G.R. No.
190601               February 7, 2011 WHEREFORE, premises considered, judgment is hereby rendered in favor of
SPOUSES LUIGI M. GUANIO and ANNA HERNANDEZ-GUANIO, Petitioners,
vs.
MAKATI SHANGRI-LA HOTEL and RESORT, INC., also doing business under the
name of SHANGRI-LA HOTEL MANILA, Respondent.
DECISION
CARPIO MORALES, J.:
For their wedding reception on July 28, 2001, spouses Luigi M. Guanio and
Anna Hernandez-Guanio (petitioners) booked at the Shangri-la Hotel Makati
(the hotel).
Prior to the event, Makati Shangri-La Hotel & Resort, Inc. (respondent)
scheduled an initial food tasting. Petitioners claim that they requested the
hotel to prepare for seven persons ─ the two of them, their respective parents,
and the wedding coordinator. At the scheduled food tasting, however,
respondent prepared for only six.
Petitioners initially chose a set menu which included black cod, king prawns
and angel hair pasta with wild mushroom sauce for the main course which cost
₱1,000.00 per person. They were, however, given an option in which salmon,
instead of king prawns, would be in the menu at ₱950.00 per person. They in
fact partook of the salmon.
Three days before the event, a final food tasting took place. Petitioners aver
that the salmon served was half the size of what they were served during the
initial food tasting; and when queried about it, the hotel quoted a much higher
price (₱1,200.00) for the size that was initially served to them. The parties
eventually agreed on a final price ─ ₱1,150 per person.
A day before the event or on July 27, 2001, the parties finalized and forged
their contract.1
Petitioners claim that during the reception, respondent’s representatives,
Catering Director Bea Marquez and Sales Manager Tessa Alvarez, did not show
up despite their assurance that they would; their guests complained of the
delay in the service of the dinner; certain items listed in the published menu
were unavailable; the hotel’s waiters were rude and unapologetic when
confronted about the delay; and despite Alvarez’s promise that there would be
no charge for the extension of the reception beyond 12:00 midnight, they were
billed and paid ₱8,000 per hour for the three-hour extension of the event up to
4:00 A.M. the next day.
Petitioners further claim that they brought wine and liquor in accordance with
their open bar arrangement, but these were not served to the guests who were
forced to pay for their drinks.
Petitioners thus sent a letter-complaint to the Makati Shangri-la Hotel and
Resort, Inc. (respondent) and received an apologetic reply from Krister
Svensson, the hotel’s Executive Assistant Manager in charge of Food and
Beverage. They nevertheless filed a complaint for breach of contract and
damages before the Regional Trial Court (RTC) of Makati City.
In its Answer, respondent claimed that petitioners requested a combination of
king prawns and salmon, hence, the price was increased to ₱1,200.00 per
person, but discounted at ₱1,150.00; that contrary to petitioners’ claim,
Marquez and Alvarez were present during the event, albeit they were not
permanently stationed thereat as there were three other hotel functions; that
while there was a delay in the service of the meals, the same was occasioned
by the sudden increase of guests to 470 from the guaranteed expected
minimum number of guests of 350 to a maximum of 380, as stated in the
Banquet Event Order (BEO);2 and that Isaac Albacea, Banquet Service Director,
in fact relayed the delay in the service of the meals to petitioner Luigi’s father,
Gil Guanio.
Respecting the belated service of meals to some guests, respondent attributed
it to the insistence of petitioners’ wedding coordinator that certain guests be
served first.
On Svensson’s letter, respondent, denying it as an admission of liability,
claimed that it was meant to maintain goodwill to its customers.
By Decision of August 17, 2006, Branch 148 of the Makati RTC rendered
judgment in favor of petitioners, disposing as follows:
the plaintiffs and against the defendant ordering the defendants to pay the
plaintiff the following:
1) The amount of ₱350,000.00 by way of actual damages;
2) The amount of ₱250,000.00 for and as moral damages;
3) The amount of ₱100,000.00 as exemplary damages;
4) The amount of ₱100,000.00 for and as attorney’s fees.
With costs against the defendant.
SO ORDERED.3
In finding for petitioners, the trial court relied heavily on the letter of Svensson
which is partly quoted below:
Upon receiving your comments on our service rendered during your reception
here with us, we are in fact, very distressed. Right from minor issues
pappadums served in the soup instead of the creutons, lack of valet parkers,
hard rolls being too hard till a major one – slow service, rude and arrogant
waiters, we have disappointed you in all means.
Indeed, we feel as strongly as you do that the services you received
were unacceptable and definitely not up to our standards. We understand that
it is our job to provide excellent service and in this instance, we have fallen
short of your expectations. We ask you please to accept our profound
apologies for causing such discomfort and annoyance. 4 (underscoring supplied)
The trial court observed that from "the tenor of the letter . . . the defendant[-
herein respondent] admits that the services the plaintiff[-herein petitioners]
received were unacceptable and definitely not up to their standards."5
On appeal, the Court of Appeals, by Decision of July 27, 2009,6 reversed the
trial court’s decision, it holding that the proximate cause of petitioners’ injury
was an unexpected increase in their guests:
x x x Hence, the alleged damage or injury brought about by the confusion,
inconvenience and disarray during the wedding reception may not be
attributed to defendant-appellant Shangri-la.
We find that the said proximate cause, which is entirely attributable to
plaintiffs-appellants, set the chain of events which resulted in the alleged
inconveniences, to the plaintiffs-appellants. Given the circumstances that
obtained, only the Sps. Guanio may bear whatever consequential damages that
they may have allegedly suffered.7 (underscoring supplied)
Petitioners’ motion for reconsideration having been denied by Resolution of
November 19, 2009, the present petition for review was filed.
The Court finds that since petitioners’ complaint arose from a contract, the
doctrine of proximate cause finds no application to it:
The doctrine of proximate cause is applicable only in actions for quasi-delicts,
not in actions involving breach of contract. x x x The doctrine is a device for
imputing liability to a person where there is no relation between him and
another party. In such a case, the obligation is created by law itself. But, where
there is a pre-existing contractual relation between the parties, it is the parties
themselves who create the obligation, and the function of the law is merely to
regulate the relation thus created.8 (emphasis and underscoring supplied)
What applies in the present case is Article 1170 of the Civil Code which reads:
Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence or delay, and those who in any manner contravene the tenor
thereof, are liable for damages.
RCPI v. Verchez, et al. 9 enlightens:
In culpa contractual x x x the mere proof of the existence of the contract and
the failure of its compliance justify, prima facie, a corresponding right of relief.
The law, recognizing the obligatory force of contracts, will not permit a party to
be set free from liability for any kind of misperformance of the contractual
undertaking or a contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause for recovering that which
1
may have been lost or suffered. The remedy serves to preserve the interests of
the promissee that may include his "expectation interest," which is his interest
in having the benefit of his bargain by being put in as good a position as he
would have been in had the contract been performed, or his "reliance
interest," which is his interest in being reimbursed for loss caused by reliance
on the contract by being put in as good a position as he would have been in
had the contract not been made; or his "restitution interest," which is his
interest in having restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either for their makers
or for society, unless they are made the basis for action. The effect of every
infraction is to create a new duty, that is, to make RECOMPENSE to the one
who has been injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances, like proof of his
exercise of due diligence x x x or of the attendance of fortuitous event, to
excuse him from his ensuing liability. (emphasis and underscoring in the
original; capitalization supplied)
The pertinent provisions of the Banquet and Meeting Services Contract
between the parties read:
4.3 The ENGAGER shall be billed in accordance with the prescribed rate for the
minimum guaranteed number of persons contracted for, regardless of under
attendance or non-appearance of the expected number of guests, except
where the ENGAGER cancels the Function in accordance with its Letter of
Confirmation with the HOTEL. Should the attendance exceed the minimum
guaranteed attendance, the ENGAGER shall also be billed at the actual rate per
cover in excess of the minimum guaranteed attendance.
xxxx
4.5. The ENGAGER must inform the HOTEL at least forty eight (48) hours before
the scheduled date and time of the Function of any change in the minimum
guaranteed covers. In the absence of such notice, paragraph 4.3 shall apply in
the event of under attendance. In case the actual number of attendees exceed
the minimum guaranteed number
by ten percent (10%), the HOTEL shall not in any way be held liable for any
damage or inconvenience which may be caused thereby. The ENGAGER shall
also undertake to advise the guests of the situation and take positive steps to
remedy the same.10 (emphasis, italics and underscoring supplied)
Breach of contract is defined as the failure without legal reason to comply with
the terms of a contract. It is also defined as the [f]ailure, without legal excuse,
to perform any promise which forms the whole or part of the contract.11
The appellate court, and even the trial court, observed that petitioners were
remiss in their obligation to inform respondent of the change in the expected
number of guests. The observation is reflected in the records of the case.
Petitioners’ failure to discharge such obligation thus excused, as the above-
quoted paragraph 4.5 of the parties’ contract provide, respondent from liability
for "any damage or inconvenience" occasioned thereby.
As for petitioners’ claim that respondent departed from its verbal agreement
with petitioners, the same fails, given that the written contract which the
parties entered into the day before the event, being the law between them.
Respecting the letter of Svensson on which the trial court heavily relied as
admission of respondent’s liability but which the appellate court brushed aside,
the Court finds the appellate court’s stance in order. It is not uncommon in the
hotel industry to receive comments, criticisms or feedback on the service it
delivers. It is also customary for hotel management to try to smooth ruffled
feathers to preserve goodwill among its clientele.
Kalalo v. Luz holds:12
Statements which are not estoppels nor judicial admissions have no quality of
conclusiveness, and an opponent whose admissions have been offered against
him may offer any evidence which serves as an explanation for his former
assertion of what he now denies as a fact.
Respondent’s Catering Director, Bea Marquez, explained the hotel’s procedure
on receiving and processing complaints, viz:
ATTY. CALMA:
Q You mentioned that the letter indicates an acknowledgement of
the concern and that there was-the first letter there was an
acknowledgment of the concern and an apology, not necessarily
indicating that such or admitting fault?
A Yes.
Q Is this the letter that you are referring to?
If I may, Your Honor, that was the letter dated August 4, 2001,
previously marked as plaintiff’s exhibits, Your Honor. What is the
procedure of the hotel with respect to customer concern?
A Upon receipt of the concern from the guest or client, we
acknowledge receipt of such concern, and as part of procedure in
service industry particularly Makati Shangri-la we apologize for
whatever inconvenience but at the same time saying, that of
course, we would go through certain investigation and get back to
them for the feedback with whatever concern they may have.
Q Your Honor, I just like at this point mark the exhibits, Your Honor,
the letter dated August 4, 2001 identified by the witness, Your
Honor, to be marked as Exhibit 14 and the signature of Mr. Krister
Svensson be marked as Exhibit 14-A.13
xxxx
Q In your opinion, you just mentioned that there is a procedure that
the hotel follows with respect to the complaint, in your opinion was
this procedure followed in this particular concern?
A Yes, ma’am.
Q What makes you say that this procedure was followed?
A As I mentioned earlier, we proved that we did acknowledge the
concern of the client in this case and we did emphatize from the
client and apologized, and at the same time got back to them in
whatever investigation we have.
Q You said that you apologized, what did you apologize for?
A Well, first of all it is a standard that we apologize, right? Being in the service
industry, it is a practice that we apologize if there is any inconvenience, so the
purpose for apologizing is mainly to show empathy and to ensure the client
that we are hearing them out and that we will do a better investigation and it is
not in any way that we are admitting any fault.14 (underscoring supplied)
To the Court, the foregoing explanation of the hotel’s Banquet Director
overcomes any presumption of admission of breach which Svensson’s letter
might have conveyed.
The exculpatory clause notwithstanding, the Court notes that respondent could
have managed the "situation" better, it being held in high esteem in the hotel
and service industry. Given respondent’s vast experience, it is safe to presume
that this is not its first encounter with booked events exceeding the
guaranteed cover. It is not audacious to expect that certain measures have
been placed in case this predicament crops up. That regardless of these
measures, respondent still received complaints as in the present case, does not
amuse.1avvphil
Respondent admitted that three hotel functions coincided with petitioners’
reception. To the Court, the delay in service might have been avoided or
minimized if respondent exercised prescience in scheduling events. No less
than quality service should be delivered especially in events which possibility of
repetition is close to nil. Petitioners are not expected to get married twice in
their lifetimes.
In the present petition, under considerations of equity, the Court deems it just
to award the amount of ₱50,000.00 by way of nominal damages to petitioners,
for the discomfiture that they were subjected to during to the event.15 The
Court recognizes that every person is entitled to respect of his dignity,
personality, privacy and peace of mind.16 Respondent’s lack of prudence is an
affront to this right.
WHEREFORE, the Court of Appeals Decision dated July 28, 2009
is PARTIALLY REVERSED. Respondent is, in light of the foregoing discussion,
ORDERED to pay the amount of ₱50,000.00 to petitioners by way of nominal
damages.
SO ORDERED.
2
CONCHITA CARPIO MORALES
Associate Justice
G.R. No. 153004             November 5, 2004
SANTOS VENTURA HOCORMA FOUNDATION, INC., petitioner,
vs.
ERNESTO V. SANTOS and RIVERLAND, INC., respondents.
DECISION
QUISUMBING, J.:
Subject of the present petition for review on certiorari is the Decision,1 dated
January 30, 2002, as well as the April 12, 2002, Resolution2 of the Court of
Appeals in CA-G.R. CV No. 55122. The appellate court reversed the
Decision,3 dated October 4, 1996, of the Regional Trial Court of Makati City,
Branch 148, in Civil Case No. 95-811, and likewise denied petitioner's Motion
for Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc. (SVHFI) were
the plaintiff and defendant, respectively, in several civil cases filed in different
courts in the Philippines. On October 26, 1990, the parties executed a
Compromise Agreement4 which amicably ended all their pending litigations.
The pertinent portions of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5 Million in
the following manner:
a. P1.5 Million immediately upon the execution of this
agreement;
b. The balance of P13 Million shall be paid, whether in
one lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2)
years from the execution of this agreement; provided,
however, that in the event that the Foundation does not
pay the whole or any part of such balance, the same shall
be paid with the corresponding portion of the land or
real properties subject of the aforesaid cases and
previously covered by the notices of lis pendens, under
such terms and conditions as to area, valuation, and
location mutually acceptable to both parties; but in no
case shall the payment of such balance be later than two
(2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the form
of land aforesaid;
2. Immediately upon the execution of this agreement (and [the]
receipt of the P1.5 Million), plaintiff Santos shall cause the dismissal
with prejudice of Civil Cases Nos. 88-743, 1413OR, TC-1024, 45366
and 18166 and voluntarily withdraw the appeals in Civil Cases Nos.
4968 (C.A.-G.R. No. 26598) and 88-45366 (C.A.-G.R. No. 24304)
respectively and for the immediate lifting of the aforesaid various
notices of lis pendens on the real properties aforementioned (by
signing herein attached corresponding documents, for such lifting);
provided, however, that in the event that defendant Foundation
shall sell or dispose of any of the lands previously subject of lis
pendens, the proceeds of any such sale, or any part thereof as may
be required, shall be partially devoted to the payment of the
Foundation's obligations under this agreement as may still be
subsisting and payable at the time of any such sale or sales;
...
5. Failure of compliance of any of the foregoing terms and
conditions by either or both parties to this agreement shall ipso
facto and ipso jure automatically entitle the aggrieved party to a
writ of execution for the enforcement of this agreement. [Emphasis
supplied]5
In compliance with the Compromise Agreement, respondent Santos moved for
the dismissal of the aforesaid civil cases. He also caused the lifting of the
notices of lis pendens on the real properties involved. For its part, petitioner
SVHFI, paid P1.5 million to respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange Livelihood
Corporation two real properties, which were previously subjects of lis pendens.
Discovering the disposition made by the petitioner, respondent Santos sent a
letter to the petitioner demanding the payment of the remaining P13 million,
which was ignored by the latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62, issued a Decision6 approving the
compromise agreement.
On October 28, 1992, respondent Santos sent another letter to petitioner
inquiring when it would pay the balance of P13 million. There was no response
from petitioner. Consequently, respondent Santos applied with the Regional
Trial Court of Makati City, Branch 62, for the issuance of a writ of execution of
its compromise judgment dated September 30, 1991. The RTC granted the writ.
Thus, on March 10, 1993, the Sheriff levied on the real properties of petitioner,
which were formerly subjects of the lis pendens. Petitioner, however, filed
numerous motions to block the enforcement of the said writ. The challenge of
the execution of the aforesaid compromise judgment even reached the
Supreme Court. All these efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat,
Pampanga were auctioned. In the said auction, Riverland, Inc. was the highest
bidder for P12 million and it was issued a Certificate of Sale covering the real
properties subject of the auction sale. Subsequently, another auction sale was
held on February 8, 1995, for the sale of real properties of petitioner in Bacolod
City. Again, Riverland, Inc. was the highest bidder. The Certificates of Sale
issued for both properties provided for the right of redemption within one year
from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory
Relief and Damages7 alleging that there was delay on the part of petitioner in
paying the balance of P13 million. They further alleged that under the
Compromise Agreement, the obligation became due on October 26, 1992, but
payment of the remaining P12 million was effected only on November 22,
1994. Thus, respondents prayed that petitioner be ordered to pay legal interest
on the obligation, penalty, attorney's fees and costs of litigation. Furthermore,
they prayed that the aforesaid sales be declared final and not subject to legal
redemption.
In its Answer,8 petitioner countered that respondents have no cause of action
against it since it had fully paid its obligation to the latter. It further claimed
that the alleged delay in the payment of the balance was due to its valid
exercise of its rights to protect its interests as provided under the Rules.
Petitioner counterclaimed for attorney's fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision9 dismissing herein
respondents' complaint and ordering them to pay attorney's fees and
exemplary damages to petitioner. Respondents then appealed to the Court of
Appeals. The appellate court reversed the ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed Decision is
hereby REVERSED and judgment is hereby rendered ordering
appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal
interest on the principal amount of P13 million at the rate of 12%
per annum from the date of demand on October 28, 1992 up to the
date of actual payment of the whole obligation; and (2) P20,000 as
attorney's fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns the
following issues:
I
WHETHER OR NOT THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR WHEN IT AWARDED LEGAL INTEREST IN FAVOR
OF THE RESPONDENTS, MR. SANTOS AND RIVERLAND, INC.,
NOTWITHSTANDING THE FACT THAT NEITHER IN THE COMPROMISE
AGREEMENT NOR IN THE COMPROMISE JUDGEMENT OF HON.
JUDGE DIOKNO PROVIDES FOR PAYMENT OF INTEREST TO THE
RESPONDENT
II
WHETHER OF NOT THE COURT OF APPEALS ERRED IN AWARDING
LEGAL IN[T]EREST IN FAVOR OF THE RESPONDENTS, MR. SANTOS
3
 AND RIVERLAND, INC., NOTWITHSTANDING THE FACT THAT THE
OBLIGATION OF THE PETITIONER TO RESPONDENT SANTOS TO PAY
A SUM OF MONEY HAD BEEN CONVERTED TO AN OBLIGATION TO
PAY IN KIND – DELIVERY OF REAL PROPERTIES OWNED BY THE
PETITIONER – WHICH HAD BEEN FULLY PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED FROM DEMANDING
PAYMENT OF INTEREST BY REASON OF THE WAIVER PROVISION IN
THE COMPROMISE AGREEMENT, WHICH BECAME THE LAW AMONG
THE PARTIES10
The only issue to be resolved is whether the respondents are entitled to legal
interest.
Petitioner SVHFI alleges that where a compromise agreement or compromise
judgment does not provide for the payment of interest, the legal interest by
way of penalty on account of fault or delay shall not be due and payable,
considering that the obligation or loan, on which the payment of legal interest
could be based, has been superseded by the compromise
agreement.11 Furthermore, the petitioner argues that the respondents are
barred by res judicata from seeking legal interest on account of the waiver
clause in the duly approved compromise agreement.12 Article 4 of the
compromise agreement provides:
Plaintiff Santos waives and renounces any and all other claims that
he and his family may have on the defendant Foundation arising
from and in connection with the aforesaid civil cases, and defendant
Foundation, on the other hand, also waives and renounces any and
all claims that it may have against plaintiff Santos in connection with
such cases.13 [Emphasis supplied.]
Lastly, petitioner alleges that since the compromise agreement did not provide
for a period within which the obligation will become due and demandable, it is
incumbent upon respondent Santos to ask for judicial intervention for
purposes of fixing the period. It is only when a fixed period exists that the legal
interests can be computed.
Respondents profer that their right to damages is based on delay in the
payment of the obligation provided in the Compromise Agreement. The
Compromise Agreement provides that payment must be made within the two-
year period from its execution. This was approved by the trial court and
became the law governing their contract. Respondents posit that petitioner's
failure to comply entitles them to damages, by way of interest.14
The petition lacks merit.
A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.15 It is
an agreement between two or more persons, who, for preventing or putting an
end to a lawsuit, adjust their difficulties by mutual consent in the manner
which they agree on, and which everyone of them prefers in the hope of
gaining, balanced by the danger of losing.16
The general rule is that a compromise has upon the parties the effect and
authority of res judicata, with respect to the matter definitely stated therein, or
which by implication from its terms should be deemed to have been included
therein.17 This holds true even if the agreement has not been judicially
approved.18
In the case at bar, the Compromise Agreement was entered into by the parties
on October 26, 1990.19 It was judicially approved on September 30,
1991.20 Applying existing jurisprudence, the compromise agreement as a
consensual contract became binding between the parties upon its execution
and not upon its court approval. From the time a compromise is validly entered
into, it becomes the source of the rights and obligations of the parties thereto.
The purpose of the compromise is precisely to replace and terminate
controverted claims.21
In accordance with the compromise agreement, the respondents asked for the
dismissal of the pending civil cases. The petitioner, on the other hand, paid the
initial P1.5 million upon the execution of the agreement. This act of the
petitioner showed that it acknowledges that the agreement was immediately
executory and enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the compromise
agreement are clear and unambiguous. It provides:
...
b. The balance of P13 Million shall be paid, whether in one lump
sum or in installments, at the discretion of the Foundation, within a
period of not more than two (2) years from the execution of this
agreement…22 [Emphasis supplied.]
...
The two-year period must be counted from October 26, 1990, the date of
execution of the compromise agreement, and not on the judicial approval of
the compromise agreement on September 30, 1991. When respondents wrote
a demand letter to petitioner on October 28, 1992, the obligation was already
due and demandable. When the petitioner failed to pay its due obligation after
the demand was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation. [Emphasis supplied]
Delay as used in this article is synonymous to default or mora which means
delay in the fulfillment of obligations. It is the non-fulfillment of the obligation
with respect to time.23
In order for the debtor to be in default, it is necessary that the following
requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor
requires the performance judicially or extrajudicially.24
In the case at bar, the obligation was already due and demandable after the
lapse of the two-year period from the execution of the contract. The two-year
period ended on October 26, 1992. When the respondents gave a demand
letter on October 28, 1992, to the petitioner, the obligation was already due
and demandable. Furthermore, the obligation is liquidated because the debtor
knows precisely how much he is to pay and when he is to pay it.
The second requisite is also present. Petitioner delayed in the performance. It
was able to fully settle its outstanding balance only on February 8, 1995, which
is more than two years after the extra-judicial demand. Moreover, it filed
several motions and elevated adverse resolutions to the appellate court to
hinder the execution of a final and executory judgment, and further delay the
fulfillment of its obligation.
Third, the demand letter sent to the petitioner on October 28, 1992, was in
accordance with an extra-judicial demand contemplated by law.
Verily, the petitioner is liable for damages for the delay in the performance of
its obligation. This is provided for in Article 117025 of the New Civil Code.
When the debtor knows the amount and period when he is to pay, interest as
damages is generally allowed as a matter of right.26 The complaining party has
been deprived of funds to which he is entitled by virtue of their compromise
agreement. The goal of compensation requires that the complainant be
compensated for the loss of use of those funds. This compensation is in the
form of interest.27 In the absence of agreement, the legal rate of interest shall
prevail.28 The legal interest for loan as forbearance of money is 12% per
annum29 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.30
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated
January 30, 2002 of the Court of Appeals and its April 12, 2002 Resolution in
CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur.
Azcuna, J., on leave.
G.R. No. 174269               May 8, 2009
POLO S. PANTALEON, Petitioner,
vs.
AMERICAN EXPRESS INTERNATIONAL, INC., Respondent.
DECISION
TINGA, J.:
4
The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna
Regina and son Adrian Roberto, joined an escorted tour of Western Europe
organized by Trafalgar Tours of Europe, Ltd., in October of 1991. The tour
group arrived in Amsterdam in the afternoon of 25 October 1991, the second
to the last day of the tour. As the group had arrived late in the city, they failed
to engage in any sight-seeing. Instead, it was agreed upon that they would start
early the next day to see the entire city before ending the tour.
The following day, the last day of the tour, the group arrived at the Coster
Diamond House in Amsterdam around 10 minutes before 9:00 a.m. The group
had agreed that the visit to Coster should end by 9:30 a.m. to allow enough
time to take in a guided city tour of Amsterdam. The group was ushered into
Coster shortly before 9:00 a.m., and listened to a lecture on the art of diamond
polishing that lasted for around ten minutes.1 Afterwards, the group was led to
the store’s showroom to allow them to select items for purchase. Mrs.
Pantaleon had already planned to purchase even before the tour began a 2.5
karat diamond brilliant cut, and she found a diamond close enough in
approximation that she decided to buy.2 Mrs. Pantaleon also selected for
purchase a pendant and a chain,3 all of which totaled U.S. $13,826.00.
To pay for these purchases, Pantaleon presented his American Express credit
card together with his passport to the Coster sales clerk. This occurred at
around 9:15 a.m., or 15 minutes before the tour group was slated to depart
from the store. The sales clerk took the card’s imprint, and asked Pantaleon to
sign the charge slip. The charge purchase was then referred electronically to
respondent’s Amsterdam office at 9:20 a.m.
Ten minutes later, the store clerk informed Pantaleon that his AmexCard had
not yet been approved. His son, who had already boarded the tour bus, soon
returned to Coster and informed the other members of the Pantaleon family
that the entire tour group was waiting for them. As it was already 9:40 a.m.,
and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though
asked plaintiff to wait a few more minutes. After 15 minutes, the store
manager informed Pantaleon that respondent had demanded bank references.
Pantaleon supplied the names of his depositary banks, then instructed his
daughter to return to the bus and apologize to the tour group for the delay.
At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his
AmexCard, and 30 minutes after the tour group was supposed to have left the
store, Coster decided to release the items even without respondent’s approval
of the purchase. The spouses Pantaleon returned to the bus. It is alleged that
their offers of apology were met by their tourmates with stony silence.4 The
tour group’s visible irritation was aggravated when the tour guide announced
that the city tour of Amsterdam was to be canceled due to lack of remaining
time, as they had to catch a 3:00 p.m. ferry at Calais, Belgium to London.5 Mrs.
Pantaleon ended up weeping, while her husband had to take a tranquilizer to
calm his nerves.
It later emerged that Pantaleon’s purchase was first transmitted for approval to
respondent’s Amsterdam office at 9:20 a.m., Amsterdam time, then referred to
respondent’s Manila office at 9:33 a.m, then finally approved at 10:19 a.m.,
Amsterdam time.6 The Approval Code was transmitted to respondent’s
Amsterdam office at 10:38 a.m., several minutes after petitioner had already
left Coster, and 78 minutes from the time the purchases were electronically
transmitted by the jewelry store to respondent’s Amsterdam office.
After the star-crossed tour had ended, the Pantaleon family proceeded to the
United States before returning to Manila on 12 November 1992. While in the
United States, Pantaleon continued to use his AmEx card, several times without
hassle or delay, but with two other incidents similar to the Amsterdam
brouhaha. On 30 October 1991, Pantaleon purchased golf equipment
amounting to US $1,475.00 using his AmEx card, but he cancelled his credit
card purchase and borrowed money instead from a friend, after more than 30
minutes had transpired without the purchase having been approved. On 3
November 1991, Pantaleon used the card to purchase children’s shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was
approved by respondent.
On 4 March 1992, after coming back to Manila, Pantaleon sent a
letter7 through counsel to the respondent, demanding an apology for the
"inconvenience, humiliation and embarrassment he and his family thereby
suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24
March 1992,9 stating among others that the delay in authorizing the purchase
from Coster was attributable to the circumstance that the charged purchase of
US $13,826.00 "was out of the usual charge purchase pattern
established."10 Since respondent refused to accede to Pantaleon’s demand for
an apology, the aggrieved cardholder instituted an action for damages with the
Regional Trial Court (RTC) of Makati City, Branch 145.11 Pantaleon prayed that
he be awarded ₱2,000,000.00, as moral damages; ₱500,000.00, as exemplary
damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00 as litigation
expenses.12
On 5 August 1996, the Makati City RTC rendered a decision13 in favor of
Pantaleon, awarding him ₱500,000.00 as moral damages, ₱300,000.00 as
exemplary damages, ₱100,000.00 as attorney’s fees, and ₱85,233.01 as
expenses of litigation. Respondent filed a Notice of Appeal, while Pantaleon
moved for partial reconsideration, praying that the trial court award the
increased amount of moral and exemplary damages he had prayed for.14 The
RTC denied Pantaleon’s motion for partial reconsideration, and thereafter gave
due course to respondent’s Notice of Appeal.15
On 18 August 2006, the Court of Appeals rendered a decision16 reversing the
award of damages in favor of Pantaleon, holding that respondent had not
breached its obligations to petitioner. Hence, this petition.
The key question is whether respondent, in connection with the
aforementioned transactions, had committed a breach of its obligations to
Pantaleon. In addition, Pantaleon submits that even assuming that respondent
had not been in breach of its obligations, it still remained liable for damages
under Article 21 of the Civil Code.
The RTC had concluded, based on the testimonial representations of Pantaleon
and respondent’s credit authorizer, Edgardo Jaurigue, that the normal approval
time for purchases was "a matter of seconds." Based on that standard,
respondent had been in clear delay with respect to the three subject
transactions. As it appears, the Court of Appeals conceded that there had been
delay on the part of respondent in approving the purchases. However, it made
two critical conclusions in favor of respondent. First, the appellate court ruled
that the delay was not attended by bad faith, malice, or gross negligence.
Second, it ruled that respondent "had exercised diligent efforts to effect the
approval" of the purchases, which were "not in accordance with the charge
pattern" petitioner had established for himself, as exemplified by the fact that
at Coster, he was "making his very first single charge purchase of US$13,826,"
and "the record of [petitioner]’s past spending with [respondent] at the time
does not favorably support his ability to pay for such purchase."17
On the premise that there was an obligation on the part of respondent "to
approve or disapprove with dispatch the charge purchase," petitioner argues
that the failure to timely approve or disapprove the purchase constituted mora
solvendi on the part of respondent in the performance of its obligation. For its
part, respondent characterizes the depiction by petitioner of its obligation to
him as "to approve purchases instantaneously or in a matter of seconds."
Petitioner correctly cites that under mora solvendi, the three requisites for a
finding of default are that the obligation is demandable and liquidated; the
debtor delays performance; and the creditor judicially or extrajudicially
requires the debtor’s performance.18 Petitioner asserts that the Court of
Appeals had wrongly applied the principle of mora accipiendi, which relates to
delay on the part of the obligee in accepting the performance of the obligation
by the obligor. The requisites of mora accipiendi are: an offer of performance
by the debtor who has the required capacity; the offer must be to comply with
the prestation as it should be performed; and the creditor refuses the
performance without just cause.19 The error of the appellate court, argues
petitioner, is in relying on the invocation by respondent of "just cause" for the
delay, since while just cause is determinative of mora accipiendi, it is not so
with the case of mora solvendi.
We can see the possible source of confusion as to which type of mora to
appreciate. Generally, the relationship between a credit card provider and its
card holders is that of creditor-debtor,20 with the card company as the creditor
extending loans and credit to the card holder, who as debtor is obliged to
repay the creditor. This relationship already takes exception to the general rule
that as between a bank and its depositors, the bank is deemed as the debtor
while the depositor is considered as the creditor.21 Petitioner is asking us, not
baselessly, to again shift perspectives and again see the credit card company as
the debtor/obligor, insofar as it has the obligation to the customer as
creditor/obligee to act promptly on its purchases on credit.
Ultimately, petitioner’s perspective appears more sensible than if we were to
still regard respondent as the creditor in the context of this cause of action. If
there was delay on the part of respondent in its normal role as creditor to the
cardholder, such delay would not have been in the acceptance of the
performance of the debtor’s obligation (i.e., the repayment of the debt), but it
would be delay in the extension of the credit in the first place. Such delay
would not fall under mora accipiendi, which contemplates that the obligation
of the debtor, such as the actual purchases on credit, has already been
constituted. Herein, the establishment of the debt itself (purchases on credit of
the jewelry) had not yet been perfected, as it remained pending the approval
or consent of the respondent credit card company.
Still, in order for us to appreciate that respondent was in mora solvendi, we will
have to first recognize that there was indeed an obligation on the part of
respondent to act on petitioner’s purchases with "timely dispatch," or for the
purposes of this case, within a period significantly less than the one hour it
apparently took before the purchase at Coster was finally approved.
5
The findings of the trial court, to our mind, amply established that the
tardiness on the part of respondent in acting on petitioner’s purchase at Coster
did constitute culpable delay on its part in complying with its obligation to act
promptly on its customer’s purchase request, whether such action be favorable
or unfavorable. We quote the trial court, thus:
As to the first issue, both parties have testified that normal approval time for
purchases was a matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that
except for the three charge purchases subject of this case, approvals of his
charge purchases were always obtained in a matter of seconds.
Defendant’s credit authorizer Edgardo Jaurique likewise testified:
Q. – You also testified that on normal occasions, the normal
approval time for charges would be 3 to 4 seconds?
A. – Yes, Ma’am.
Both parties likewise presented evidence that the processing and approval of
plaintiff’s charge purchase at the Coster Diamond House was way beyond the
normal approval time of a "matter of seconds".
Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at
9:15 a.m. and by the time he had to leave the store at 10:05 a.m., no approval
had yet been received. In fact, the Credit Authorization System (CAS) record of
defendant at Phoenix Amex shows that defendant’s Amsterdam office received
the request to approve plaintiff’s charge purchase at 9:20 a.m., Amsterdam
time or 01:20, Phoenix time, and that the defendant relayed its approval to
Coster at 10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time
lapse of one hour and [18] minutes. And even then, the approval was
conditional as it directed in computerese [sic] "Positive Identification of Card
holder necessary further charges require bank information due to high
exposure. By Jack Manila."
The delay in the processing is apparent to be undue as shown from the frantic
successive queries of Amexco Amsterdam which reads: "US$13,826.
Cardmember buying jewels. ID seen. Advise how long will this take?" They
were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times Phoenix.
Manila Amexco could be unaware of the need for speed in resolving the charge
purchase referred to it, yet it sat on its hand, unconcerned.
xxx
To repeat, the Credit Authorization System (CAS) record on the Amsterdam
transaction shows how Amexco Netherlands viewed the delay as unusually
frustrating. In sequence expressed in Phoenix time from 01:20 when the charge
purchased was referred for authorization, defendants own record shows:
01:22 – the authorization is referred to Manila Amexco
01:32 – Netherlands gives information that the identification of the
cardmember has been presented and he is buying jewelries worth
US $13,826.
01:33 – Netherlands asks "How long will this take?"
02:08 – Netherlands is still asking "How long will this take?"
The Court is convinced that defendants delay constitute[s] breach of its
contractual obligation to act on his use of the card abroad "with special
handling."22 (Citations omitted)
xxx
Notwithstanding the popular notion that credit card purchases are approved
"within seconds," there really is no strict, legally determinative point of
demarcation on how long must it take for a credit card company to approve or
disapprove a customer’s purchase, much less one specifically contracted upon
by the parties. Yet this is one of those instances when "you’d know it when
you’d see it," and one hour appears to be an awfully long, patently
unreasonable length of time to approve or disapprove a credit card purchase. It
is long enough time for the customer to walk to a bank a kilometer away,
withdraw money over the counter, and return to the store.
Notably, petitioner frames the obligation of respondent as "to approve or
disapprove" the purchase "in timely dispatch," and not "to approve the
purchase instantaneously or within seconds." Certainly, had respondent
disapproved petitioner’s purchase "within seconds" or within a timely manner,
this particular action would have never seen the light of day. Petitioner and his
family would have returned to the bus without delay – internally humiliated
perhaps over the rejection of his card – yet spared the shame of being held
accountable by newly-made friends for making them miss the chance to tour
the city of Amsterdam.
We do not wish do dispute that respondent has the right, if not the obligation,
to verify whether the credit it is extending upon on a particular purchase was
indeed contracted by the cardholder, and that the cardholder is within his
means to make such transaction. The culpable failure of respondent herein is
not the failure to timely approve petitioner’s purchase, but the more elemental
failure to timely act on the same, whether favorably or unfavorably. Even
assuming that respondent’s credit authorizers did not have sufficient basis on
hand to make a judgment, we see no reason why respondent could not have
promptly informed petitioner the reason for the delay, and duly advised him
that resolving the same could take some time. In that way, petitioner would
have had informed basis on whether or not to pursue the transaction at Coster,
given the attending circumstances. Instead, petitioner was left uncomfortably
dangling in the chilly autumn winds in a foreign land and soon forced to
confront the wrath of foreign folk.
Moral damages avail in cases of breach of contract where the defendant acted
fraudulently or in bad faith, and the court should find that under the
circumstances, such damages are due. The findings of the trial court are ample
in establishing the bad faith and unjustified neglect of respondent, attributable
in particular to the "dilly-dallying" of respondent’s Manila credit authorizer,
Edgardo Jaurique.23 Wrote the trial court:
While it is true that the Cardmembership Agreement, which defendant
prepared, is silent as to the amount of time it should take defendant to grant
authorization for a charge purchase, defendant acknowledged that the normal
time for approval should only be three to four seconds. Specially so with cards
used abroad which requires "special handling", meaning with priority.
Otherwise, the object of credit or charge cards would be lost; it would be so
inconvenient to use that buyers and consumers would be better off carrying
bundles of currency or traveller’s checks, which can be delivered and accepted
quickly. Such right was not accorded to plaintiff in the instances complained off
for reasons known only to defendant at that time. This, to the Court’s mind,
amounts to a wanton and deliberate refusal to comply with its contractual
obligations, or at least abuse of its rights, under the contract.24
xxx
The delay committed by defendant was clearly attended by unjustified neglect
and bad faith, since it alleges to have consumed more than one hour to simply
go over plaintiff’s past credit history with defendant, his payment record and
his credit and bank references, when all such data are already stored and
readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiff’s billing history that would warrant the imprudent
suspension of action by defendant in processing the purchase. Defendant’s
witness Jaurique admits:
Q. – But did you discover that he did not have any outstanding
account?
A. – Nothing in arrears at that time.
Q. – You were well aware of this fact on this very date?
A. – Yes, sir.
Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s
account.25
It should be emphasized that the reason why petitioner is entitled to damages
is not simply because respondent incurred delay, but because the delay, for
which culpability lies under Article 1170, led to the particular injuries under
Article 2217 of the Civil Code for which moral damages are
remunerative.26 Moral damages do not avail to soothe the plaints of the simply
impatient, so this decision should not be cause for relief for those who time the
length of their credit card transactions with a stopwatch. The somewhat
unusual attending circumstances to the purchase at Coster – that there was a
deadline for the completion of that purchase by petitioner before any delay
would redound to the injury of his several traveling companions – gave rise to
the moral shock, mental anguish, serious anxiety, wounded feelings and social
humiliation sustained by the petitioner, as concluded by the RTC.27 Those
circumstances are fairly unusual, and should not give rise to a general
entitlement for damages under a more mundane set of facts.
6
We sustain the amount of moral damages awarded to petitioner by the RTC.
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
own peculiar facts, however, it must be commensurate to the loss or injury
suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages is
excessive under the circumstances, and the amount awarded by the trial court
of ₱500,000.00 in moral damages more seemly.1avvphi1
Likewise, we deem exemplary damages available under the circumstances, and
the amount of ₱300,000.00 appropriate. There is similarly no cause though to
disturb the determined award of ₱100,000.00 as attorney’s fees, and
₱85,233.01 as expenses of litigation.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals is REVERSED and SET ASIDE. The Decision of the Regional Trial Court of
Makati, Branch 145 in Civil Case No. 92-1665 is hereby REINSTATED. Costs
against respondent.
SO ORDERED.
DANTE O. TINGA
Associate Justice
G.R. No. 176868               July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA) Decision1 dated
September 21, 2006 and Resolution2 dated February 23, 2007, which denied
petitioner’s motion for reconsideration. The assailed Decision denied
petitioner’s claim for reimbursement for the amount it paid to respondent for
the manufacture of corrugated carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered into an
agreement with respondent, Davao Corrugated Carton Corporation, for the
purchase of corrugated carton boxes, specifically designed for petitioner’s
business of exporting fresh bananas, at US$1.10 each. The agreement was not
reduced into writing. To get the production underway, petitioner deposited, on
March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings Account with
Westmont Bank, as full payment for the ordered boxes.
Despite such payment, petitioner did not receive any boxes from respondent.
On January 3, 2001, petitioner wrote a demand letter for reimbursement of the
amount paid.3 On February 19, 2001, respondent replied that the boxes had
been completed as early as April 3, 1998 and that petitioner failed to pick them
up from the former’s warehouse 30 days from completion, as agreed upon.
Respondent mentioned that petitioner even placed an additional order of
24,000 boxes, out of which, 14,000 had been manufactured without any
advanced payment from petitioner. Respondent then demanded petitioner to
remove the boxes from the factory and to pay the balance of US$15,400.00 for
the additional boxes and ₱132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money and
damages against respondent. The Complaint averred that the parties agreed
that the boxes will be delivered within 30 days from payment but respondent
failed to manufacture and deliver the boxes within such time. It further alleged
6. That repeated follow-up was made by the plaintiff for the immediate
production of the ordered boxes, but every time, defendant [would] only show
samples of boxes and ma[k]e repeated promises to deliver the said ordered
boxes.
7. That because of the failure of the defendant to deliver the ordered boxes,
plaintiff ha[d] to cancel the same and demand payment and/or refund from the
defendant but the latter refused to pay and/or refund the US$40,150.00
payment made by the former for the ordered boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted that, as early as April 3,
1998, it had already completed production of the 36,500 boxes, contrary to
petitioner’s allegation. According to respondent, petitioner, in fact, made an
additional order of 24,000 boxes, out of which, 14,000 had been completed
without waiting for petitioner’s payment. Respondent stated that petitioner
was to pick up the boxes at the factory as agreed upon, but petitioner failed to
do so. Respondent averred that, on October 8, 1998, petitioner’s
representative, Bobby Que (Que), went to the factory and saw that the boxes
were ready for pick up. On February 20, 1999, Que visited the factory again and
supposedly advised respondent to sell the boxes as rejects to recoup the cost
of the unpaid 14,000 boxes, because petitioner’s transaction to ship bananas to
China did not materialize. Respondent claimed that the boxes were occupying
warehouse space and that petitioner should be made to pay storage fee at
₱60.00 per square meter for every month from April 1998. As counterclaim,
respondent prayed that judgment be rendered ordering petitioner to pay
$15,400.00, plus interest, moral and exemplary damages, attorney’s fees, and
costs of the suit.
In reply, petitioner denied that it made a second order of 24,000 boxes and
that respondent already completed the initial order of 36,500 boxes and
14,000 boxes out of the second order. It maintained that
respondent only manufactured a sample of the ordered boxes and that
respondent could not have produced 14,000 boxes without the required pre-
payments.6
During trial, petitioner presented Que as its sole witness. Que testified that he
ordered the boxes from respondent and deposited the money in respondent’s
account.7 He specifically stated that, when he visited respondent’s factory, he
saw that the boxes had no print of petitioner’s logo.8 A few months later, he
followed-up the order and was told that the company had full production, and
thus, was promised that production of the order would be rushed. He told
respondent that it should indeed rush production because the need for the
boxes was urgent. Thereafter, he asked his partner, Alfred Ong, to cancel the
order because it was already late for them to meet their commitment to ship
the bananas to China.9 On cross-examination, Que further testified that China
Zero Food, the Chinese company that ordered the bananas, was sending a ship
to Davao to get the bananas, but since there were no cartons, the ship could
not proceed. He said that, at that time, bananas from Tagum Agricultural
Development Corporation (TADECO) were already there. He denied that
petitioner made an additional order of 24,000 boxes. He explained that it took
three years to refer the matter to counsel because respondent promised to
pay.10
For respondent, Bienvenido Estanislao (Estanislao) testified that he met Que in
Davao in October 1998 to inspect the boxes and that the latter got samples of
them. In February 2000, they inspected the boxes again and Que got more
samples. Estanislao said that petitioner did not pick up the boxes because the
ship did not arrive.11 Jaime Tan (Tan), president of respondent, also testified
that his company finished production of the 36,500 boxes on April 3, 1998 and
that petitioner made a second order of 24,000 boxes. He said that the
agreement was for respondent to produce the boxes and for petitioner to pick
them up from the warehouse.12 He also said that the reason why petitioner did
not pick up the boxes was that the ship that was to carry the bananas did not
arrive.13 According to him, during the last visit of Que and Estanislao, he asked
them to withdraw the boxes immediately because they were occupying a big
space in his plant, but they, instead, told him to sell the cartons as rejects. He
was able to sell 5,000 boxes at ₱20.00 each for a total of ₱100,000.00. They
then told him to apply the said amount to the unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled that
respondent did not commit any breach of faith that would justify rescission of
the contract and the consequent reimbursement of the amount paid by
petitioner. The RTC said that respondent was able to produce the ordered
boxes but petitioner failed to obtain possession thereof because its ship did not
arrive. It thus dismissed the complaint and respondent’s counterclaims,
disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
defendant and against the plaintiff and, accordingly, plaintiff’s complaint is
hereby ordered DISMISSED without pronouncement as to cost. Defendant’s
counterclaims are similarly dismissed for lack of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of merit.15 The
appellate court held that petitioner failed to discharge its burden of proving
what it claimed to be the parties’ agreement with respect to the delivery of the
boxes. According to the CA, it was unthinkable that, over a period of more than
two years, petitioner did not even demand for the delivery of the boxes. The
CA added that even assuming that the agreement was for respondent to
deliver the boxes, respondent would not be liable for breach of contract as
petitioner had not yet demanded from it the delivery of the boxes.16
7
Petitioner moved for reconsideration,17 but the motion was denied by the CA in
its Resolution of February 23, 2007.18
In this petition, petitioner insists that respondent did not completely
manufacture the boxes and that it was respondent which was obliged to
deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would justify the grant
of this petition.
Petitioner’s claim for reimbursement is actually one for rescission (or
resolution) of contract under Article 1191 of the Civil Code, which 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.
The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who
have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
The right to rescind a contract arises once the other party defaults in the
performance of his obligation. In determining when default occurs, Art. 1191
should be taken in conjunction with Art. 1169 of the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment
of their obligation.
However, the demand by the creditor shall not be necessary in order that delay
may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is that the
fulfillment of the parties’ respective obligations should be simultaneous.
Hence, no demand is generally necessary because, once a party fulfills his
obligation and the other party does not fulfill his, the latter automatically
incurs in delay. But when different dates for performance of the obligations are
fixed, the default for each obligation must be determined by the rules given in
the first paragraph of the present article,19 that is, the other party would incur
in delay only from the moment the other party demands fulfillment of the
former’s obligation. Thus, even in reciprocal obligations, if the period for the
fulfillment of the obligation is fixed, demand upon the obligee is still necessary
before the obligor can be considered in default and before a cause of action for
rescission will accrue.
Evident from the records and even from the allegations in the complaint was
the lack of demand by petitioner upon respondent to fulfill its obligation to
manufacture and deliver the boxes. The Complaint only alleged that petitioner
made a "follow-up" upon respondent, which, however, would not qualify as a
demand for the fulfillment of the obligation. Petitioner’s witness also testified
that they made a follow-up of the boxes, but not a demand. Note is taken of
the fact that, with respect to their claim for reimbursement, the Complaint
alleged and the witness testified that a demand letter was sent to respondent.
Without a previous demand for the fulfillment of the obligation, petitioner
would not have a cause of action for rescission against respondent as the latter
would not yet be considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before filing the
present case, petitioner’s claim for reimbursement would still fail, as the
circumstances would show that respondent was not guilty of breach of
contract.
The existence of a breach of contract is a factual matter not usually reviewed in
a petition for review under Rule 45.20 The Court, in petitions for review, limits
its inquiry only to questions of law. After all, it is not a trier of facts, and
findings of fact made by the trial court, especially when reiterated by the CA,
must be given great respect if not considered as final.21 In dealing with this
petition, we will not veer away from this doctrine and will thus sustain the
factual findings of the CA, which we find to be adequately supported by the
evidence on record.
As correctly observed by the CA, aside from the pictures of the finished boxes
and the production report thereof, there is ample showing that the boxes had
already been manufactured by respondent. There is the testimony of
Estanislao who accompanied Que to the factory, attesting that, during their
first visit to the company, they saw the pile of petitioner’s boxes and Que took
samples thereof. Que, petitioner’s witness, himself confirmed this incident. He
testified that Tan pointed the boxes to him and that he got a sample and saw
that it was blank. Que’s absolute assertion that the boxes were not
manufactured is, therefore, implausible and suspicious.
In fact, we note that respondent’s counsel manifested in court, during trial,
that his client was willing to shoulder expenses for a representative of the
court to visit the plant and see the boxes.22 Had it been true that the boxes
were not yet completed, respondent would not have been so bold as to
challenge the court to conduct an ocular inspection of their warehouse. Even in
its Comment to this petition, respondent prays that petitioner be ordered to
remove the boxes from its factory site,23 which could only mean that the boxes
are, up to the present, still in respondent’s premises.
We also believe that the agreement between the parties was for petitioner to
pick up the boxes from respondent’s warehouse, contrary to petitioner’s
allegation. Thus, it was due to petitioner’s fault that the boxes were not
delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact, for
respondent to deliver the boxes within 30 days from payment, as alleged in the
Complaint. Its sole witness, Que, was not even competent to testify on the
terms of the agreement and, therefore, we cannot give much credence to his
testimony. It appeared from the testimony of Que that he did not personally
place the order with Tan, thus:
Q. No, my question is, you went to Davao City and placed your order
there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred Ong has a
contact with Mr. Tan.
Q. So, your first statement that you were the one who placed the
order is not true?
A. That’s true. The Solar Harvest made a contact with Mr. Tan and I
deposited the money in the bank.
Q. You said a while ago [t]hat you were the one who called Mr. Tan
and placed the order for 36,500 boxes, isn’t it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
Q. Is it not a fact that the cartons were ordered through Mr.
Bienvenido Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent was obliged to deliver the
boxes, it could not have complied with such obligation. Que,
insisting that the boxes had not been manufactured, admitted that
8
 he did not give respondent the authority to deliver the boxes to
TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes to
TADECO?
A. No, sir. As I have said, before the delivery, we must have to check
the carton, the quantity and quality. But I have not seen a single
carton.
Q. Are you trying to impress upon the [c]ourt that it is only after the
boxes are completed, will you give authority to Mr. Tan to deliver
the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen any carton.
I asked Mr. Tan to rush the carton but not…26
Q. Did you give any authority for Mr. Tan to deliver these boxes to
TADECO?
A. Because I have not seen any of my carton.
Q. You don’t have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have allowed respondent to
deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of action for
rescission, the evidence having shown that respondent did not commit any
breach of its contractual obligation. As previously stated, the subject boxes are
still within respondent’s premises. To put a rest to this dispute, we therefore
relieve respondent from the burden of having to keep the boxes within its
premises and, consequently, give it the right to dispose of them, after
petitioner is given a period of time within which to remove them from the
premises.
WHEREFORE, premises considered, the petition is DENIED. The Court of
Appeals Decision dated September 21, 2006 and Resolution dated February 23,
2007 are AFFIRMED. In addition, petitioner is given a period of 30 days from
notice within which to cause the removal of the 36,500
boxes from respondent’s warehouse. After the lapse of said period and
petitioner fails to effect such removal, respondent shall have the right to
dispose of the boxes in any manner it may deem fit.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
G.R. No. 171428               November 11, 2013
ALEJANDRO V. TANKEH, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, STERLING SHIPPING LINES, INC.,
RUPERTO V. TANKEH, VICENTE ARENAS, and ASSET PRIVATIZATION
TRUST, Respondents.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari praying that the assailed October 25,
2005 Decision and the February 9, 2006 Resolution of the Court of Appeals1 be
reversed, and that the January 4, 1996 Decision of the Regional Trial Court of
Manila Branch 32 be affirmed. Petitioner prays that this Court grant his claims
for moral damages and attorney’s fees, as proven by the evidence.
Respondent Ruperto V. Tankeh is the president of Sterling Shipping Lines, Inc.
It was incorporated on April 23, 1979 to operate ocean-going vessels engaged
primarily in foreign trade.2 Ruperto V. Tankeh applied for a $3.5 million loan
from public respondent Development Bank of the Philippines for the partial
financing of an ocean-going vessel named the M/V Golden Lilac. To authorize
the loan, Development Bank of the Philippines required that the following
conditions be met:
1) A first mortgage must be obtained over the vessel, which by then had been
renamed the M/V Sterling Ace;
2) Ruperto V. Tankeh, petitioner Dr. Alejandro V. Tankeh, Jose Marie Vargas, as
well as respondents Sterling Shipping Lines, Inc. and Vicente Arenas should
become liable jointly and severally for the amount of the loan;
3) The future earnings of the mortgaged vessel, including proceeds of Charter
and Shipping Contracts, should be assigned to Development Bank of the
Philippines; and
4) Development Bank of the Philippines should be assigned no less than 67% of
the total subscribed and outstanding voting shares of the company. The
percentage of shares assigned should be maintained at all times, and the
assignment was to subsist as long as the assignee, Development Bank of the
Philippines, deemed it necessary during the existence of the loan.3
According to petitioner Dr. Alejandro V. Tankeh, Ruperto V. Tankeh
approached him sometime in 1980.4 Ruperto informed petitioner that he was
operating a new shipping line business. Petitioner claimed that respondent,
who is also petitioner’s younger brother, had told him that petitioner would be
given one thousand (1,000) shares to be a director of the business. The shares
were worth ₱1,000,000.00.5
On May 12, 1981, petitioner signed the Assignment of Shares of Stock with
Voting Rights.6 Petitioner then signed the May 12, 1981 promissory note in
December 1981. He was the last to sign this note as far as the other signatories
were concerned.7 The loan was approved by respondent Development Bank of
the Philippines on March 18, 1981. The vessel was acquired on September 29,
1981 for $5.3 million.8 On December 3, 1981, respondent corporation Sterling
Shipping Lines, Inc. through respondent Ruperto V. Tankeh executed a Deed of
Assignment in favor of Development Bank of the Philippines. The deed stated
that the assignor, Sterling Shipping Lines, Inc.:
x x x does hereby transfer and assign in favor of the ASSIGNEE (DBP), its
successors and assigns, future earnings of the mortgaged M/V "Sterling Ace,"
including proceeds of charter and shipping contracts, it being understood that
this assignment shall continue to subsist for as long as the ASSIGNOR’S
obligation with the herein ASSIGNEE remains unpaid.9
On June 16, 1983, petitioner wrote a letter to respondent Ruperto V. Tankeh
saying that he was severing all ties and terminating his involvement with
Sterling Shipping Lines, Inc.10 He required that its board of directors pass a
resolution releasing him from all liabilities, particularly the loan contract with
Development Bank of the Philippines. In addition, petitioner asked that the
private respondents notify Development Bank of the Philippines that he had
severed his ties with Sterling Shipping Lines, Inc.11
The accounts of respondent Sterling Shipping Lines, Inc. in the Development
Bank of the Philippines were transferred to public respondent Asset
Privatization Trust on June 30, 1986.12
Presently, respondent Asset Privatization Trust is known as the Privatization
and Management Office. Asset Privatization Trust was a government agency
created through Presidential Proclamation No. 50, issued in 1986. Through
Administrative Order No. 14, issued by former President Corazon Aquino dated
February 3, 1987, assets including loans in favor of Development Bank of the
Philippines were ordered to be transferred to the national government. In turn,
the management and facilitation of these assets were delegated to Asset
Privatization Trust, pursuant to Presidential Proclamation No. 50. In 1999,
Republic Act No. 8758 was signed into law, and it provided that the corporate
term of Asset Privatization Trust would end on December 31, 2000. The same
law empowered the President of the Philippines to determine which office
would facilitate the management of assets held by Asset Privatization Trust.
Thus, on December 6, 2000, former President Joseph E. Estrada signed
Executive Order No. 323, creating the Privatization Management Office. Its
present function is to identify disposable assets, monitor the progress of
privatization activities, and approve the sale or divestment of assets with
respect to price and buyer.13
On January 29, 1987, the M/V Sterling Ace was sold in Singapore for
$350,000.00 by Development Bank of the Philippines’ legal counsel Atty.
Prospero N. Nograles. When petitioner came to know of the sale, he wrote
respondent Development Bank of the Philippines to express that the final price
was inadequate, and therefore, the transaction was irregular. At this time,
petitioner was still bound as a debtor because of the promissory note dated
May 12, 1981, which petitioner signed in December of 1981. The promissory
note subsisted despite Sterling Shipping Lines, Inc.’s assignment of all future
9
earnings of the mortgaged M/V Sterling Ace to Development Bank of the
Philippines. The loan also continued to bind petitioner despite Sterling Shipping
Lines, Inc.’s cash equity contribution of ₱13,663,200.00 which was used to
cover part of the acquisition cost of the vessel, pre-operating expenses, and
initial working capital.14
Petitioner filed several Complaints15 against respondents, praying that the
promissory note be declared null and void and that he be absolved from any
liability from the mortgage of the vessel and the note in question.
In the Complaints, petitioner alleged that respondent Ruperto V. Tankeh,
together with Vicente L. Arenas, Jr. and Jose Maria Vargas, had exercised
deceit and fraud in causing petitioner to bind himself jointly and severally to
pay respondent Development Bank of the Philippines the amount of the
mortgage loan.16 Although he had been made a stockholder and director of the
respondent corporation Sterling Shipping Lines, Inc., petitioner alleged that he
had never invested any amount in the corporation and that he had never been
an actual member of the board of directors.17 He alleged that all the money he
had supposedly invested was provided by respondent Ruperto V. Tankeh.18 He
claimed that he only attended one meeting of the board. In that meeting, he
was introduced to two directors representing Development Bank of the
Philippines, namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Other than that,
he had never been notified of another meeting of the board of directors.
Petitioner further claimed that he had been excluded deliberately from
participating in the affairs of the corporation and had never been compensated
by Sterling Shipping Lines, Inc. as a director and stockholder.19 According to
petitioner, when Sterling Shipping Lines, Inc. was organized, respondent
Ruperto V. Tankeh had promised him that he would become part of the
administration staff and oversee company operations. Respondent Ruperto V.
Tankeh had also promised petitioner that the latter’s son would be given a
position in the company.20 However, after being designated as vice president,
petitioner had not been made an officer and had been alienated from taking
part in the respondent corporation.21
Petitioner also alleged that respondent Development Bank of the Philippines
had been inexcusably negligent in the performance of its duties.22 He alleged
that Development Bank of the Philippines must have been fully aware of
Sterling Shipping Lines, Inc.’s financial situation. Petitioner claimed that Sterling
Shipping Lines, Inc. was controlled by the Development Bank of the Philippines
because 67% of voting shares had been assigned to the latter.23 Furthermore,
the mortgage contracts had mandated that Sterling Shipping Lines, Inc. "shall
furnish the DBP with copies of the minutes of each meeting of the Board of
Directors within one week after the meeting. Sterling Shipping Lines Inc. shall
likewise furnish DBP its annual audited financial statements and other
information or data that may be needed by DBP as its accommodations [sic]
with DBP are outstanding."24 Petitioner further alleged that the Development
Bank of the Philippines had allowed "highly questionable acts"25 to take place,
including the gross undervaluing of the M/V Sterling Aces.26 Petitioner alleged
that one day after Development Bank of the Philippines’ Atty. Nograles sold the
vessel, the ship was re-sold by its buyer for double the amount that the ship
had been bought.27
As for respondent Vicente L. Arenas, Jr., petitioner alleged that since Arenas
had been the treasurer of Sterling Shipping Lines, Inc. and later on had served
as its vice president, he was also responsible for the financial situation of
Sterling Shipping Lines, Inc.
Lastly, in the Amended Complaint dated April 16, 1991, petitioner impleaded
respondent Asset Privatization Trust for being the agent and assignee of the
M/V Sterling Ace.
In their Answers28 to the Complaints, respondents raised the following
defenses against petitioner: Respondent Development Bank of the Philippines
categorically denied receiving any amount from Sterling Shipping Lines, Inc.’s
future earnings and from the proceeds of the shipping contracts. It maintained
that equity contributions could not be deducted from the outstanding loan
obligation that stood at ₱245.86 million as of December 31, 1986.
Development Bank of the Philippines also maintained that it is immaterial to
the case whether the petitioner is a "real stockholder" or merely a "pseudo-
stockholder" of the corporation.29 By affixing his signature to the loan
agreement, he was liable for the obligation. According to Development Bank of
the Philippines, he was in pari delicto and could not be discharged from his
obligation. Furthermore, petitioner had no cause of action against
Development Bank of the Philippines since this was a case between family
members, and earnest efforts toward compromise should have been complied
with in accordance with Article 222 of the Civil Code of the Philippines.30
Respondent Ruperto V. Tankeh stated that petitioner had voluntarily signed
the promissory note in favor of Development Bank of the Philippines and with
full knowledge of the consequences. Respondent Tankeh also alleged that he
did not employ any fraud or deceit to secure petitioner’s involvement in the
company, and petitioner had been fully aware of company operations. Also, all
that petitioner had to do to avoid liability had been to sell his shareholdings in
the company.31
Respondent Asset Privatization Trust raised that petitioner had no cause of
action against them since Asset Privatization Trust had been mandated under
Proclamation No. 50 to take title to and provisionally manage and dispose the
assets identified for privatization or deposition within the shortest possible
period. Development Bank of the Philippines had transferred and conveyed all
its rights, titles, and interests in favor of the national government in
accordance with Administrative Order No. 14. In line with that, Asset
Privatization Trust was constituted as trustee of the assets transferred to the
national government to effect privatization of these assets, including
respondent Sterling Shipping Lines, Inc.32 Respondent Asset Privatization Trust
also filed a compulsory counterclaim against petitioner and its co-respondents
Sterling Shipping Lines, Inc., Ruperto V. Tankeh, and Vicente L. Arenas, Jr. for
the amount of ₱264,386,713.84.
Respondent Arenas did not file an Answer to any of the Complaints of
petitioner but filed a Motion to Dismiss that the Regional Trial Court denied.
Respondent Asset Privatization Trust filed a Cross Claim against Arenas. In his
Answer33 to Asset Privatization Trust’s Cross Claim, Arenas claimed that he had
been released from any further obligation to Development Bank of the
Philippines and its successor Asset Privatization Trust because an extension had
been granted by the Development Bank of the Philippines to the debtors of
Sterling Shipping Lines, Inc. and/or Ruperto V. Tankeh, which had been secured
without Arenas’ consent.
The trial proceeded with the petitioner serving as a sole witness for his case. In
a January 4, 1996 Decision,34 the Regional Trial Court ruled:
Here, we find –
1. Plaintiff being promised by his younger brother, Ruperto V.
Tankeh, 1,000 shares with par value of ₱1 Million with all the perks
and privileges of being stockholder and director of SSLI, a new
international shipping line;
2. That plaintiff will be part of the administration and operation of
the business, so with his son who is with the law firm Romulo
Ozaeta Law Offices;
3. But this was merely the come-on or appetizer for the Real McCoy
or the primordial end of congregating the incorporators proposed - -
that he sign the promissory note (Exhibit "C"), the mortgage
contract (Exhibit "A"), and deed of assignment so SSLI could get the
US $3.5 M loan from DBP to partially finance the importation of
vessel M.V. "Golden Lilac" renamed M.V. "Sterling ACE";
4. True it is, plaintiff was made a stockholder and director and Vice-
President in 1979 but he was never notified of any meeting of the
Board except only once, and only to be introduced to the two (2)
directors representing no less than 67% of the total subscribed and
outstanding voting shares of the company. Thereafter, he was
excluded from any board meeting, shorn of his powers and duties as
director or Vice-President, and was altogether deliberately
demeaned as an outsider.
5. What kind of a company is SSLI who treated one of their
incorporators, one of their Directors and their paper Vice-President
in 1979 by preventing him access to corporate books, to corporate
earnings, or losses, and to any compensation or remuneration
whatsoever? Whose President and Treasurer did not submit the
required SEC yearly report? Who did not remit to DBP the proceeds
on charter mortgage contracts on M/V Sterling Ace?
6. The M/V Sterling Ace was already in the Davao Port when it was
then diverted to Singapore to be disposed on negotiated sale, and
not by public bidding contrary to COA Circular No. 86-264 and
without COA’s approval. Sterling Ace was seaworthy but was sold as
scrap in Singapore. No foreclosure with public bidding was made in
contravention of the Promissory Note to recover any deficiency
should DBP seeks [sic] to recover it on the outstanding mortgage
loan. Moreover the sale was done after the account and asset (nay,
now only a liability) were transferred to APT. No approval of SSLI
Board of Directors to the negotiated sale was given.
7. Plaintiff’s letter to his brother President, Ruperto V. Tankeh,
dated June 15, 1983 (Exhibit "D") his letter thru his lawyer to DBP
(Exhibit "J") and another letter to it (Exhibit "K") show no estoppel
on his part as he consistently and continuously assailed the several
injurious acts of defendants while assailing the Promissory Note
10
 itself x x x (Citations omitted) applying the maxim: Rencintiatio non
praesumitur. By this Dr. Tankeh never waived the right to question
the Promissory Note contract terms. He did not ratify, by concurring
acts, express or tacit, after the reasons had surfaced entitling him to
render the contract voidable, defendants’ acts in implementing or
not the conditions of the mortgage, the promissory note, the deed
of assignment, the lack of audit and accounting, and the negotiated
sale of MV Sterling Ace. He did not ratify defendants [sic] defective
acts (Art. 1396, New Civil Code (NCC).
The foregoing and the following essays, supported by evidence, the fraud
committed by plaintiff’s brother before the several documents were signed
(SEC documents, Promissory Note, Mortgage (MC) Contract, assignment (DA)),
namely:
1. Ruperto V. Tankeh approaches his brother Alejandro to tell the
latter of his new shipping business. The project was good business
proposal [sic].
2. Ruperto tells Alejandro he’s giving him shares worth ₱1 Million
and he’s going to be a Director.
3. He tells his brother that he will be part of the company’s
Administration and Operations and his eldest son will be in it, too.
4. Ruperto tells his brother they need a ship, they need to buy one
for the business, and they therefore need a loan, and they could
secure a loan from DBP with the vessel brought to have a first
mortgage with DBP but anyway the other two directors and
comptroller will be from DBP with a 67% SSLI shares voting rights.
Without these insidious, devastating and alluring words, without the
machinations used by defendant Ruperto V. Tankeh upon the doctor, without
the inducement and promise of ownership of shares and the exercise of
administrative and operating functions, and the partial financing by one of the
best financial institutions, the DBP, plaintiff would not have agreed to join his
brother; and the safeguarding of the Bank’s interest by its nominated two (2)
directors in the Board added to his agreeing to the new shipping business. His
consent was vitiated by the fraud before the several contracts were
consummated.
This alone convenes [sic] this Court to annul the Promissory Note as it relates
to plaintiff himself.
Plaintiff also pleads annulment on ground of equity. Article 19, NCC, provides
him the way as it requires every person, in the exercise of his rights and
performance of his duties, to act with justice, give everyone his due, and
observe honesty and good faith (Velayo vs. Shell Co. of the Phils., G.R. L-7817,
October 31, 1956). Not to release him from the clutch of the Promissory Note
when he was never made a part of the operation of the SSLI, when he was not
notified of the Board Meetings, when the corporation nary remitted earnings
of M/V Sterling Ace from charter or shipping contracts to DBP, when the SSLI
did not comply with the deed of assignment and mortgage contract, and when
the vessel was sold in Singapore (he, learning of the sale only from the
newspapers) in contravention of the Promissory Note, and which he
questioned, will be an injustice, inequitable, and even iniquitous to plaintiff.
SSLI and the private defendants did not observe honesty and good faith to one
of their incorporators and directors. As to DBP, the Court cannot put demerits
on what plaintiff’s memorandum has pointed out:
While defendant DBP did not exercise the caution and prudence in the
discharge of their functions to protect its interest as expected of them and
worst, allowed the perpetuation of the illegal acts committed in contrast to the
virtues they publicly profess, namely: "palabra de honor, delicadeza,
katapatan, kaayusan, pagkamasinop at kagalingan" Where is the vision banking
they have for our country?
Had DBP listened to a cry in the wilderness – that of the voice of the doctor –
the doctor would not have allowed the officers and board members to defraud
DBP and he would demand of them to hew and align themselves to the deed of
assignment.
Prescinding from the above, plaintiff’s consent to be with SSLI was vitiated by
fraud. The fact that defendant Ruperto Tankeh has not questioned his liability
to DBP or that Jose Maria Vargas has been declared in default do not detract
from the fact that there was attendant fraud and that there was continuing
fraud insofar as plaintiff is concerned.
Ipinaglaban lang ni Doctor ang karapatan niya. Kung wala siyang sense of
righteous indignation and fairness, tatahimik na lang siya, sira naman ang
pinangangalagaan niyang pangalan, honor and family prestige [sic] (Emphasis
provided).35
xxxx
All of the defendants’ counterclaims and cross-claims x x x including plaintiff’s
and the other defendants’ prayer for damages are not, for the moment,
sourced and proven by substantial evidence, and must perforce be denied and
dismissed.
WHEREFORE, this Court, finding and declaring the Promissory Note (Exhibit
"C") and the Mortgage Contract (Exhibit "A") null and void insofar as plaintiff
DR. ALEJANDRO V. TANKEH is concerned, hereby ANNULS and VOIDS those
documents as to plaintiff, and it is hereby further ordered that he be released
from any obligation or liability arising therefrom.
All the defendants’ counterclaims and cross-claims and plaintiff’s and
defendants’ prayer for damages are hereby denied and dismissed, without
prejudice.
SO ORDERED.36
Respondents Ruperto V. Tankeh, Asset Privatization Trust, and Arenas
immediately filed their respective Notices of Appeal with the Regional Trial
Court. The petitioner filed a Motion for Reconsideration with regard to the
denial of his prayer for damages. After this Motion had been denied, he then
filed his own Notice of Appeal.
In a Decision37 promulgated on October 25, 2005, the Third Division of the
Court of Appeals reversed the trial court’s findings. The Court of Appeals held
that petitioner had no cause of action against public respondent Asset
Privatization Trust. This was based on the Court of Appeals’ assessment of the
case records and its findings that Asset Privatization Trust did not commit any
act violative of the right of petitioner or constituting a breach of Asset
Privatization Trust’s obligations to petitioner. The Court of Appeals found that
petitioner’s claim for damages against Asset Privatization Trust was based
merely on his own self-serving allegations.38
As to the finding of fraud, the Court of Appeals held that:
xxxx
In all the complaints from the original through the first, second and third
amendments, the plaintiff imputes fraud only to defendant Ruperto, to wit:
4. That on May 12, 1981, due to the deceit and fraud exercised by Ruperto V.
Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and Jose Maria Vargas
signed a promissory note in favor of the defendant, DBP, wherein plaintiff
bound himself to jointly and severally pay the DBP the amount of the mortgage
loan. This document insofar as plaintiff is concerned is a simulated document
considering that plaintiff was never a real stockholder of Sterling Shipping
Lines, Inc. (Emphasis provided)
More allegations of deceit were added in the Second Amended Complaint, but
they are also attributed against Ruperto:
6. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN BY THE
FACT THAT when the Sterling Shipping Lines, Inc. was organized in 1980,
Ruperto V. Tankeh promised plaintiff that he would be a part of the
administration staff so that he could oversee the operation of the company. He
was also promised that his son, a lawyer, would be given a position in the
company. None of these promsies [sic] was complied with. In fact he was not
even allowed to find out the data about the income and expenses of the
company.
7. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY THE FACT
THAT PLAINTIFF WAS INVITED TO ATTEND THE BOARD MEETING OF THE
STERLING SHIPPING LINES INC. ONLY ONCE, WHICH WAS FOR THE SOLE
PURPOSE OF INTRODUCING HIM TO THE TWO DIRECTORS OF THE DBP IN THE
BOARD OF THE STERLING SHIPPING LINES, INC., NAMELY, MR. JESUS
MACALINAG AND MR. GIL CORPUS. THEREAFTER HE WAS NEVER INVITED
AGAIN. PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING
LINES, INC. FOR HIS BEING A SO-CALLED DIRECTOR AND STOCKHOLDER.
xxxx
8-A THAT A WEEK AFTER SENDING THE ABOVE LETTER PLAINTIFF MADE
EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM AND HIS
BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE SPURNED BY RUPERTO
11
V. TANKEH, AND ALSO AFTER THE NEWS OF THE SALE OF THE ‘STERLING ACE’
WAS PUBLISHED AT THE NEWSPAPER, PLAINTIFF TRIED ALL EFFORTS TO
CONTACT RUPERTO V. TANKEH FOR THE PURPOSE OF ARRIVING AT SOME
COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL CONTACTS
WITH THE PLAINTIFF UNTIL HE WAS FORCED TO SEEK LEGAL ASSISTANCE FROM
HIS LAWYER.
In the absence of any allegations of fraud and/or deceit against the other
defendants, namely, the DBP, Vicente Arenas, Sterling Shipping Lines, Inc., and
the Asset Privatization Trust, the plaintiff’s evidence thereon should only be
against Ruperto, since a plaintiff is bound to prove only the allegations of his
complaint. In any case, no evidence of fraud or deceit was ever presented
against defendants DBP, Arenas, SSLI and APT.
As to the evidence against Ruperto, the same consists only of the testimony of
the plaintiff. None of his documentary evidence would prove that Ruperto was
guilty of fraud or deceit in causing him to sign the subject promissory note.39
xxxx
Analyzing closely the foregoing statements, we find no evidence of fraud or
deceit. The mention of a new shipping lines business and the promise of a free
1,000-share and directorship in the corporation do not amount to insidious
words or machinations. In any case, the shipping business was indeed
established, with the plaintiff himself as one of the incorporators and
stockholders with a share of 4,000, worth ₱4,000,000.00 of which
₱1,000,000.00 was reportedly paid up. As such, he signed the Articles of
Incorporation and the corporation’s By-Laws which were registered with the
Securities and Exchange Commission in April 1979. It was not until May 12,
1981 that he signed the questioned promissory note. From his own declaration
at the witness stand, the plaintiff signed the promissory note voluntarily. No
pressure, force or intimidation was made to bear upon him. In fact, according
to him, only a messenger brought the paper to him for signature. The promised
shares of stock were given and recorded in the plaintiff’s name. He was made a
director and Vice-President of SSLI. Apparently, only the promise that his son
would be given a position in the company remained unfulfilled. However, the
same should have been threshed out between the plaintiff and his brother,
defendant Ruperto, and its non-fulfillment did not amount to fraud or deceit,
but was only an unfulfilled promise.
It should be pointed out that the plaintiff is a doctor of medicine and a
seasoned businessman. It cannot be said that he did not understand the import
of the documents he signed. Certainly he knew what he was signing. He should
have known that being an officer of SSLI, his signing of the promissory note
together with the other officers of the corporation was expected, as the other
officers also did. It cannot therefore be said that the promissory note was
simulated. The same is a contract validly entered into, which the parties are
obliged to comply with.40 (Citations omitted)
The Court of Appeals ruled that in the absence of any competent proof,
Ruperto V. Tankeh did not commit any fraud. Petitioner Alejandro V. Tankeh
was unable to prove by a preponderance of evidence that fraud or deceit had
been employed by Ruperto to make him sign the promissory note. The Court of
Appeals reasoned that:
Fraud is never presumed but must be proved by clear and convincing evidence,
mere preponderance of evidence not even being adequate. Contentions must
be proved by competent evidence and reliance must be had on the strength of
the party’s evidence and not upon the weakness of the opponent’s defense.
The plaintiff clearly failed to discharge such burden.41 (Citations omitted)
With that, the Court of Appeals reversed and set aside the judgment and
ordered that plaintiff’s Complaint be dismissed. Petitioner filed a Motion for
Reconsideration dated October 25, 2005 that was denied in a
Resolution42 promulgated on February 9, 2006.
Hence, this Petition was filed.
In this Petition, Alejandro V. Tankeh stated that the Court of Appeals seriously
erred and gravely abused its discretion in acting and deciding as if the evidence
stated in the Decision of the Regional Trial Court did not exist. He averred that
the ruling of lack of cause of action had no leg to stand on, and the Court of
Appeals had unreasonably, whimsically, and capriciously ignored the ample
evidence on record proving the fraud and deceit perpetrated on the petitioner
by the respondent. He stated that the appellate court failed to appreciate the
findings of fact of the lower court, which are generally binding on appellate
courts. He also maintained that he is entitled to damages and attorney's fees
due to the deceit and machinations committed by the respondent.
In his Memorandum, respondent Ruperto V. Tankeh averred that petitioner
had chosen the wrong remedy. He ought to have filed a special civil action of
certiorari and not a Petition for Review. Petitioner raised questions of fact, and
not questions of law, and this required the review or evaluation of evidence.
However, this is not the function of this Court, as it is not a trier of facts. He
also contended that petitioner had voluntarily entered into the loan agreement
and the position with Sterling Shipping Lines, Inc. and that he did not
fraudulently induce the petitioner to enter into the contract.
Respondents Development Bank of the Philippines and Asset Privatization Trust
also contended that petitioner's mode of appeal had been wrong, and he had
actually sought a special civil action of certiorari. This alone merited its
dismissal.
The main issue in this case is whether the Court of Appeals erred in finding that
respondent Rupert V. Tankeh did not commit fraud against the petitioner.
The Petition is partly granted.
Before disposing of the main issue in this case, this Court needs to address a
procedural issue raised by respondents. Collectively, respondents argue that
the Petition is actually one of certiorari under Rule 65 of the Rules of
Court43 and not a Petition for Review on Certiorari under Rule 45.44 Thus,
petitioner’s failure to show that there was neither appeal nor any other plain,
speedy or adequate remedy merited the dismissal of the Complaint.
Contrary to respondent’s imputation, the remedy contemplated by petitioner
is clearly that of a Rule 45 Petition for Review. In Tagle v. Equitable PCI
Bank,45 this Court made the distinction between a Rule 45 Petition for Review
on Certiorari and a Rule 65 Petition for Certiorari:
Certiorari is a remedy designed for the correction of errors of jurisdiction, not
errors of judgment.1âwphi1 In Pure Foods Corporation v. NLRC, we explained
the simple reason for the rule in this light: When a court exercises its
jurisdiction, an error committed while so engaged does not deprive it of the
jurisdiction being exercised when the error is committed x x x. Consequently,
an error of judgment that the court may commit in the exercise of its
jurisdiction is not correctable through the original civil action of certiorari.
xxxx
Even if the findings of the court are incorrect, as long as it has jurisdiction over
the case, such correction is normally beyond the province of certiorari. Where
the error is not one of jurisdiction, but of an error of law or fact a mistake of
judgment, appeal is the remedy.
In this case, what petitioner seeks to rectify may be construed as errors of
judgment of the Court of Appeals. These errors pertain to the petitioner’s
allegation that the appellate court failed to uphold the findings of facts of the
lower court. He does not impute any error with respect to the Court of
Appeals’ exercise of jurisdiction. As such, this Petition is simply a continuation
of the appellate process where a case is elevated from the trial court of origin,
to the Court of Appeals, and to this Court via Rule 45.
Contrary to respondents’ arguments, the allegations of petitioner that the
Court of Appeals "committed grave abuse of discretion"46 did not ipso facto
render the intended remedy that of certiorari under Rule 65 of the Rules of
Court.47
In any case, even if the Petition is one for the special civil action of certiorari,
this Court has the discretion to treat a Rule 65 Petition for Certiorari as a Rule
45 Petition for Review on Certiorari. This is allowed if (1) the Petition is filed
within the reglementary period for filing a Petition for review; (2) when errors
of judgment are averred; and (3) when there is sufficient reason to justify the
relaxation of the rules.48 When this Court exercises this discretion, there is no
need to comply with the requirements provided for in Rule 65.
In this case, petitioner filed his Petition within the reglementary period of filing
a Petition for Review.49 His Petition assigns errors of judgment and appreciation
of facts and law on the part of the Court of Appeals. Thus, even if the Petition
was designated as one that sought the remedy of certiorari, this Court may
exercise its discretion to treat it as a Petition for Review in the interest of
substantial justice.
We now proceed to the substantive issue, that of petitioner’s imputation of
fraud on the part of respondents. We are required by the circumstances of this
case to review our doctrines of fraud that are alleged to be present in
contractual relations.
Types of Fraud in Contracts
Fraud is defined in Article 1338 of the Civil Code as:
12
x x x fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without
them, he would not have agreed to.
This is followed by the articles which provide legal examples and illustrations of
fraud.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made
by an expert and the other party has relied on the former's special knowledge.
(n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless
such misrepresentation has created substantial mistake and the same is
mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error. (n)
The distinction between fraud as a ground for rendering a contract voidable or
as basis for an award of damages is provided in Article 1344:
In order that fraud may make a contract voidable, it should be serious and
should not have been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
There are two types of fraud contemplated in the performance of contracts:
dolo incidente or incidental fraud and dolo causante or fraud serious enough to
render a contract voidable.
In Geraldez v. Court of Appeals,50 this Court held that:
This fraud or dolo which is present or employed at the time of birth or
perfection of a contract may either be dolo causante or dolo incidente. The
first, or causal fraud referred to in Article 1338, are those deceptions or
misrepresentations of a serious character employed by one party and without
which the other party would not have entered into the contract. Dolo
incidente, or incidental fraud which is referred to in Article 1344, are those
which are not serious in character and without which the other party would
still have entered into the contract. Dolo causante determines or is the
essential cause of the consent, while dolo incidente refers only to some
particular or accident of the obligation. The effects of dolo causante are the
nullity of the contract and the indemnification of damages, and dolo incidente
also obliges the person employing it to pay damages.51
In Solidbank Corporation v. Mindanao Ferroalloy Corporation, et al.,52 this
Court elaborated on the distinction between dolo causante and dolo incidente:
Fraud refers to all kinds of deception -- whether through insidious machination,
manipulation, concealment or misrepresentation -- that would lead an
ordinarily prudent person into error after taking the circumstances into
account. In contracts, a fraud known as dolo causante or causal fraud is
basically a deception used by one party prior to or simultaneous with the
contract, in order to secure the consent of the other. Needless to say, the
deceit employed must be serious. In contradistinction, only some particular or
accident of the obligation is referred to by incidental fraud or dolo incidente, or
that which is not serious in character and without which the other party would
have entered into the contract anyway.53
Under Article 1344, the fraud must be serious to annul or avoid a contract and
render it voidable. This fraud or deception must be so material that had it not
been present, the defrauded party would not have entered into the contract.
In the recent case of Spouses Carmen S. Tongson and Jose C. Tongson, et al., v.
Emergency Pawnshop Bula, Inc.,54 this Court provided some examples of what
constituted dolo causante or causal fraud:
Some of the instances where this Court found the existence of causal fraud
include: (1) when the seller, who had no intention to part with her property,
was "tricked into believing" that what she signed were papers pertinent to her
application for the reconstitution of her burned certificate of title, not a deed
of sale; (2) when the signature of the authorized corporate officer was forged;
or (3) when the seller was seriously ill, and died a week after signing the deed
of sale raising doubts on whether the seller could have read, or fully
understood, the contents of the documents he signed or of the consequences
of his act.55 (Citations omitted)
However, Article 1344 also provides that if fraud is incidental, it follows that
this type of fraud is not serious enough so as to render the original contract
voidable.
A classic example of dolo incidente is Woodhouse v. Halili.56 In this case, the
plaintiff Charles Woodhouse entered into a written agreement with the
defendant Fortunato Halili to organize a partnership for the bottling and
distribution of soft drinks. However, the partnership did not come into fruition,
and the plaintiff filed a Complaint in order to execute the partnership. The
defendant filed a Counterclaim, alleging that the plaintiff had defrauded him
because the latter was not actually the owner of the franchise of a soft drink
bottling operation. Thus, defendant sought the nullification of the contract to
enter into the partnership. This Court concluded that:
x x x from all the foregoing x x x plaintiff did actually represent to defendant
that he was the holder of the exclusive franchise. The defendant was made to
believe, and he actually believed, that plaintiff had the exclusive franchise. x x x
The record abounds with circumstances indicative that the fact that the
principal consideration, the main cause that induced defendant to enter into
the partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. x x x The defendant was, therefore, led to the belief that plaintiff
had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive
franchise, or the option thereto, at the time the contract was perfected. But
while he had already lost his option thereto (when the contract was entered
into), the principal obligation that he assumed or undertook was to secure said
franchise for the partnership, as the bottler and distributor for the Mission Dry
Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
percent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. x x x.
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling
plant being built, all that he suggested was about the toilet facilities for the
laborers.
We conclude from the above that while the representation that plaintiff had
the exclusive franchise did not vitiate defendant's consent to the contract, it
was used by plaintiff to get from defendant a share of 30 per cent of the net
profits; in other words, by pretending that he had the exclusive franchise and
promising to transfer it to defendant, he obtained the consent of the latter to
give him (plaintiff) a big slice in the net profits. This is the dolo incidente
defined in article 1270 of the Spanish Civil Code, because it was used to get the
other party's consent to a big share in the profits, an incidental matter in the
agreement.57
Thus, this Court held that the original agreement may not be declared null and
void. This Court also said that the plaintiff had been entitled to damages
because of the refusal of the defendant to enter into the partnership.
However, the plaintiff was also held liable for damages to the defendant for the
misrepresentation that the former had the exclusive franchise to soft drink
bottling operations.
To summarize, if there is fraud in the performance of the contract, then this
fraud will give rise to damages. If the fraud did not compel the imputing party
to give his or her consent, it may not serve as the basis to annul the contract,
which exhibits dolo causante. However, the party alleging the existence of
fraud may prove the existence of dolo incidente.
This may make the party against whom fraud is alleged liable for damages.
Quantum of Evidence to Prove the Existence of Fraud and the Liability of the
Parties
The Civil Code, however, does not mandate the quantum of evidence required
to prove actionable fraud, either for purposes of annulling a contract (dolo
causante) or rendering a party liable for damages (dolo incidente). The
definition of fraud is different from the quantum of evidence needed to prove
the existence of fraud. Article 1338 provides the legal definition of fraud.
Articles 1339 to 1343 constitute the behavior and actions that, when in
conformity with the legal provision, may constitute fraud.
13
Jurisprudence has shown that in order to constitute fraud that provides basis
to annul contracts, it must fulfill two conditions. First, the fraud must be dolo
causante or it must be fraud in obtaining the consent of the party. Second, this
fraud must be proven by clear and convincing evidence. In Viloria v.
Continental Airlines,58 this Court held that:
Under Article 1338 of the Civil Code, there is fraud when, through insidious
words or machinations of one of the contracting parties, the other is induced
to enter into a contract which, without them, he would not have agreed to. In
order that fraud may vitiate consent, it must be the causal (dolo causante), not
merely the incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud was defined as "a
deception employed by one party prior to or simultaneous to the contract in
order to secure the consent of the other." Also, fraud must be serious and its
existence must be established by clear and convincing evidence. (Citations
omitted)59
In Viloria, this Court cited Sierra v. Court of Appeals60 stating that mere
preponderance of evidence will not suffice in proving fraud.
Fraud must also be discounted, for according to the Civil Code:
Art. 1338. There is fraud when, through insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract which
without them, he would not have agreed to.
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties.
To quote Tolentino again, the "misrepresentation constituting the fraud must
be established by full, clear, and convincing evidence, and not merely by a
preponderance thereof. The deceit must be serious. The fraud is serious when
it is sufficient to impress, or to lead an ordinarily prudent person into error;
that which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the
personal conditions of the victim."61
Thus, to annul a contract on the basis of dolo causante, the following must
happen: First, the deceit must be serious or sufficient to impress and lead an
ordinarily prudent person to error. If the allegedly fraudulent actions do not
deceive a prudent person, given the circumstances, the deceit here cannot be
considered sufficient basis to nullify the contract. In order for the deceit to be
considered serious, it is necessary and essential to obtain the consent of the
party imputing fraud. To determine whether a person may be sufficiently
deceived, the personal conditions and other factual circumstances need to be
considered.
Second, the standard of proof required is clear and convincing evidence. This
standard of proof is derived from American common law. It is less than proof
beyond reasonable doubt (for criminal cases) but greater than preponderance
of evidence (for civil cases). The degree of believability is higher than that of an
ordinary civil case. Civil cases only require a preponderance of evidence to
meet the required burden of proof. However, when fraud is alleged in an
ordinary civil case involving contractual relations, an entirely different standard
of proof needs to be satisfied. The imputation of fraud in a civil case requires
the presentation of clear and convincing evidence. Mere allegations will not
suffice to sustain the existence of fraud. The burden of evidence rests on the
part of the plaintiff or the party alleging fraud. The quantum of evidence is such
that fraud must be clearly and convincingly shown.
The Determination of the Existence of Fraud in the Present Case
We now determine the application of these doctrines regarding fraud to
ascertain the liability, if any, of the respondents.
Neither law nor jurisprudence distinguishes whether it is dolo incidente or dolo
causante that must be proven by clear and convincing evidence. It stands to
reason that both dolo incidente and dolo causante must be proven by clear
and convincing evidence. The only question is whether this fraud, when
proven, may be the basis for making a contract voidable (dolo causante), or for
awarding damages (dolo incidente), or both.
Hence, there is a need to examine all the circumstances thoroughly and to
assess the personal circumstances of the party alleging fraud. This may require
a review of the case facts and the evidence on record.
In general, this Court is not a trier of facts. It makes its rulings based on
applicable law and on standing jurisprudence. The findings of the Court of
Appeals are generally binding on this Court provided that these are supported
by the evidence on record. In the recent case of Medina v. Court of
Appeals,62 this Court held that:
It is axiomatic that a question of fact is not appropriate for a petition for review
on certiorari under Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts. Generally,
we are not duty-bound to analyze again and weigh the evidence introduced in
and considered by the tribunals below. When supported by substantial
evidence, the findings of fact of the Court of Appeals are conclusive and
binding on the parties and are not reviewable by this Court, unless the case
falls under any of the following recognized exceptions: (1) When the conclusion
is a finding grounded entirely on speculation, surmises and conjectures; (2)
When the inference made is manifestly mistaken, absurd or impossible; (3)
Where there is a grave abuse of discretion; (4) When the judgment is based on
a misapprehension of facts; (5) When the findings of fact are conflicting; (6)
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; (7) When the findings are contrary to those of the trial court; (8)
When the findings of fact 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 respondents;
and (10) When the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on record.
(Emphasis provided)63
The trial court and the Court of Appeals had appreciated the facts of this case
differently.
The Court of Appeals was not correct in saying that petitioner could only raise
fraud as a ground to annul his participation in the contract as against
respondent Rupert V. Tankeh, since the petitioner did not make any categorical
allegation that respondents Development Bank of the Philippines, Sterling
Shipping Lines, Inc., and Asset Privatization Trust had acted fraudulently.
Admittedly, it was only in the Petition before this Court that the petitioner had
made the allegation of a "well-orchestrated fraud"64 by the respondents.
However, Rule 10, Section 5 of the Rules of Civil Procedure provides that:
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 effect the result of the trial of these issues. If evidence is objected to
at the trial on the ground that it is not 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. (5a)
In this case, the commission of fraud was an issue that had been tried with the
implied consent of the respondents, particularly Sterling Shipping Lines, Inc.,
Asset Privatization Trust, Development Bank of the Philippines, and Arenas.
Hence, although there is a lack of a categorical allegation in the pleading, the
courts may still be allowed to ascertain fraud.
The records will show why and how the petitioner agreed to enter into the
contract with respondent Ruperto V. Tankeh:
ATTY. VELAYO: How did you get involved in the business of the Sterling
Shipping Lines, Incorporated" [sic]
DR. TANKEH: Sometime in the year 1980, I was approached by Ruperto Tankeh
mentioning to me that he is operating a new shipping lines business and he is
giving me free one thousand shares (1,000) to be a director of this new
business which is worth one million pesos (₱1,000,000.00.),
ATTY. VELAYO: Are you related to Ruperto V. Tankeh?
DR. TANKEH: Yes, sir. He is my younger brother.
ATTY. VELAYO: Did you accept the offer?
DR. TANKEH: I accepted the offer based on his promise to me that I will be
made a part of the administration staff so that I can oversee the operation of
the business plus my son, the eldest one who is already a graduate lawyer with
a couple of years of experience in the law firm of Romulo Ozaeta Law Offices
(TSN, April 28, 1988, pp. 10-11.).65
The Second Amended Complaint of petitioner is substantially reproduced
below to ascertain the claim:
xxxx
14
 2. That on May 12, 1981, due to the deceit and fraud exercised by
Ruperto V. Tankeh, plaintiff, together with Vicente L. Arenas, Jr. and
Jose Maria Vargas, signed a promissory note in favor of the
defendant DBP, wherein plaintiff bound himself to jointly and
severally pay the DBP the amount of the mortgage loan. This
document insofar as plaintiff is concerned is a simulated document
considering that plaintiff was never a real stockholder of the Sterling
Shipping Lines, Inc.
3. That although plaintiff’s name appears in the records of Sterling
Shipping Lines, Inc. as one of its incorporators, the truth is that he
had never invested any amount in said corporation and that he had
never been an actual member of said corporation. All the money
supposedly invested by him were put by defendant Ruperto V.
Tankeh. Thus, all the shares of stock under his name in fact belongs
to Ruperto V. Tankeh. Plaintiff was invited to attend the board
meeting of the Sterling Shipping Lines, Inc. only once, which was for
the sole purpose of introducing him to the two directors of the DBP,
namely, Mr. Jesus Macalinag and Mr. Gil Corpus. Thereafter he was
never invited again. Plaintiff was never compensated by the Sterling
Shipping Lines, Inc. for his being a so-called director and
stockholder. It is clear therefore that the DBP knew all along that
plaintiff was not a true stockholder of the company.
4. That THE DECEIT OF DEFENDANT RUPERTO V. TANKEH IS SHOWN
BY THE FACT THAT when the Sterling Shipping Lines, Inc. was
organized in 1980, Ruperto V. Tankeh promised plaintiff that he
would be a part of the administration staff so that he could oversee
the operation of the company. He was also promised that his son, a
lawyer, would be given a position in the company. None of these
promises was complied with. In fact, he was not even allowed to
find out the data about the income and expenses of the company.
5. THAT THE DECEIT OF RUPERTO V. TANKEH IS ALSO SHOWN BY
THE FACT THAT PLAINTIFF WAS INVITED TO ATTEND THE BOARD
MEETING OF THE STERLING SHIPPING LINES, INC. ONLY ONCE,
WHICH WAS FOR THE SOLE PUPOSE OF INTRODUCING HIM TO THE
TWO DIRECTORS OF THE DBP IN THE BOARD OF THE STERLING
SHIPPING LINES, INC., NAMELY, MR. JESUS MACALINAG AND MR.
GIL CORPUS. THEREAFTER HE WAS NEVER INVITED AGAIN.
PLAINTIFF WAS NEVER COMPENSATED BY THE STERLING SHIPPING
LINES, INC. FOR HIS BEING A SO-CALLED DIRECTOR AND
STOCKHOLDER.
6. That in 1983, upon realizing that he was only being made a tool
to realize the purposes of Ruperto V. Tankeh, plaintiff officially
informed the company by means of a letter dated June 15, 1983
addressed to the company that he has severed his connection with
the company, and demanded among others, that the company
board of directors pass a resolution releasing him from any liabilities
especially with reference to the loan mortgage contract with the
DBP and to notify the DBP of his severance from the Sterling
Shipping Lines, Inc.
8-A. THAT A WEEK AFTER SENDING THE ABOVE LETTER, PLAINTIFF
MADE EARNEST EFFORTS TOWARDS A COMPROMISE BETWEEN HIM
AND HIS BROTHER RUPERTO V. TANKEH, WHICH EFFORTS WERE
SPURNED BY RUPERTO V. TANKEH, AND ALSO AFTER THE NEWS OF
THE SALE OF THE "STERLING ACE" WAS PUBLISHED AT THE
NEWSPAPER [sic], PLAINTIFF TRIED ALL EFFORTS TO CONTACT
RUPERTO V. TANKEH FOR THE PURPOSE OF ARRIVING AT SOME
COMPROMISE, BUT DEFENDANT RUPERTO V. TANKEH AVOIDED ALL
CONTACTS [sic] WITH THE PLAINTIFF UNTIL HE WAS FORCED TO
SEEK LEGAL ASSISTANCE FROM HIS LAWYER.66
In his Answer, respondent Ruperto V. Tankeh stated that:
COMES NOW defendant RUPERTO V. TANKEH, through the undersigned
counsel, and to the Honorable Court, most respectfully alleges:
xxxx
3. That paragraph 4 is admitted that herein answering defendant
together with the plaintiff signed the promissory note in favor of
DBP but specifically denied that the same was done through deceit
and fraud of herein answering defendant the truth being that
plaintiff signed said promissory note voluntarily and with full
knowledge of the consequences thereof; it is further denied that
said document is a simulated document as plaintiff was never a real
stockholder of the company, the truth being those alleged in the
special and affirmative defenses;
4. That paragraphs 5,6,7,8 and 8-A are specifically denied specially
the imputation of deceit and fraud against herein answering
defendant, the truth being those alleged in the special and
affirmative defenses;
xxxx
SPECIAL AND AFFIRMATIVE DEFENSES x x x
8. The complaint states no cause of action as against herein
answering defendant;
9. The Sterling Shipping Lines, Inc. was a legitimate company
organized in accordance with the laws of the Republic of the
Philippines with the plaintiff as one of the incorporators;
10. Plaintiff as one of the incorporators and directors of the board
was fully aware of the by-laws of the company and if he attended
the board meeting only once as alleged, the reason thereof was
known only to him;
11. The Sterling Shipping Lines, Inc. being a corporation acting
through its board of directors, herein answering defendant could
not have promised plaintiff that he would be a part of the
administration staff;
12. As member of the board, plaintiff had all the access to the data
and records of the company; further, as alleged in the complaint,
plaintiff has a son who is a lawyer who could have advised him;
13. Assuming plaintiff wrote a letter to the company to sever his
connection with the company, he should have been aware that all
he had to do was sell all his holdings in the company;
14. Herein answering defendant came to know only of plaintiff’s
alleged predicament when he received the summons and copy of
the complaint; x x x.67
An assessment of the allegations in the pleadings and the findings of fact of
both the trial court and appellate court based on the evidence on record led to
the conclusion that there had been no dolo causante committed against the
petitioner by Ruperto V. Tankeh.
The petitioner had given his consent to become a shareholder of the company
without contributing a single peso to pay for the shares of stock given to him
by Ruperto V. Tankeh. This fact was admitted by both petitioner and
respondent in their respective pleadings submitted to the lower court.
In his Amended Complaint,68 the petitioner admitted that "he had never
invested any amount in said corporation and that he had never been an actual
member of said corporation. All the money supposedly invested by him were
put up by defendant Ruperto V. Tankeh."69 This fact alone should have already
alerted petitioner to the gravity of the obligation that he would be undertaking
as a member of the board of directors and the attendant circumstances that
this undertaking would entail. It also does not add any evidentiary weight to
strengthen petitioner’s claim of fraud. If anything, it only strengthens the
position that petitioner’s consent was not obtained through insidious words or
deceitful machinations.
Article 1340 of the Civil Code recognizes the reality of some exaggerations in
trade which negates fraud. It reads:
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Given the standing and stature of the petitioner, he was in a position to
ascertain more information about the contract.
Songco v. Sellner70 serves as one of the key guidelines in ascertaining whether a
party is guilty of fraud in obtaining the consent of the party claiming that fraud
existed. The plaintiff Lamberto Songco sought to recover earnings from a
promissory note that defendant George Sellner had made out to him for
payment of Songco’s sugar cane production. Sellner claimed that he had
refused to pay because Songco had promised that the crop would yield 3,000
piculs of sugar, when in fact, only 2,017 piculs of sugar had been produced.
This Court held that Sellner would still be liable to pay the promissory note, as
follows:
15
Notwithstanding the fact that Songco's statement as to the probable output of
his crop was disingenuous and uncandid, we nevertheless think that Sellner
was bound and that he must pay the price stipulated. The representation in
question can only be considered matter of opinion as the cane was still
standing in the field, and the quantity of the sugar it would produce could not
be known with certainty until it should be harvested and milled. Undoubtedly
Songco had better experience and better information on which to form an
opinion on this question than Sellner. Nevertheless the latter could judge with
his own eyes as to the character of the cane, and it is shown that he measured
the fields and ascertained that they contained 96 1/2 hectares.
xxxx
The law allows considerable latitude to seller's statements, or dealer's talk; and
experience teaches that it is exceedingly risky to accept it at its face value. The
refusal of the seller to warrant his estimate should have admonished the
purchaser that that estimate was put forth as a mere opinion; and we will not
now hold the seller to a liability equal to that which would have been created
by a warranty, if one had been given.
xxxx
It is not every false representation relating to the subject matter of a contract
which will render it void. It must be as to matters of fact substantially affecting
the buyer's interest, not as to matters of opinion, judgment, probability, or
expectation. (Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, 18 Pick. [Mass.],
95; Gordon vs. Parmelee, 2 Allen [Mass.], 212; Williamson vs. McFadden, 23
Fla., 143, 11 Am. St. Rep., 345.) When the purchaser undertakes to make an
investigation of his own, and the seller does nothing to prevent this
investigation from being as full as he chooses to make it, the purchaser cannot
afterwards allege that the seller made misrepresentations. (National Cash
Register Co. vs. Townsend, 137 N. C., 652, 70 L. R. A., 349; Williamson vs. Holt,
147 N. C., 515.)
We are aware that where one party to a contract, having special or expert
knowledge, takes advantage of the ignorance of another to impose upon him,
the false representation may afford ground for relief, though otherwise the
injured party would be bound. But we do not think that the fact that Songco
was an experienced farmer, while Sellner was, as he claims, a mere novice in
the business, brings this case within that exception.71
The following facts show that petitioner was fully aware of the magnitude of
his undertaking:
First, petitioner was fully aware of the financial reverses that Sterling Shipping
Lines, Inc. had been undergoing, and he took great pains to release himself
from the obligation.
Second, his background as a doctor, as a bank organizer, and as a businessman
with experience in the textile business and real estate should have apprised
him of the irregularity in the contract that he would be undertaking. This
meant that at the time petitioner gave his consent to become a part of the
corporation, he had been fully aware of the circumstances and the risks of his
participation. Intent is determined by the acts.
Finally, the records showed that petitioner had been fully aware of the effect of
his signing the promissory note. The bare assertion that he was not privy to the
records cannot counteract the fact that petitioner himself had admitted that
after he had severed ties with his brother, he had written a letter seeking to
reach an amicable settlement with respondent Rupert V. Tankeh. Petitioner’s
actions defied his claim of a complete lack of awareness regarding the
circumstances and the contract he had been entering.
The required standard of proof – clear and convincing evidence – was not met.
There was no dolo causante or fraud used to obtain the petitioner’s consent to
enter into the contract. Petitioner had the opportunity to become aware of the
facts that attended the signing of the promissory note. He even admitted that
he has a lawyer-son who the petitioner had hoped would assist him in the
administration of Sterling Shipping Lines, Inc. The totality of the facts on record
belies petitioner’s claim that fraud was used to obtain his consent to the
contract given his personal circumstances and the applicable law.
However, in refusing to allow petitioner to participate in the management of
the business, respondent Ruperto V. Tankeh was liable for the commission of
incidental fraud. In Geraldez, this Court defined incidental fraud as "those
which are not serious in character and without which the other party would
still have entered into the contract."72
Although there was no fraud that had been undertaken to obtain petitioner’s
consent, there was fraud in the performance of the contract. The records
showed that petitioner had been unjustly excluded from participating in the
management of the affairs of the corporation. This exclusion from the
management in the affairs of Sterling Shipping Lines, Inc. constituted fraud
incidental to the performance of the obligation.
This can be concluded from the following circumstances.
First, respondent raised in his Answer that petitioner "could not have promised
plaintiff that he would be a part of the administration staff"73 since petitioner
had been fully aware that, as a corporation, Sterling Shipping Lines, Inc. acted
through its board of directors. Respondent admitted that petitioner had been
"an incorporator and member of the board of directors"74 and that petitioner
"was fully aware of the by-laws of the company."75 It was incumbent upon
respondent to act in good faith and to ensure that petitioner would not be
excluded from the affairs of Sterling Shipping Lines, Inc. After all, respondent
asserted that petitioner had entered into the contract voluntarily and with full
consent.
Second, respondent claimed that if petitioner was intent on severing his
connection with the company, all that petitioner had to do was to sell all his
holdings in the company. Clearly, the respondent did not consider the fact that
the sale of the shares of stock alone did not free petitioner from his liability to
Development Bank of the Philippines or Asset Privatization Trust, since the
latter had signed the promissory and had still been liable for the loan. A sale of
petitioners’ shares of stock would not have negated the petitioner’s
responsibility to pay for the loan.
Third, respondent Ruperto V. Tankeh did not rebuff petitioner’s claim that the
latter only received news about the sale of the vessel M/V Sterling Ace through
the media and not as one of the board members or directors of Sterling
Shipping Lines, Inc.
All in all, respondent Ruperto V. Tankeh’s bare assertion that petitioner had
access to the records cannot discredit the fact that the petitioner had been
effectively deprived of the opportunity to actually engage in the operations of
Sterling Shipping Lines, Inc. Petitioner had a reasonable expectation that the
same level of engagement would be present for the duration of their working
relationship. This would include an undertaking in good faith by respondent
Ruperto V. Tankeh to be transparent with his brother that he would not
automatically be made part of the company’s administration.
However, this Court finds there is nothing to support the assertion that Sterling
Shipping Lines, Inc. and Arenas committed incidental fraud and must be held
liable. Sterling Shipping Lines, Inc. acted through its board of directors, and the
liability of respondent Tankeh cannot be imposed on Sterling Shipping Lines,
Inc. The shipping line has a separate and distinct personality from its officers,
and petitioner’s assertion that the corporation conspired with the respondent
Ruperto V. Tankeh to defraud him is not supported by the evidence and the
records of the case.
As for Arenas, in Lim Tanhu v. Remolete,76 this Court held that:
In all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in
default acquire a vested right not only to own the defense interposed in the
answer of their co-defendant or co-defendants not in default but also to expect
a result of the litigation totally common with them in kind and in amount
whether favorable or unfavorable. The substantive unity of the plaintiffs’ cause
against all the defendants is carried through to its adjective phase as
ineluctably demanded by the homogeneity and indivisibility of justice itself.77
As such, despite Arenas’ failure to submit his Answer to the Complaint or his
declaration of default, his liability or lack thereof is concomitant with the
liability attributed to his co-defendants or co-respondents. However, unlike
respondent Ruperto V. Tankeh’s liability, there is no action or series of actions
that may be attributed to Arenas that may lead to an inference that he was
liable for incidental fraud. In so far as the required evidence for both Sterling
Shipping Lines, Inc. and Arenas is concerned, there is no basis to justify the
claim of incidental fraud.
In addition, respondents Development Bank of the Philippines and Asset
Privatization Trust or Privatization and Management Office cannot be held
liable for fraud. Incidental fraud cannot be attributed to the execution of their
actions, which were undertaken pursuant to their mandated functions under
the law. "Absent convincing evidence to the contrary, the presumption of
regularity in the performance of official functions has to be upheld."78
The Obligation to Pay Damages
As such, respondent Ruperto V. Tankeh is liable to his older brother, petitioner
Alejandro, for damages. The obligation to pay damages to petitioner is based
on several provisions of the Civil Code.
16
Article 1157 enumerates the sources of obligations.
Article 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
This enumeration does not preclude the possibility that a single action may
serve as the source of several obligations to pay damages in accordance with
the Civil Code. Thus, the liability of respondent Ruperto V. Tankeh is based on
the law, under Article 1344, which provides that the commission of incidental
fraud obliges the person employing it to pay damages.
In addition to this obligation as the result of the contract between petitioner
and respondents, there was also a patent abuse of right on the part of
respondent Tankeh. This abuse of right is included in Articles 19 and 21 of the
Civil Code which provide that:
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.
Article 21. Any person who willfully causes loss or injury to another in manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damage.
Respondent Ruperto V. Tankeh abused his right to pursue undertakings in the
interest of his business operations. This is because of his failure to at least act
in good faith and be transparent with petitioner regarding Sterling Shipping
Lines, Inc.’s daily operations.
In National Power Corporation v. Heirs of Macabangkit Sangkay,79 this Court
held that:
When a right is exercised in a manner not conformable with the norms
enshrined in Article 19 and like provisions on human relations in the Civil Code,
and the exercise results to [sic] the damage of [sic] another, a legal wrong is
committed and the wrongdoer is held responsible.80
The damage, loss, and injury done to petitioner are shown by the following
circumstances.
First, petitioner was informed by Development Bank of the Philippines that it
would still pursue his liability for the payment of the promissory note. This
would not have happened if petitioner had allowed himself to be fully apprised
of Sterling Shipping Lines, Inc.’s financial straits and if he felt that he could still
participate in the company’s operations. There is no evidence that respondent
Ruperto V. Tankeh showed an earnest effort to at least allow the possibility of
making petitioner part of the administration a reality. The respondent was the
brother of the petitioner and was also the primary party that compelled
petitioner Alejandro Tankeh to be solidarily bound to the promissory note.
Ruperto V. Tankeh should have done his best to ensure that he had exerted the
diligence to comply with the obligations attendant to the participation of
petitioner.
Second, respondent Ruperto V. Tankeh’s refusal to enter into an agreement or
settlement with petitioner after the latter’s discovery of the sale of the M/V
Sterling Ace was an action that constituted bad faith. Due to Ruperto’s refusal,
his brother, petitioner Alejandro, became solidarily liable for an obligation that
the latter could have avoided if he had been given an opportunity to
participate in the operations of Sterling Shipping Lines, Inc. The simple sale of
all of petitioner’s shares would not have solved petitioner’s problems, as it
would not have negated his liability under the terms of the promissory note.
Finally, petitioner is still bound to the creditors of Sterling Shipping Lines, Inc.,
namely, public respondents Development Bank of the Philippines and Asset
Privatization Trust. This is an additional financial burden for petitioner. Nothing
in the records suggested the possibility that Development Bank of the
Philippines or Asset Privatization Trust through the Privatization Management
Office will not pursue or is precluded from pursuing its claim against the
petitioner. Although petitioner Alejandro voluntarily signed the promissory
note and became a stockholder and board member, respondent should have
treated him with fairness, transparency, and consideration to minimize the risk
of incurring grave financial reverses.
In Francisco v. Ferrer,81 this Court ruled that moral damages may be awarded
on the following bases:
To recover moral damages in an action for breach of contract, the breach must
be palpably wanton, reckless, malicious, in bad faith, oppressive or abusive.
Under the provisions of this law, in culpa contractual or breach of contract,
moral damages may be recovered when the defendant acted in bad faith or
was guilty of gross negligence (amounting to bad faith) or in wanton disregard
of his contractual obligation and, exceptionally, when the act of breach of
contract itself is constitutive of tort resulting in physical injuries.
Moral damages may be awarded in breaches of contracts where the defendant
acted fraudulently or in bad 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.
xxxx
The person claiming moral damages must prove the existence of bad faith by
clear and convincing evidence for the law always presumes good faith. It is not
enough that one merely suffered sleepless nights, mental anguish, serious
anxiety as the result of the actuations of the other party. Invariably such action
must be shown to have been willfully done in bad faith or will ill motive. Mere
allegations of besmirched reputation, embarrassment and sleepless nights are
insufficient to warrant an award for moral damages. It must be shown that the
proximate cause thereof was the unlawful act or omission of the [private
respondent] petitioners.
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. (Citations omitted)82
In this case, the four elements cited in Francisco are present. First, petitioner
suffered an injury due to the mental duress of being bound to such an onerous
debt to Development Bank of the Philippines and Asset Privatization Trust.
Second, the wrongful acts of undue exclusion done by respondent Ruperto V.
Tankeh clearly fulfilled the same requirement. Third, the proximate cause of his
injury was the failure of respondent Ruperto V. Tankeh to comply with his
obligation to allow petitioner to either participate in the business or to fulfill his
fiduciary responsibilities with candor and good faith. Finally, Article 221983 of
the Civil Code provides that moral damages may be awarded in case of acts
and actions referred to in Article 21, which, as stated, had been found to be
attributed to respondent Ruperto V. Tankeh.
In the Appellant’s Brief,84 petitioner asked the Court of Appeals to demand
from respondents, except from respondent Asset Privatization Trust, the
amount of five million pesos (₱5,000,000.00). This Court finds that the amount
of five hundred thousand pesos (₱500,000.00) is a sufficient amount of moral
damages.
In addition to moral damages, this Court may also impose the payment of
exemplary damages.1âwphi1 Exemplary damages are discussed in Article 2229
of the Civil Code, as follows:
ART. 2229. Exemplary or corrective damages are imposed, by way of example
or correction of the public good, in addition to moral, temperate, liquidated or
compensatory damages.
Exemplary damages are further discussed in Articles 2233 and 2234,
particularly regarding the pre-requisites of ascertaining moral damages and the
fact that it is discretionary upon this Court to award them or not:
ART. 2233. Exemplary damages cannot be recovered as a matter of right; the
court will decide whether or not they should be adjudicated.
ART. 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 x x x
17
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. Rante85 citing People v. Dalisay86 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.87
To justify an award for exemplary damages, the wrongful act must be
accompanied by bad faith, and an award of damages would be allowed only if
the guilty party acted in a wanton, fraudulent, reckless or malevolent
manner.88 In this case, this Court finds that respondent Ruperto V. Tankeh
acted in a fraudulent manner through the finding of dolo incidente due to his
failure to act in a manner consistent with propriety, good morals, and
prudence.
Since exemplary damages ensure that future litigants or parties are enjoined
from acting in a similarly malevolent manner, it is incumbent upon this Court to
impose the damages in such a way that will serve as a categorical warning and
will show that wanton actions will be dealt with in a similar manner. This Court
finds that the amount of two hundred thousand pesos (₱200,000.00) is
sufficient for this purpose.
In sum, this Court must act in the best interests of all future litigants by
establishing and applying clearly defined standards and guidelines to ascertain
the existence of fraud.
WHEREFORE, this Petition is PARTIALLY GRANTED. The Decision of the Court of
Appeals as to the assailed Decision in so far as the finding of fraud is
SUSTAINED with the MODIFICATION that respondent RUPERTO V. TANKEH be
ordered to pay moral damages in the amount of FIVE HUNDRED THOUSAND
PESOS (₱500,000.00) and the amount of TWO HUNDRED THOUSAND PESOS
(₱200,000.00) by way of exemplary damages.
SO ORDERED.
MARVIC MARIO VICTOR F. LEONEN
Associate Justice
G.R. No. 34840           September 23, 1931
NARCISO GUTIERREZ, plaintiff-appellee,
vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ,
ABELARDO VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L.D. Lockwood for appellants Velasco and Cortez.
San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.
MALCOLM, J.:
This is an action brought by the plaintiff in the Court of First Instance of Manila
against the five defendants, to recover damages in the amount of P10,000, for
physical injuries suffered as a result of an automobile accident. On judgment
being rendered as prayed for by the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private
ownership collided while attempting to pass each other on the Talon bridge on
the Manila South Road in the municipality of Las Piñas, Province of Rizal. The
truck was driven by the chauffeur Abelardo Velasco, and was owned by
Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and
Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the
car, but the mother, together will several other members of the Gutierrez
family, seven in all, were accommodated therein. A passenger in the autobus,
by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to
Manila. The collision between the bus and the automobile resulted in Narciso
Gutierrez suffering a fracture right leg which required medical attendance for a
considerable period of time, and which even at the date of the trial appears
not to have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The
difference between the parties is that, while the plaintiff blames both sets of
defendants, the owner of the passenger truck blames the automobile, and the
owner of the automobile, in turn, blames the truck. We have given close
attention to these highly debatable points, and having done so, a majority of
the court are of the opinion that the findings of the trial judge on all
controversial questions of fact find sufficient support in the record, and so
should be maintained. With this general statement set down, we turn to
consider the respective legal obligations of the defendants.
In amplification of so much of the above pronouncement as concerns the
Gutierrez family, it may be explained that the youth Bonifacio was in
incompetent chauffeur, that he was driving at an excessive rate of speed, and
that, on approaching the bridge and the truck, he lost his head and so
contributed by his negligence to the accident. The guaranty given by the father
at the time the son was granted a license to operate motor vehicles made the
father responsible for the acts of his son. Based on these facts, pursuant to the
provisions of article 1903 of the Civil Code, the father alone and not the minor
or the mother, would be liable for the damages caused by the minor.
We are dealing with the civil law liability of parties for obligations which arise
from fault or negligence. At the same time, we believe that, as has been done
in other cases, we can take cognizance of the common law rule on the same
subject. In the United States, it is uniformly held that the head of a house, the
owner of an automobile, who maintains it for the general use of his family is
liable for its negligent operation by one of his children, whom he designates or
permits to run it, where the car is occupied and being used at the time of the
injury for the pleasure of other members of the owner's family than the child
driving it. The theory of the law is that the running of the machine by a child to
carry other members of the family is within the scope of the owner's business,
so that he is liable for the negligence of the child because of the relationship of
master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs.
Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the
truck, and of his chauffeur Abelardo Velasco rests on a different basis, namely,
that of contract which, we think, has been sufficiently demonstrated by the
allegations of the complaint, not controverted, and the evidence. The reason
for this conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine, and
the lack of care employed by the chauffeur. While these facts are not as clearly
evidenced as are those which convict the other defendant, we nevertheless
hesitate to disregard the points emphasized by the trial judge. In its broader
aspects, the case is one of two drivers approaching a narrow bridge from
opposite directions, with neither being willing to slow up and give the right of
way to the other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed
contributory negligence on the part of the plaintiff, consisting principally of his
keeping his foot outside the truck, which occasioned his injury. In this
connection, it is sufficient to state that, aside from the fact that the defense of
contributory negligence was not pleaded, the evidence bearing out this theory
of the case is contradictory in the extreme and leads us far afield into
speculative matters.
The last subject for consideration relates to the amount of the award. The
appellee suggests that the amount could justly be raised to P16,517, but
naturally is not serious in asking for this sum, since no appeal was taken by him
from the judgment. The other parties unite in challenging the award of
P10,000, as excessive. All facts considered, including actual expenditures and
damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court, lead
us to conclude that a total sum for the plaintiff of P5,000 would be fair and
reasonable. The difficulty in approximating the damages by monetary
compensation is well elucidated by the divergence of opinion among the
members of the court, three of whom have inclined to the view that P3,000
would be amply sufficient, while a fourth member has argued that P7,500
would be none too much.
In consonance with the foregoing rulings, the judgment appealed from will be
modified, and the plaintiff will have judgment in his favor against the
defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly
and severally, for the sum of P5,000, and the costs of both instances.
Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial,
JJ., concur.
18
VILLA-REAL, J.:
G.R. No. 157917               August 29, 2012
SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,
vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL
RAILWAYS, and the COURT OF APPEALS Respondents.
DECISION
BERSAMIN, J.:
The operator of a. school bus service is a common carrier in the eyes of the
law. He is bound to observe extraordinary diligence in the conduct of his
business. He is presumed to be negligent when death occurs to a passenger.
His liability may include indemnity for loss of earning capacity even if the
deceased passenger may only be an unemployed high school student at the
time of the accident.
The Case
By petition for review on certiorari, Spouses Teodoro and Nanette Perefia
(Perefias) appeal the adverse decision promulgated on November 13, 2002, by
which the Court of Appeals (CA) affirmed with modification the decision
rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch 260,
in Parañaque City that had decreed them jointly and severally liable with
Philippine National Railways (PNR), their co-defendant, to Spouses Nicolas and
Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron John L.
Zarate (Aaron), then a high school student of Don Bosco Technical Institute
(Don Bosco).
Antecedents
The Pereñas were engaged in the business of transporting students from their
respective residences in Parañaque City to Don Bosco in Pasong Tamo, Makati
City, and back. In their business, the Pereñas used a KIA Ceres Van (van) with
Plate No. PYA 896, which had the capacity to transport 14 students at a time,
two of whom would be seated in the front beside the driver, and the others in
the rear, with six students on either side. They employed Clemente Alfaro
(Alfaro) as driver of the van.
In June 1996, the Zarates contracted the Pereñas to transport Aaron to and
from Don Bosco. On August 22, 1996, as on previous school days, the van
picked Aaron up around 6:00 a.m. from the Zarates’ residence. Aaron took his
place on the left side of the van near the rear door. The van, with its air-
conditioning unit turned on and the stereo playing loudly, ultimately carried all
the 14 student riders on their way to Don Bosco. Considering that the students
were due at Don Bosco by 7:15 a.m., and that they were already running late
because of the heavy vehicular traffic on the South Superhighway, Alfaro took
the van to an alternate route at about 6:45 a.m. by traversing the narrow path
underneath the Magallanes Interchange that was then commonly used by
Makati-bound vehicles as a short cut into Makati. At the time, the narrow path
was marked by piles of construction materials and parked passenger jeepneys,
and the railroad crossing in the narrow path had no railroad warning signs, or
watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing
motorists.
At about the time the van was to traverse the railroad crossing, PNR Commuter
No. 302 (train), operated by Jhonny Alano (Alano), was in the vicinity of the
Magallanes Interchange travelling northbound. As the train neared the railroad
crossing, Alfaro drove the van eastward across the railroad tracks, closely
tailing a large passenger bus. His view of the oncoming train was blocked
because he overtook the passenger bus on its left side. The train blew its horn
to warn motorists of its approach. When the train was about 50 meters away
from the passenger bus and the van, Alano applied the ordinary brakes of the
train. He applied the emergency brakes only when he saw that a collision was
imminent. The passenger bus successfully crossed the railroad tracks, but the
van driven by Alfaro did not. The train hit the rear end of the van, and the
impact threw nine of the 12 students in the rear, including Aaron, out of the
van. Aaron landed in the path of the train, which dragged his body and severed
his head, instantaneously killing him. Alano fled the scene on board the train,
and did not wait for the police investigator to arrive.
Devastated by the early and unexpected death of Aaron, the Zarates
commenced this action for damages against Alfaro, the Pereñas, PNR and
Alano. The Pereñas and PNR filed their respective answers, with cross-claims
against each other, but Alfaro could not be served with summons.
At the pre-trial, the parties stipulated on the facts and issues, viz:
A. FACTS:
That spouses Zarate were the legitimate parents of Aaron John L.
Zarate;(1)
Spouses Zarate engaged the services of spouses Pereña for the
adequate and safe transportation carriage of the former spouses'
son from their residence in Parañaque to his school at the Don
Bosco Technical Institute in Makati City;(2)
During the effectivity of the contract of carriage and in the
implementation thereof, Aaron, the minor son of spouses Zarate
died in connection with a vehicular/train collision which occurred
while Aaron was riding the contracted carrier Kia Ceres van of
spouses Pereña, then driven and operated by the latter's
employee/authorized driver Clemente Alfaro, which van collided
with the train of PNR, at around 6:45 A.M. of August 22, 1996,
within the vicinity of the Magallanes Interchange in Makati City,
Metro Manila, Philippines;(3)
At the time of the vehicular/train collision, the subject site of the
vehicular/train collision was a railroad crossing used by motorists
for crossing the railroad tracks;(4)
During the said time of the vehicular/train collision, there were no
appropriate and safety warning signs and railings at the site
commonly used for railroad crossing;(5)
At the material time, countless number of Makati bound public
utility and private vehicles used on a daily basis the site of the
collision as an alternative route and short-cut to Makati;(6)
The train driver or operator left the scene of the incident on board
the commuter train involved without waiting for the police
investigator;(7)
The site commonly used for railroad crossing by motorists was not
in fact intended by the railroad operator for railroad crossing at the
time of the vehicular collision;(8)
PNR received the demand letter of the spouses Zarate;(9)
PNR refused to acknowledge any liability for the vehicular/train
collision;(10)
The eventual closure of the railroad crossing alleged by PNR was an
internal arrangement between the former and its project
contractor; and(11)
The site of the vehicular/train collision was within the vicinity or
less than 100 meters from the Magallanes station of PNR.(12)
B. ISSUES
(1) Whether or not defendant-driver of the van is, in the
performance of his functions, liable for negligence constituting the
proximate cause of the vehicular collision, which resulted in the
death of plaintiff spouses' son;
(2) Whether or not the defendant spouses Pereña being the
employer of defendant Alfaro are liable for any negligence which
may be attributed to defendant Alfaro;
(3) Whether or not defendant Philippine National Railways being
the operator of the railroad system is liable for negligence in failing
to provide adequate safety warning signs and railings in the area
commonly used by motorists for railroad crossings, constituting the
proximate cause of the vehicular collision which resulted in the
death of the plaintiff spouses' son;
(4) Whether or not defendant spouses Pereña are liable for breach
of the contract of carriage with plaintiff-spouses in failing to provide
adequate and safe transportation for the latter's son;
(5) Whether or not defendants spouses are liable for actual, moral
damages, exemplary damages, and attorney's fees;
19
 (6) Whether or not defendants spouses Teodorico and Nanette
Pereña observed the diligence of employers and school bus
operators;
(7) Whether or not defendant-spouses are civilly liable for the
accidental death of Aaron John Zarate;
(8) Whether or not defendant PNR was grossly negligent in
operating the commuter train involved in the accident, in allowing
or tolerating the motoring public to cross, and its failure to install
safety devices or equipment at the site of the accident for the
protection of the public;
(9) Whether or not defendant PNR should be made to reimburse
defendant spouses for any and whatever amount the latter may be
held answerable or which they may be ordered to pay in favor of
plaintiffs by reason of the action;
(10) Whether or not defendant PNR should pay plaintiffs directly
and fully on the amounts claimed by the latter in their Complaint by
reason of its gross negligence;
(11) Whether or not defendant PNR is liable to defendants spouses
for actual, moral and exemplary damages and attorney's fees.2
The Zarates’ claim against the Pereñas was upon breach of the contract of
carriage for the safe transport of Aaron; but that against PNR was based on
quasi-delict under Article 2176, Civil Code.
In their defense, the Pereñas adduced evidence to show that they had
exercised the diligence of a good father of the family in the selection and
supervision of Alfaro, by making sure that Alfaro had been issued a driver’s
license and had not been involved in any vehicular accident prior to the
collision; that their own son had taken the van daily; and that Teodoro Pereña
had sometimes accompanied Alfaro in the van’s trips transporting the students
to school.
For its part, PNR tended to show that the proximate cause of the collision had
been the reckless crossing of the van whose driver had not first stopped,
looked and listened; and that the narrow path traversed by the van had not
been intended to be a railroad crossing for motorists.
Ruling of the RTC
On December 3, 1999, the RTC rendered its decision,3 disposing:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
the plaintiff and against the defendants ordering them to jointly and severally
pay the plaintiffs as follows:
(1) (for) the death of Aaron- Php50,000.00;
(2) Actual damages in the amount of Php100,000.00;
(3) For the loss of earning capacity- Php2,109,071.00;
(4) Moral damages in the amount of Php4,000,000.00;
(5) Exemplary damages in the amount of Php1,000,000.00;
(6) Attorney’s fees in the amount of Php200,000.00; and
(7) Cost of suit.
SO ORDERED.
On June 29, 2000, the RTC denied the Pereñas’ motion for
reconsideration,4 reiterating that the cooperative gross negligence of the
Pereñas and PNR had caused the collision that led to the death of Aaron; and
that the damages awarded to the Zarates were not excessive, but based on the
established circumstances.
The CA’s Ruling
Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).
PNR assigned the following errors, to wit:5
The Court a quo erred in:
1. In finding the defendant-appellant Philippine National Railways
jointly and severally liable together with defendant-appellants
spouses Teodorico and Nanette Pereña and defendant-appellant
Clemente Alfaro to pay plaintiffs-appellees for the death of Aaron
Zarate and damages.
2. In giving full faith and merit to the oral testimonies of plaintiffs-
appellees witnesses despite overwhelming documentary evidence
on record, supporting the case of defendants-appellants Philippine
National Railways.
The Pereñas ascribed the following errors to the RTC, namely:
The trial court erred in finding defendants-appellants jointly and severally liable
for actual, moral and exemplary damages and attorney’s fees with the other
defendants.
The trial court erred in dismissing the cross-claim of the appellants Pereñas
against the Philippine National Railways and in not holding the latter and its
train driver primarily responsible for the incident.
The trial court erred in awarding excessive damages and attorney’s fees.
The trial court erred in awarding damages in the form of deceased’s loss of
earning capacity in the absence of sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings
of the RTC, but limited the moral damages to ₱ 2,500,000.00; and deleted the
attorney’s fees because the RTC did not state the factual and legal bases, to
wit:6
WHEREFORE, premises considered, the assailed Decision of the Regional Trial
Court, Branch 260 of Parañaque City is AFFIRMED with the modification that
the award of Actual Damages is reduced to ₱ 59,502.76; Moral Damages is
reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is Deleted.
SO ORDERED.
The CA upheld the award for the loss of Aaron’s earning capacity, taking
cognizance of the ruling in Cariaga v. Laguna Tayabas Bus Company and Manila
Railroad Company,7 wherein the Court gave the heirs of Cariaga a sum
representing the loss of the deceased’s earning capacity despite Cariaga being
only a medical student at the time of the fatal incident. Applying the formula
adopted in the American Expectancy Table of Mortality:–
2/3 x (80 - age at the time of death) = life expectancy
the CA determined the life expectancy of Aaron to be 39.3 years upon
reckoning his life expectancy from age of 21 (the age when he would have
graduated from college and started working for his own livelihood) instead of
15 years (his age when he died). Considering that the nature of his work and
his salary at the time of Aaron’s death were unknown, it used the prevailing
minimum wage of ₱ 280.00/day to compute Aaron’s gross annual salary to be
₱ 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual
salary by Aaron’s life expectancy of 39.3 years, his gross income would
aggregate to ₱ 4,351,164.30, from which his estimated expenses in the sum of
₱ 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net income.
Due to Aaron’s computed net income turning out to be higher than the amount
claimed by the Zarates, only ₱ 2,109,071.00, the amount expressly prayed for
by them, was granted.
On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8
Issues
In this appeal, the Pereñas list the following as the errors committed by the CA,
to wit:
I. The lower court erred when it upheld the trial court’s decision holding the
petitioners jointly and severally liable to pay damages with Philippine National
Railways and dismissing their cross-claim against the latter.
II. The lower court erred in affirming the trial court’s decision awarding
damages for loss of earning capacity of a minor who was only a high school
20
student at the time of his death in the absence of sufficient basis for such an
award.
III. The lower court erred in not reducing further the amount of damages
awarded, assuming petitioners are liable at all.
Ruling
The petition has no merit.
1.
Were the Pereñas and PNR jointly
and severally liable for damages?
The Zarates brought this action for recovery of damages against both the
Pereñas and the PNR, basing their claim against the Pereñas on breach of
contract of carriage and against the PNR on quasi-delict.
The RTC found the Pereñas and the PNR negligent. The CA affirmed the
findings.
We concur with the CA.
To start with, the Pereñas’ defense was that they exercised the diligence of a
good father of the family in the selection and supervision of Alfaro, the van
driver, by seeing to it that Alfaro had a driver’s license and that he had not
been involved in any vehicular accident prior to the fatal collision with the
train; that they even had their own son travel to and from school on a daily
basis; and that Teodoro Pereña himself sometimes accompanied Alfaro in
transporting the passengers to and from school. The RTC gave scant
consideration to such defense by regarding such defense as inappropriate in an
action for breach of contract of carriage.
We find no adequate cause to differ from the conclusions of the lower courts
that the Pereñas operated as a common carrier; and that their standard of care
was extraordinary diligence, not the ordinary diligence of a good father of a
family.
Although in this jurisdiction the operator of a school bus service has been
usually regarded as a private carrier,9 primarily because he only caters to some
specific or privileged individuals, and his operation is neither open to the
indefinite public nor for public use, the exact nature of the operation of a
school bus service has not been finally settled. This is the occasion to lay the
matter to rest.
A carrier is a person or corporation who undertakes to transport or convey
goods or persons from one place to another, gratuitously or for hire. The
carrier is classified either as a private/special carrier or as a common/public
carrier.10 A private carrier is one who, without making the activity a vocation, or
without holding himself or itself out to the public as ready to act for all who
may desire his or its services, undertakes, by special agreement in a particular
instance only, to transport goods or persons from one place to another either
gratuitously or for hire.11 The provisions on ordinary contracts of the Civil Code
govern the contract of private carriage.The diligence required of a private
carrier is only ordinary, that is, the diligence of a good father of the family. In
contrast, a common carrier is a person, corporation, firm or association
engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering such services to the
public.12 Contracts of common carriage are governed by the provisions on
common carriers of the Civil Code, the Public Service Act,13 and other special
laws relating to transportation. A common carrier is required to observe
extraordinary diligence, and is presumed to be at fault or to have acted
negligently in case of the loss of the effects of passengers, or the death or
injuries to passengers.14
In relation to common carriers, the Court defined public use in the following
terms in United States v. Tan Piaco,15 viz:
"Public use" is the same as "use by the public". The essential feature of the
public use is not confined to privileged individuals, but is open to the indefinite
public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the
character of the business to be done, but also to the proposed mode of doing
it. If the use is merely optional with the owners, or the public benefit is merely
incidental, it is not a public use, authorizing the exercise of the jurisdiction of
the public utility commission. There must be, in general, a right which the law
compels the owner to give to the general public. It is not enough that the
general prosperity of the public is promoted. Public use is not synonymous
with public interest. The true criterion by which to judge the character of the
use is whether the public may enjoy it by right or only by permission.
In De Guzman v. Court of Appeals, 16 the Court noted that Article 1732 of the
Civil Code avoided any distinction between a person or an enterprise offering
transportation on a regular or an isolated basis; and has not distinguished a
carrier offering his services to the general public, that is, the general
community or population, from one offering his services only to a narrow
segment of the general population.
Nonetheless, the concept of a common carrier embodied in Article 1732 of the
Civil Code coincides neatly with the notion of public service under the Public
Service Act, which supplements the law on common carriers found in the Civil
Code. Public service, according to Section 13, paragraph (b) of the Public
Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control
in the Philippines, for hire or compensation, with general or limited clientèle,
whether permanent or occasional, and done for the general business purposes,
any common carrier, railroad, street railway, traction railway, subway motor
vehicle, either for freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of any class,
express service, steamboat, or steamship line, pontines, ferries and water craft,
engaged in the transportation of passengers or freight or both, shipyard,
marine repair shop, ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum, sewerage system,
wire or wireless communications systems, wire or wireless broadcasting
stations and other similar public services. x x x.17
Given the breadth of the aforequoted characterization of a common carrier,
the Court has considered as common carriers pipeline operators,18 custom
brokers and warehousemen,19 and barge operators20 even if they had limited
clientèle.
As all the foregoing indicate, the true test for a common carrier is not the
quantity or extent of the business actually transacted, or the number and
character of the conveyances used in the activity, but whether the undertaking
is a part of the activity engaged in by the carrier that he has held out to the
general public as his business or occupation. If the undertaking is a single
transaction, not a part of the general business or occupation engaged in, as
advertised and held out to the general public, the individual or the entity
rendering such service is a private, not a common, carrier. The question must
be determined by the character of the business actually carried on by the
carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes.21
Applying these considerations to the case before us, there is no question that
the Pereñas as the operators of a school bus service were: (a) engaged in
transporting passengers generally as a business, not just as a casual
occupation; (b) undertaking to carry passengers over established roads by the
method by which the business was conducted; and (c) transporting students
for a fee. Despite catering to a limited clientèle, the Pereñas operated as a
common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near
where they operated the service and for a fee.
The common carrier’s standard of care and vigilance as to the safety of the
passengers is defined by law. Given the nature of the business and for reasons
of public policy, the common carrier is 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."22 Article
1755 of the Civil Code specifies that the common carrier should "carry the
passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the
circumstances." To successfully fend off liability in an action upon the death or
injury to a passenger, the common carrier must prove his or its observance of
that extraordinary diligence; otherwise, the legal presumption that he or it was
at fault or acted negligently would stand.23 No device, whether by stipulation,
posting of notices, statements on tickets, or otherwise, may dispense with or
lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24
And, secondly, the Pereñas have not presented any compelling defense or
reason by which the Court might now reverse the CA’s findings on their
liability. On the contrary, an examination of the records shows that the
evidence fully supported the findings of the CA.
As earlier stated, the Pereñas, acting as a common carrier, were already
presumed to be negligent at the time of the accident because death had
occurred to their passenger.25 The presumption of negligence, being a
presumption of law, laid the burden of evidence on their shoulders to establish
that they had not been negligent.26 It was the law no less that required them to
prove their observance of extraordinary diligence in seeing to the safe and
secure carriage of the passengers to their destination. Until they did so in a
credible manner, they stood to be held legally responsible for the death of
Aaron and thus to be held liable for all the natural consequences of such death.
21
There is no question that the Pereñas did not overturn the presumption of
their negligence by credible evidence. Their defense of having observed the
diligence of a good father of a family in the selection and supervision of their
driver was not legally sufficient. According to Article 1759 of the Civil Code,
their liability as a common carrier did not cease upon proof that they exercised
all the diligence of a good father of a family in the selection and supervision of
their employee. This was the reason why the RTC treated this defense of the
Pereñas as inappropriate in this action for breach of contract of carriage.
The Pereñas were liable for the death of Aaron despite the fact that their driver
might have acted beyond the scope of his authority or even in violation of the
orders of the common carrier.27 In this connection, the records showed their
driver’s actual negligence. There was a showing, to begin with, that their driver
traversed the railroad tracks at a point at which the PNR did not permit
motorists going into the Makati area to cross the railroad tracks. Although that
point had been used by motorists as a shortcut into the Makati area, that fact
alone did not excuse their driver into taking that route. On the other hand,
with his familiarity with that shortcut, their driver was fully aware of the risks
to his passengers but he still disregarded the risks. Compounding his lack of
care was that loud music was playing inside the air-conditioned van at the time
of the accident. The loudness most probably reduced his ability to hear the
warning horns of the oncoming train to allow him to correctly appreciate the
lurking dangers on the railroad tracks. Also, he sought to overtake a passenger
bus on the left side as both vehicles traversed the railroad tracks. In so doing,
he lost his view of the train that was then coming from the opposite side of the
passenger bus, leading him to miscalculate his chances of beating the bus in
their race, and of getting clear of the train. As a result, the bus avoided a
collision with the train but the van got slammed at its rear, causing the fatality.
Lastly, he did not slow down or go to a full stop before traversing the railroad
tracks despite knowing that his slackening of speed and going to a full stop
were in observance of the right of way at railroad tracks as defined by the
traffic laws and regulations.28 He thereby violated a specific traffic regulation on
right of way, by virtue of which he was immediately presumed to be
negligent.29
The omissions of care on the part of the van driver constituted
negligence,30 which, according to Layugan v. Intermediate Appellate Court,31 is
"the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would
do, or the doing of something which a prudent and reasonable man would not
do,32 or as Judge Cooley defines it, ‘(t)he failure to observe for the protection of
the interests of another person, that degree of care, precaution, and vigilance
which the circumstances justly demand, whereby such other person suffers
injury.’"33
The test by which to determine the existence of negligence in a particular case
has been aptly stated in the leading case of Picart v. Smith,34 thuswise:
The test by which to determine the existence of negligence in a particular case
may be stated as follows: Did the defendant in doing the alleged negligent act
use that reasonable care and caution which an ordinarily prudent person
would have used in the same situation? If not, then he is guilty of negligence.
The law here in effect adopts the standard supposed to be supplied by the
imaginary conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by reference to the
personal judgment of the actor in the situation before him. The law considers
what would be reckless, blameworthy, or negligent in the man of ordinary
intelligence and prudence and determines liability by that.
The question as to what would constitute the conduct of a prudent man in a
given situation must of course be always determined in the light of human
experience and in view of the facts involved in the particular case. Abstract
speculation cannot here be of much value but this much can be profitably said:
Reasonable men govern their conduct by the circumstances which are before
them or known to them. They are not, and are not supposed to be, omniscient
of the future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a prudent man, in
the case under consideration, foresee harm as a result of the course actually
pursued? If so, it was the duty of the actor to take precautions to guard against
that harm. Reasonable foresight of harm, followed by the ignoring of the
suggestion born of this prevision, is always necessary before negligence can be
held to exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be negligent
when a prudent man in the position of the tortfeasor would have foreseen that
an effect harmful to another was sufficiently probable to warrant his foregoing
the conduct or guarding against its consequences. (Emphasis supplied)
Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was
entirely negligent when he traversed the railroad tracks at a point not allowed
for a motorist’s crossing despite being fully aware of the grave harm to be
thereby caused to his passengers; and when he disregarded the foresight of
harm to his passengers by overtaking the bus on the left side as to leave
himself blind to the approach of the oncoming train that he knew was on the
opposite side of the bus.
Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate
Court,35 where the Court held the PNR solely liable for the damages caused to a
passenger bus and its passengers when its train hit the rear end of the bus that
was then traversing the railroad crossing. But the circumstances of that case
and this one share no similarities. In Philippine National Railways v.
Intermediate Appellate Court, no evidence of contributory negligence was
adduced against the owner of the bus. Instead, it was the owner of the bus
who proved the exercise of extraordinary diligence by preponderant evidence.
Also, the records are replete with the showing of negligence on the part of
both the Pereñas and the PNR. Another distinction is that the passenger bus in
Philippine National Railways v. Intermediate Appellate Court was traversing the
dedicated railroad crossing when it was hit by the train, but the Pereñas’
school van traversed the railroad tracks at a point not intended for that
purpose.
At any rate, the lower courts correctly held both the Pereñas and the PNR
"jointly and severally" liable for damages arising from the death of Aaron. They
had been impleaded in the same complaint as defendants against whom the
Zarates had the right to relief, whether jointly, severally, or in the alternative,
in respect to or arising out of the accident, and questions of fact and of law
were common as to the Zarates.36 Although the basis of the right to relief of the
Zarates (i.e., breach of contract of carriage) against the Pereñas was distinct
from the basis of the Zarates’ right to relief against the PNR (i.e., quasi-delict
under Article 2176, Civil Code), they nonetheless could be held jointly and
severally liable by virtue of their respective negligence combining to cause the
death of Aaron. As to the PNR, the RTC rightly found the PNR also guilty of
negligence despite the school van of the Pereñas traversing the railroad tracks
at a point not dedicated by the PNR as a railroad crossing for pedestrians and
motorists, because the PNR did not ensure the safety of others through the
placing of crossbars, signal lights, warning signs, and other permanent safety
barriers to prevent vehicles or pedestrians from crossing there. The RTC
observed that the fact that a crossing guard had been assigned to man that
point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the
risks to others as well as the need to control the vehicular and other traffic
there. Verily, the Pereñas and the PNR were joint tortfeasors.
2.
Was the indemnity for loss of
Aaron’s earning capacity proper?
The RTC awarded indemnity for loss of Aaron’s earning capacity. Although
agreeing with the RTC on the liability, the CA modified the amount. Both lower
courts took into consideration that Aaron, while only a high school student,
had been enrolled in one of the reputable schools in the Philippines and that
he had been a normal and able-bodied child prior to his death. The basis for
the computation of Aaron’s earning capacity was not what he would have
become or what he would have wanted to be if not for his untimely death, but
the minimum wage in effect at the time of his death. Moreover, the RTC’s
computation of Aaron’s life expectancy rate was not reckoned from his age of
15 years at the time of his death, but on 21 years, his age when he would have
graduated from college.
We find the considerations taken into account by the lower courts to be
reasonable and fully warranted.
Yet, the Pereñas submit that the indemnity for loss of earning capacity was
speculative and unfounded.1âwphi1 They cited People v. Teehankee,
Jr.,37 where the Court deleted the indemnity for victim Jussi Leino’s loss of
earning capacity as a pilot for being speculative due to his having graduated
from high school at the International School in Manila only two years before
the shooting, and was at the time of the shooting only enrolled in the first
semester at the Manila Aero Club to pursue his ambition to become a
professional pilot. That meant, according to the Court, that he was for all
intents and purposes only a high school graduate.
We reject the Pereñas’ submission.
First of all, a careful perusal of the Teehankee, Jr. case shows that the situation
there of Jussi Leino was not akin to that of Aaron here. The CA and the RTC
were not speculating that Aaron would be some highly-paid professional, like a
pilot (or, for that matter, an engineer, a physician, or a lawyer). Instead, the
computation of Aaron’s earning capacity was premised on him being a lowly
minimum wage earner despite his being then enrolled at a prestigious high
school like Don Bosco in Makati, a fact that would have likely ensured his
success in his later years in life and at work.
And, secondly, the fact that Aaron was then without a history of earnings
should not be taken against his parents and in favor of the defendants whose
negligence not only cost Aaron his life and his right to work and earn money,
but also deprived his parents of their right to his presence and his services as
well. Our law itself states that the loss of the earning capacity of the deceased
shall be the liability of the guilty party in favor of the heirs of the deceased, and
shall in every case be assessed and awarded by the court "unless the deceased
22
on account of permanent physical disability not caused by the defendant, had
no earning capacity at the time of his death."38 Accordingly, we emphatically
hold in favor of the indemnification for Aaron’s loss of earning capacity despite
him having been unemployed, because compensation of this nature is awarded
not for loss of time or earnings but for loss of the deceased’s power or ability
to earn money.39
This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga
v. Laguna Tayabas Bus Company and Manila Railroad Company,40 fourth-year
medical student Edgardo Carriaga’s earning capacity, although he survived the
accident but his injuries rendered him permanently incapacitated, was
computed to be that of the physician that he dreamed to become. The Court
considered his scholastic record sufficient to justify the assumption that he
could have finished the medical course and would have passed the medical
board examinations in due time, and that he could have possibly earned a
modest income as a medical practitioner. Also, in People v. Sanchez,41 the Court
opined that murder and rape victim Eileen Sarmienta and murder victim Allan
Gomez could have easily landed good-paying jobs had they graduated in due
time, and that their jobs would probably pay them high monthly salaries from
₱ 10,000.00 to ₱ 15,000.00 upon their graduation. Their earning capacities
were computed at rates higher than the minimum wage at the time of their
deaths due to their being already senior agriculture students of the University
of the Philippines in Los Baños, the country’s leading educational institution in
agriculture.
3.
Were the amounts of damages excessive?
The Pereñas plead for the reduction of the moral and exemplary damages
awarded to the Zarates in the respective amounts of ₱ 2,500,000.00 and ₱
1,000,000.00 on the ground that such amounts were excessive.
The plea is unwarranted.
The moral damages of ₱ 2,500,000.00 were really just and reasonable under
the established circumstances of this case because they were intended by the
law to assuage the Zarates’ deep mental anguish over their son’s unexpected
and violent death, and their moral shock over the senseless accident. That
amount would not be too much, considering that it would help the Zarates
obtain the means, diversions or amusements that would alleviate their
suffering for the loss of their child. At any rate, reducing the amount as
excessive might prove to be an injustice, given the passage of a long time from
when their mental anguish was inflicted on them on August 22, 1996.
Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not
reduce the amount if only to render effective the desired example for the
public good. As a common carrier, the Pereñas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to prevent a
similarly senseless accident from happening again. Only by an award of
exemplary damages in that amount would suffice to instill in them and others
similarly situated like them the ever-present need for greater and constant
vigilance in the conduct of a business imbued with public interest.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the
decision promulgated on November 13, 2002; and ORDER the petitioners to
pay the costs of suit.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice
G.R. No. L-21749             September 29, 1967
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant.
REYES, J.B.L., J.:
The present case comes by direct appeal from a decision of the Court of First
Instance of Manila (Case No. 44572) adjudging the defendant-appellant, Luzon
Stevedoring Corporation, liable in damages to the plaintiff-appellee Republic of
the Philippines.
In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon
Stevedoring Corporation was being towed down the Pasig river by tugboats
"Bangus" and "Barbero"1 also belonging to the same corporation, when the
barge rammed against one of the wooden piles of the Nagtahan bailey bridge,
smashing the posts and causing the bridge to list. The river, at the time, was
swollen and the current swift, on account of the heavy downpour of Manila
and the surrounding provinces on August 15 and 16, 1960.
Sued by the Republic of the Philippines for actual and consequential damage
caused by its employees, amounting to P200,000 (Civil Case No. 44562, CFI of
Manila), defendant Luzon Stevedoring Corporation disclaimed liability therefor,
on the grounds that it had exercised due diligence in the selection and
supervision of its employees; that the damages to the bridge were caused
by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan
bailey bridge is an obstruction to navigation.
After due trial, the court rendered judgment on June 11, 1963, holding the
defendant liable for the damage caused by its employees and ordering it to pay
to plaintiff the actual cost of the repair of the Nagtahan bailey bridge which
amounted to P192,561.72, with legal interest thereon from the date of the
filing of the complaint.
Defendant appealed directly to this Court assigning the following errors
allegedly committed by the court a quo, to wit:
I — The lower court erred in not holding that the herein defendant-
appellant had exercised the diligence required of it in the selection
and supervision of its personnel to prevent damage or injury to
others.1awphîl.nèt
II — The lower court erred in not holding that the ramming of the
Nagtahan bailey bridge by barge L-1892 was caused by force
majeure.
III — The lower court erred in not holding that the Nagtahan bailey
bridge is an obstruction, if not a menace, to navigation in the Pasig
river.
IV — The lower court erred in not blaming the damage sustained by
the Nagtahan bailey bridge to the improper placement of the
dolphins.
V — The lower court erred in granting plaintiff's motion to adduce
further evidence in chief after it has rested its case.
VI — The lower court erred in finding the plaintiff entitled to the
amount of P192,561.72 for damages which is clearly exorbitant and
without any factual basis.
However, it must be recalled that the established rule in this jurisdiction is that
when a party appeals directly to the Supreme Court, and submits his case there
for decision, he is deemed to have waived the right to dispute any finding of
fact made by the trial Court. The only questions that may be raised are those of
law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307,
April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party
who resorts to the Court of Appeals, and submits his case for decision there, is
barred from contending later that his claim was beyond the jurisdiction of the
aforesaid Court. The reason is that a contrary rule would encourage the
undesirable practice of appellants' submitting their cases for decision to either
court in expectation of favorable judgment, but with intent of attacking its
jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas
Compañia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23,
1966). Consequently, we are limited in this appeal to the issues of law raised in
the appellant's brief.
Taking the aforesaid rules into account, it can be seen that the only reviewable
issues in this appeal are reduced to two:
1) Whether or not the collision of appellant's barge with the
supports or piers of the Nagtahan bridge was in law caused by
fortuitous event or force majeure, and
2) Whether or not it was error for the Court to have permitted the
plaintiff-appellee to introduce additional evidence of damages after
said party had rested its case.
23
As to the first question, considering that the Nagtahan bridge was an
immovable and stationary object and uncontrovertedly provided with
adequate openings for the passage of water craft, including barges like of
appellant's, it is undeniable that the unusual event that the barge, exclusively
controlled by appellant, rammed the bridge supports raises a presumption of
negligence on the part of appellant or its employees manning the barge or the
tugs that towed it. For in the ordinary course of events, such a thing does not
happen if proper care is used. In Anglo American Jurisprudence, the inference
arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks
Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L.
Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great
Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146
S.W. 2d 719).
The appellant strongly stresses the precautions taken by it on the day in
question: that it assigned two of its most powerful tugboats to tow down river
its barge L-1892; that it assigned to the task the more competent and
experienced among its patrons, had the towlines, engines and equipment
double-checked and inspected; that it instructed its patrons to take extra
precautions; and concludes that it had done all it was called to do, and that the
accident, therefore, should be held due to force majeure or fortuitous event.
These very precautions, however, completely destroy the appellant's defense.
For caso fortuito or force majeure (which in law are identical in so far as they
exempt an obligor from liability)2 by definition, are extraordinary events not
foreseeable or avoidable, "events that could not be foreseen, or which, though
foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is,
therefore, not enough that the event should not have been foreseen or
anticipated, as is commonly believed, but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is not impossibility to
foresee the same: "un hecho no constituye caso fortuito por la sola
circunstancia de que su existencia haga mas dificil o mas onerosa la accion
diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-
contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol. 2, sec. 1569).
The very measures adopted by appellant prove that the possibility of danger
was not only foreseeable, but actually foreseen, and was not caso fortuito.
Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and
appreciating the perils posed by the swollen stream and its swift current,
voluntarily entered into a situation involving obvious danger; it therefore
assured the risk, and can not shed responsibility merely because the
precautions it adopted turned out to be insufficient. Hence, the lower Court
committed no error in holding it negligent in not suspending operations and in
holding it liable for the damages caused.
It avails the appellant naught to argue that the dolphins, like the bridge, were
improperly located. Even if true, these circumstances would merely emphasize
the need of even higher degree of care on appellant's part in the situation
involved in the present case. The appellant, whose barges and tugs travel up
and down the river everyday, could not safely ignore the danger posed by
these allegedly improper constructions that had been erected, and in place, for
years.
On the second point: appellant charges the lower court with having abused its
discretion in the admission of plaintiff's additional evidence after the latter had
rested its case. There is an insinuation that the delay was deliberate to enable
the manipulation of evidence to prejudice defendant-appellant.
We find no merit in the contention. Whether or not further evidence will be
allowed after a party offering the evidence has rested his case, lies within the
sound discretion of the trial Judge, and this discretion will not be reviewed
except in clear case of abuse.3
In the present case, no abuse of that discretion is shown. What was allowed to
be introduced, after plaintiff had rested its evidence in chief, were vouchers
and papers to support an item of P1,558.00 allegedly spent for the
reinforcement of the panel of the bailey bridge, and which item already
appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial
court of being unfair, because it was also able to secure, upon written motion,
a similar order dated November 24, 1962, allowing reception of additional
evidence for the said defendant-appellant.4
WHEREFORE, finding no error in the decision of the lower Court appealed from,
the same is hereby affirmed. Costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part.
G.R. No. 147324             May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the
Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio Corporation,
now Globe Telecom, Inc. (Globe), had been engaged in the coordination of the
provision of various communication facilities for the military bases of the
United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic
Naval Base in Cubi Point, Zambales. The said communication facilities were
installed and configured for the exclusive use of the US Defense
Communications Agency (USDCA), and for security reasons, were operated
only by its personnel or those of American companies contracted by it to
operate said facilities. The USDCA contracted with said American companies,
and the latter, in turn, contracted with Globe for the use of the communication
facilities. Globe, on the other hand, contracted with local service providers
such as the Philippine Communications Satellite Corporation (Philcomsat) for
the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby
Philcomsat obligated itself to establish, operate and provide an IBS Standard B
earth station (earth station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five (5) years.3 In turn,
Globe promised to pay Philcomsat monthly rentals for each leased circuit
involved.4
At the time of the execution of the Agreement, both parties knew that the
Military Bases Agreement between the Republic of the Philippines and the US
(RP-US Military Bases Agreement), which was the basis for the occupancy of
the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991.
Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases,
troops or facilities, which include those located at the US Naval Facility in Cubi
Point, shall not be allowed in the Philippines unless a new treaty is duly
concurred in by the Senate and ratified by a majority of the votes cast by the
people in a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at Cubi
Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution No.
141, expressing its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary Agreements that
was supposed to extend the term of the use by the US of Subic Naval Base,
among others.5 The last two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for the
continuing relationship between the two countries in the spirit of
friendship, cooperation and sovereign equality: Now, therefore, be
it Resolved by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements, at the
same time reaffirming its desire to continue friendly relations with
the government and people of the United States of America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to the
US Government through the US Embassy, notifying it of the Philippines’
termination of the RP-US Military Bases Agreement. The Note Verbale stated
that since the RP-US Military Bases Agreement, as amended, shall terminate on
31 December 1992, the withdrawal of all US military forces from Subic Naval
Base should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to
discontinue the use of the earth station effective 08 November 1992 in view of
the withdrawal of US military personnel from Subic Naval Base after the
24
termination of the RP-US Military Bases Agreement. Globe invoked as basis for
the letter of termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for any
failure to perform its obligation under this Agreement if such failure
results directly or indirectly from force majeure or fortuitous event.
Either party is thus precluded from performing its obligation until
such force majeure or fortuitous event shall terminate. For the
purpose of this paragraph, force majeure shall mean circumstances
beyond the control of the party involved including, but not limited
to, any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor difficulties,
insurrection riots, national emergencies, war, acts of public
enemies, fire, floods, typhoons or other catastrophies or acts of
God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we
expect [Globe] to know its commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe] shall have discontinue[d]
the use of the earth station after November 08, 1992."7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice shall be
served to PHILCOMSAT at least sixty (60) days prior to the expected
date of termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for the rental of
the actual number of T1 circuits in use, but in no case shall be less
than the first two (2) T1 circuits, for the remaining life of the
agreement. However, should PHILCOMSAT make use or sell the
earth station subject to this agreement, the obligation of [Globe] to
pay the rental for the remaining life of the agreement shall be at
such monthly rate as may be agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter
dated 24 November 1993 demanding payment of its outstanding obligations
under the Agreement amounting to US$4,910,136.00 plus interest and
attorney’s fees. However, Globe refused to heed Philcomsat’s demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati
a Complaint against Globe, praying that the latter be ordered to pay liquidated
damages under the Agreement, with legal interest, exemplary damages,
attorney’s fees and costs of suit. The case was raffled to Branch 59 of said
court.
Globe filed an Answer to the Complaint, insisting that it was constrained to end
the Agreement due to the termination of the RP-US Military Bases Agreement
and the non-ratification by the Senate of the Treaty of Friendship and
Cooperation, which events constituted force majeure under the Agreement.
Globe explained that the occurrence of said events exempted it from paying
rentals for the remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:
1. Ordering the defendant to pay the plaintiff the
amount of Ninety Two Thousand Two Hundred Thirty
Eight US Dollars (US$92,238.00) or its equivalent in
Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment)
representing rentals for the month of December 1992
with interest thereon at the legal rate of twelve percent
(12%) per annum starting December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the plaintiff the
amount of Three Hundred Thousand (P300,000.00) Pesos
as and for attorney’s fees;
3. Ordering the DISMISSAL of defendant’s counterclaim
for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial court’s Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-
ratification by the Senate of the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements constitutes force majeure which exempts
Globe from complying with its obligations under the Agreement; (2) Globe is
not liable to pay the rentals for the remainder of the term of the Agreement;
and (3) Globe is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it liable for
payment of rent of the earth station for December 1992 and of attorney’s fees.
It explained that it terminated Philcomsat’s services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated its Decision dismissing
Philcomsat’s appeal for lack of merit and affirming the trial court’s finding that
certain events constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals for the remainder
of the term of the Agreement.
The appellate court ruled that the non-ratification by the Senate of the Treaty
of Friendship, Cooperation and Security, and its Supplementary Agreements,
and the termination by the Philippine Government of the RP-US Military Bases
Agreement effective 31 December 1991 as stated in the Philippine
Government’s Note Verbale to the US Government, are acts, directions, or
requests of the Government of the Philippines which constitute force majeure.
In addition, there were circumstances beyond the control of the parties, such
as the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the
issuance of the letter notification from ATT and the complete withdrawal of all
US military forces and personnel from Cubi Point, which prevented further use
of the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to terminate
Philcomsat’s services by 08 November 1992, it is still liable to pay rentals for
the December 1992, amounting to US$92,238.00 plus interest, considering that
the US military forces and personnel completely withdrew from Cubi Point only
on 31 December 1992.10
Both parties filed their respective Petitions for Review assailing the Decision of
the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of
error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A
DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE, PROVIDES,
SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR
THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE
TRIAL COURT’S AWARD OF ATTORNEY’S FEES IN FAVOR OF
PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY
DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases Agreement
cannot be considered a fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely entered into by both parties,
Section 8 should be deemed ineffective because it is contrary to Article 1174 of
the Civil Code. Philcomsat posits the view that the validity of the parties’
definition of force majeure in Section 8 of the Agreement as "circumstances
beyond the control of the party involved including, but not limited to, any law,
order, regulation, direction or request of the Government of the Philippines,
strikes or other labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other catastrophies or acts of
God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that Globe
is not liable to pay for the rental of the earth station for the entire term of the
Agreement because it runs counter to what was plainly stipulated by the
parties in Section 7 thereof. Moreover, said ruling is inconsistent with the
25
appellate court’s pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsat’s services effective 08
November 1992, because the US military and personnel completely withdrew
from Cubi Point only in December 1992. Philcomsat points out that it was
Globe which proposed the five-year term of the Agreement, and that the other
provisions of the Agreement, such as Section 4.114 thereof, evince the intent of
Globe to be bound to pay rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate court’s findings, it is
entitled to attorney’s fees and exemplary damages.16
In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the
Agreement is not contrary to Article 1174 of the Civil Code because said
provision does not prohibit parties to a contract from providing for other
instances when they would be exempt from fulfilling their contractual
obligations. Globe also claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from complying with its
obligations under the Agreement.17 On the issue of the propriety of awarding
attorney’s fees and exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay rentals for the
remainder of the term of the Agreement, Globe only acted in accordance with
its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of
Appeals erred in finding it liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsat’s services were actually
terminated on 08 November 1992.20
In its Comment, Philcomsat claims that Globe’s petition should be dismissed as
it raises a factual issue which is not cognizable by the Court in a petition for
review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsat’s Petition in G.R. No.
147324 and required the parties to submit their respective memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due course to
the Petition filed by Globe in G.R. No. 147334 and required both parties to
submit their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated
Memoranda in the two cases, reiterating their arguments in their respective
petitions.
The Court is tasked to resolve the following issues: (1) whether the termination
of the RP-US Military Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security, and the consequent withdrawal of US
military forces and personnel from Cubi Point constitute force majeure which
would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under
the Agreement for the month of December 1992; and (3) whether Philcomsat
is entitled to attorney’s fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied.
There is no merit is Philcomsat’s argument that Section 8 of the Agreement
cannot be given effect because the enumeration of events constituting force
majeure therein unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under Article 1174 of the
Civil Code, an event must be unforeseen in order to exempt a party to a
contract from complying with its obligations therein. It insists that since the
expiration of the RP-US Military Bases Agreement, the non-ratification of the
Treaty of Friendship, Cooperation and Security and the withdrawal of US
military forces and personnel from Cubi Point were not unforeseeable, but
were possibilities known to it and Globe at the time they entered into the
Agreement, such events cannot exempt Globe from performing its obligation
of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on account of
fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or which,
though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or natural
occurrences such as floods or typhoons,24 or an "act of man," such as riots,
strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the following
events shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the Philippine
Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the
control of the parties. There is nothing in the enumeration that runs contrary
to, or expands, the concept of a fortuitous event under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract may
establish such stipulations, clauses, terms and conditions as they may deem fit,
as long as the same do not run counter to the law, morals, good customs,
public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith."28 Courts cannot stipulate for the parties nor
amend their agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would be to alter the
real intent of the parties, and would run contrary to the function of the courts
to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public policy,
Section 8 of the Agreement which Philcomsat and Globe freely agreed upon
has the force of law between them.30
In order that Globe may be exempt from non-compliance with its obligation to
pay rentals under Section 8, the concurrence of the following elements must
be established: (1) the event must be independent of the human will; (2) the
occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner; and (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat and
Globe had no control over the non-renewal of the term of the RP-US Military
Bases Agreement when the same expired in 1991, because the prerogative to
ratify the treaty extending the life thereof belonged to the Senate. Neither did
the parties have control over the subsequent withdrawal of the US military
forces and personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US Military
Bases Agreement (and its Supplemental Agreements) under its
Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond
the control of the parties. This resolution was followed by the
sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3")
by the Philippine Government to the US Government notifying the
latter of the former’s termination of the RP-US Military Bases
Agreement (as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces from Subic
Naval Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter F.
Corliss II Commander USN dated July 31, 1992 and a notification
from ATT dated July 29, 1992 to terminate the provision of T1s
26
 services (via an IBS Standard B Earth Station) effective November
08, 1992. Plaintiff [Philcomsat] was furnished with copies of the said
order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale of
the Philippine Government to the US Government are acts,
direction or request of the Government of the Philippines and
circumstances beyond the control of the defendant. The formal
order from Cdr. Walter Corliss of the USN, the letter notification
from ATT and the complete withdrawal of all the military forces and
personnel from Cubi Point in the year-end 1992 are also acts and
circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the
afore-narrated circumstances constitute "force majeure or
fortuitous event(s) as defined under paragraph 8 of the Agreement.
…
From the foregoing, the Court finds that the defendant is exempted
from paying the rentals for the facility for the remaining term of the
contract.
As a consequence of the termination of the RP-US Military Bases
Agreement (as amended) the continued stay of all US Military forces
and personnel from Subic Naval Base would no longer be allowed,
hence, plaintiff would no longer be in any position to render the
service it was obligated under the Agreement. To put it blantly (sic),
since the US military forces and personnel left or withdrew from
Cubi Point in the year end December 1992, there was no longer any
necessity for the plaintiff to continue maintaining the IBS
facility…. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part of either
party. The Court of Appeals was thus correct in ruling that the happening of
such fortuitous events rendered Globe exempt from payment of rentals for the
remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals even
though Philcomsat cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSAT’s position.
PHILCOMSAT would like to charge GLOBE rentals for the balance of
the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered due to an
act of the government which was clearly beyond GLOBE’s control.
The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the force
of law between the contracting parties, and there must be
mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract while
leaving the other party free therefrom (Allied Banking Corporation
v. Court of Appeals, 284 SCRA 357)….33
With respect to the issue of whether Globe is liable for payment of rentals for
the month of December 1992, the Court likewise affirms the appellate court’s
ruling that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with Philcomsat
effective 08 November 1992 pursuant to the formal order issued by Cdr. Corliss
of the US Navy, the date when they actually ceased using the earth station
subject of the Agreement was not established during the trial.34 However, the
trial court found that the US military forces and personnel completely
withdrew from Cubi Point only on 31 December 1992.35 Thus, until that date,
the USDCA had control over the earth station and had the option of using the
same. Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after 31 December 1992 because
Cubi Point was accessible only to US naval personnel up to that time. Hence,
the Court of Appeals did not err when it affirmed the trial court’s ruling that
Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that Philcomsat is
not entitled to attorney’s fees and exemplary damages.
The award of attorney’s fees is the exception rather than the rule, and must be
supported by factual, legal and equitable justifications.36 In previously decided
cases, the Court awarded attorney’s fees where a party acted in gross and
evident bad faith in refusing to satisfy the other party’s claims and compelled
the former to litigate to protect his rights;37 when the action filed is clearly
unfounded,38 or where moral or exemplary damages are awarded.39 However,
in cases where both parties have legitimate claims against each other and no
party actually prevailed, such as in the present case where the claims of both
parties were sustained in part, an award of attorney’s fees would not be
warranted.40
Exemplary damages may be awarded in cases involving contracts or quasi-
contracts, if the erring party acted in a wanton, fraudulent, reckless, oppressive
or malevolent manner.41 In the present case, it was not shown that Globe acted
wantonly or oppressively in not heeding Philcomsat’s demands for payment of
rentals. It was established during the trial of the case before the trial court that
Globe had valid grounds for refusing to comply with its contractual obligations
after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147, MAKATI CITY and
PHILAM INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to
set aside the decision of the Court of Appeals dated April 10, 2000 and its
resolution dated July 11, 2000 denying the motion for reconsideration of the
aforesaid decision. The original complaint that is the subject matter of this case
is an accion pauliana -- an action filed by Philam Insurance Company, Inc.
(respondent Philam) to rescind or annul the donations made by petitioner Khe
Hong Cheng allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already prescribed.
While the first paragraph of Article 1389 of the Civil Code states: "The action to
claim rescission must be commenced within four years..." the question is, from
which point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping
Lines. It appears that on or about October 4, 1985, the Philippine Agricultural
Trading Corporation shipped on board the vessel M/V PRINCE ERIC, owned by
petitioner Khe Hong Cheng, 3,400 bags of copra at Masbate, Masbate, for
delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra was
covered by a marine insurance policy issued by American Home Insurance
Company (respondent Philam's assured). M/V PRINCE ERlC, however, sank
somewhere between Negros Island and Northeastern Mindanao, resulting in
the total loss of the shipment. Because of the loss, the insurer, American
Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.1âwphi1.nêt
Having been subrogated into the rights of the consignee, American Home
instituted Civil Case No. 13357 in the Regional Trial Court (RTC) of Makati ,
Branch 147 to recover the money paid to the consignee, based on breach of
contract of carriage. While the case was still pending, or on December 20,
1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of
land in favor of his children, herein co-petitioners Sandra Joy and Ray Steven.
The parcel of land with an area of 1,000 square meters covered by Transfer
Certificate of Title (TCT) No. T-3816 was donated to Ray Steven. Petitioner Khe
Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels of land
located in Butuan City, covered by TCT No. RT-12838. On the basis of said
deeds, TCT No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was
issued in favor of Ray Steven and TCT No. RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was issued in the name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil
Case No.13357 on December 29, 1993, four years after the donations were
made and the TCTs were registered in the donees' names. The decretal portion
of the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby renders
judgment in favor of the plaintiff and against the defendant,
ordering the latter to pay the former:
27
 1) the sum of P354,000.00 representing the amount paid by the Essentially, the issue for resolution posed by petitioners is this: When did the
plaintiff to the Philippine Agricultural Trading Corporation with legal four (4) year prescriptive period as provided for in Article 1389 of the Civil Code
interest at 12% from the time of the filing of the complaint in this for respondent Philam to file its action for rescission of the subject deeds of
case; donation commence to run?

2) the sum of P50,000.00 as attorney's fees; The petition is without merit.

3) the costs.1 Article 1389 of the Civil Code simply provides that, "The action to claim
rescission must be commenced within four years." Since this provision of law is
silent as to when the prescriptive period would commence, the general rule,
After the said decision became final and executory, a writ of execution was
i.e., from the moment the cause of action accrues, therefore, applies. Article
forthwith' issued on September 14, 1995. Said writ of execution however, was
1150 of the Civil Code is particularly instructive:
not served. An alias writ of execution was, thereafter, applied for and granted
in October 1996. Despite earnest efforts, the sheriff found no property under
the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy Art. 1150. The time for prescription for all kinds of actions, when
or garnish for the satisfaction of the trial court's decision. When the sheriff, there is no special provision which ordains otherwise, shall be
accompanied by counsel of respondent Philam, went to Butuan City on January counted from the day they may be brought.
17, 1997, to enforce the alias writ of execution, they discovered that petitioner
Khe Hong Cheng no longer had any property and that he had conveyed the
Indeed, this Court enunciated the principle that it is the legal possibility of
subject properties to his children.
bringing the action which determines the starting point for the computation of
the prescriptive period for the action.7 Article 1383 of the Civil Code provides
On February 25, 1997, respondent Philam filed a complaint with the Regional as follows:
Trial Court of Makati City, Branch 147, for the rescission of the deeds of
donation executed by petitioner Khe Hong Cheng in favor of his children and
Art. 1383. An action for rescission is subsidiary; it cannot be
for the nullification of their titles (Civil Case No.97-415). Respondent Philam
instituted except when the party suffering damage has no other
alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid
legal means to obtain reparation for the same.
deeds in fraud of his creditors, including respondent Philam.2

It is thus apparent that an action to rescind or an accion pauliana must be of

Petitioners subsequently filed their answer to the complaint a quo. They
last resort, availed of only after all other legal remedies have been exhausted
moved for its dismissal on the ground that the action had already prescribed.
and have been proven futile. For an accion pauliana to accrue, the following
They posited that the registration of the deeds of donation on December 27,
requisites must concur:
1989 constituted constructive notice and since the complaint a quo was filed
only on February 25, 1997, or more than four (4) years after said registration,
the action was already barred by prescription.3 1) That the plaintiff asking for rescission has a credit prior to, the
alienation, although demandable later; 2) That the debtor has made
a subsequent contract conveying a patrimonial benefit to a third
Acting thereon, the trial court denied the motion to dismiss. It held that
person; 3) That the creditor has no other legal remedy to satisfy his
respondent Philam's complaint had not yet prescribed. According to the trial
claim, but would benefit by rescission of the conveyance to the
court, the prescriptive period began to run only from December 29, 1993, the
third person; 4) That the act being impugned is fraudulent; 5) That
date of the decision of the trial court in Civil Case No. 13357.4
the third person who received the property conveyed, if by onerous
title, has been an accomplice in the fraud.8 (Emphasis ours)
On appeal by petitioners, the CA affirmed the trial court's decision in favor of
respondent Philam. The CA declared that the action to rescind the donations
We quote with approval the following disquisition of the CA on the matter:
had not yet prescribed. Citing Articles 1381 and 1383 of the Civil Code, the CA
basically ruled that the four year period to institute the action for rescission
began to run only in January 1997, and not when the decision in the civil case An accion pauliana accrues only when the creditor discovers that he
became final and executory on December 29, 1993. The CA reckoned the has no other legal remedy for the satisfaction of his claim against
accrual of respondent Philam's cause of action on January 1997, the time when the debtor other than an accion pauliana. The accion pauliana is an
it first learned that the judgment award could not be satisfied because the action of a last resort. For as long as the creditor still has a remedy
judgment creditor, petitioner Khe Hong Cheng, had no more properties in his at law for the enforcement of his claim against the debtor, the
name. Prior thereto, respondent Philam had not yet exhausted all legal means creditor will not have any cause of action against the creditor for
for the satisfaction of the decision in its favor, as prescribed under Article 1383 rescission of the contracts entered into by and between the debtor
of the Civil Code.5 and another person or persons. Indeed, an accion
pauliana presupposes a judgment and the issuance by the trial
court of a writ of execution for the satisfaction of the judgment and
The Court of Appeals thus denied the petition for certiorari filed before it, and
the failure of the Sheriff to enforce and satisfy the judgment of the
held that the trial court did not commit any error in denying petitioners'
court. It presupposes that the creditor has exhausted the property
motion to dismiss. Their motion for reconsideration was likewise dismissed in
of the debtor. The date of the decision of the trial court against the
the appellate court's resolution dated July 11, 2000.
debtor is immaterial. What is important is that the credit of the
plaintiff antedates that of the fraudulent alienation by the debtor of
Petitioners now assail the aforesaid decision and resolution of the CA alleging his property. After all, the decision of the trial court against the
that: debtor will retroact to the time when the debtor became indebted
to the creditor.9
I
Petitioners, however, maintain that the cause of action of respondent Philam
against them for the rescission of the deeds of donation accrued as early as
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE
December 27, 1989, when petitioner Khe Hong Cheng registered the subject
OF DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE
conveyances with the Register of Deeds. Respondent Philam allegedly had
CASE BASED ON THE GROUND OF PRESCRIPTION.
constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:
II
Section 52. Constructive knowledge upon registration. - Every
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN conveyance, mortgage, lease, lien, attachment, order, judgment,
HOLDING THAT PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY instrument or entry affecting registered land shall, if registered,
1997 THE SHERIFF WENT TO BUTUAN CITY IN SEARCH OF filed or entered in the Office of the Register of Deeds for the
PROPERTIES OF PETITIONER FELIX KHE CHENG TO SATISFY THE province or city where the land to which it relates lies, be
JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT THAT AS constructive notice to all persons from the time of such registering,
EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE filing, or entering.
DEEDS OF DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE
ACTION FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN
Petitioners argument that the Civil Code must yield to the Mortgage and
TO RUN WHEN THESE DONATIONS WERE REGISTERED WITH THE
Registration Laws is misplaced, for in no way does this imply that the specific
REGISTER OF DEEDS IN DECEMBER 1989, AND WHEN THE
provisions of the former may be all together ignored. To count the four year
COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE THAN
prescriptive period to rescind an allegedly fraudulent contract from the date of
FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS
registration of the conveyance with the Register of Deeds, as alleged by the
ALREADY PRESCRIBED.6
28
petitioners, would run counter to Article 1383 of the Civil Code as well as
settled jurisprudence. It would likewise violate the third requisite to file an
action for rescission of an allegedly fraudulent conveyance of property, i.e., the
creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the
issuance by the trial court of a writ of execution for the satisfaction of the
judgment, and 3) the failure of the sheriff to enforce and satisfy the judgment
of the court. It requires that the creditor has exhausted the property of the
debtor: The date of the decision of the trial court is immaterial. What is
important is that the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the decision of the trial court
against the debtor will retroact to the time when the debtor became indebted
to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are
excluded, because the accion pauliana presupposes a judgment and
unsatisfied execution, which cannot exist when the debt is not yet
demandable at the time the rescissory action is brought. Rescission
is a subsidiary action, which presupposes that the creditor has
exhausted the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in the accion
pauliana must be prior to the fraudulent alienation, the date of the
judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with
retroactive effect to the date when the credit was constituted."10
These principles were reiterated by the Court when it explained the requisites
of an accion pauliana in greater detail, to wit:
"The following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt from execution; (2) exercise all
the rights and actions of the debtor, save those personal to him
(accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion
pauliana). Without availing of the first and second remedies, i.e..
exhausting the properties of the debtor or subrogating themselves
in Francisco Bareg's transmissible rights and actions. petitioners
simply: undertook the third measure and filed an action for
annulment of sale. This cannot be done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when it upheld
the dismissal of the accion pauliana on the basis of lack of cause of action:
"In this case, plaintiffs appellants had not even commenced an
action against defendants-appellees Bareng for the collection of the
alleged indebtedness, Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng, Plaintiffs-
appellants, in seeking the rescission of the contracts of sale entered
into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the
time of the sale or at the time this action was filed, out of which
they could have collected this (sic) debts." (Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989, that petitioner
Khe Hong Cheng had executed the deeds of donation in favor of his children,
the complaint against Butuan Shipping Lines and/or petitioner Khe Hong Cheng
was still pending before the trial court. Respondent Philam had no inkling, at
the time, that the trial court’s judgment would be in its favor and further, that
such judgment would not be satisfied due to the deeds of donation executed
by petitioner Khe Hong Cheng during the pendency of the case. Had
respondent Philam filed his complaint on December 27, 1989, such complaint
would have been dismissed for being premature. Not only were all other legal
remedies for the enforcement of respondent Philam's claims not yet exhausted
at the time the needs of donation were executed and registered. Respondent
Philam would also not have been able to prove then that petitioner Khe Hong
Cheng had no more property other than those covered by the subject deeds to
satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared and
represented that he had reserved to himself property sufficient to answer for
his debts contracted prior to this date:
"That the DONOR further states, for the same purpose as expressed
in the next preceding paragraph, that this donation is not made with
the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this
date".12
As mentioned earlier, respondent Philam only learned about the unlawful
conveyances made by petitioner Khe Hong Cheng in January 1997 when its
counsel accompanied the sheriff to Butuan City to attach the properties of
petitioner Khe Hong Cheng. There they found that he no longer had any
properties in his name. It was only then that respondent Philam's action for
rescission of the deeds of donation accrued because then it could be said that
respondent Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint for accion
pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the
judgment award against him, its action for rescission of the subject deeds
clearly had not yet prescribed.1âwphi1.nêt
A final point. Petitioners now belatedly raise on appeal the defense of
improper venue claiming that respondent Philam's complaint is a real action
and should have been filed with the RTC of Butuan City since the property
subject matter or the donations are located therein. Suffice it to say that
petitioners are already deemed to have waived their right to question the
venue of the instant case. Improper venue should be objected to as follows 1)
in a motion to dismiss filed within the time but before the filing of the
answer;13 or 2) in the answer as an affirmative defense over which, in the
discretion of the court, a preliminary hearing may be held as if a motion to
dismiss had been filed.14 Having failed to either file a motion to dismiss on the
ground of improper of venue or include the same as an affirmative defense in
their answer, petitioners are deemed to have their right to object to improper
venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of
merit.
SO ORDERED.
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY,
INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the customs
broker; (b) whether the payment of legal interest on an award for loss or
damage is to be computed from the time the complaint is filed or from the
date the decision appealed from is rendered; and (c) whether the applicable
rate of interest, referred to above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company,
arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody,
filed by the insurer-subrogee who paid the consignee the
value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping
Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under
plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.
29
 Upon arrival of the shipment in Manila on December 12, indicate any damages drum that
1981, it was discharged unto the custody of defendant was shipped (Exhs. B and C). But
Metro Port Service, Inc. The latter excepted to one drum, when on December 12, 1981 the
said to be in bad order, which damage was unknown to shipment was delivered to
plaintiff. defendant Metro Port Service, Inc.,
it excepted to one drum in bad
order.
On January 7, 1982 defendant Allied Brokerage
Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without Correspondingly, as to the second
seal (per "Request for Bad Order Survey." Exh. D). issue, it follows that the
losses/damages were sustained
while in the respective and/or
On January 8 and 14, 1982, defendant Allied Brokerage
successive custody and possession
Corporation made deliveries of the shipment to the
of defendants carrier (Eastern),
consignee's warehouse. The latter excepted to one drum
arrastre operator (Metro Port) and
which contained spillages, while the rest of the contents
broker (Allied Brokerage). This
was adulterated/fake (per "Bad Order Waybill" No.
becomes evident when the Marine
10649, Exh. E).
Cargo Survey Report (Exh. G), with
its "Additional Survey Notes", are
Plaintiff contended that due to the losses/damage considered. In the latter notes, it is
sustained by said drum, the consignee suffered losses stated that when the shipment
totaling P19,032.95, due to the fault and negligence of was "landed on vessel" to dock of
defendants. Claims were presented against defendants Pier # 15, South Harbor, Manila on
who failed and refused to pay the same (Exhs. H, I, J, K, December 12, 1981, it was
L). observed that "one (1) fiber drum
(was) in damaged condition,
As a consequence of the losses sustained, plaintiff was covered by the vessel's Agent's
compelled to pay the consignee P19,032.95 under the Bad Order Tally Sheet No. 86427."
aforestated marine insurance policy, so that it became The report further states that
subrogated to all the rights of action of said consignee when defendant Allied Brokerage
against defendants (per "Form of Subrogation", withdrew the shipment from
"Release" and Philbanking check, Exhs. M, N, and O). (pp. defendant arrastre operator's
85-86, Rollo.) custody on January 7, 1982, one
drum was found opened without
seal, cello bag partly torn but
There were, to be sure, other factual issues that confronted both courts. Here, contents intact. Net unrecovered
the appellate court said: spillages was
15 kgs. The report went on to state
Defendants filed their respective answers, traversing the that when the drums reached the
material allegations of the complaint contending that: As consignee, one drum was found
for defendant Eastern Shipping it alleged that the with adulterated/faked contents. It
shipment was discharged in good order from the vessel is obvious, therefore, that these
unto the custody of Metro Port Service so that any losses/damages occurred before
damage/losses incurred after the shipment was incurred the shipment reached the
after the shipment was turned over to the latter, is no consignee while under the
longer its liability (p. 17, Record); Metroport averred that successive custodies of
although subject shipment was discharged unto its defendants. Under Art. 1737 of the
custody, portion of the same was already in bad order (p. New Civil Code, the common
11, Record); Allied Brokerage alleged that plaintiff has no carrier's duty to observe
cause of action against it, not having negligent or at fault extraordinary diligence in the
for the shipment was already in damage and bad order vigilance of goods remains in full
condition when received by it, but nonetheless, it still force and effect even if the goods
exercised extra ordinary care and diligence in the are temporarily unloaded and
handling/delivery of the cargo to consignee in the same stored in transit in the warehouse
condition shipment was received by it. of the carrier at the place of
destination, until the consignee
has been advised and has had
From the evidence the court found the following: reasonable opportunity to remove
or dispose of the goods (Art. 1738,
The issues are: NCC). Defendant Eastern
Shipping's own exhibit, the "Turn-
Over Survey of Bad Order Cargoes"
1. Whether or not the shipment
(Exhs. 3-Eastern) states that on
sustained losses/damages;
December 12, 1981 one drum was
found "open".
2. Whether or not these
losses/damages were sustained
and thus held:
while in the custody of defendants
(in whose respective custody, if
determinable); WHEREFORE, PREMISES
CONSIDERED, judgment is hereby
rendered:
3. Whether or not defendant(s)
should be held liable for the
losses/damages (see plaintiff's pre- A. Ordering defendants to pay plaintiff, jointly and
Trial Brief, Records, p. 34; Allied's severally:
pre-Trial Brief, adopting plaintiff's
Records, p. 38). 1. The amount of P19,032.95, with
the present legal interest of
As to the first issue, there can be 12% per annum from October 1,
no doubt that the shipment 1982, the date of filing of this
sustained losses/damages. The complaints, until fully paid (the
two drums were shipped in good liability of defendant Eastern
order and condition, as clearly Shipping, Inc. shall not exceed
shown by the Bill of Lading and US$500 per case or the CIF value
Commercial Invoice which do not of the loss, whichever is lesser,

30
 while the liability of defendant
Metro Port Service, Inc. shall be to
the extent of the actual invoice
value of each package, crate box
or container in no case to exceed
P5,000.00 each, pursuant to
Section 6.01 of the Management
Contract);
2. P3,000.00 as attorney's fees,
and
3. Costs.
B. Dismissing
the
counterclai
ms and
crossclaim of
defendant/c
ross-
claimant
Allied
Brokerage
Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We
find that the conclusion drawn therefrom is correct. As
there is sufficient evidence that the shipment sustained
damage while in the successive possession of appellants,
and therefore they are liable to the appellee, as
subrogee for the amount it paid to the consignee. (pp.
87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when —
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY
LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS
BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS
GRANTED IN THE QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM
OF PRIVATE RESPONDENT SHOULD COMMENCE FROM
THE DATE OF THE FILING OF THE COMPLAINT AT THE
RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by
petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment
of goods lasts from the time the articles are surrendered to or unconditionally
placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the
person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court
of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a
presumption arises against the carrier of its failure to observe that diligence,
and there need not be an express finding of negligence to hold it liable (Art.
1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA
87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of
course, exceptional cases when such presumption of fault is not observed but
these cases, enumerated in Article 17341 of the Civil Code, are exclusive, not
one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and the
arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA
5 [1967]. The relationship between the consignee and
the common carrier is similar to that of the consignee
and the arrastre operator (Northern Motors, Inc. v.
Prince Line, et al., 107 Phil. 253 [1960]). Since it is the
duty of the ARRASTRE to take good care of the goods
that are in its custody and to deliver them in good
condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to
deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre
operator and the customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule. The instant petition has been brought solely by Eastern
Shipping Lines, which, being the carrier and not having been able to rebut the
presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is
that "there is sufficient evidence that the shipment sustained damage while in
the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there are others
solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money
arising out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its complaint
that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in its
totality nor definitely ascertained. In the stipulation of facts later entered into
by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The
trial court rendered judgment ordering the appellants (defendants) Manila Port
Service and Manila Railroad Company to pay appellee Malayan Insurance the
sum of P1,447.51 with legal interest thereon from the date the complaint was
filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this
Court ruled:
Interest upon an obligation which calls for the payment
of money, absent a stipulation, is the legal rate. Such
interest normally is allowable from the date of demand,
judicial or extrajudicial. The trial court opted for judicial
demand as the starting point.
But then upon the provisions of Article 2213 of the Civil
Code, interest "cannot be recovered upon unliquidated
claims or damages, except when the demand can be
established with reasonable certainty." And as was held
by this Court in Rivera vs. Perez,4 L-6998, February 29,
1956, if the suit were for damages, "unliquidated and
not known until definitely ascertained, assessed and
determined by the courts after proof (Montilla
c. Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco
v. Guzman,
38 Phil. 302)," then, interest "should be from the date of
the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After trial, the
lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:
31
 Ordering defendants and third party plaintiffs Shell and
Michael, Incorporated to pay jointly and severally the
following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina
the sum of P131,084.00 which is the value of the boat F
B Pacita III together with its accessories, fishing gear and
equipment minus P80,000.00 which is the value of the
insurance recovered and the amount of P10,000.00 a
month as the estimated monthly loss suffered by them
as a result of the fire of May 6, 1969 up to the time they
are actually paid or already the total sum of P370,000.00
as of June 4, 1972 with legal interest from the filing of
the complaint until paid and to pay attorney's fees of
P5,000.00 with costs against defendants and third party
plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount
of damages awarded but sustained the trial court in adjudging legal
interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to
the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition
for review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, Monetary Board in its Resolution
No. 1622 dated July 29, 1974, has prescribed that 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 express contract as to such
rate of interest, shall be twelve (12%) percent per
annum. This Circular shall take effect immediately.
(Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments
in litigations involving loans or forbearance of any
money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving
loans or forbearance of any money, goods or credits
does not fall within the coverage of the said law for it is
not within the ambit of the authority granted to the
Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to
be executed is one rendered in an Action for Damages
for injury to persons and loss of property and does not
involve any loan, much less forbearances of any money,
goods or credits. As correctly argued by the private
respondents, the law applicable to the said case is Article
2209 of the New Civil Code which reads —
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
interest agreed upon, and in the
absence of stipulation, the legal
interest which is six percent per
annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz,7 promulgated on 28 July 1986. The case was for damages occasioned
by an injury to person and loss of property. The trial court awarded private
respondent Pedro Manabat actual and compensatory damages in the amount
of P72,500.00 with legal interest thereon from the filing of the complaint until
fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the
interest award from 12% to 6% interest per annum but sustained the time
computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal
rate from November 29, 1968, the date of the filing of the complaint until full
payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to
this Court for review, the case, on 03 October 1986, was decided, thus:
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and
environmental circumstances of this case, we deem it
reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a
solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar
Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees)
occasioned by the loss of the building (including interest
charges and lost rentals) and an additional ONE
HUNDRED THOUSAND (P100,000.00) Pesos as and for
attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such
finality, twelve (12%) per cent interest per annum shall
be imposed upon aforementioned amounts from finality
until paid. Solidary costs against the defendant and third-
party defendants (Except Roman Ozaeta). (Emphasis
supplied)
A motion for reconsideration was filed by United Construction,
contending that "the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in
contravention of law." The Court10 ruled out the applicability of the
Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12%
interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2)
forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer
to judgments involving loans or forbearance of any
money, goods or credits. (Philippine Rabbit Bus Lines Inc.
v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol,
Jr., 139 SCRA 260 [1985]). It is true that in the instant
case, there is neither a loan or a forbearance, but then
no interest is actually imposed provided the sums
referred to in the judgment are paid upon the finality of
the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the
rate of interest is imposed on the total sum, from the
filing of the complaint until paid; in other words, as part
of the judgment for damages. Clearly, they are not
applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate
Appellate Court11 was a petition for review on certiorari from the decision,
dated 27 February 1985, of the then Intermediate Appellate Court reducing the
amount of moral and exemplary damages awarded by the trial court, to
P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April
1985, restoring the amount of damages awarded by the trial court, i.e.,
P2,000,000.00 as moral damages and P400,000.00 as exemplary damages
with interest thereon at 12% per annum from notice of judgment, plus costs of
suit. In a decision of 09 November 1988, this Court, while recognizing the right
of the private respondent to recover damages, held the award, however, for
moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court12 thus set aside the decision of the appellate
court and rendered a new one, "ordering the petitioner to pay private
respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral
damages, with
six (6%) percent interest thereon computed from the finality of this decision
until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz13 which arose from a breach of employment contract. For having been
illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon.
When the decision was appealed to the Court of Appeals, the latter held:
32
 WHEREFORE, except as modified hereinabove the time of the filing of the complaint until fully paid, the "second group" varied on
decision of the CFI of Negros Oriental dated October 31, the commencement of the running of the legal interest.
1972 is affirmed in all respects, with the modification
that defendants-appellants, except defendant-appellant
Malayan held that the amount awarded should bear legal interest from the
Merton Munn, are ordered to pay, jointly and severally,
date of the decision of the court a quo, explaining that "if the suit were for
the amounts stated in the dispositive portion of the
damages, 'unliquidated and not known until definitely ascertained, assessed
decision, including the sum of P1,400.00 in concept of
and determined by the courts after proof,' then, interest 'should be from the
compensatory damages, with interest at the legal rate
date of the decision.'" American Express International v. IAC, introduced a
from the date of the filing of the complaint until fully
different time frame for reckoning the 6% interest by ordering it to be
paid (Emphasis supplied.)
"computed from the finality of (the) decision until paid." The Nakpil and Sons
case ruled that 12% interest per annum should be imposed from the finality of
The petition for review to this Court was denied. The records were the decision until the judgment amount is paid.
thereupon transmitted to the trial court, and an entry of judgment
was made. The writ of execution issued by the trial court directed
The ostensible discord is not difficult to explain. The factual circumstances may
that only compensatory damages should earn interest at 6% per
have called for different applications, guided by the rule that the courts are
annum from the date of the filing of the complaint. Ascribing grave
vested with discretion, depending on the equities of each case, on the award of
abuse of discretion on the part of the trial judge, a petition
interest. Nonetheless, it may not be unwise, by way of clarification and
for certiorari assailed the said order. This Court said:
reconciliation, to suggest the following rules of thumb for future guidance.

. . . , it is to be noted that the Court of Appeals ordered

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
the payment of interest "at the legal rate" from the time
contracts, delicts or quasi-delicts18 is breached, the contravenor can be held
of the filing of the complaint. . . Said circular [Central
liable for damages.19 The provisions under Title XVIII on "Damages" of the Civil
Bank Circular No. 416] does not apply to actions based
Code govern in determining the measure of recoverable damages.20
on a breach of employment contract like the case at bar.
(Emphasis supplied)
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
The Court reiterated that the 6% interest per annum on the
imposed, as follows:
damages should be computed from the time the complaint was filed
until the amount is fully paid.
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
Quite recently, the Court had another occasion to rule on the matter. National
which may have been stipulated in writing.21 Furthermore, the interest due
Power Corporation vs. Angas,14 decided on 08 May 1992, involved the
shall itself earn legal interest from the time it is judicially demanded.22 In the
expropriation of certain parcels of land. After conducting a hearing on the
absence of stipulation, the rate of interest shall be 12% per annum to be
complaints for eminent domain, the trial court ordered the petitioner to pay
computed from default, i.e., from judicial or extrajudicial demand under and
the private respondents certain sums of money as just compensation for their
subject to the provisions of Article 116923 of the Civil Code.
lands so expropriated "with legal interest thereon . . . until fully paid." Again, in
applying the 6% legal interest per annum under the Civil Code, the
Court15 declared: 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 court24 at the rate of 6% per annum.25 No interest,
. . . , (T)he transaction involved is clearly not a loan or
however, shall be adjudged on unliquidated claims or damages except when or
forbearance of money, goods or credits but
until the demand can be established with reasonable certainty.26 Accordingly,
expropriation of certain parcels of land for a public
where the demand is established with reasonable certainty, the interest shall
purpose, the payment of which is without stipulation
begin to run from the time the claim is made judicially or extrajudicially (Art.
regarding interest, and the interest adjudged by the trial
1169, Civil Code) but when such certainty cannot be so reasonably established
court is in the nature of indemnity for damages. The legal
at the time the demand is made, the interest shall begin to run only from the
interest required to be paid on the amount of just
date the judgment of the court is made (at which time the quantification of
compensation for the properties expropriated is
damages may be deemed to have been reasonably ascertained). The actual
manifestly in the form of indemnity for damages for the
base for the computation of legal interest shall, in any case, be on the amount
delay in the payment thereof. Therefore, since the kind
finally adjudged.
of interest involved in the joint judgment of the lower
court sought to be enforced in this case is interest by
way of damages, and not by way of earnings from loans, 3. When the judgment of the court awarding a sum of money becomes final
etc. Art. 2209 of the Civil Code shall apply. 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
Concededly, there have been seeming variances in the above holdings. The
equivalent to a forbearance of credit.
cases can perhaps be classified into two groups according to the similarity of
the issues involved and the corresponding rulings rendered by the court. The
"first group" would consist of the cases of Reformina v. Tomol (1985), WHEREFORE, the petition is partly GRANTED. The appealed decision is
Philippine Rabbit Bus Lines v. Cruz (1986), Florendo v. Ruiz (1989) AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX
and National Power Corporation v. Angas (1992). In the "second group" would PERCENT (6%) on the amount due computed from the decision, dated
be Malayan Insurance Company v. Manila Port Service (1969), Nakpil and Sons 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in
v. Court of Appeals (1988), and American Express International v. Intermediate lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this
Appellate Court (1988). decision until the payment thereof.

In the "first group", the basic issue focuses on the application of either the 6% SO ORDERED.
(under the Civil Code) or 12% (under the Central Bank Circular) interest per
annum. It is easily discernible in these cases that there has been a consistent Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr.,
holding that the Central Bank Circular imposing the 12% interest per Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
annum applies only to loans or forbearance16 of money, goods or credits, as
well as to judgments involving such loan or forbearance of money, goods or
credits, and that the 6% interest under the Civil Code governs when the Mendoza, J., took no part.
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.  
Observe, too, that in these cases, a common time frame in the computation of
the 6% interest per annum has been applied, i.e., from the time the complaint
is filed until the adjudged amount is fully paid. G.R. No. 194201               November 27, 2013

The "second group", did not alter the pronounced rule on the application of SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,
the 6% or 12% interest per annum,17 depending on whether or not the amount vs.
involved is a loan or forbearance, on the one hand, or one of indemnity for PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE C.
damage, on the other hand. Unlike, however, the "first group" which remained CORALES, Respondents.
consistent in holding that the running of the legal interest should be from the
DECISION
33
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court seeking to partially set aside the Decision,2 dated 30 March
2010, and the Resolution,3 dated 13 October 2010, of the Court of Appeals (CA)
in CA-G.R. CV No. 91250. The challenged Decision dismissed the appeal of
herein respondent Philippine National Bank (respondent bank) and affirmed
the decision of the Regional Trial Court (RTC), Branch 84, Batangas City with
the modification that the interest rate to be applied by respondent bank on the
principal loan obligation of petitioners Spouses Bayani H. Andal and Gracia G.
Andal (petitionersspouses) shall be 12% per annum, to be computed from
default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from
[respondent bank] in the amount of ₱21,805,000.00, for which they executed
twelve (12) promissory notes x x x [undertaking] to pay [respondent bank] the
principal loan with varying interest rates of 17.5% to 27% per interest period. It
was agreed upon by the parties that the rate of interest may be increased or
decreased for the subsequent interest periods, with prior notice to
[petitioners-spouses], in the event of changes in interest rates prescribed by
law or the Monetary Board x x x, or in the bank’s overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor
of [respondent bank] a real estate mortgage using as collateral five (5) parcels
of land including all improvements therein, all situated in Batangas City and
covered by Transfer Certificate of Title (TCT) Nos. T-641, T-32037, T-16730, T-
31193 and RT 363 (3351) of the Registry of Deeds of Batangas City, in the name
of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their
loan obligation, otherwise the former will declare the latter’s loan due and
demandable. On July 17, 2001, [petitioners-spouses] paid ₱14,800,000.00 to
[respondent bank] to avoid foreclosure of the properties subject of the real
estate mortgage. Accordingly, [respondent bank] executed a release of real
estate mortgage over the parcels of land covered by TCT Nos. T-31193 and RT-
363 (3351). However, despite payment x x x, [respondent bank] proceeded to
foreclose the real estate mortgage, particularly with respect to the three (3)
parcels of land covered by TCT Nos. T-641, T-32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent
bank] emerging as the highest and winning bidder. Accordingly, on August 30,
2002, a certificate of sale of the properties involved was issued. [Respondent
bank] consolidated its ownership over the said properties and TCT Nos. T-
52889, T-52890, and T-52891 were issued in lieu of the cancelled TCT[s] x x x.
This prompted [petitioners-spouses] to file x x x a complaint for annulment of
mortgage, sheriff’s certificate of sale, declaration of nullity of the increased
interest rates and penalty charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to
religiously pay their loan obligation to [respondent bank], but the exorbitant
rate of interest unilaterally determined and imposed by the latter prevented
the former from paying their obligation. [Petitioners-spouses] also alleged that
they signed the promissory notes in blank, relying on the representation of
[respondent bank] that they were merely proforma [sic] bank requirements.
Further, [petitioners-spouses] alleged that the unilateral increase of interest
rates and exorbitant penalty charges are akin to unjust enrichment at their
expense, giving [respondent bank] no right to foreclose their mortgaged
properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the allegations
in the complaint. x x x [respondent bank] alleged that: the penalty charges
imposed on the loan was expressly stipulated under the credit agreements and
in the promissory notes; although [petitioners-spouses] paid to [respondent
bank] ₱14,800,000.00 on July 10, 2001, the former was still indebted to the
latter in the amount of ₱33,960,633.87; assuming arguendo that the imposition
was improper, the foreclosure of the mortgaged properties is in order since
[respondent bank’s] bid in the amount of ₱28,965,100.00 was based on the
aggregate appraised rates of the foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and
against respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in
accordance with Article 2209 of the Civil Code effective the next 30, 31 and 180
days respectively from the date of the twelve (12) promissory notes x x x
covered by the real estate x x x mortgages, to be applied on a declining balance
of the principal after the partial payments of ₱14,800,00.00 (paid July 17, 2001)
and ₱2,000,000.006 (payments of ₱300,000.00 on October 1, 1999,
₱1,800,000.00 as [of] December 1, 1999, ₱700,000.00 [on] January 31, 2000)
per certification of [respondent bank] to be reckoned at (sic) the dates the said
payments were made, thus the corrected amounts of the liability for principal
balance and the said 6% charges per annum shall be the new basis for the
[petitioners-spouses] to make payments to the [respondent bank] x x x which
shall automatically extinguish and release the mortgage contracts and the
outstanding liabilities of the [petitioners-spouses]; [respondent bank] shall
then surrender the new transfer certificates of title x x x in its name to the
[c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of
Sales and the consolidation of titles of the subject real properties, including the
cancellation of the new Transfer Certificates of Title x x x in the name of the
[respondent] bank and reinstating Transfer Certificates of Title Nos. T-641, T-
32037 and T-16730 in the names of the [petitioners-spouses]; the latter acts to
be executed by the Register of Deeds of Batangas City.7
The foregoing disposition of the RTC was based on the following findings of
fact:
As of this writing the [respondent] bank have (sic) not complied with the said
orders as to the interest rates it had been using on the loan of [petitioners-
spouses] and the monthly computation of interest vis a vis (sic) the total shown
in the statement of account as of Aug 30, 2002. Such refusal amounts to
suppression of evidence thus tending to show that the interest used by the
bank was unilaterally increased without the written consent of the [petitioners-
spouses]/borrower as required by law and Central Bank Circular No. 1171. The
latter circular provides that any increase of interest in a given interest period
will have to be expressly agreed to in writing by the borrower. The mortgaged
properties were subject of foreclosure and were sold on August 30, 2002 and
the [respondent] bank’s statement of account as of August 30, 2002 x x x
shows unpaid interest up to July 17, 2001 of ₱12,695,718.99 without specifying
the rate of interest for each interest period of thirty days. Another statement
of account of [respondent bank] x x x as [of] the date of foreclosure on August
30, 2002 shows account balance of ₱20,505,916.51 with a bid price of
₱28,965,100.00 and showing an interest of ₱16,163,281.65. Again, there are no
details of the interest used for each interest period from the time these loans
were incurred up to the date of foreclosure. These statements of account
together with the stated interest and expenses after foreclosure were
furnished by the [respondent] bank during the court hearings. The central legal
question is that there is no agreement in writing from the [petitioners-
spouses]/borrowers for the interest rate for each interest period neither from
the data coming from the Central Bank or the cost of money which is
understood to mean the interest cost of the bank deposits form the public.
Such imposition of the increased interest without the consent of the borrower
is null and void pursuant to Article 1956 of the Civil Code and as held in the
pronouncement of the Supreme Court in several cases and C.B. Circular No.
1191 that the interest rate for each re-pricing period under the floating rate of
interest is subject to mutual agreement in writing. Art. 1956 states that no
interest is due unless it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null
and void under Art. 1308 of the New Civil Code. The fulfillment of a condition
cannot be left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale
for a higher amount than what is legally due is likewise null and void because
under the Civil Code, a mortgage may be foreclosed only to enforce the
fulfillment of the obligation for whose security it was constituted (Art. 2126,
Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest
since no interest may be collected based on the stipulation that is null and void
and legally inexistent and unenforceable. x x x. Since the interest imposed is
illegal and void only the rate of 6% interest per month shall be imposed as
liquidated damages under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed
forms and therefore contracts of adhesion and x x x any dispute or doubt
concerning them shall be resolved in favor of the x x x borrower. This (sic)
circumstances tend to support the contention of the [petitioners-spouses] that
they were made to sign the real estate mortgages/promissory notes in blank
with respect to the interest rates.
34
 xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses’] property
and any foreclosure thereof is illegal, unreasonable and void, since [petitioners-
spouses] are not and cannot be considered in default for their inability to pay
the arbitrarily, illegally, and unconscionably adjusted interest rates and penalty
charges unilaterally made and imposed by [respondent] bank.
The [petitioners-spouses] submitted to the court certified copies of the
weighted average of Selected Domestic Interest Rates of the local banks
obtained from the Bangko Sentral ng Pilipinas Statistical Center and it shows a
declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate
was ever used to increase or decrease the interest rates charged upon the
[petitioners-spouses’] mortgage loan for the 30 day re- pricing period
subsequent to the first 30 days from [the] dates of the promissory notes. These
documents submitted being certified public documents are entitled to being
taken cognizance of by the court as an aid to its decision making. x x x.8
Respondent bank appealed the above judgment of the trial court to the CA. Its
main contention is that the lower court erred in ordering the re-computation
of petitioners-spouses’ loans and applying the interest rate of 6% per annum.
According to respondent bank, the stipulation on the interest rates of 17.5% to
27%, subject to periodic adjustments, was voluntarily agreed upon by the
parties; hence, it was not left to the sole will of respondent bank. Thus, the
lower court erred in reducing the interest rate to 6% and in setting aside the
penalty charges, as such is contrary to the principle of the obligatory force of
contracts under Articles 1315 and 1159 of the Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent bank’s] contention.
Settled is the rule that the contracting parties are free to enter into
stipulations, clauses, terms and conditions as they may deem convenient, as
long as these are not contrary to law, morals, good customs, public order or
public policy. Pursuant to Article 1159 of the Civil Code, these obligations
arising from such contracts have the force of law between the parties and
should be complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly
stipulated in the promissory notes the rate of interest to be applied to the loan
obtained by the latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates
stated in the promissory notes since the latter voluntarily signed the same.
However, we find more credible and believable the version of [petitioners-
spouses] that they were made to sign the said promissory notes in blank with
respect to the rate of interest and penalty charges, and subsequently,
[respondent] bank filled in the blanks, imposing high interest rate beyond
which they were made to understand at the time of the signing of the
promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank enabled
[respondent] bank to impose interest rates on the loan obligation without prior
notice to [petitioners-spouses]. The unilateral determination and imposition of
interest rates by [respondent] bank without [petitioners-spouses’] assent is
obviously violative of the principle of mutuality of contracts ordained in Article
1308 of the Civil Code x x x.
xxxx
[Respondent bank’s] act converted the loan agreement into a contract of
adhesion where the parties do not bargain on equal footing, the weaker party’s
participation, herein [petitioners-spouses], being reduced to the alternative to
take it or leave it. [Respondent] bank tried to sidestep this issue by averring
that [petitioners-spouses], as businessmen, were on equal footing with
[respondent bank] as far as the subject loan agreements are concerned. That
may be true insofar as entering into the original loan agreements and
mortgage contracts are concerned. However, that does not hold true when it
comes to the unilateral determination and imposition of the escalated interest
rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed
different rates in the twelve (12) promissory notes: interest rate of 18% in five
(5) promissory notes; 17.5% in two (2) promissory notes; 23% in one (1)
promissory note; and 27% in three (3) promissory notes. Obviously, the
interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses’] loan obligation without their knowledge and
consent should be disregarded, not only for being iniquitous and exorbitant,
but also for being violative of the principle of mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of
6%. It is well-settled that when an obligation is breached and consists in the
payment of a sum of money, i.e., loan or forbearance of money, the interest
due shall be that which may have been stipulated in writing. In the absence of
stipulation, the rate of interest shall be 12% interest per annum to be
computed from default, i.e., from judicial or extra-judicial demand and subject
to the provisions of Article 1169 of the Civil Code. Since the interest rates
printed in the promissory notes are void for the reasons above-stated, the rate
of interest to be applied to the loan should be 12% per annum only.10
The CA, consequently, dismissed respondent bank’s appeal and affirmed the
decision of the trial court with the modification that the rate of interest shall
be 12% per annum instead of 6%. Respondent bank filed a Motion for
Reconsideration of the CA decision. Petitioners-spouses, on the other hand,
filed a comment praying for the denial of respondent bank’s motion for
reconsideration. They also filed an "Urgent Manifestation"11 calling the
attention of the CA to its respective decisions in the cases of Spouses Enrique
and Epifania Mercado v. China Banking Corporation, et. al. (CA-GR CV No.
75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v. The Ex-Officio
Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the
Special Seventh Division of the CA held that where the interest rate is
potestative, the entire interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of
RTC, Batangas City, the then Ninth Division of the CA ruled that under the
doctrine of operative facts, no interest is due after the auction sale because the
loan is paid in kind by the auction sale, and interest shall commence to run
again upon finality of the judgment declaring the auction sale null and void.14
The CA denied respondent bank’s Motion for Reconsideration for lack of merit.
It likewise found no merit in petitioners-spouses’ contention that no interest is
due on their principal loan obligation from the time of foreclosure until finality
of the judgment annulling the foreclosure sale. According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the
subject promissory notes after finding that the same are iniquitous and
exorbitant, and for being violative of the principle of mutuality of contracts.
Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the Supreme Court
ruled that because the escalation clause was annulled, the principal amount of
the loan was subject to the original or stipulated interest rate of interest, and
that upon maturity, the amount due was subject to legal interest at the rate of
12% per annum. In this case, while we similarly annulled the escalation clause
contained in the promissory notes, this Court opted not to impose the original
rates of interest stipulated therein for being excessive, the same being 17.5%
to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing
Corporation v. Spouses Cesario Gravador and Norma De Vera, et. al. that
stipulations authorizing the imposition of iniquitous or unconscionable interest
are contrary to morals, if not against the law. x x x. The nullity of the stipulation
on the usurious interest does not, however, affect the lender’s right to recover
the principal of the loan. The debt due is to be considered without the
stipulation of the excessive interest. A legal interest of 12% per annum will be
added in place of the excessive interest formerly imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the
imposition by this Court of a 12% rate of interest per annum on the principal
loan obligation of [petitioners-spouses], computed from the time of default, is
proper as it is consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of
this Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and
executory, the same merely have persuasive effect but do not outweigh the
decisions of the Supreme Court which we are duty-bound to follow,
conformably with the principle of stare decisis.
35
The doctrine of stare decisis enjoins adherence to judicial JOSE PORTUGAL PEREZ
precedents.1âwphi1 It requires courts in a country to follow the rule Associate Justice
established in a decision of the Supreme Court thereof. That decision becomes
a judicial precedent to be followed in subsequent cases by all courts in the
land. The doctrine of stare decisis is based on the principle that once a
question of law has been examined and decided, it should be deemed settled
and closed to further argument.15 (Emphasis supplied.)

Petitioners-spouses are now before us, reiterating their position that no

interest should be imposed on their loan, following the respective
pronouncements of the CA in the Caraig and Mercado Cases. Petitioners-
spouses insist that "if the application of the doctrine of operative facts is
upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case would
be computed only from the finality of judgment declaring the foreclosure sale
null and void. If Mercado vs. China Banking Corporation x x x, applying by
analogy the rule on void usurious interest to void potestative interest rate, is
further sustained, no interest is due when the potestative interest rate
stipulation is declared null and void, as in the instant case.16

Our Ruling

We dismiss the appeal.

We cannot subscribe to the contention of petitioners-spouses that no interest

should be due on the loan they obtained from respondent bank, or that, at the
very least, interest should be computed only from the finality of the judgment
declaring the foreclosure sale null and void, on account of the exorbitant rate
of interest imposed on their loan.

It is clear from the contract of loan between petitioners-spouses and

respondent bank that petitioners-spouses, as borrowers, agreed to the
payment of interest on their loan obligation. That the rate of interest was
subsequently declared illegal and unconscionable does not entitle petitioners-
spouses to stop payment of interest.1âwphi1 It should be emphasized that
only the rate of interest was declared void. The stipulation requiring
petitioners-spouses to pay interest on their loan remains valid and binding.
They are, therefore, liable to pay interest from the time they defaulted in
payment until their loan is fully paid.

It is worth mentioning that both the RTC and the CA are one in saying that
"[petitioners-spouses] cannot be considered in default for their inability to pay
the arbitrary, illegal and unconscionable interest rates and penalty charges
unilaterally imposed by [respondent] bank."17 This is precisely the reason why
the foreclosure proceedings involving petitioners-spouses’ properties were
invalidated. As pointed out by the CA, "since the interest rates are null and
void, [respondent] bank has no right to foreclose [petitioners-spouses’]
properties and any foreclosure thereof is illegal. x x x. Since there was no
default yet, it is premature for [respondent] bank to foreclose the properties
subject of the real estate mortgage contract."18

Thus, for the purpose of computing the amount of liability of petitioners-

spouses, they are considered in default from the date the Resolution of the
Court in G.R. No. 194164 (Philippine National Bank v. Spouses Bayani H. Andal
and Gracia G. Andal) – which is the appeal interposed by respondent bank to
the Supreme Court from the judgment of the CA – became final and executory.
Based on the records of G.R. No. 194164, the Court denied herein respondent
bank’s appeal in a Resolution dated 10 January 2011. The Resolution became
final and executory on 20 May 2011.19

In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of
the Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in
accordance with the ruling of the Supreme Court in the recent case of Dario
Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,20 effective 1 July 2013, 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. Accordingly, the rate of
interest of 12% per annum on petitioners-spouses’ obligation shall apply from
20 May 2011 – the date of default – until 30 June 2013 only. From 1 July 2013
until fully paid, the legal rate of 6% per annum shall be applied to petitioners-
spouses’ unpaid obligation.

IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the
Court of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION
that the 12% interest per annum shall be applied from the date of default until
30 June 2013 only, after which date and until fully paid, the outstanding
obligation of petitioners-spouses shall earn interest at 6% per annum. Let the
records of this case be remanded to the trial court for the proper computation
of the amount of liability of petitioners Spouses Bayani H. Andal and Gracia G.
Andal, in accordance with the pronouncements of the Court herein and with
due regard to the payments previously made by petitioners-spouses.

SO ORDERED.

36