the first assigned
error could not be given merit, and that is, its admission under paragraph 5 of its amended answer
(Rec. App., p. 36) of paragraph 11 of the amended and supplemental complaint which in effect
admitted the allegations contained in the said paragraph of the complaint, viz., "That under the
aforesaid agreement, defendant delivered to plaintiff only 13 television sets with a total value
of P20,629.98 leaving an unpaid balance of P49,378.77". It is a familiar doctrine that an admission
made in the pleadings cannot be controverted by the party making such admission and are
conclusive as to him, and that all proofs submitted by him contrary thereto or inconsistent therewith,
should be ignored, whether objection is interposed by the party or not (Cunanan vs. Amparo, 80
Phil., 227; Ramirez vs. Orientalist Co., 38 Phil., 634; McDaniel vs. Apacible, 44 Phil., 248; see also
section 7, Rule 123, Rules of Court; Francisco, Rules of Court ann., Vol. VI, p. 195; Comments on
the Rules of Court, Moran, Vol. 3, '57 Ed., p. 66-67).
With respect to the second assignment of error, it is appellants' theory that the subsequent
agreement, Exhibit "G", entered into during the pendency of this action, novated the original
agreement of May 23, 1953. They base this proposition on Article 1291 of the Civil Code which
provides that obligations may be modified by changing the object or principal conditions. In order to
produce that effect, however, Article 1292 of the same Code prescribes:
ART. 1292. In order that an obligation may be extinguished by another which substitutes the
same, it is imperative that it be so declared in unequivocal terms, or that the old and new obligation
be in every point incompatible with each other. (Emphasis supplied)
This rule definitely precludes the possibility of a novation taking place without the intention of the
parties to do so (animus novendi), expressed in the manner provided in the aforequoted provision of
the law. Hence, in the case of La Tondeña, Inc. vs. Alto Surety & Insurance Co., Inc. et al., 101
Phil., 879; 53 Off. Gaz. (18) 6101 this court ruled that in order to extinguish or discharge an
obligation by novation, the intent of the parties to do so (animus novendi) must either be expressed,
or else clearly apparent from the incompatibility in all points" of the old and new obligations. Aside,
therefore, from the changes or differences that might be brought about in the terms of the old
agreement by the new one, "absolute incompatibility" in order to presume intention to novate should
be evident in the absence of an express declaration to that effect by the parties. This Court has
been uniform in its decisions in this respect. (Lorenzo Lerma vs. V. Reyes and Adela Enriquez, 103
Phil., 1027; Maria Pascual vs. Jose Lacsamana, 100 Phil., 381; Reynold Santos vs. Emiliano
Acuña, et al., 100 Phil., 230; 53 Off. Gaz. 358; Mendoza vs. De Guia, 84 Phil., 873; Inchausti vs.
Yulo, 34 Phil., 624; Zapanta vs. De Rotaeche, 21 Phil., 154).
In the present case, the subsequent agreement, Exhibit "G", contains no express declaration
extinguishing the previous one (the dealership agreement). Upon the other hand, it is clear that the
parties still recognized the existence of the first agreement, as the arrangement was that upon the
completion of the 66 television within the period agreed upon under the new covenant, the appellee
would move for the dismissal of the pending case against the appellants, "otherwise, whatever
deliveries might have been made would be applied on account of the claims, subject matter of the
complaint." (Rec. App., p. 32). Evidently, in referring to the "claims subject matter of the complaint",
the parties had in mind then the already existing liability of the appellants that arose from the breach
of the original contract. The parties could not have intended as the "claims subject matter of the
complaint" those to be derived from the second agreement, for there could not have been any
violation thereof at the time it was entered into.
It thus appears that Exhibit "G" simply gave appellants more time and an added opportunity to
liquidate their obligations and thus escape the sanctions provided in the first (dealership)
agreement; it was not contemplated that the latter would be completely superseded unless and until
there was a full performance of the terms in the new agreement. The appellee had experienced the
break of the first agreement by the appellant, and having no assurance that the second would not
be likewise breached, it had no reason to forego the clause providing for liquidated damages, since
that was established for its own protection. The terms of the second agreement clearly indicate, on
the contrary, that the liquidated damages clause of the original contract was intended to subsist.
Did the new arrangement amount to an independent contract? It did not, for as we have already
explained, it included specifically the stipulation that should there be partial performance of the new
agreement, the same should be applied on account of the claims subject matter of the complaint,
which "claims" embraced the recovery of the liquidated damages provided in the dealership
agreement.
Having arrived at the above conclusion, the appellants' third and fourth assignments of error
necessarily fail, for both are based on the proposition that the second agreement, Exhibit "G"
extinguished by novation the previous dealership agreement, Exhibit "A". However, the amounts
recoverable by the appellee must be reduced as follows:
(1) The first recoverable item stated by the trial court to be in the amount of P49,378.773 should
bear interest at 6 %, not from July 2, 1954 when the second agreement was entered into, but only
from April 2, 1955, the date when the amended and supplemental complaint was filed. As a debtor
incurs in default only from the time the obligee judicially or extrajudicially demands the fulfillment of
the obligation (Article 1169, new Civil Code), and as no extra-judicial demand was made, legal
interest thereon starts to run only from the date of judicial demand (Mariano Veloso, et al. vs.
Aniceta Fontanosa, et al., 13 Phil. 79, citing the decision of the Supreme Court of Spain, dated
December 3, 1902). The amount involved in this item, it is to be observed, has particular reference
to a violation of the second agreement.
(2) The other item in the amount of P39,780 was ordered by the court below to be paid to appellee
by way of liquidated damages, computed at 20 per cent of the total cost of 250 television sets (at the
price of P1,134 per set less 30 per cent discount), as provided in the original dealership agreement,
plus legal interest from the date of filing of the original complaint on January 30, 1954. Appellants
contend that in view of the partial performance on their part of the agreement, they are entitled to an
equitable reduction of damages irrespective of whether the stipulation for damages was intended as
a penalty or as indemnity. Appellee, on the other hand, argues that while partial or irregular
performance may justify a reduction of a penalty under Article 1229 of the new Civil Code, it may not
do so in the case of liquidated damages, which according to it could only be reduced if found to be
iniquitous or unconscionable as provided in Article 2227 of the same Code.
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
ART. 2227. Liquidated damages, whether intended as an indemnity or a penalty shall be equitably
reduced if they are iniquitous or unconscionable.
We believe that the distinction that appellee stresses in this appeal, has no justification. While under
the new Civil Code, penalties and liquidated damages are dealt with separately, nevertheless, the
fundamental rules governing them still remain basically the same, making them subject to reduction
where equity so requires.
In American law, it is only when the clause is a penalty that the courts will reduce the stipulated
damages which are excessive. But article 2247 (now 2227) of the proposed Code states:
ART. 2247. Liquidated damages, whether intended as an indemnity or a penalty shall be equitably
reduced if they are iniquitous or unconscionable.
The reason is that in both cases, the stipulation is contra bonos mores under article 1326. It is a
mere technicality to refuse to lessen the damages to their just amount simply because the
stipulation is not meant to be a penalty. An immoral stipulation is none the less immoral because it
is called an indemnity. (Report of the Code Commission, p. 75)
What could be regarded as an equivalent provision of Article 1229 on penalties is Article 2228 with
respect to liquidated damages:
ART. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall determine the
measure of damages, and not the stipulation."4
Where there is partial or irregular performance in a contract providing for liquidated damages, it can
be said, in view of the foregoing cited provision of the Code, that the court may mitigate the sum
stipulated therein since it is to be presumed that the parties only contemplated a total breach of the
contract. And this is usually so because of the difficulty or sometimes inability of the parties to
ascertain or gauge beforehand, the amount of indemnity in case of a partial breach, just as it is
equally perplexing to foresee the extent of a partial or irregular performance. And so it has been
held in one case that a stipulation for liquidated damages in case of a total breach of the contract
cannot be enforced if the party has accepted a partial performance thereof (Tanenbaum Son & Co.
vs. Drumbor Bingell Co., C.C.A. Pa. 47 F [2d] 1009, certiorari denied, 52 S. Ct. 7; 284 U.S. 619, 76
L. Ed. 588, cited 25 C.J.S. 695).
In this connection, we believe that the 20 per cent liquidated damages clause in the dealership
agreement must have had reference to a failure to comply with the terms of the entire agreement,
P78,595.02
that is to say, the delivery of 500 television sets (in two shipments of 250 sets each) within the time
provided therein. To permit appellee to collect the same amount of liquidated damages after more
than half of the sets were delivered and received, would amount to doubling the stipulated damages
in case none of the sets had been delivered, and nothing in the contract warrants such a possibility. agreed percentage for liquidated
x 20 per cent. — damages.
The correct principle has been declared in the case of Sledge et al., vs. Arcadia Orchards Co. (77
Wash. 477, 317 Pac. 1051, citing Shute vs. Taylor, 5 Metc. [Mass.] 61, 67):
P15,719.      — recoverable sum
. . . The question what is liquidated damages, and what is a penalty, if often a difficult one. It is not
always the calling of a sum, to be paid for breach of contract, liquidated damages which makes it so. plus legal interest from the filing of the supplemental complaint on April 2, 1955.
In general, it is the tendency and preference of the law to regard a sum, stated to be payable if a
contract is not fulfilled, as a penalty, and not as liquidated damages, because then it may be
apportioned to the loss actually sustained. But, without going at large into the subject, one Wherefore, the decision appealed is affirmed, with the modification that the 6% interest on the first
consideration, we think, is decisive against recovering the sum in question as liquidated damages, item of P49,378.77 (representing of appellee's advances) be made to start only from April 2, 1955,
namely: That here there has been a part performance, and acceptance of such part performance. If the date of the filing of the amended and supplemental complaint; and with respect to the P39,780
the parties intended the sum named to be liquidated damages for the breach of the contract therein liquidated damages awarded by the trial court, the same shall be reduced to only P15,719, plus
expressed, it was for an entire breach. Whether divisible in its nature or not, it was in fact divided by legal interest thereon from the same date, April 2, 1955. Without costs in this instance. So ordered.
an offer and acceptance of part performance. It is like the case of an obligation to perform two more
independent acts, with a provision for single liquidated damages for non-performance; if one is G.R. No. 165622              October 17, 2008
performed, and not the other, it is not a case for the recovery of the liquidated damages. (Emphasis
supplied) MERCURY DRUG CORPORATION and AURMELA GANZON, petitioners,
vs.
Consequently, it is immaterial whether the questioned clause in the dealership agreement is a RAUL DE LEON, respondents.
provision for liquidated damages, or deemed a penalty clause under the above circumstances; it
has to be mitigated in either case, in the former case, because of its being unconscionable if DECISION
enforced in toto; and in the latter, because of the acceptance of a partial performance.
REYES, R.T., J.:
Accordingly, taking the stipulated sum as the basis for the measure of damages, or deducting
therefrom the benefits received in view of the partial compliance, appellants should be made to pay
IN REALITY, for the druggist, mistake is negligence and care is no defense.1 Sa isang
as damages only the amount of P15,719.00, computed as follows:
parmasyutika, ang pagkakamali ay kapabayaan at ang pagkalinga ay hindi angkop na
dipensa.
basic cost of 250 TV sets, minus a
discount of 30% from the stipulated price This is a petition for review on certiorari2 of two Resolutions3 of the Court of Appeals (CA). The first
P198,450.      — of P1,134 each. Resolution granted respondent’s motion to dismiss while the second denied petitioner’s motion for
reconsideration.

one-half of the P198,450, as there has The Facts

been 50 per cent partial compliance
P 99,225.      — under the dealership agreement. Respondent Raul T. De Leon was the presiding judge of Branch 258, Regional Trial Court (RTC) in
Parañaque.4 On October 17, 1999, he noticed that his left eye was reddish. He also had difficulty
reading.5 On the same evening, he met a friend for dinner at the Foohyui Restaurant. The same
extent of partial performance under the friend happened to be a doctor, Dr. Charles Milla, and had just arrived from abroad.6
second agreement (13 additional TV
    P20,629.98 — sets).
Aside from exchanging pleasantries, De Leon consulted Dr. Milla about his irritated left eye. 7 The
latter prescribed the drugs "Cortisporin Opthalmic" and "Ceftin" to relieve his eye problems.8 Before
heading to work the following morning, De Leon went to the Betterliving, Parañaque, branch of
Mercury Drug Store Corporation to buy the prescribed medicines.9 He showed his prescription to
petitioner Aurmela Ganzon, a pharmacist assistant.10 Subsequently, he paid for and took the
medicine handed over by Ganzon.11
At his chambers, De Leon requested his sheriff to assist him in using the eye drops. 12 As instructed,
the sheriff applied 2-3 drops on respondent’s left eye.13 Instead of relieving his irritation, respondent
felt searing pain.14 He immediately rinsed the affected eye with water, but the pain did not
subside.15 Only then did he discover that he was given the wrong medicine, "Cortisporin Otic
Solution."16
De Leon returned to the same Mercury Drug branch, with his left eye still red and teary.17 When he
confronted Ganzon why he was given ear drops, instead of the prescribed eye drops, 18 she did not
apologize and instead brazenly replied that she was unable to fully read the prescription.19 In fact, it
was her supervisor who apologized and informed De Leon that they do not have stock of the
needed Cortisporin Opthalmic.20
De Leon wrote Mercury Drug, through its president, Ms. Vivian K. Askuna, about the day’s
incident.21 It did not merit any response.22 Instead, two sales persons went to his office and informed
him that their supervisor was busy with other matters.23 Having been denied his simple desire for a
written apology and explanation,24 De Leon filed a complaint for damages against Mercury Drug.25
Mercury Drug denied that it was negligent and therefore liable for damages. 26 It pointed out that the
proximate cause of De Leon’s unfortunate experience was his own negligence. 27 He should have
first read and checked to see if he had the right eye solution before he used any on his eye.28 He
could have also requested his sheriff to do the same before the latter applied the medicine on such
a delicate part of his body.29
Also, Mercury Drug explained that there is no available medicine known as "Cortisporin Opthalmic"
in the Philippine market.30 Furthermore, what was written on the piece of paper De Leon presented
to Ganzon was "Cortisporin Solution."31 Accordingly, she gave him the only available "Cortisporin
Solution" in the market.
Moreover, even the piece of paper De Leon presented upon buying the medicine can not be
considered as proper prescription.32 It lacked the required information concerning the attending
doctor’s name and license number.33 According to Ganzon, she entertained De Leon’s purchase
request only because he was a regular customer of their branch.34
RTC Disposition
On April 30, 2003, the RTC rendered judgment in favor of respondent, the dispositive portion of
which reads:
WHEREFORE, the court finds for the plaintiff.
For pecuniary loss suffered, Mercury Drug Store is to pay ONE HUNDRED FIFTY-THREE PESOS
AND TWENTY-FIVE CENTAVOS (Php 153.25), the value of the medicine.
As moral damages defendants is (sic) ordered to pay ONE HUNDRED THOUSAND PESOS (Php
100,000.00).
To serve as a warning to those in the field of dispensing medicinal drugs discretion of the highest
degree is expected of them, Mercury Drug Store and defendant Aurmila (sic) Ganzon are ordered to
pay plaintiff the amount of THREE HUNDRED THOUSAND PESOS (Php 300,000.00) as exemplary
damages.
Due to defendants callous reaction to the mistake done by their employee which forced plaintiff to
litigate, Defendant (sic) Mercury Drug Store is to pay plaintiff attorney’s fees of ₱50,000.00 plus
litigation expenses.
SO ORDERED.35
In ruling in favor of De Leon, the RTC ratiocinated:
The proximate cause of the ill fate of plaintiff was defendant Aurmila (sic) Ganzon’s negligent
exercise of said discretion. She gave a prescription drug to a customer who did not have the proper
form of prescription, she did not take a good look at said prescription, she merely presumed plaintiff
was looking for Cortisporin Otic Solution because it was the only one available in the market and
she further presumed that by merely putting the drug by the counter wherein plaintiff looked at it,
paid and took the drug without any objection meant he understood what he was buying.36
The RTC ruled that although De Leon may have been negligent by failing to read the medicine’s
label or to instruct his sheriff to do so, Mercury Drug was first to be negligent. 37 Ganzon dispensed a
drug without the requisite prescription.38 Moreover, she did so without fully reading what medicine
was exactly being bought.39 In fact, she presumed that since what was available was the drug
Cortisporin Otic Solution, it was what De Leon was attempting to buy.40 Said the court:
When the injury is caused by the negligence of a servant or employee, there instantly arises a
presumption of law that there was negligence on the part of the employer or employer either in the
selection of the servant or employee, or in the supervision over him after the selection or both.
xxxx
The theory bases the responsibility of the master ultimately on his own negligence and not on that of
his servant.41
Dissatisfied with the RTC ruling, Mercury Drug and Ganzon elevated the matter to the CA.
Accordingly, they filed their respective briefs. Raising technical grounds, De Leon moved for the
appeal’s dismissal.
CA Disposition
On July 4, 2008, the CA issued a resolution which granted De Leon’s motion and dismissed the
appeal. Said the appellate court:
As pointed out by the plaintiff-appellee, the Statement of Facts, Statement of the Case, Assignment
of Errors/issues, Arguments/ Discussions in the Brief make no references to the pages of the
records. We find this procedural lapse justify the dismissal of the appeal, pursuant to Section 1(f),
Rule 50 of the 1997 Rules of Civil Procedure x x x.42
xxxx
"The premise that underlies all appeals is that they are merely rights which arise form a statute;
therefore, they must be exercised in the manner prescribed by law. It is to this end that rules
governing pleadings and practice before the appellate court were imposed. These rules were
designed to assist the appellate court in the accomplishment of its tasks, and overall, to enhance
the orderly administration of justice."
xxxx
x x x If the statement of fact is unaccompanied by a page reference to the record, it may be stricken
or disregarded all together.43
On October 5, 2004, the CA denied Mercury Drug’s and Ganzon’s joint motion for reconsideration.
Although mindful that litigation is not a game of technicalities,44 the CA found no persuasive reasons
to relax procedural rules in favor of Mercury Drug and Ganzon.45 The CA opined:
In the case under consideration, We find no faithful compliance on the part of the movants that will
call for the liberal application of the Rules. Section 1(f) of Rule 50 of the 1997 Rules of Civil
Procedure explicitly provides that an appeal may be dismissed by the Court of Appeals, on its own
motion or on that of the appellee, for want of page references to the records as required in Section
13 of Rule 44 of the same rules46
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I This Court has held that the failure to properly cite reference to the original records is not a
THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING PETITIONER’S APPEAL
BASED ON THE CASES OF DE LIANA VS. CA  (370 SCRA 349) AND HEIRS OF PALOMINIQUE
VS. CA (134 SCRA 331).
II
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN
DISMISSING PETITIONER’S APPEAL DESPITE SUBSTANTIAL COMPLIANCE WITH SECTION
1(F), RULE 60 AND SECTION 13, RULE 44 OF THE RULES OF COURT.
III
THE HONORABLE COURT OF APPEALS ERRED WHEN IT FAVORED MERE TECHNICALITY
OVER SUBSTANTIAL JUSTICE WHICH WILL CERTAINLY CAUSE GRAVE INJUSTICE AND
GREAT PREJUDICE TO PETITIONER CONSIDERING THAT THE ASSAILED DECISION ON
APPEAL IS CLUSTERED WITH ERRORS AND IN CONTRAST with the DECISIONS OF THIS
HONORABLE SUPREME COURT.47 (Underscoring supplied)
Our Ruling
The appeal succeeds in part.
Dismissal of an appeal under Rule 50 is discretionary.
In several cases,48 this Court stressed that the grounds for dismissal of an appeal under Section 1 of
Rule 5049 are discretionary upon the appellate court. The very wording of the rule uses the word
"may" instead of "shall." This indicates that it is only directory and not mandatory.50 Sound discretion
must be exercised in consonance with the tenets of justice and fair play, keeping in mind the
circumstances obtaining in each case.51
The importance of an appellant’s brief cannot be gainsaid. Its purpose is two-fold: (1) to present to
the court in coherent and concise form the point and questions in controversy; and (2) to assist the
court in arriving at a just and proper conclusion. 52 It is considered a vehicle of counsel to convey to
the court the essential facts of a client’s case, a statement of the questions of law involved, the law
to be applied, and the application one desires of it by the court.53
The absence of page reference to the record is a ground for dismissal. It is a requirement intended
to ultimately aid the appellate court in arriving at a just and proper conclusion of the
case.54 However, as earlier discussed, such dismissal is not mandatory, but discretionary on the part
of the appellate court.
fatal procedural lapse.55 When citations found in the appellant’s brief enable the court to
expeditiously locate the portions of the record referred to, there is substantial compliance
with the requirements of Section 13(c), (d), and (f) of Rule 44.56
In De Leon v. CA,57 this Court ruled that the citations contained in the appellant’s brief sufficiently
enabled the appellate court to expeditiously locate the portions of the record referred to. They were
in substantial compliance with the rules. The Court said:
Nothing in the records indicate that it was exercised capriciously, whimsically, or with a view of
permitting injury upon a party litigant. For the same reasons, we hold that the respondent Court of
Appeals did not err when it did not dismiss the appeal based on the allegation that appellant’s brief
failed to comply with the internal rules of said court.58
Similar to the instant case, the appellant’s brief in Yuchengco v. Court of Appeals59 contained
references to Exhibits and Transcript of Stenographic Notes and attachments. These were found to
have substantially complied with the requirements of Section 13(c) and (d) of Rule 44.
x x x The Appellant’s brief may not have referred to the exact pages of the records, however, the
same is not fatal to their cause since the references they made enabled the appellate court to
expeditiously locate the portions referred to. x x x60
It is true that in De Liano v. Court of Appeals,61 this Court held that a statement of facts
unaccompanied by a page reference to the record may be presumed to be without support in the
record and may be stricken or disregarded altogether. However, the instant case is not on all fours
with De Liano.
In De Liano, the appellant’s brief lacked a Subject Index and a Table of Cases and
Authorities.62 Moreover, the Statement of the Case, Statements of Facts, and Statements of
Arguments had no page references to the record.63 When notified of such defects, defendants-
appellants failed to amend their brief to conform to the rules.64 Instead, they continued to argue that
their errors were harmless.65 All these omissions and non-compliance justified the dismissal of the
appeal by the CA.66
In the case under review, although there were no page references to the records, Mercury Drug and
Ganzon referred to the exhibits, TSN, and attachments of the case. Despite its deficiencies, the brief
is sufficient in form and substance as to apprise the appellate court of the essential facts, nature of
the case, the issues raised, and the laws necessary for the disposition of the same.
Reliance on Heirs of Palomique v. Court of Appeals 67 is likewise misplaced. In Heirs of Palomique,
the appellant’s brief did not at all contain a separate statement of facts. 68 This critical omission,
together with the failure to make page references to the record to support the factual allegations,
justified the dismissal of the appeal.69
Rules of procedure are intended to promote, not to defeat, substantial justice. They should not be
applied in a very rigid and technical sense.70 For reasons of justice and equity, this Court has
allowed exceptions to the stringent rules governing appeals. 71 It has, in the past, refused to sacrifice
justice for technicality.72
However, brushing aside technicalities, petitioners are still liable. Mercury Drug and Ganzon
failed to exercise the highest degree of diligence expected of them.
Denying that they were negligent, Mercury Drug and Ganzon pointed out that De Leon’s own
negligence was the proximate cause of his injury. They argued that any injury would have been
averted had De Leon exercised due diligence before applying the medicine on his eye. Had he
cautiously read the medicine bottle label, he would have known that he had the wrong medicine.
Mercury Drug and Ganzon can not exculpate themselves from any liability. As active players in the
field of dispensing medicines to the public, the highest degree of care and diligence is expected of
them.73 Likewise, numerous decisions, both here and abroad, have laid salutary rules for the
protection of human life and human health. 74 In the United States case of Tombari v. Conners,75 it
was ruled that the profession of pharmacy demands care and skill, and druggists must exercise care
of a specially high degree, the highest degree of care known to practical men. In other words,
druggists must exercise the highest practicable degree of prudence and vigilance, and the most
exact and reliable safeguards consistent with the reasonable conduct of the business, so that
human life may not constantly be exposed to the danger flowing from the substitution of deadly
poisons for harmless medicines.76
In Fleet v. Hollenkemp,77 the US Supreme Court ruled that a druggist that sells to a purchaser or
sends to a patient one drug for another or even one innocent drug, calculated to produce a certain
effect, in place of another sent for and designed to produce a different effect, cannot escape
responsibility, upon the alleged pretext that it was an accidental or innocent mistake. His mistake,
under the most favorable aspect for himself, is negligence. And such mistake cannot be
countenanced or tolerated, as it is a mistake of the gravest kind and of the most disastrous effect.78
Smith’s Admrx v. Middelton79 teaches Us that one holding himself out as competent to handle drugs,
having rightful access to them, and relied upon by those dealing with him to exercise that high
degree of caution and care called for by the peculiarly dangerous nature of the business, cannot be
heard to say that his mistake by which he furnishes a customer the most deadly of drugs for those
comparatively harmless, is not in itself gross negligence.80
In our own jurisdiction, United States v. Pineda81 and Mercury Drug Corporation v. Baking are
illustrative.82 In Pineda, the potassium chlorate demanded by complainant had been intended for his
race horses. When complainant mixed with water what he thought and believed was potassium
chlorate, but which turned out to be the potently deadly barium chlorate, his race horses died of
poisoning only a few hours after.
The wisdom of such a decision is unquestionable. If the victims had been human beings instead of
horses, the damage and loss would have been irreparable.83
In the more recent Mercury Drug, involving no less than the same petitioner corporation, Sebastian
Baking went to the Alabang branch of Mercury Drug84 and presented his prescription for Diamicron,
which the pharmacist misread as Dormicum.85 Baking was given a potent sleeping tablet, instead of
medicines to stabilize his blood sugar.86 On the third day of taking the wrong medicine, Baking
figured in a vehicular accident.87 He fell asleep while driving.88
This Court held that the proximate cause of the accident was the gross negligence of the pharmacist
who gave the wrong medicine to Baking. The Court said:
x x x Considering that a fatal mistake could be a matter of life and death for a buying patient, the
said employee should have been very cautious in dispensing medicines. She should have verified
whether the medicine she gave respondent was indeed the one prescribed by his physician. The
care required must be commensurate with the danger involved, and the skill employed must
correspond with the superior knowledge of the business which the law demands.89
This Court once more reiterated that the profession of pharmacy demands great care and skill. It
reminded druggists to exercise the highest degree of care known to practical men.
In cases where an injury is caused by the negligence of an employee, there instantly arises a
presumption of law that there has been negligence on the part of the employer, either in the
selection or supervision of one’s employees. This presumption may be rebutted by a clear
showing that the employer has exercised the care and diligence of a good father of the
family.90 Mercury Drug failed to overcome such presumption.91
Petitioners Mercury Drug and Ganzon have similarly failed to live up to high standard of diligence
expected of them as pharmacy professionals. They were grossly negligent in dispensing ear drops
instead of the prescribed eye drops to De Leon. Worse, they have once again attempted to shift the
blame to their victim by underscoring his own failure to read the label.
As a buyer, De Leon relied on the expertise and experience of Mercury Drug and its employees in
dispensing to him the right medicine.92 This Court has ruled that in the purchase and sale of drugs,
the buyer and seller do not stand at arms length.93 There exists an imperative duty on the seller or
the druggist to take precaution to prevent death or injury to any person who relies on one’s absolute
honesty and peculiar learning.94 The Court emphasized:
x x x The nature of drugs is such that examination would not avail the purchaser anything. It would
be idle mockery for the customer to make an examination of a compound of which he can know
nothing. Consequently, it must be that the druggist warrants that he will deliver the drug called for.95
Mercury Drug and Ganzon’s defense that the latter gave the only available Cortisporin solution in
the market deserves scant consideration. Ganzon could have easily verified whether the medicine
she gave De Leon was, indeed, the prescribed one or, at the very least, consulted her supervisor.
Absent the required certainty in the dispensation of the medicine, she could have refused De Leon’s
purchase of the drug.
The award of damages is proper and shall only be reduced considering the peculiar facts of
the case. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of defendant’s wrongful act or omission.96
Moral damages are not intended to impose a penalty to the wrongdoer or to enrich the claimant at
the expense of defendant.97 There is no hard and fast rule in determining what would be a fair and
reasonable amount of moral damages since each case must be governed by its peculiar
circumstances.98 However, the award of damages must be commensurate to the loss or injury
suffered.99
Taking into consideration the attending facts of the case under review, We find the amount awarded
by the trial court to be excessive. Following the precedent case of Mercury Drug, We reduce the
amount from ₱100,000.00 to ₱50,000.00 only.100 In addition, We also deem it necessary to reduce
the award of exemplary damages from the exorbitant amount of ₱300,000.00 to ₱25,000.00 only.
This Court explained the propriety of awarding exemplary damages in the earlier Mercury
Drug case:
x x x Article 2229 allows the grant of exemplary damages by way of example or correction for the
public good. As mentioned earlier, the drugstore business is affected by public interest. Petitioner
should have exerted utmost diligence in the selection and supervision of its employees. On the part
of the employee concerned, she should have been extremely cautious in dispensing
pharmaceutical products. Due to the sensitive nature of its business, petitioner must at all times
maintain a high level of meticulousness. Therefore, an award of exemplary damages in the amount
of ₱25,000.00 is in order.101 (Emphasis supplied)
It is generally recognized that the drugstore business is imbued with public interest. This can not be
more real for Mercury Drug, the country’s biggest drugstore chain. This Court can not tolerate any
form of negligence which can jeopardize the health and safety of its loyal patrons. Moreover, this
Court will not countenance the cavalier manner it treated De Leon. Not only does a pharmacy owe a
customer the duty of reasonable care, but it is also duty-bound to accord one with respect.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decisions of the CA and the RTC in
Parañaque City are AFFIRMED WITH MODIFICATION, in that the award of moral and exemplary
damages is reduced to ₱50,000.00 and ₱25,000.00, respectively.
SO ORDERED.
G.R. No. 189301               December 15, 2010
PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee,
vs.
JOSE PEPITO D. COMBATE a.k.a. "PEPING," Accused-Appellant.
DECISION
VELASCO, JR., J.:
The Case
This is an appeal from the January 30, 2008 Decision1 of the Court of Appeals (CA) in CA-G.R. CEB
CR-H.C. No. 00294 entitled People of the Philippines v. Jose Pepito D. Combante a.k.a. "Peping,"
which affirmed with modification the July 2, 2003 Decision2 in Criminal Case Nos. 95-17070 & 95-
17071 of the Regional Trial Court (RTC), Branch 50 in Bacolod City.
Accused-appellant Jose Pepito D. Combate stands convicted of the crime of Murder and Homicide,
as defined and penalized under Articles 248 and 249 of the Revised Penal Code (RPC),
respectively. He was sentenced to suffer the penalties of reclusion temporal and reclusion perpetua.
The Facts
The charge against accused-appellant stemmed from two Informations:
Criminal Case No. 95-17070
That on or about 16th day of March, 1995, in the Municipality of Murcia, Province of Negros
Occidental, Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, armed with a firearm, with treachery, with intent to kill and taking advantage of nighttime,
did then and there, willfully, unlawfully and feloniously attack, assault and shoot on EDMUND
PRAYCO y OSABEL, thereby inflicting gunshot wounds upon the body of the latter which caused
the death of the said victim.
Contrary to law.3
Criminal Case No. 95-17071
That on or about 16th day of March, 1995, in the Municipality of Murcia, Province of Negros
Occidental, Philippines, and within the jurisdiction of this Honorable Court, the above-named
accused, armed with a firearm, with treachery, with intent to kill and taking advantage of nighttime,
did then and there, willfully, unlawfully and feloniously attack, assault and shoot on LEOPOLDO
GUIRO, JR. y PEREZ alias "Nene" thereby inflicting gunshot wounds upon the body of the latter
which caused the death of the said victim.
Contrary to law.4
On November 28, 2001, the trial court ordered the consolidation of the two cases. When arraigned
with assistance of counsel, accused-appellant pleaded "not guilty" to both charges. Thereafter, a
joint trial ensued.
During the trial, the prosecution offered the testimonies of Shenette Guiro, the wife of the deceased
victim Leopoldo Guiro; Jose Tomaro; Rebecca Montino Apdo; Senior Police Officer 1 (SPO1)
Rolando Salamisan; Inspector Jose Labuyo; Police Inspector William Senoron; PO1 Rommel Pregil;
Dr. Jimmy Nadal; and Dr. Emmanuel Bando. On the other hand, the defense presented as its
witnesses Magno Montinola and accused-appellant.
The Prosecution’s Version of Facts
On March 16, 1995, at around 9 o’clock in the evening, Tomaro parked his passenger jeepney at
the garage of Leopoldo’s mother, Patria Guiro, located at Purok 2, Barangay Minoyan in Murcia,
Negros Occidental. He then proceeded to the house of Leopoldo where he usually sleeps after
driving the jeepney owned by Leopoldo’s parents.
Upon entering the gate, Tomaro met Leopoldo and Edmund Prayco, who were on their way out.
Leopoldo invited him to join them in drinking liquor but he declined saying he was already tired. He
continued on his way and was about to ascend the stairs when he heard a gunshot. He rushed back
to the road and there he saw accused-appellant pointing a gun at the fallen Leopoldo. When
Edmund was about to intervene, accused-appellant also shot Edmund at a very close range. After
shooting Edmund, accused-appellant turned his attention back to Leopoldo and shot him for a
second time.
Tomaro then rushed to help Leopoldo and pleaded for his life. Instead of heeding his plea, accused-
appellant pointed his gun towards Tomaro and pulled the trigger but the gun did not fire. At that
instant, Tomaro jumped on accused-appellant and was able to grab the gun. Tomaro tried to shoot
accused-appellant but the gun still did not fire. Hastily, accused-appellant fled to the direction of
Bacolod City.
Leopoldo and Edmund were later brought to the Bacolod Sanitarium and Hospital. Edmund was
declared dead on arrival, while Leopoldo died the following day.
Version of the Defense
Accused-appellant’s defense, on the other hand, was confined to a denial, to wit:
In the evening of March 16, 1995, accused-appellant was in his house drinking liquor when
Montinola, a close friend, arrived to fetch him. He was told to report to the barangay hall and to
render duty as a tanod. Before leaving, Montinola also partook of a small quantity of liquor.
On their way to the barangay hall, they passed by the house of Leopoldo, who was drinking liquor
by the side of the street fronting his house, along with Tomaro, Edmund, and someone else who
accused-appellant could not identify. He and Montinola were walking on the left side of the street
going towards the direction of the Mambucal Resort, while Leopoldo and his group were on the right
side. Accused-appellant then extended a greeting to Leopoldo, who responded with a sarcastic
remark. Accused-appellant and Montinola ignored the rudeness thrown their way and just continued
walking.
They, however, soon noticed Leopoldo crossing the street and started to follow them. Edmund
likewise also followed them but on the other side of the street. Suddenly, accused-appellant saw
Leopoldo pull something out from his waist. He then heard a gunshot and saw Leopoldo fall to the
ground. He pushed Montinola aside and they ran away.
After a few moments, he heard more gunshots coming from the direction of where Leopoldo and his
group were situated. He was stricken with fear so he went home. Later, he learned that he was the
suspect in the killing of Leopoldo and Edmundo. Thus, to avoid trouble, he fled to Victorias City,
Negros Occidental where he was arrested by the Murcia police on October 13, 2001.
The story of accused-appellant was corroborated by Montinola.
Ruling of the Trial Court
After trial, the RTC convicted accused-appellant. The dispositive portion of its July 2, 2003 Decision
reads:
FOR ALL THE FOREGOING, judgment is hereby rendered finding the accused Jose Combate, Jr. y
Dallarte alias Peping, GUILTY beyond reasonable doubt of the crime of HOMICIDE in Criminal
Case NO. 95-17071 as Principal thereof. There being no modifying circumstances, the accused is
sentenced to suffer the penalty of RECLUSION TEMPORAL in its medium period. Applying the
Indeterminate Sentence Law, the accused shall serve a prison term of Eight (8) Years and One (1)
Day of Prision Mayor to Fifteen (15) years of Reclusion Temporal.
By way of civil liability, the accused is condemned to pay the heirs of the late Leopoldo Guiro the
following:
1. The sum of P50,000.00 as death indemnity.
2. The sum of P932,712.00 as compensatory damages and;
3. The sum of P56,319.59 as reimbursement for the burial expenses.
In addition, the accused is ordered to pay Shenette Guiro the sum of P50,000.00 as moral
damages.
The accused is also declared GUILTY of MURDER for the death of Edmund Prayco as charged in
the Information in Criminal Case No. 95-17070 as Principal thereof. There being no modifying
circumstances, the accused is sentenced to suffer the penalty of RECLUSION PERPETUA. He is
condemned to pay the heirs of the late Edmund Prayco the sum of P50,000.00 as death indemnity
and the sum of P30,000.00 as compensatory damages.5
Ruling of the Appellate Court
On January 30, 2008, the CA affirmed the judgment of the lower court and modified the award of
damages. The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision of the Regional Trial court, Branch 50 of Bacolod
City dated 2 July 200[3] is AFFIRMED WITH MODIFICATIONS. The award of compensatory
damages in both cases is deleted, and in lieu thereof, exemplary damages of P25,000.00 is
awarded to the heirs of Leopoldo Guiro and another P25,000.00 to the heirs of Edmund Prayco. In
all other respects, the assailed decision is affirmed.
SO ORDERED.6
The Issue
Hence, this appeal is before us, with accused-appellant maintaining that the trial court erred in
convicting him of the crimes of homicide and murder, despite the fact that his guilt was not proved
beyond reasonable doubt.
The Court’s Ruling
We sustain accused-appellant’s conviction.
Factual findings of the trial court should be respected
In his Brief, accused-appellant says that the trial court failed to consider several inconsistencies in
the testimonies of the prosecution witnesses. First, as to Tomaro, who directly implicated accused-
appellant, his testimony was unsubstantiated and did not conform to the physical evidence.
According to Tomaro, Edmund was shot at close range yet no powder burns were found around the
entry wound. Second, as to the testimony of Shenette Guiro, accused-appellant harps on the fact
that she never mentioned Tomaro being present at the scene of the crime and that she only heard
one gunshot while the other witnesses heard three or four. Lastly, as to the testimony of SPO1
Salamisan, accused-appellant points out that SPO1 Salamisan testified that he only saw one spot of
blood when there were two victims.
To accused-appellant, the inconsistencies thus described erode the credibility of the witnesses
when taken as a whole.
We do not agree.
Time-tested is the doctrine that the trial court’s assessment of the credibility of a witness is entitled
to great weight, sometimes even with finality.7 The Supreme Court will not interfere with that
assessment, absent any indication that the lower court has overlooked some material facts or
gravely abused its discretion.8
Complementing the above doctrine is the equally established rule that minor and insignificant
inconsistencies in the testimony tend to bolster, rather than weaken, the credibility of witnesses, for
they show that the testimony is not contrived or rehearsed.9 As the Court put it in People v.
Cristobal, "Trivial inconsistencies do not rock the pedestal upon which the credibility of the witness
rests, but enhances credibility as they manifest spontaneity and lack of scheming."10
A careful review of the records shows that the RTC, as well as the CA, committed no reversible
error when it gave credence to the testimonies of the prosecution witnesses, as opposed to
accused-appellant’s bare denials.
Moreover, the testimony of a witness must be considered in its entirety and not merely on its
truncated parts. The technique in deciphering a testimony is not to consider only its isolated parts
and anchor a conclusion on the basis of said parts. In ascertaining the facts established by
witnesses, everything stated by them on direct, cross, and redirect examinations must be calibrated
and considered.11 It must be stressed in this regard that facts imperfectly or erroneously stated in an
answer to one question may be supplied or explained as qualified by the answer to other question.
The principle falsus in uno, falsus in omnibus is not strictly applied to this jurisdiction. 12 As explained
in People v. Osias:
It is perfectly reasonable to believe the testimony of a witness with respect to some facts and
disbelieve it with respect to other facts. And it has been aptly said that even when witnesses are
found to have deliberately falsified in some material particulars, it is not required that the whole of
their uncorroborated testimony be rejected but such portions thereof deemed worthy of
belief may be credited.
The primordial consideration is that the witness was present at the scene of the crime and
that he positively identified [the accused] as one of the perpetrators of the crime charged  x x
x.13 (Emphasis supplied.)
In this case, we agree with the trial court that the alleged inconsistencies merely refer to minor
details which do not affect the witnesses’ credibility. In disregarding the alleged inconsistent
statements, the trial court explained:
The inconsistencies are more imagined than real. The inconsistencies, like the ownership of the
passenger jeepney, whether said jeepney is owned by Guiro or his mother, are so trivial and does
not at all affect credibility.
The accused also makes much fuss about the fact that Shenette Guiro heard only one (1) shot while
the other prosecution witnesses as well as the accused and his witness Magno Montinola, heard
three (3) to four (4) shots. The accused conveniently forgot that Shenette Guiro was asleep when
the shooting took place. She was awakened by the shot she heard and that shot might have been
the last shot.
The accused flays the testimony of Jose Tomaro as incredible and unbelievable when the said
witness testified that he ran and cradled Guiro in his arms after the latter was shot. The accused
asserts that it is unnatural for a person to unnecessarily expose himself to danger.
The argument need not detain the Court. It is a settled rule on evidence that witnesses to a crime
react in different ways. (Pp. vs. Paynor, 261 SCRA 615).
"There is no standard behavior when one is considered with a strange, startling or frightening
situation." (Pp. v. De Leon, 262 SCRA 445)
Moreover, Jose Tomaro has no quarrel with the accused. He has every reason to expect that he will
not be assaulted as he was not making any aggressive move against him.14
Likewise, we are not persuaded as to the alleged inconsistency of Tamaro’s testimony that Edmund
was shot at close range but the physical evidence revealed that there were no powder burns around
the entry wounds. In his testimony, Tamaro described the incident as follows:
COURT:
Q: Now according to your testimony, the next time around, Combate was pointing his gun at
Prayco?
WITNESS
A: Yes, sir.
Q: He pointed his gun to Prayco and fired his gun. At the time he fired his gun, how far was he from
Prayco?
COURT
Witness indicating a very short distance where the Court Interpreter is situated which is less than
(1) meter away.15 (Emphasis supplied.)
As aptly held by the CA, such testimony is in fact consistent with the lack of powder burns on
Edmund’s body, viz:
The distance from which a shot is fired affects the nature and extent of the injury caused on the
victim. In close range fire, the injury is not only due to the missile but also due to the pressure of the
expanded gases, flame and other solid products of combustion. In contrast, distant fire usually
produces the characteristic effect of the bullet alone. A shot fired from a distance of more than 60
cm or about two (2) feet does not produce the burning, smudging or tattooing typically present in
loose contact or near fire, short range fire and medium range fire.
Powder burns is a term commonly used by physicians whenever there is blackening of the margin at
the entrance of the gunshot wound. The blackening is due to smoke smudging, gunpowder tattooing
and, to a certain extent, burning of the wound margin.
In this case, the fact that there were no powder burns found in EDMUND’s body indicates that the
shots were fired at a distance of more than two (2) feet which is consistent with Jose Tomaro’s
testimony that Edmund was shot at about less than 1 meter away from appellant.16
Defense of denial cannot prevail over positive identification
For his defense, accused-appellant wants this Court to believe his innocence and offers his version
of the facts wherein he did not commit the crime. This Court is not persuaded.
Categorical and consistent positive identification, absent any showing of ill motive on the part of the
eyewitness testifying on the matter, prevails over the defense of denial.17Accused-appellant was
positively and categorically identified by the witnesses. They have no reason to perjure and
accused-appellant was unable to prove that the prosecution witnesses were moved by any
consideration other than to see that justice is done. Thus, the presumption that their testimonies
were not moved by any ill will and bias stands, and, therefore, their testimonies are entitled to full
faith and credit.18
Lest it be overlooked, accused-appellant fled to Victorias City, Negros Occidental right after the
incident, an act that is evidence of his guilt. It is well-established that the flight of an accused is
competent evidence to indicate his guilt; and flight, when unexplained, is a circumstance from which
an inference of guilt may be drawn.19 Indeed, the wicked flee when no man pursueth, but the
innocent are as bold as lion.20
Award of damages
This Court will now endeavor to end, once and for all, the confusion as to the proper award of
damages in criminal cases where the imposable penalty for the crime is reclusion perpetua or
death. As a rule, the Court awards three kinds of damages in these types of criminal cases: civil
indemnity and moral and exemplary damages. We shall discuss all three.
First, civil indemnity ex delicto is the indemnity authorized in our criminal law for the offended party,
in the amount authorized by the prevailing judicial policy and apart from other proven actual
damages, which itself is equivalent to actual or compensatory damages in civil law. 21 This award
stems from Art. 100 of the RPC which states, "Every person criminally liable for a felony is also
civilly liable."
Civil liability ex delicto may come in the form of restitution, reparation, and
indemnification.22 Restitution is defined as the compensation for loss; it is full or partial
compensation paid by a criminal to a victim ordered as part of a criminal sentence or as a condition
for probation.23 Likewise, reparation and indemnification are similarly defined as the compensation
for an injury, wrong, loss, or damage sustained.24 Clearly, all of these correspond to actual or
compensatory damages defined under the Civil Code.25
The other kinds of damages, i.e., moral and exemplary or corrective damages,26 have altogether
different jural foundations.
The second type of damages the Court awards are moral damages, which are also compensatory in
nature. Del Mundo v. Court of Appeals explained the nature and purpose of moral damages, viz:
Moral damages, upon the other hand, may be awarded to compensate one for manifold injuries
such as physical suffering, mental anguish, serious anxiety, besmirched reputation, wounded
feelings and social humiliation. These damages must be understood to be in the concept of
grants, not punitive or corrective in nature, calculated to compensate the claimant for the
injury suffered. Although incapable of exactness and no proof of pecuniary loss is necessary in
order that moral damages may be awarded, the amount of indemnity being left to the discretion of
the court, it is imperative, nevertheless, that (1) injury must have been suffered by the claimant, and
(2) such injury must have sprung from any of the cases expressed in Article 221927 and Article
222028 of the Civil Code. (Emphasis supplied.)
Similarly, in American jurisprudence, moral damages are treated as "compensatory damages
awarded for mental pain and suffering or mental anguish resulting from a wrong." 29 They may also
be considered and allowed "for resulting pain and suffering, and for humiliation, indignity, and
vexation suffered by the plaintiff as result of his or her assailant’s conduct, as well as the factors of
provocation, the reasonableness of the force used, the attendant humiliating circumstances, the sex
of the victim, [and] mental distress."30
The rationale for awarding moral damages has been explained in Lambert v. Heirs of Rey Castillon:
"[T]he award of moral damages is aimed at a restoration, within the limits possible, of the spiritual
status quo ante; and therefore, it must be proportionate to the suffering inflicted."31
And lastly, the Court awards exemplary damages as provided for in Arts. 2229 and 2230 of the Civil
Code, viz:
Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages.
Art. 2230. In criminal offenses, exemplary damages as a part of the civil liability may be imposed
when the crime was committed with one or more aggravating circumstances. Such damages are
separate and distinct from fines and shall be paid to the offended party.
Clearly, as a general rule, exemplary damages are only imposed in criminal offenses when the
crime was committed with one or more aggravating circumstances, be they generic or qualifying.
However, there have been instances wherein exemplary damages were awarded despite the lack of
an aggravating circumstance. This led the Court to clarify this confusion in People v. Dalisay, where
it categorically stated that exemplary damages may be awarded, not only in the presence of an
aggravating circumstance, but also where the circumstances of the case show the highly
reprehensible or outrageous conduct of the offender, to wit:
Prior to the effectivity of the Revised Rules of Criminal Procedure, courts generally awarded
exemplary damages in criminal cases when an aggravating circumstance, whether ordinary or
qualifying, had been proven to have attended the commission of the crime, even if the same was
not alleged in the information. This is in accordance with the aforesaid Article 2230. However, with
the promulgation of the Revised Rules, courts no longer consider the aggravating circumstances not
alleged and proven in the determination of the penalty and in the award of damages. Thus, even if
an aggravating circumstance has been proven, but was not alleged, courts will not award exemplary
damages. x x x
xxxx
Nevertheless, People v. Catubig laid down the principle that courts may still award exemplary
damages based on the aforementioned Article 2230, even if the aggravating circumstance has not
been alleged, so long as it has been proven, in criminal cases instituted before the effectivity of the
Revised Rules which remained pending thereafter. Catubig reasoned that the retroactive application
of the Revised Rules should not adversely affect the vested rights of the private offended party.
Thus, we find, in our body of jurisprudence, criminal cases, especially those involving rape,
dichotomized: one awarding exemplary damages, even if an aggravating circumstance attending
the commission of the crime had not been sufficiently alleged but was consequently proven in the
light of Catubig; and another awarding exemplary damages only if an aggravating circumstance has
both been alleged and proven following the Revised Rules. Among those in the first set are People
v. Laciste, People v. Victor, People v. Orilla, People v. Calongui, People v. Magbanua, People of the
Philippines v. Heracleo Abello y Fortada, People of the Philippines v. Jaime Cadag Jimenez, and
People of the Philippines v. Julio Manalili. And in the second set are People v. Llave, People of the
Philippines v. Dante Gragasin y Par, and People of the Philippines v. Edwin Mejia. Again, the
difference between the two sets rests on when the criminal case was instituted, either before or after
the effectivity of the Revised Rules.
xxxx
Nevertheless, by focusing only on Article 2230 as the legal basis for the grant of exemplary
damages — taking into account simply the attendance of an aggravating circumstance in the
commission of a crime, courts have lost sight of the very reason why exemplary damages are
awarded. Catubig is enlightening on this point, thus —
Also known as "punitive" or "vindictive" damages, exemplary or corrective damages are
intended to serve as a deterrent to serious wrong doings, and as a vindication of undue
sufferings and wanton invasion of the rights of an injured or a punishment for those guilty of
outrageous conduct. These terms are generally, but not always, used interchangeably. In
common law, there is preference in the use of exemplary damages when the award is to
account for injury to feelings and for the sense of indignity and humiliation suffered by a
person as a result of an injury that has been maliciously and wantonly inflicted, the theory
being that there should be compensation for the hurt caused by the highly reprehensible
conduct of the defendant — associated with such circumstances as willfulness, wantonness,
malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud — that
intensifies the injury. The terms punitive or vindictive damages are often used to refer to
those species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to deter
the wrongdoer and others like him from similar conduct in the future.
Being corrective in nature, exemplary damages, therefore, can be awarded, not only in the presence
of an aggravating circumstance, but also where the circumstances of the case show the highly
reprehensible or outrageous conduct of the offender. In much the same way as Article 2230
prescribes an instance when exemplary damages may be awarded, Article 2229, the main
provision, lays down the very basis of the award. Thus, in People v. Matrimonio, the Court imposed
exemplary damages to deter other fathers with perverse tendencies or aberrant sexual behavior
from sexually abusing their own daughters. Also, in People v. Cristobal, the Court awarded
exemplary damages on account of the moral corruption, perversity and wickedness of the accused
in sexually assaulting a pregnant married woman. Recently, in People of the Philippines v. Cristino
Cañada, People of the Philippines v. Pepito Neverio and The People of the Philippines v. Lorenzo
Layco, Sr., the Court awarded exemplary damages to set a public example, to serve as deterrent to
elders who abuse and corrupt the youth, and to protect the latter from sexual abuse.
It must be noted that, in the said cases, the Court used as basis Article 2229, rather than Article
2230, to justify the award of exemplary damages. Indeed, to borrow Justice Carpio Morales’ words
in her separate opinion in People of the Philippines v. Dante Gragasin y Par, "[t]he application of
Article 2230 of the Civil Code strictissimi juris in such cases, as in the present one, defeats the
underlying public policy behind the award of exemplary damages — to set a public example or
correction for the public good."32
Before awarding any of the above-mentioned damages, the Court, however, must first consider the
penalty imposed by law. Under Republic Act No. (RA) 7659 or An Act to Impose the Death Penalty
on Certain Heinous Crimes, Amending for that Purpose the Revised Penal Laws, and for Other
Purposes, certain crimes under the RPC and special penal laws were amended to impose the
penalty of death under certain circumstances.
For a full appreciation of the award on damages, it is imperative that a thorough discussion of RA
7659 be undertaken. Each crime will be discussed as well as the proper amount of damages for
each crime.
Under RA 7659, the following crimes are punishable by reclusion perpetua: piracy in
general,33 mutiny on the high seas,34 and simple rape.35
For the following crimes, RA 7659 has imposed the penalty of reclusion perpetua to death: qualified
piracy;36 qualified bribery under certain circumstances;37 parricide;38 murder;39 infanticide, except
when committed by the mother of the child for the purpose of concealing her dishonor or either of
the maternal grandparents for the same purpose;40 kidnapping and serious illegal detention under
certain circumstances;41 robbery with violence against or intimidation of persons under certain
circumstances;42 destructive arson, except when death results as a consequence of the commission
of any of the acts penalized under the article;43 attempted or frustrated rape, when a homicide is
committed by reason or on occasion thereof; plunder;44 and carnapping, when the driver or occupant
of the carnapped motor vehicle is killed or raped in the course of the commission of the carnapping
or on the occasion thereof.45
RA 7659 imposes the penalty of death on the following crimes:
(a) In qualified bribery, when it is the public officer who asks or demands the gift or present.
(b) In kidnapping and serious illegal detention: (i) when the kidnapping or detention was committed
for the purpose of extorting ransom from the victim or any other person; (ii) when the victim is killed
or dies as a consequence of the detention; (iii) when the victim is raped, subjected to torture or
dehumanizing acts.
(c) In destructive arson, when as a consequence of the commission of any of the acts penalized
under Article 320, death results.
(d) In rape: (i) when by reason or on occasion of the rape, the victim becomes insane or homicide is
committed; (ii) when committed with any of the following attendant circumstances: (1) when the
victim is under eighteen (18) years of age and the offender is a parent, ascendant, step-parent,
guardian, relative by consanguinity or affinity within the third civil degree, or the common-law-
spouse of the parent of the victim; (2) when the victim is under the custody of the police or military
authorities; (3) when the rape is committed in full view of the husband, parent, any of the children or
other relatives within the third degree of consanguinity; (4) when the victim is a religious or a child
below seven years old; (5) when the offender knows that he is afflicted with Acquired Immune
Deficiency Syndrome (AIDS) disease; (6) when committed by any member of the Armed Forces of
the Philippines or the Philippine National Police or any law enforcement agency; and (7) when by
reason or on the occasion of the rape, the victim has suffered permanent physical mutilation.
Nevertheless, all these must be taken in relation to Art. 63 of the RPC, which provides:
Article 63. Rules for the application of indivisible penalties. - In all cases in which the law prescribes
a single indivisible penalty, it shall be applied by the courts regardless of any mitigating or
aggravating circumstances that may have attended the commission of the deed.
In all cases in which the law prescribes a penalty composed of two indivisible penalties, the
following rules shall be observed in the application thereof:
1. When in the commission of the deed there is present only one aggravating circumstance, the
greater penalty shall be applied.
2. When there are neither mitigating nor aggravating circumstances in the commission of the deed,
the lesser penalty shall be applied.
3. When the commission of the act is attended by some mitigating circumstance and there is no
aggravating circumstance, the lesser penalty shall be applied.
4. When both mitigating and aggravating circumstances attended the commission of the act, the
courts shall reasonably allow them to offset one another in consideration of their number and
importance, for the purpose of applying the penalty in accordance with the preceding rules,
according to the result of such compensation.
Thus, in order to impose the proper penalty, especially in cases of indivisible penalties, the court
has the duty to ascertain the presence of any mitigating or aggravating circumstances. Accordingly,
in crimes where the imposable penalty is reclusion perpetua to death, the court can impose either
reclusion perpetua or death, depending on the mitigating or aggravating circumstances present.
But with the enactment of Republic Act No. (RA) 9346 or An Act Prohibiting the Imposition of Death
Penalty in the Philippines, the imposition of death penalty is now prohibited. It provides that in lieu of
the death penalty, the penalty of reclusion perpetua shall be imposed when the law violated makes
use of the nomenclature of the penalties of the RPC.46
As a result, courts now cannot impose the penalty of death. Instead, they have to impose reclusion
perpetua. Despite this, the principal consideration for the award of damages, following the ruling in
People v. Salome47 and People v. Quiachon,48 is "the penalty provided by law or imposable for the
offense because of its heinousness, not the public penalty actually imposed on the offender."49
When the circumstances surrounding the crime would justify the imposition of the penalty of death
were it not for RA 9346, the Court has ruled, as early as July 9, 1998 in People v. Victor, 50 that the
award of civil indemnity for the crime of rape when punishable by death should be PhP 75,000. We
reasoned that "[t]his is not only a reaction to the apathetic societal perception of the penal law and
the financial fluctuations over time, but also an expression of the displeasure of the Court over the
incidence of heinous crimes against chastity." 51 Such reasoning also applies to all heinous crimes
found in RA 7659.
In addition to this, the Court likewise awards moral damages. In People v. Arizapa, 52 PhP 50,000
was awarded as moral damages without need of pleading or proving them, for in rape cases, it is
recognized that the victim’s injury is concomitant with and necessarily results from the odious crime
of rape to warrant per se the award of moral damages. 53 Subsequently, the amount was increased
to PhP 75,000 in People v. Soriano.54
As to exemplary damages, existing jurisprudence has pegged its award at PhP 30,000,55 despite the
lack of any aggravating circumstance. The reason, as previously discussed, is to deter similar
conduct and to serve as an example for public good.
Essentially, despite the fact that the death penalty cannot be imposed because of RA 9346, the
imposable penalty as provided by the law for the crime, such as those found in RA 7569, must be
used as the basis for awarding damages and not the actual penalty imposed.
On the other hand, when the circumstances surrounding the crime call for the imposition of
reclusion perpetua only, the Court has ruled that the proper amounts should be PhP 50,000 as civil
indemnity, PhP 50,000 as moral damages, and PhP 30,000 as exemplary damages.56lavvphi1
Accordingly, in Criminal Case Nos. 95-17070 and 95-17071, the exemplary damages awarded by
the CA in the amount of PhP 25,000 should be increased to PhP 30,000.00 in line with prevailing
jurisprudence.
Moreover, the deletion of the award of compensatory damages for unearned income by the CA in
Criminal Case No. 95-17071 is proper. This Court pronounced in People v. Mallari:57
The rule is that documentary evidence should be presented to substantiate a claim for damages for
loss of earning capacity. By way of exception, damages therefore may be awarded despite the
absence of documentary evidence provided that there is testimony that the victim was either (1)
self-employed earning less than the minimum wage under current labor laws, and judicial notice
may be taken of the fact that in the victim’s line of work no documentary evidence is available; or (2)
employed as a daily-wage worker earning less than the minimum wage under current labor laws.
In this case, neither of the exemption applies. The earnings of Leopoldo at the time of his death
were above minimum wage set by labor laws in his respective place at the time of his death. 58 As
testified to by his wife, Shenette Guiro, Leopoldo was earning between PhP 200 to PhP 300 per
day. This is more than minimum wage. Hence, absent any documentary evidence, the award of
compensatory damages must be deleted.
Likewise, the deletion of the award of compensatory damages by the CA in Criminal Case No. 95-
17070 is proper for lack of any basis. The trial court did not discuss why it awarded compensatory
damages to the heirs of Edmund.
Interest on damages
When death occurs due to a crime, the following may be recovered: (1) civil indemnity ex delicto for
the death of the victim; (2) actual or compensatory damages; (3) moral damages; (4) exemplary
damages; (5) attorney’s fees and expenses of litigation; and (6) interest, in proper cases.59 In
People v. Tubongbanua,60 interest at the rate of six percent (6%) was ordered to be applied on the
award of damages. This rule would be subsequently applied by the Court in several cases such as
Mendoza v. People,61 People v. Buban,62 People v. Guevarra,63 and People v. Regalario.64 Thus, we
likewise adopt this rule in the instant case. Interest of six percent (6%) per annum should be
imposed on the award of civil indemnity and all damages, i.e., actual or compensatory damages,
moral damages and exemplary damages, from the date of finality of judgment until fully paid.
WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CEB CR-H.C. No. 00294
finding accused-appellant Jose Pepito D. Combate guilty of the crimes charged is AFFIRMED with
MODIFICATION. As modified, the ruling of the trial court should read as follows:
FOR ALL THE FOREGOING, judgment is hereby rendered finding the accused Jose Combate, Jr. y
Dallarte alias Peping, GUILTY beyond reasonable doubt of the crime of HOMICIDE in Criminal
Case NO. 95-17071 as Principal thereof. There being no modifying circumstances, the accused is
sentenced to suffer the penalty of RECLUSION TEMPORAL in its medium period. Applying the
Indeterminate Sentence Law, the accused shall serve a prison term of Eight (8) Years and One (1)
Day of Prision Mayor to Fifteen (15) years of Reclusion Temporal.1avvphi1
By way of civil liability, the accused is condemned to pay the heirs of the late Leopoldo Guiro the
following:
1. The sum of P50,000.00 as civil indemnity; and
2. The sum of P56,319.59 as reimbursement for the burial expenses.
In addition, the accused is ordered to pay Shenette Guiro the sum of P50,000.00 as moral damages
and P30,000.00 as exemplary damages.
The accused is also declared GUILTY of MURDER for the death of Edmund Prayco as charged in
the Information in Criminal Case No. 95-17070 as Principal thereof. There being no modifying
circumstances, the accused is sentenced to suffer the penalty of RECLUSION PERPETUA. He is
condemned to pay the heirs of the late Edmund Prayco the sum of P50,000.00 as civil indemnity,
P50,000.00 as moral damages and P30,000.00 as exemplary damages.
Finally, interest at the rate of six percent (6%) per annum shall be applied to the award of civil
indemnity, moral damages and exemplary damages from the finality of judgment until fully paid in
the two (2) aforementioned criminal cases.
SO ORDERED.
G.R. No. 197987               March 19, 2012
MARITER MENDOZA, Petitioner,
vs.
ADRIANO CASUMPANG, JENNIFER ADRIANE and JOHN ANDRE, all surnamed
CASUMPANG, Respondents.
DECISION
ABAD, J.:
Josephine Casumpang, substituted by her respondent husband Adriano and their children Jennifer
Adriane and John Andre, filed an action for damages against petitioner Dr. Mariter Mendoza in 1993
before the Regional Trial Court (RTC) of Iloilo City.
On February 13, 1993 Josephine underwent hysterectomy and myomectomy that Dr. Mendoza
performed on her at the Iloilo Doctors’ Hospital. After her operation, Josephine experienced
recurring fever, nausea, and vomiting. Three months after the operation, she noticed while taking a
bath something protruding from her genital. She tried calling Dr. Mendoza to report it but the latter
was unavailable. Josephine instead went to see another physician, Dr. Edna Jamandre-Gumban,
who extracted a foul smelling, partially expelled rolled gauze from her cervix.
The discovery of the gauze and the illness she went through prompted Josephine to file a damage
suit against Dr. Mendoza before the RTC of Iloilo City. Because Josephine died before trial could
end, her husband and their children substituted her in the case. She was a housewife and 40 years
old when she died.
On March 7, 2005 the RTC rendered judgment, finding Dr. Mendoza guilty of neglect that caused
Josephine’s illness and eventual death and ordering her to pay plaintiff’s heirs actual damages of
₱50,000.00, moral damages of ₱200,000.00, and attorney’s fees of ₱20,000.00 plus costs of suit.
On motion for reconsideration, however, the RTC reversed itself and dismissed the complaint in an
order dated June 23, 2005.
On appeal, the Court of Appeals (CA) rendered a decision on March 18, 2011,1 reinstating the
RTC’s original decision. The CA held that Dr. Mendoza committed a breach of her duty as a
physician when a gauze remained in her patient’s body after surgery. The CA denied her motion for
reconsideration on July 18, 2011, prompting her to file the present petition.
Petitioner claims that no gauze or surgical material was left in Josephine’s body after her surgery as
evidenced by the surgical sponge count in the hospital record.
But she raises at this Court’s level a question of fact when parties may raise only questions of law
before it in petitions for review on certiorari from the CA. With few exceptions, the factual findings of
the latter court are generally binding. None of those exceptions applies to this case.2
As the RTC pointed out, Josephine did not undergo any other surgical operation. And it would be
much unlikely for her or for any woman to inject a roll of gauze into her cervix. As the Court held in
Professional Services, Inc. v. Agana:3
An operation requiring the placing of sponges in the incision is not complete until the sponges are
properly removed, and it is settled that the leaving of sponges or other foreign substances in the
wound after the incision has been closed is at least prima facie negligence by the operating
surgeon. To put it simply, such act is considered so inconsistent with due care as to raise an
inference of negligence.1âwphi1 There are even legions of authorities to the effect that such act is
negligence per se.
The Court notes, however, that neither the CA nor the RTC awarded exemplary damages against
Dr. Mendoza when, under Article 2229 of the Civil Code, exemplary damages are imposed by way
of example or correction for the public good, in addition to moral damages. Exemplary damages
may also be awarded in cases of gross negligence.4
A surgical operation is the responsibility of the surgeon performing it. He must personally ascertain
that the counts of instruments and materials used before the surgery and prior to sewing the patient
up have been correctly done. To provide an example to the medical profession and to stress the
need for constant vigilance in attending to a patient’s health, the award of exemplary damages in
this case is in order.
Further, in view of Josephine’s death resulting from petitioner’s negligence, civil indemnity under
Article 22065 of the Civil Code should be given to respondents as heirs. The amount of ₱50,000.00
is fixed by prevailing jurisprudence for this kind.6 1âwphi1
The Court also deems it just and equitable under Article 2208 of the Civil Code to increase the
award of attorney’s fees from ₱20,000.00 to ₱50,000.00.
WHEREFORE, the Court entirely AFFIRMS the decision of the Court of Appeals dated March 18,
2011 with the MODIFICATION ordering petitioner Mariter Mendoza to pay respondents Adriano,
Jennifer Adriane and John Andre, all surnamed Casumpang, an additional ₱50,000.00 as
exemplary damages, additional ₱30,000.00 as attorney’s fees and civil indemnity arising from death
in the amount of ₱50,000.00.
SO ORDERED.
G.R. No. 206806               June 25, 2014
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES, Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be
presumed and may be implied only if the old and new contracts are incompatible on every point.
Before us is a petition for review on certiorari 1 assailing the Court of Appeals’ decision2 in CA-G.R.
CV No. 95709, which stemmed from a complaint3 filed in the Regional Trial Court of Valenzuela
City, Branch 171, for collection of sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials,
under the name Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper
mill business.4 From February 2007 to March 2007, he delivered scrap papers worth 7,220,968.31
to Arco Pulp and Paper Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer
and President, Candida A. Santos.5 The parties allegedly agreed that Arco Pulp and Paper would
either pay Dan T. Lim the value of the raw materials or deliver to him their finished products of
equivalent value.6
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-
dated check dated April 18, 20077 in the amount of 1,487,766.68 as partial payment, with the
assurance that the check would not bounce.8 When he deposited the check on April 18, 2007, it was
dishonored for being drawn against a closed account.9
On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of
agreement10 where Arco Pulp and Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his account. According to the
memorandum, the raw materials would be supplied by Dan T. Lim, through his company, Quality
Paper and Plastic Products. The memorandum of agreement reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A.
Santos and Mr. Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76
inches at the price of ₱18.50 per kg. to Megapack Container for Mr. Eric Sy’s account. Schedule of
deliveries are as follows:
....
It has been agreed further that the Local OCC materials to be used for the production of the above
Test Liners will be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at
₱6.50 per kg. (price subject to change per advance notice). Quantity of Local OCC delivery will be
based on the quantity of Test Liner delivered to Megapack Container Corp. based on the above
production schedule.11
On May 5, 2007, Dan T.Lim sent a letter 12 to Arco Pulp and Paper demanding payment of the
amount of 7,220,968.31, but no payment was made to him.13
Dan T. Lim filed a complaint14 for collection of sum of money with prayer for attachment with the
Regional Trial Court, Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its
answer15 but failed to have its representatives attend the pre-trial hearing. Hence, the trial court
allowed Dan T. Lim to present his evidence ex parte.16
On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and
dismissed the complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the
memorandum of agreement, novation took place, which extinguished Arco Pulp and Paper’s
obligation to Dan T. Lim.17
Dan T. Lim appealed18 the judgment with the Court of Appeals. According to him, novation did not
take place since the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an
exclusive and private agreement between them. He argued that if his name was mentioned in the
contract, it was only for supplying the parties their required scrap papers, where his conformity
through a separate contract was indispensable.19
On January 11, 2013, the Court of Appeals 20 rendered a decision21 reversing and setting aside the
judgment dated September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay
Dan T. Lim the amount of ₱7,220,968.31 with interest at 12% per annum from the time of demand;
₱50,000.00 moral damages; ₱50,000.00 exemplary damages; and ₱50,000.00 attorney’s fees.22
The appellate court ruled that the facts and circumstances in this case clearly showed the existence
of an alternative obligation.23 It also ruled that Dan T. Lim was entitled to damages and attorney’s
fees due to the bad faith exhibited by Arco Pulp and Paper in not honoring its undertaking.24
Its motion for reconsideration 25 having been denied,26 Arco Pulp and Paper and its President and
Chief Executive Officer, Candida A. Santos, bring this petition for review on certiorari.
On one hand, petitioners argue that the execution of the memorandum of agreement constituted a
novation of the original obligation since Eric Sy became the new debtor of respondent. They also
argue that there is no legal basis to hold petitioner Candida A. Santos personally liable for the
transaction that petitioner corporation entered into with respondent. The Court of Appeals, they
allege, also erred in awarding moral and exemplary damages and attorney’s fees to respondent who
did not show proof that he was entitled to damages.27
Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there
was no proper novation in this case. He argues that the Court of Appeals was correct in ordering the
payment of 7,220,968.31 with damages since the debt of petitioners remains unpaid. 28 He also
argues that the Court of Appeals was correct in holding petitioners solidarily liable since petitioner
Candida A. Santos was "the prime mover for such outstanding corporate liability." 29 In their reply,
petitioners reiterate that novation took place since there was nothing in the memorandum of
agreement showing that the obligation was alternative. They also argue that when respondent
allowed them to deliver the finished products to Eric Sy, the original obligation was novated.30
A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-
04-SC dated November 21, 2000.31
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was extinguished by novation
2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded
The petition is denied.
The obligation between the
parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely perform one of
them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient,
determined by the choice of the debtor who generally has the right of election." 32 The right of
election is extinguished when the party who may exercise that option categorically and
unequivocally makes his or her choice known.33
The choice of the debtor must also be communicated to the creditor who must receive notice of it
since: The object of this notice is to give the creditor . . . opportunity to express his consent, or to
impugn the election made by the debtor, and only after said notice shall the election take legal effect
when consented by the creditor, or if impugned by the latter, when declared proper by a competent
court.34
According to the factual findings of the trial court and the appellate court, the original contract
between the parties was for respondent to deliver scrap papers worth ₱7,220,968.31 to petitioner
Arco Pulp and Paper. The payment for this delivery became petitioner Arco Pulp and Paper’s
obligation. By agreement, petitioner Arco Pulp and Paper, as the debtor, had the option to either (1)
pay the price or(2) deliver the finished products of equivalent value to respondent.35
The appellate court, therefore, correctly identified the obligation between the parties as an
alternative obligation, whereby petitioner Arco Pulp and Paper, after receiving the raw materials
from respondent, would either pay him the price of the raw materials or, in the alternative, deliver to
him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the
scrap papers, they exercised their option to pay the price. Respondent’s receipt of the check and his
subsequent act of depositing it constituted his notice of petitioner Arco Pulp and Paper’s option to
pay.
This choice was also shown by the terms of the memorandum of agreement, which was executed
on the same day. The memorandum declared in clear terms that the delivery of petitioner Arco Pulp
and Paper’s finished products would be to a third person, thereby extinguishing the option to deliver
the finished products of equivalent value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the memorandum of agreement constituted a
novation of the contract between the parties. When petitioner Arco Pulp and Paper opted instead to
deliver the finished products to a third person, it did not novate the original obligation between the
parties.
The rules on novation are outlined in the Civil Code, thus:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Article 1292. In order that an obligation may be extinguished by another which substitute the same,
it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other. (1204)
Article 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236
and 1237. (1205a)
Novation extinguishes an obligation between two parties when there is a substitution of objects or
debtors or when there is subrogation of the creditor. It occurs only when the new contract declares
so "in unequivocal terms" or that "the old and the new obligations be on every point incompatible
with each other."36
Novation was extensively discussed by this court in Garcia v. Llamas:37
Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the
creditor. Article 1293 of the Civil Code defines novation as follows:
"Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the consent of
the creditor. Payment by the new debtor gives him rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2)
delegacion. In expromision, the initiative for the change does not come from — and may even be
made without the knowledge of — the debtor, since it consists of a third person’s assumption of the
obligation. As such, it logically requires the consent of the third person and the creditor. In
delegacion, the debtor offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these three persons are necessary.
Both modes of substitution by the debtor require the consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated
by the creation of a new one that takes the place of the former. It is merely modificatory when the
old obligation subsists to the extent that it remains compatible with the amendatory agreement.
Whether extinctive or modificatory, novation is made either by changing the object or the principal
conditions, referred to as objective or real novation; or by substituting the person of the debtor or
subrogating a third person to the rights of the creditor, an act known as subjective or personal
novation. For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the new obligation declares in
unequivocal terms that the old obligation is extinguished. It is implied when the new obligation is
incompatible with the old one on every point. The test of incompatibility is whether the two
obligations can stand together, each one with its own independent existence.38 (Emphasis supplied)
Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the
Roman Law jurisprudence, the principle — novatio non praesumitur —that novation is never
presumed.At bottom, for novation tobe a jural reality, its animus must be ever present, debitum pro
debito — basically extinguishing the old obligation for the new one.39 (Emphasis supplied) There is
nothing in the memorandum of agreement that states that with its execution, the obligation of
petitioner Arco Pulp and Paper to respondent would be extinguished. It also does not state that Eric
Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. It merely shows
that petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties
underscore the absence of any express disclosure or circumstances with which to deduce a clear
and unequivocal intent by the parties to novate the old agreement.40 (Emphasis supplied)
In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the
contract need not be secured. This is clear from the first line of the memorandum, which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A.
Santos and Mr. Eric Sy. . . .41
If the memorandum of agreement was intended to novate the original agreement between the
parties, respondent must have first agreed to the substitution of Eric Sy as his new debtor. The
memorandum of agreement must also state in clear and unequivocal terms that it has replaced the
original obligation of petitioner Arco Pulp and Paper to respondent. Neither of these circumstances
is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with
their alleged intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand
to petitioner Arco Pulp and Paper, and not to Eric Sy, it showed that the former neither
acknowledged nor consented to the latter as his new debtor. These acts, when taken together,
clearly show that novation did not take place. Since there was no novation, petitioner Arco Pulp and
Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp and Paper,
therefore, must still pay respondent the full amount of ₱7,220,968.31.
Petitioners are liable for
damages
Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract
where the breach is due to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis supplied)
Moral damages are not awarded as a matter of right but only after the party claiming it proved that
the breach was due to fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They are
recoverable only if the party from whom it is claimed acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be wanton, reckless, malicious or in bad
faith, and oppressive or abusive.42
Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be
an injury, whether physical, mental or psychological, clearly sustained by the claimant; (2) second,
there must be culpable act or omission factually established; (3) third, the wrongful act or omission
of the defendant is the proximate cause of the injury sustained by the claimant; and (4) fourth, the
award of damages is predicated on any of the cases stated in Article 2219 of the Civil Code.43
Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has
remained unpaid since 2007. This injury undoubtedly was caused by petitioner Arco Pulp and
Paper’s act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued
an unfunded check but also entered into a contract with a third person in an effort to evade its
liability. This proves the third requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be
awarded in the following instances:
Article 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.
Breaches of contract done in bad faith, however, are not specified within this enumeration. When a
party breaches a contract, he or she goes against Article 19 of the Civil Code, which states: Article
19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right with honesty
and good faith. Failure to do so results in an abuse of that right, which may become the basis of an
action for damages. Article 19, however, cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the
basis of an actionable tort. Article 19 describes the degree of care required so that an actionable tort
may arise when it is alleged together with Article 20 or Article 21.44
Article 20 and 21 of the Civil Code are as follows:
Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall
indemnify the latter for the same.
Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to
morals, good customs or public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful
acts that are contrary to morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act
have been willful or negligent. Willful may refer to the intention to do the act and the desire to
achieve the outcome which is considered by the plaintiff in tort action as injurious. Negligence may
refer to a situation where the act was consciously done but without intending the result which the
plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be caused by acts which are not
necessarily proscribed by law. This article requires that the act be willful, that is, that there was an
intention to do the act and a desire to achieve the outcome. In cases under Article 21, the legal
issues revolve around whether such outcome should be considered a legal injury on the part of the
plaintiff or whether the commission of the act was done in violation of the standards of care required
in Article 19.45
When parties act in bad faith and do not faithfully comply with their obligations under contract, they
run the risk of violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be
recovered since it only specifies, among others, Article 21. When a party reneges on his or her
obligations arising from contracts in bad faith, the act is not only contrary to morals, good customs,
and public policy; it is also a violation of Article 1159. Breaches of contract become the basis of
moral damages, not only under Article 2220, but also under Articles 19 and 20 in relation to Article
1159.
Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220
requires that the breach be done fraudulently or in bad faith. In Adriano v. Lasala:46
To recover moral damages in an action for breach of contract, the breach must be palpably wanton,
reckless and malicious, in bad faith, oppressive, or abusive. Hence, the person claiming bad faith
must prove its existence by clear and convincing evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of known duty through some motive
or interest or ill will that partakes of the nature of fraud. It is, therefore, a question of intention, which
can be inferred from one’s conduct and/or contemporaneous statements.47 (Emphasis supplied)
Since a finding of bad faith is generally premised on the intent of the doer, it requires an
examination of the circumstances in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to
respondent, it was presumably with the knowledge that it was being drawn against a closed
account. Worse, it attempted to shift their obligations to a third person without the consent of
respondent.
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of known duty through some motive or interest or ill will
that partakes of the nature of fraud."48 Moral damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in
the following circumstances:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated.
Article 2234. While the amount of the exemplary damages need not be proven, the plaintiff must
show that he is entitled to moral, temperate or compensatory damages before the court may
consider the question of whether or not exemplary damages should be awarded.
In Tankeh v. Development Bank of the Philippines,49 we stated that:
The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from
the commission of a similar offense. The case of People v. Ranteciting People v. Dalisay held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to
serve as a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton
invasion of the rights of an injured or a punishment for those guilty of outrageous conduct. These
terms are generally, but not always, used interchangeably. In common law, there is preference in
the use of exemplary damages when the award is to account for injury to feelings and for the sense
of indignity and humiliation suffered by a person as a result of an injury that has been maliciously
and wantonly inflicted, the theory being that there should be compensation for the hurt caused by
the highly reprehensible conduct of the defendant—associated with such circumstances as
willfulness, wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or
gross fraud—that intensifies the injury. The terms punitive or vindictive damages are often used to
refer to those species of damages that may be awarded against a person to punish him for his
outrageous conduct. In either case, these damages are intended in good measure to deter the
wrongdoer and others like him from similar conduct in the future. 50 (Emphasis supplied; citations
omitted)
The requisites for the award of exemplary damages are as follows:
(1) they may be imposed by way of example in addition to compensatory damages, and only after
the claimant's right to them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending upon the
amount of compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or
malevolent manner.51
Business owners must always be forthright in their dealings. They cannot be allowed to renege on
their obligations, considering that these obligations were freely entered into by them. Exemplary
damages may also be awarded in this case to serve as a deterrent to those who use fraudulent
means to evade their liabilities.
Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be
recovered.
Article 2208 of the Civil Code states:
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded[.]
Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced
to prove that the transaction was also a personal undertaking of petitioner Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank,52 we stated that:
Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal
personality separate and distinct from those acting for and in its behalf and, in general, from the
people comprising it. Following this principle, obligations incurred by the corporation, acting through
its directors, officers and employees, are its sole liabilities. A director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the corporation.
Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate fraud or an
illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or
to confuse legitimate issues.
....
Before a director or officer of a corporation can be held personally liable for corporate obligations,
however, the following requisites must concur: (1) the complainant must allege in the complaint that
the director or officer assented to patently unlawful acts of the corporation, or that the officer was
guilty of gross negligence or bad faith; and (2) the complainant must clearly and convincingly prove
such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances that would
warrant the piercing of the veil of corporate fiction is a question of fact which cannot be the subject
of a petition for review on certiorari under Rule 45, this Court can take cognizance of factual issues
if the findings of the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.53 (Emphasis supplied)
As a general rule, directors, officers, or employees of a corporation cannot be held personally liable
for obligations incurred by the corporation. However, this veil of corporate fiction may be pierced if
complainant is able to prove, as in this case, that (1) the officer is guilty of negligence or bad faith,
and (2) such negligence or bad faith was clearly and convincingly proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the President and
Chief Executive Officer of Arco Pulp and Paper. She also issued the check in partial payment of
petitioner corporation’s obligations to respondent on behalf of petitioner Arco Pulp and Paper. This
is clear on the face of the check bearing the account name, "Arco Pulp & Paper, Co., Inc." 54 Any
obligation arising from these acts would not, ordinarily, be petitioner Santos’ personal undertaking
for which she would be solidarily liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines:55
Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where
the separate corporate personality of a corporation is abused or used for wrongful purposes. Under
the doctrine, the corporate existence may be disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and due obligation, or to justify a wrong, to shield
or perpetrate fraud or to carry out similar or inequitable considerations, other unjustifiable aims or
intentions, in which case, the fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical.56 (Emphasis supplied)
According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp
and Paper, stating that:
In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused
to honor their undertaking in favor of the [respondent]. After the check in the amount of
1,487,766.68 issued by [petitioner] Santos was dishonored for being drawn against a closed
account, [petitioner] corporation denied any privity with [respondent]. These acts prompted the
[respondent] to avail of the remedies provided by law in order to protect his rights.57
We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the
corporate veil.1âwphi1 When petitioner Arco Pulp and Paper’s obligation to respondent became due
and demandable, she not only issued an unfunded check but also contracted with a third party in an
effort to shift petitioner Arco Pulp and Paper’s liability. She unjustifiably refused to honor petitioner
corporation’s obligations to respondent. These acts clearly amount to bad faith. In this instance, the
corporate veil may be pierced, and petitioner Santos may be held solidarily liable with petitioner
Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames58
In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar
v. Gallery Frames,59 the rate of interest due on the obligation must be modified from 12% per annum
to 6% per annum from the time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals,60 and we
have laid down the following guidelines with regard to the rate of legal interest:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping
Linesare accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the
Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or
until the demand can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and executory prior to July 1, 2013,
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed
therein.61 (Emphasis supplied; citations omitted.)
According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at
6% per annum, computed from May 5, 2007, when respondent sent his letter of demand to
petitioners. This interest shall continue to be due from the finality of this decision until its full
satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is
AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay
respondent Dan T. Lim the amount of ₱7,220,968.31 with interest of 6% per annum at the time of
demand until finality of judgment and its full satisfaction, with moral damages in the amount of
₱50,000.00, exemplary damages in the amount of ₱50,000.00, and attorney's fees in the amount of
₱50,000.00.
SO ORDERED.
G.R. No. 85847 December 21, 1989
SPOUSES BELEN GREGORIO, petitioners,
vs.
THE HONORABLE JUDGE ZOSIMO Z. ANGELES, Presiding Judge of the Regional Trial
Court, Makati, Branch 58, SPOUSES SYLVIA AND RAMON CARRION, and THE OFFICE OF
THE SHERIFF OF MAKATI, respondents.
Victoria S.A. Cuyos for petitioners.
Rogelio N. Velarde for respondents.
SARMIENTO, J.:
The only issue here is whether or not the failure of the complaint to specify the sum of exemplary
damages allegedly suffered (among other damages sustained) warrants its dismissal ostensibly in
consonance with the Court's ruling in Manchester Development Corporation v. Court of
appeals. 1 The Court rules, insofar as the litigation is concerned, that it does not.
The facts, in their barest essentials, are not disputed.
On October 16,1987, the petitioners sued the private respondents for a sum of money arising from a
loan. The complaint, docketed as Civil Case No. 18058 of the Regional Trial Court, Branch 137,
Makati, Metro Manila, prayed for judgment as follows;
WHEREFORE, premises considered, it is respectfully prayed that the Honorable Court, after due
hearing, orders the defendants to pay jointly and severally:
a. The principal of P l00,000.00, less whatever was paid per evidence to be presented, if any;
b. Attorney's fees of 25% of principal, plus interest or P 52,000.00;
c. Interests of 12% per annum =P 108,000.00 for nine (9) years which is provided in Annex "B" and
is part of the principal = P100,000.00 + P108,000.00;
d. Exemplary damages subject to the discretion of the Honorable Court;
e. Expenses of litigation of P 10,000.00;
f. For other relief which the Honorable Court may deem just to impose under the circumstances,
such as issuance of the order/writ of attachment due to conversion as stated in the herein affidavit. 2
On account of the failure on the part of the petitioners to appear at the pre-trial conference and to
file a pre-trial brief, the trial court dismissed the complaint.
On February 23,1988, the petitioners filed another complaint, denominated as Civil Case No. 88-
159 of the Regional Trial Court, Branch 58, Makati, Metro Manila, praying as follows:
WHEREFORE, premises considered, it is respectfully prayed that the Honorable Court, after due
hearing, orders the defendants to pay jointly and severally:
a. The principal of Pl00,000.00, less whatever was paid per evidence to be presented, if any;
b. Attorney's fees of 25% of principal, plus interest or P 52,000.00;
c. Interests of 12% per annum = P 108,000.00 for nine (9) years which Is provided in Annex "B" and
is part of the principal = P 1 00,000.00 + P 108,000.00;
d. Exemplary damages subject to the discretion of the Honorable Court;
e. Expenses of litigation of P10,000.00;
f. For other relief which the Honorable Court may deem just to impose under the circumstances,
such as issuance of the order/writ of attachment due to conversion as stated in the herein affidavit. 3
The private respondents moved for the dismissal of this complaint on the ground of failure to
prosecute for an unreasonable length of time pursuant to Section 3, Rule 17 of the Revised Rules of
Court. The trial court denied the dismissal motion.
Subsequently, the private respondents filed a "Motion to Dismiss and/or to Expunge Complaint from
the Record." Expunction was sought for failure of the petitioners "to specify both in the body and in
the prayer of their Complaint the amount of exemplary damages they seek to recover from the
defendants
. . . 4 on the strength of Manchester as well as Circular No. 7 of the Court, implementing
Manchester. On November 10, 1988, the trial judge dismissed the case . . .
... for failure of the plaintiff to comply with Administration Circular No. 7 dated March 24, 1988 re-
affirming the pronouncement of the Supreme Court in this case in Manchester Development
Corporation vs. Court of Appeals "No. L-75919, May 7,1987." (149 SCRA 562) 5
The lower court is now held to be in error in ordering dismissal.
The petition is possessed of merit.
The complaint (first or second) specified enough sums, as and for actual damages, except
exemplary damages, within Manchester's (or Circular No. 7's) contemplation. What would have
been fatal was if the petitioners mentioned no amount at all.
This is the teaching of Manchester.
At any rate:
Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide
whether or not they should be adjudicated . 6
So also, "...the amount of the exemplary damages need not be proved... 7
In other words, the amount payable by way of exemplary damages may be determined in the course
of the trial. The plaintiff (the petitioners in this case) could not have therefore predicted how much
exemplary losses they had incurred.
We are not saying -so let us make one thing clear-that the amount of exemplary damages need not
be alleged in all cases. Certainly, it would have been different had the case been one purely for
moral, nominal, temperate, or exemplary, damages, (as in libel) other than actual. Though these
damages are, under the Civil Code, damages that can not be shown with certainty, unlike actual
damages, the plaintiff must ascertain, in his estimation, the sums he wants, and the sums required
to determine the amount of docket and other fees.
The case at bar is different. It is, in essence, a demand for specific performance, as a consequence
of a contract of loan between the parties in the sum of: "a. The principal of P100,000.00, less
whatever was paid per evidence to be presented, if any; b. Attorney's fees of 25% of principal, plus
interest or P52,000.00; c. Interests of 12% per annum = P108,000.00 for nine (9) years which is
provided in Annex "B" and is part of the principal = P100,000.00 + P108,000.00; d. Exemplary
damages subject to the discretion of the Honorable Court; e. Expenses of litigation of P10,000.00; f.
For other relief which the Honorable Court may deem just to impose under the circumstances, such
as issuance of the order/writ of attachment due to conversion as stated in the herein affidavit." 8
The demand for exemplary damages was obviously meant to magnify the total claims, as is the
usual practice, but the failure to specify it is not lethal. The court can assess the docketing fees on
the basis of the actual damages sought.
So it has been held that where the complaint states enough facts and sums to "enable . . . the Clerk
of Court of the lower Court to compute the docket fees payable, 9 the trial court would be in error to
expunge the pleading. What is fatal, so we are told 10 is if the complaint left to the judge mere
"guesswork" as to the amounts payable as and by way of docket fees.
Finally, Manchester involved clearly an effort to defraud the government, and so, resort to its ruling
must be justified by a showing of a prior attempt to cheat the courts. This is not the case here.
WHEREFORE, the petition is GRANTED. The case is REMANDED to the court a quo for further
proceedings.
SO ORDERED.
G.R. No. 187930               February 23, 2015
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Petitioner,
vs.
AMA COMPUTER LEARNING CENTER, INC., Respondent.
x-----------------------x
G.R. No. 188250
AMA COMPUTER LEARNING CENTER, INC., Petitioner.
vs.
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., Respondent,
DECISION
SERENO, CJ:
Before us are consolidated Petitions for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision1 dated 22 January 2009 and Resolution2 dated 18 May
2009 in CA-G.R. CV No. 89483.
The CA Decision ordered AMA Computer Learning Center, Inc. (AMA) to pay New World
Developers and Management, Inc. (New World) unpaid rentals for 2 months, as well asliquidated
damages equivalent to 4 months’ rent. The CA Resolution denied the separate motions for
reconsideration filed by the parties.
FACTS
New World is the owner of a commercial building located at No. 1104-1118 España corner Paredes
Streets, Sampaloc, Manila.3 In 1998, AMA agreed to lease the entire second floor of the building for
its computer learning center, and the parties entered into a Contract of Lease 4 covering the eight-
year period from 15 June 1998 to 14 March 2006.
The monthly rental for the first year was set at ₱181,500, with an annual escalation rate equivalent
to 15% for the succeeding years.5 It was also provided that AMA may preterminate the contract by
sending notice in writing to New World at least six months before the intended date. 6 In case of
pretermination, AMA shall be liable for liquidated damages in an amount equivalent to six months of
the prevailing rent.
In compliance with the contract, AMA paid New World the amount of ₱450,000 as advance rental
and another ₱450,000 as security deposit.7
For the first three years, AMA paid the monthly rent as stipulated in the contract, with the required
adjustment in accordance with the escalation rate for the second and the third years.8
In a letter dated 18 March 2002, AMA requested the deferment of the annual increase in the
monthly rent by citing financial constraints brought about by a decrease in its enrollment. New World
agreed to reduce the escalation rate by 50% for the next six months. The following year, AMA again
requested the adjustment of the monthly rent and New World obliged by granting a 45% reduction of
the monthly rent and a 5% reduction of the escalation rate for the remaining term of the lease. For
this purpose, the parties entered into an Addendum to the Contract of Lease.9
On the evening of 6 July 2004, AMA removed all its office equipment and furniture from the leased
premises. The following day, New World received a letter from AMA dated 6 July 200410 stating that
the former had decided to preterminate the contract effective immediately on the ground of business
losses due to a drastic decline in enrollment. AMA also demanded the refund of its advance rental
and security deposit.
New World replied in a letter dated 12 July 2004,11 to which was attached a Statement of
Account12 indicating the following amounts to be paid by AMA: 1) unpaid two months’ rent in the
amount of ₱466,620; 2) 3% monthly interest for the unpaid rent in the amount of ₱67,426.59; 3)
liquidated damages equivalent to six months of the prevailing rent in the amount of ₱1,399,860; and
4) damage to the leased premises amounting to ₱15,580. The deduction of the advance rental and
security deposit paid by AMA still left an unpaid balance in the amount of ₱1,049,486.59.
Despite the meetings between the parties, they failed to arrive at a settlement regarding the
payment of the foregoing amounts.13
On 27 October 2004, New World filed a complaint for a sum of money and damages against AMA
before the Regional Trial Court of Marikina City, Branch 156 (RTC).14
RULING OF THE RTC
In a Decision15 dated 31 January 2007, the RTC ordered AMA to pay New World ₱466,620 as
unpaid rentals plus 3% monthly penalty interest until payment; ₱1,399,860 as liquidated damages
equivalent to six months’ rent, with the advance rental and security deposit paid by AMA to be
deducted therefrom; ₱15,580 for the damage to the leased premises; ₱100,000 as attorney’s fees;
and costs of the suit.
According to the RTC, AMA never denied that it had arrearages equivalent to two months’ rent.
Other than its allegation that it did not participate in the preparation of the Statement of Account,
AMA did not proffer any evidence disputing the unpaid rent. For its part, New World clearly
explained the existence of the arrears.
While sympathizing with AMA in view of its business losses, the RTC ruled that AMA could not shirk
from its contractual obligations, which provided that it had to pay liquidated damages equivalent to
six months’ rent in case of a pretermination of the lease.
The RTC provided no bases for awarding ₱15,580 for the damage to the leased premises and
₱100,000 for attorney’s fees, while denying the prayer for exemplary and moral damages.
Upon the denial of its motion for reconsideration, AMA filed an appeal before the CA.16
RULING OF THE CA
In the assailed Decision dated 22 January 2009, the CA ordered AMA to pay New World ₱466,620
for unpaid rentals and ₱933,240 for liquidated damages equivalent to four months’ rent, with the
advance rental and security deposit paid by AMA to be deducted therefrom.17
The appellate court ruled that the RTC erred in imposing a 3% monthly penalty interest on the
unpaid rent, because there was no stipulation either in the Contract of Lease or in the Addendum to
the Contract of Lease concerning the imposition of interest in the event of a delay in the payment of
the rent.18 Thus, the CA ruled that the rent in arrears should earn interest at the rate of 6% per
annum only, reckoned from the date of the extrajudicial demand on 12 July 2004 until the finality of
the Decision. Thereafter, interest at the rate of12% per annum shall be imposed until full payment.
The CA also ruled that the RTC’s imposition of liquidated damages equivalent to six months’ rent
was iniquitous.19 While conceding that AMA was liable for liquidated damages for preterminating the
lease, the CA also recognized that stipulated penalties may be equitably reduced by the courts
based on its sound discretion. Considering that the unexpired portion of the term of lease was
already less than two years, and that AMA had suffered business losses rendering it incapable of
paying for its expenses, the CA deemed that liquidated damages equivalent to four months’ rent
was reasonable.20
The appellate court deleted the award for the damage to the leased premises, because no proof
other than the Statement of Account was presented by New World.21 Furthermore, noting that the
latter was already entitled to liquidated damages, and that the trial court did not give any justification
for attorney’s fees, the CA disallowed the award thereof.22
Both parties filed their respective motions for reconsideration, which were denied in the assailed
Resolution dated 10 May 2009.
Hence, the present petitions for review on certiorari. On 3 August 2009, the Court resolved to
consolidate the petitions, considering that they involve the same parties and assail the same CA
Decision and Resolution.23
PARTIES’ POSITIONS
According to New World, when parties freely stipulate on the manner by which one may
preterminate the lease, that stipulation has the force of law between them and should be complied
with in good faith.24 Since AMA preterminated the lease, it became liable to liquidated damages
equivalent to six months’ rent. Furthermore, its failure to give notice to New World six months prior
to the intended pretermination of the contract and its leaving the leased premises in the middle of
the night, with all its office equipment and furniture, smacked of gross bad faith that renders it
undeserving of sympathy from the courts.25 Thus, the CA erred in reducing the liquidated damages
from an amount equivalent to six months’ rent to only four months.
New World also challenges the CA Decision and Resolution for disallowing the imposition of the 3%
monthly interest on the unpaid rentals. It is argued that AMA never disputed the imposition of the
3% monthly interest; rather, it only requested that the interest rate be reduced.26
On the other hand, AMA assails the CA ruling for not recognizing the fact that compensation took
place between the unpaid rentals and the advance rental paid by AMA. 27 Considering that the
obligation of AMA as to the arrears has been extinguished by operation of law, there would be no
occasion for the imposition of interest.28
AMA also prays for the further reduction of the liquidated damages to an amount equivalent to one
month’s rent up to one and a half months, arguing that four months’ worth of rent is still iniquitous on
account of the severe financial losses it suffered.29
ISSUES
1. Whether AMA is liable to pay six months’ worth of rent as liquidated damages.
2. Whether AMA remained liable for the rental arrears.
OUR RULING
I.
AMA is liable for six months’ worth of rent as liquidated damages.
Item No. 14 of the Contract of Lease states:
That [AMA] may pre-terminate this Contract of Lease by notice in writing to [New World] at least six
(6) months before the intended date of pretermination, provided, however, that in such case, [AMA]
shall be liable to [New World] for an amount equivalent to six (6) months current rental as liquidated
damages;30
Quite notable is the fact that AMA never denied its liability for the payment of liquidated damages in
view of its pretermination of the lease contract with New World. What it claims, however, is that it is
entitled to the reduction of the amount due to the serious business losses it suffered as a result of a
drastic decrease in its enrollment.
This Court is, first and foremost, one of law. While we are also a court of equity, we do not employ
equitable principles when well-established doctrines and positive provisions of the law clearly
apply.31
The law does not relieve a party from the consequences of a contract it entered into with all the
required formalities.32 Courts have no power to ease the burden of obligations voluntarily assumed
by parties, just because things did not turn out as expected at the inception of the contract. 33 It must
also be emphasized that AMA is an entity that has had significant business experience, and is not a
mere babe in the woods.
Articles 1159 and 1306 of the Civil Code state:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith.
xxxx
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
they may deem convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy.
The fundamental rule is that a contract is the law between the parties. Unless it has been shown
that its provisions are wholly or in part contrary to law, morals, good customs, public order, or public
policy, the contract will be strictly enforced by the courts.34
In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
reduced if they are iniquitous or unconscionable.
In Ligutan v. CA, we held that the resolution of the question of whether a penalty is reasonable, or
iniquitous or unconscionable would depend on factors including but not limited to the type, extent
and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; and the standing and relationship of the parties. 35 The
appreciation of these factors is essentially addressed to the sound discretion of the court.36
It is quite easy to understand the reason why a lessor would impose liquidated damages in the
event of the pretermination of a lease contract. Pretermination is effectively the breach of a contract,
that was originally intended to cover an agreed upon period of time. A definite period assures the
lessor a steady income for the duration. A pretermination would suddenly cut short what would
otherwise have been a longer profitable relationship. Along the way, the lessor is bound to incur
losses until it is able to find a new lessee, and it is this loss of income that is sought to be
compensated by the payment of liquidated damages.
There might have been other ways to work around its difficult financial situation and lessen the
impact of the pretermination to both parties. However, AMA opted to do the following:
1. It preterminated the lease without notifying New World at least six months before the intended
date.
2. It removed all its office equipment and left the premises in the middle of the night.
3. Only after it had cleared the premises did it send New World a notice of pretermination effective
immediately.
4. It had the gall to demand a full refund of the advance rental and security deposit, albeit without
prejudice to their removal of the improvements introduced in the premises.
We cannot understand the inability of AMA to be forthright with New World, considering that the
former had been transparent about its business losses in its previous requests for the reduction of
the monthly rental. The drastic decrease in AMA’s enrollment had been unfolding since 2002. Thus,
it cannot be said that the business losses had taken it by surprise. It is also highly unlikely that the
decision to preterminate the lease contract was made at the last minute. The cancellation of
classes, the transfer of students, and administrative preparations for the closure of the computer AMA assails the CA ruling mainly for the imposition of legal interest on the rent in arrears. AMA
learning center and the removal of office equipment therefrom should take at least weeks, if not argues that the advance rental has extinguished its obligation as to the arrears. Thus, it says, there
months, of logistic planning. Had AMA come clean about the impending pretermination, measures is no more basis for the imposition of interest at the rate of 6% per annum from the date of
beneficial to both parties could have been arrived at, and the instant cases would not have reached extrajudicial demand on 12 July 2004 until the finality of the Decision, plus interest at the rate of
this Court. Instead, AMA forced New World to share in the former’s losses, causing the latter to 12% per annum from finality until full payment.
scramble for new lessees while the premises remained untenanted and unproductive.
At this juncture, it is necessary to look into the contract to determine the purpose of the advance
In the sphere of personal and contractual relations governed by laws, rules and regulations created rental and security deposit.
to promote justice and fairness, equity is deserved, not demanded. The application of equity
necessitates a balancing of the equities involved in a case,37 for "[h]e who seeks equity must do Item Nos. 2, 3 and 4 of the Contract of Lease provide:
equity, and he who comes into equity must come with clean hands." 38 Persons in dire straits are
never justified in trampling on other persons’ rights. Litigants shall be denied relief if their conduct
has been inequitable, unfair and dishonest as to the controversy in issue. 39 The actions of AMA xxxx
smack of bad faith.
2. That [AMA] shall pay to [New World] in advance within the first 5 days of each calendar month a
We cannot abide by the prayer for the further reduction of the liquidated damages. We find that, in monthly rental in accordance with the following schedule for the entire term of this Contract of
view of the surrounding circumstances, the CA even erred in reducing the liquidated damages to Lease;
four month’s worth of rent. Under the terms of the contract, and in light of the failure of AMA to show PERIOD MONTHLY RENTAL RATES
that it is deserving of this Court’s indulgence, the payment of liquidated damages in an amount
equivalent to six months’ rent is proper.
Year 1 June 15, 1998 – Mar 14, 1999 181,500.00
Also proper is an award of exemplary damages. Article 2234 of the Civil Code provides:
Year 2 Mar 15, 1999 – Mar 14, 2000 ₱208,725.00

Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff must show Year 3 Mar 15, 2000 – Mar 14, 2001 ₱240,033.75
that he is entitled to moral, temperate or compensatory damages before the court may consider the
question of whether or not exemplary damages should be awarded. In case liquidated damages
have been agreed upon, although no proof of loss is necessary in order that such liquidated Year 4 Mar 15, 2001 – Mar 14, 2002 ₱276,038.81
damages may be recovered, nevertheless, before the court may consider the question of granting
exemplary in addition to the liquidated damages, the plaintiff must show that he would be entitled to Year 5 Mar 15, 2002 – Mar 14, 2003 ₱317,444.63
moral, temperate or compensatory damages were it not for the stipulation for liquidated damages.
(Emphasis supplied) Year 6 Mar 15, 2003 – Mar 14, 2004 ₱365,061.33

In this case, it is quite clear that New World sustained losses as a result of the unwarranted acts of Year 7 Mar 15, 2004 – Mar 14, 2005 ₱419,820.53
AMA. Further, were it not for the stipulation in the contract regarding the payment of liquidated
damages, we would be awarding compensatory damages to New World. Year 8 Mar 15, 2005 – Mar 14, 2006 ₱482,793.61

"Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is
socially deleterious in its consequence by creating negative incentives or deterrents against such
behaviour."40 As such, they may be awarded even when not pleaded or prayed for.41 In order to
prevent the commission of a similar act in the future, AMA shall pay New World exemplary damages
in the amount of ₱100,000.
II.
AMA’s liability for the rental arrears has already been extinguished.
(₱482,793.61 – 37,500 =
₱445,293.61)
The monthly rentals referred to above were computed at an escalation rate of Fifteen Percent (15%)
every year for the entire duration of this lease contract.
3. Upon signing of this Contract, [AMA] shall pay advance rental in the amount of FOUR HUNDRED
FIFTY THOUSAND PESOS (₱450,000.00); Said advance rental shall be applied as part of the
rental for the last year of the Contract with a remaining balance of Four Hundred Forty Five
Thousand Two Hundred Ninety Three and 61/100 Pesos (₱445,293.61) as monthly rental for the
tenth [sic] and last year of the lease term;
4. Upon signing of the Contract, [AMA] shall pay [New World] a Security Deposit in the amount of
FOUR HUNDRED FIFTY THOUSAND PESOS (₱450,000.00) which shall be applied for any unpaid
rental balance and damages on the leased premises, and the balance of which shall be refunded by
[New World] to [AMA] within sixty (60) days after the termination of the Contract, it being understood
that such balance is being held by [New World] in trust for [AMA].42
Based on Item No. 4, the security deposit was paid precisely to answer for unpaid rentals that may
be incurred by AMA while the contract was in force. The security deposit was held in trust by New
World, and whatever may have been left of it after the termination of the lease shall be refunded to
AMA.
Based on Item No. 3 in relation to Item No. 2, the parties divided the advance rental of ₱450,000 by
12 months. They came up with ₱37,500, which they intended to deduct from the monthly rental to
be paid by AMA for the last year of the lease term. Thus, unlike the security deposit, no part of the
advance rental was ever meant to be refunded to AMA. Instead, the parties intended to apply the
advance rental, on a staggered basis, to a portion of the monthly rental in the last year of the lease
term.
Considering the pretermination of the lease contract in the present case, this intent of the parties as
regards the advance rental failed to take effect. The advance rental, however, retains its purpose of
answering for the outstanding amounts that AMA may owe New World.
We now delve into the actual application of the security deposit and the advance rental.
At the time of the pretermination of the contract of lease, the monthly rent stood at ₱233,310,
inclusive of taxes;43 hence, the two-month rental arrears in the amount of ₱466,620.
Applying the security deposit of ₱450,000 to the arrears will leave a balance of ₱16,620 in New
World’s favor.1âwphi1 Given that we have found AMA liable for liquidated damages equivalent to
six months’ rent in the amount of ₱1,399,860 (monthly rent of ₱233,310 multiplied by 6 months), its
total liability to New World is ₱1,416,480.
We then apply the advance rental of ₱450,000 to this amount to arrive at a total extinguishment of
the liability for the unpaid rentals and a partial extinguishment of the liability for liquidated damages.
This shall leave AMA still liable to New World in the amount of ₱966,480 (₱1,416,480 total liability
less ₱450,000 advance rental).
Not constituting a forbearance of money,44 this amount shall earn interest pursuant to Item II(2)45 of
our pronouncement in Eastern Shipping Lines v. CA. 46 This item remained unchanged by the
modification made in Nacar v. Gallery Frames.47 Interest at the rate of 6% per annum is hereby
imposed on the amount of 966,480 from the time of extrajudicial demand on 12 July 2004 until the
finality of this Decision.
Thereafter – this time pursuant to the modification in Nacar– the amount due shall earn interest at
the rate of 6% per annum until satisfaction, this interim period being deemed to be by then
equivalent to a forbearance of credit.48
Considering the foregoing, there was no occasion for the unpaid two months’ rental to earn interest.
Besides, we cannot sanction the imposition of 3% monthly penalty interest thereon. We quote with
approval the ruling of the CA on this issue:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon and in the absence of stipulation, the legal interest, which is six per cent per
annum.
In the instant case, the Contract of Lease and the Addendum to the Contract of Lease do not
specify any interest in the event of delay of payment of rentals. Accordingly, there being no
stipulation concerning interest, the trial court erred in imposing 3% interest per month on the two-
month unpaid rentals.
[New World] argues that the said3% interest per month on the unpaid rentals was agreed upon by
the parties as allegedly shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".
We are not persuaded.
[New World’s] letter dated 12 July 2004 to [AMA], Statement of Account dated 07 July 2004; and
another Statement of Account dated 27 October 2004 were all prepared by [New World], with no
participation or any indication of agreement on [AMA’s] part. The alleged proposal of [AMA] as
contained in the Schedule of Receivable/Payable is just a computer print-out and does not contain
any signature showing [AMA’s] conformity to the same.49
Having relied on the Contract of Lease for its demand for payment of liquidated damages, New
World should have also referred to the contract to determine the proper application of the advance
rental and security deposit. Had it done so in the first instance, it would have known that there is no
occasion for the imposition of interest, 3% or otherwise, on the unpaid rentals. WHEREFORE, the
Court of Appeals Decision dated 22 January 2009 and Resolution dated 10 May 2009 in CA-G.R.
CV No. 89483 is AFFIRMED with MODIFICATION.
AMA Computer Learning Center, Inc. is ordered to pay New World Developers and Management,
Inc. the amount of ₱966,480, with interest at the rate of 6% per annum from 12 July 2004 until full
payment.
In addition, AMA shall pay New World exemplary damages in the amount of ₱100,000, which shall
earn interest at the rate of 6% per annum from the finality of this Decision until full payment.
SO ORDERED.