G.R. No.

133107 March 25, 1999

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.
COURT OF APPEALS and FELIPE LUSTRE, respondents.

KAPUNAN, J.:

A simple telephone call and an ounce of good faith on the part of petitioner could have prevented the
present controversy.

On March 10, 1993, private respondent Atty. Felipe Lustre purchased a Toyota Corolla from Toyota
Shaw, Inc. for which he made a down payment of P164,620.00, the balance of the purchase price to
be paid in 24 equal monthly installments. Private respondent thus issued 24 postdated checks for
the amount of P14,976.00 each. The first was dated April 10, 1991; subsequent checks were dated
every 10th day of each succeeding month.

To secure the balance, private respondent executed a promissory note 1 and a contract of chattel
mortgage 2 over the vehicle in favor of Toyota Shaw, Inc. The contract of chattel mortgage, in
paragraph 11 thereof, provided for an acceleration clause stating that should the mortgagor default
in the payment of any installment, the whole amount remaining unpaid shall become due. In
addition, the mortgagor shall be liable for 25% of the principal due as liquidated damages.

On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and interests in the chattel mortgage to
petitioner Rizal Commercial Banking Corporation (RCBC).

All the checks dated April 10, 1991 to January 10, 1993 were thereafter encashed and debited by
RCBC from private respondent's account, except for RCBC Check No. 279805 representing the
payment for August 10, 1991, which was unsigned. Previously, the amount represented by RCBC
Check No. 279805 was debited from private respondent's account but was later recalled and re-
credited, to him. Because of the recall, the last two checks, dated February 10, 1993 and March 10,
1993, were no longer presented for payment. This was purportedly in conformity with petitioner
bank's procedure that once a client's account was forwarded to its account representative, all
remaining checks outstanding as of the date the account was forwarded were no longer presented
for patent.

On the theory that respondent defaulted in his payments, the check representing the payment for
August 10, 1991 being unsigned, petitioner, in a letter dated January 21, 1993, demanded from
private respondent the payment of the balance of the debt, including liquidated damages. The latter
refused, prompting petitioner to file an action for replevin and damages before the Pasay City
Regional Trial Court (RTC). Private respondent, in his Answer, interposed a counterclaim for
damages.

After trial, the. RTC 3 rendered a decision disposing of the case as follows:

WHEREFORE, in view of the foregoing, judgment is hereby, rendered as follows:

 I. The complaint; for lack of cause of action, is hereby DISMISSED and plaintiff
RCBC is hereby ordered,

A. To accept the payment equivalent to the three

checks amounting to a total of P44,938.00, without
interest.

B. To release/cancel the mortgage on the car . . .

upon payment of the amount of P44,938.00, without
interest.

C. To pay the cost of suit.

II. On The Counterclaim.

A. Plaintiff RCBC to pay Atty. Lustre the amount of

P200,000.00 as moral damages.

B. RCBC to pay P100,000.00 as exemplary damages.

C. RCBC to pay Atty. Obispo P50,000.00 as

Attorney's fees. Atty. Lustre is not entitled to any fee
for lawyering for himself.

All awards for damages are subject to payment of fees to be

assessed by the Clerk of Court, RTC, Pasay City.

SO ORDERED.

On appeal by petitioner, the Court of Appeals affirmed the decision of the RTC, thus:

We . . . concur with the trial court's ruling that the Chattel Mortgage contract being a
contract of adhesion — that is, one wherein a party, usually a corporation, prepares
the stipulations in the contract, while the other party merely affixes his signature or
his "adhesion" thereto . . . — is to be strictly construed against appellant bank which
prepared the form Contract . . . Hence . . . paragraph 11 of the Chattel Mortgage
contract [containing the acceleration clause] should be construed to cover only
deliberate and advertent failure on the part of the mortgagor to pay an amortization
as it became due in line with the consistent holding of the Supreme Court construing
obscurities and ambiguities in the restrictive sense against the drafter thereof . . . in
the light of Article 1377 of the Civil Code.

In the case at bench, plaintiff-appellant's imputation of default to defendant-appellee

rested solely on the fact that the 5th check issued by appellee . . . was recalled for
lack of signature. However, the check was recalled only after the amount covered
thereby had been deducted from defendant-appellee's account, as shown by the
testimony of plaintiff's own witness Francisco Bulatao who was in charge of the
preparation of the list and trial balances of bank customers . . . . The "default" was
therefore not a case of failure to pay, the check being sufficiently funded, and which
amount was in fact already debited [sic] from appellee's account by the appellant
bank which subsequently re-credited the amount to defendant-appelle's account for
 lack of signature. All these actions RCBC did on its own without notifying defendant
until sixteen (16) months later when it wrote its demand letter dated January 21,
1993.

Clearly, appellant bank was remiss in the performance, of its functions for it could
have easily called the defendant's attention to the lack of signature on the check and
sent the check to or summoned, the latter to affix his signature. It is also to be noted
that the demand letter contains no explanation as to how defendant-appellee
incurred arrearages in the amount of P66,255.70, which is why defendant-appellee
made a protest notation thereon.

Notably, all the other checks issued by the appellee dated subsequent to August 10,
1991 and dated earlier than the demand letter, were duly encashed. This fact should
have already prompted the appellant bank to review its action relative to the
unsigned check. . . . 4

We take exception to the application by both the trial and appellate courts of Article 1377 of the Civil
Code, which states:

The interpretation of obscure words or stipulations in a contract shall

not favor the party who caused the obscurity.

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. 5 It is true that
we have, on occasion, struck down such contracts as void when the weaker party is imposed upon
in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving
it, completely deprived of the opportunity to bargain on equal footing. 6 Nevertheless, contracts of
adhesion are not invalid per se; 7 they are not entirely prohibited. 8 The one who adheres to the
contract is in reality free to reject it entirely; if he adheres, he gives his consent. 9

While ambiguities in a contract of adhesion are to be construed against the party that prepared the
same, 10 this rule applies only if the stipulations in such contract are obscure or ambiguous. If the
terms thereof are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulations shall control. 11 In the latter case, there would be no need for
construction. 12

Here, the terms of paragraph 11 of the Chattel Mortgage Contract 13 are clear. Said paragraph
states:

11. In case the MORTGAGOR fails to pay any of the installments, or to pay the
interest that may be due as provided in the said promissory note, the whole amount
remaining unpaid therein shall immediately become due and payable and the
mortgage on the property (ies) herein-above described may be foreclosed by the
MORTGAGEE, or the MORTGAGEE may take any other legal action to enforce
collection of the obligation hereby secured, and in either case the MORTGAGOR
further agrees to pay the MORTGAGEE an additional sum of 25% of the principal
due and unpaid, as liquidated damages, which said sum shall become part thereof.
The MORTGAGOR hereby waives reimbursement of the amount heretofore paid by
him/it to the MORTGAGEE.

The above terms leave no room for construction. All that is required is the application thereof.
Petitioner claims that private respondent's check representing the fifth installment was "not
encashed," 14 such that the installment for August 1991 was not paid. By virtue of paragraph 11
above, petitioner submits that it "was justified in treating the entire balance of the obligation as due
and
demandable." 15 Despite demand by petitioner, however, private respondent refused to pay the
balance of the debt. Petitioner, in sum imputes delay on the part of private respondent.

We do not subscribe to petitioner's theory.

Art. 170 of the Civil Code states that those who in the performance of their obligations are guilty of
delay are liable for damages. The delay in the performance of the obligation, however, must be
either malicious or negligent.16 Thus, assuming that private respondent was guilty of delay in the
payment of the value of unsigned check, private respondent cannot be held liable for damages.
There is no imputation, much less evidence, that private respondent acted with malice or negligence
in failing to sign the check. Indeed, we agree with the Court of Appeals finding that such omission
was mere "in advertence" on the part of private respondent. Toyota salesperson Jorge Geronimo
testified that he even verified whether private respondent had signed all the checks and in fact
returned three or four unsigned checks to him for signing:

Atty. Obispo:

After these receipts were issued, what else did you do about the
transaction?

A: During our transaction with Atty. Lustre, I found out when he

issued to me the 24 checks, I found out 3 to 4 checks are unsigned
and I asked him to signed these checks.

Atty. Obispo:

What did you do?

A: I asked him to sign the checks. After signing the checks, I

reviewed again all the documents, after I reviewed all the documents
and found out that all are completed and the down payments was
completed, we realed to him the car. 17

Even when the checks were delivered to petitioner, it did not object to the unsigned check. In
view of the lack of malice or negligence on the part of private respondent, petitioner's blind
and mechanical invocation of paragraph 11 of the contract of chattel mortgage was
unwarranted.

Petitioner's conduct, in the light of the circumstances of this case, can only be described as
mercenary. Petitioner had already debited the value of the unsigned check from private respondent's
account only to re-credit it much later to him. Thereafter, petitioner encashed checks subsequently
dated, then abruptly refused to encash the last two. More than a year after the date of the unsigned
check, petitioner, claiming delay and invoking paragraph 11, demanded from private respondent
payment of the value of said check and that of the last two checks, including liquidated damages. As
pointed out by the trial court, this whole controversy could have been avoided if only petitioner
bothered to call up private respondent and ask him to sign the check. Good faith not only in
compliance with its contractual obligations, 18 but also in observance of the standard in human
relations, for every person "to act with justice, give everyone his due, and observe honesty and good
faith." 19 behooved the bank to do so.

Failing thus, petitioner is liable for damages caused to private respondent. 20 These include moral
damages for the mental anguish, serious anxiety, besmirched reputation, wounded feelings and
social humiliation suffered by the latter. 21 The trial court found that private respondent was:

[a] client who has shared transactions for over twenty years with a bank . . ..The
shabby treatment given the defendant is unpardonable since he was put to shame
and embarrassment after the case was filed in Court. He is a lawyer in his own right,
married to another member of the bar. He sired children who are all professionals in
their chosen field. He is known to the community of golfers with whom he gravitates.
Surely the filing of the case made defendant feel so bad and bothered.

To deter others from emulating petitioner's callous example, we affirm the award of exemplary
damages. 22 As exemplary damages are warranted, so are attorney's fees. 23

We, however, find excessive the amount of damages awarded by the trial court in favor of private
respondent with respect to his counterclaims and, accordingly, reduce the same as follows:

(a) Moral damages — from P200,000.00 to P100,000.00

(b) Exemplary damages — from P100,000.00 to P75,000.00

(c) Attorney's fees — from P50,000.00 to P 30,000.00

WHEREFORE, subject to these modifications, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED

G.R. No. 72405 May 29, 1987

PACMAC, INC, petitioner,

vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and VULCAN INDUSTRIAL &
MINERAL EXPLORATION CORPORATION, respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the decision of the then Intermediate Appellate Court, now
the Court of Appeals, which set aside the earlier decision in Civil Case No. Q-9386 of the then Court
of First Instance of Rizal, 7th Judicial District Branch V-Quezon City.

In Civil Case No. Q-9386, PACMAC Incorporated (hereinafter called PACMAC) alleged that by virtue
of an existing contract and arrangement with VULCAN Manufacturing Company Incorporated
(hereinafter called VULCAN), the former since 1953 continuously up to August 3, 1965 has been the
exclusive distributor of the latter's products and that in said arrangement VULCAN was obliged to
periodically deliver and sell, at its own dictated price any number or volume of its products
exclusively to PACMAC. PACMAC would. in turn, exclusively sell and distribute said products to the
open market, whether in wholesale or retail, at a price set and commanded by VULCAN, and that on
August 3, 1965 VULCAN unilaterally terminated the contract of exclusive distributorship causing
damages to PACMAC.

In its answer, VULCAN denied the contract of exclusive distributorship with PACMAC. By way of
counterclaim, VULCAN alleged that PACMAC is indebted to it as of September 30, 1965 in the sum
of P320,220.25 plus interest representing the unpaid purchase price of VULCAN's products sold and
delivered to PACMAC.

The facts of the case as found by the trial court are not disputed. The appellate court adopted these
factual findings, to wit:

It appears from the evidence that plaintiff Pacmac, Inc., was organized in 1949 as a
trading concern with Russell T. Elliott as its president and general manager.
Following researches and experimentation conducted at Pacmac, Inc., Elliott
subsequently organized the defendant corporation in 1953, as a manufacturing
concern, starting off with the production of rubber cement. Upon the organization of
defendant corporation, then known as the Vulcan Manufacturing Co., Inc., Elliott also
became its president and general manager, at the same time that he remained
president and general manager of the Pacmac, Inc. Both corporations had their
offices in the same building inside the compound of Pacmac, Inc. from 1953 up to
1967. From the start, defendant sold its products to plaintiff on 60-day terms, and
plaintiff in turn dealt on said products in the open market. It was understood that
plaintiff would not sell similar products from other sources competitive with those of
defendant.

In 1956, Patrocinio Bautista who had known Elliott since 1952, became vice
president concurrently of both corporations, while Elliott continued to be president
and general manager also of both as from the start. At the same time, many if not all
of the members of the board of directors of plaintiff corporation were likewise
members of the board of directors of defendant corporation. The set-up remained as
such until the early part of 1960, when upon the suggestion of Elliott for the reason
that the growth of both corporations had made it difficult for him to manage both,
Patrocinio Bautista was made president and general manager of Pacmac, Inc. at the
same time ceasing to be vice president of Vulcan Manufacturing Co., Inc., while
Elliott stayed on as president and general manager only of the latter company. The
shift in management responsibilities over the two corporations was eventually
followed by a change in the stock-holdings of Elliott and Bautista, who were
substantial stockholders in both. Elliott gave up his shares in Pacmac, Inc. and
acquired more shares in the Vulcan Manufacturing Co., Inc. while Bautista gave up
all his shares in the latter corporation and acquired more shares in Pacmac, Inc.
According to the evidence of plaintiff, this happened also in 1960, but the evidence of
defendant places this occurrence in 1962 after a power struggle over the control in
the management of Vulcan Manufacturing Co., Inc., between the group of Elliott on
one hand, and that of Bautista, on the other, which Bautista lost in the showdown at
the annual stockholders' meeting in that year.

The drift of events appears to lend more probability to the claim of defendant in this
respect. It appears that on February 17, 1962, the majority of the members of the
board of directors of defendant corporation approved an amendment to its articles of
incorporation thereby authorizing the said corporation to engage in the
merchandizing business as one of its secondary purposes and increasing the kind of
 products it could manufacture. This amendment likewise was subsequently approved
by the stockholders of the corporation during the annual meeting held February 20,
1962. In the directors' certificate to this amendment, dated March 20, 1962, Bautista
still appears to have signed as director of defendant corporation (Exhs. "8" and "8-
A").

On December 6, 1962, both parties entered into a written contract (Exh. "6") of
exclusive distributorship for two years beginning November 16, 1962 over two
products manufactured by defendant, the most pertinent provision of which reads:

1. That the PURCHASER shall have the exclusive right to distribute

and resell the MANUFACTURER'S SODIUM SILICATES and
ADHESIVE products. However, in consideration of this exclusive
privilege, the PURCHASER agrees not to distribute or resell
adhesives and sodium silicates products of other manufacturers or
brands; (This agreement does not cover shoe cement products,
moulds, dies, show ranks and other products manufactured by
Vulcan).

It appears that the two products subject of the written agreement of exclusive
distributorship were new products of defendant and the contract was prompted by an
agitation in the board of directors of defendant in view of a desire to go into the
merchandizing business, as was suggested to plaintiff. Along with that, defendant
also claims that there was dissatisfaction with an alleged lag in plaintiff's payments of
its accounts with defendant.

While the agreement (Exh. "6") was not renewed at the end of its two-year term the
purchase and sale by plaintiff of the two products continued. ...

... on August 3, 1965, defendant, ... wrote plaintiff a letter (Exh. "7") advising the
latter that as of that date defendant would no longer deliver any of its products to
plaintiff except those items for which orders had already been booked, unless the
same would be cancelled by plaintiff. Defendant justified its action on the 'knowledge
that PACMAC is now distributing' Durabond' Sole Attaching Cement as
manufactured by Regional Enterprise.' In a letter of reply of the same date (Exh.
"15"), plaintiff, ... denied and protested against the accusation ... On the other hand, it
was recalled that Elliott had previously admitted that defendant had been distributing
its own products' despite (its) existing relationship' with plaintiff. Plaintiff's letter also
advised that its orders previously booked still stood. It does not appear, however,
that deliveries on the pending orders were thereafter made, as it is admitted that
defendant stopped deliveries as of August 3, 1965. The reason given by defendant
for refusing to make further deliveries on the pending orders from plaintiff was the
latter's failure to pay a balance of P23,000.00 in accordance with an understanding
between them on August 10, 1965 (Exh. "17"). (Rollo, pp. 44-47).

The trial court found for the petitioner. Considering however, that PACMAC owed VULCAN the
amount of P304,855.50 representing the unpaid purchase price of VULCAN's products sold and
delivered to PACMAC and that the damages due PACMAC was fixed in the amount of P189,908.76,
the trial court ordered PACMAC to pay VULCAN the sum of P114,946.74 with interest therein at the
legal rate from September 30, 1965 until the same is paid.

Both parties appealed the decision to the then Intermediate Appellate Court.
As stated earlier, the appellate court set aside the trial court's decision. The dispositive portion of the
decision reads:

WHEREFORE, the decision appealed from is hereby set aside and judgment is
rendered on the counterclaim, ordering plaintiff PACMAC Incorporated to pay the
defendant Vulcan Manufacturing and Trading Corporation, the sum of P 304,855.50
with legal interest from September 30, 1965 until the same is fully paid, with costs
against plaintiff- appellant. This amount was mutually submitted and agreed between
the parties during the pre-trial proceedings as the balance due the defendant from
the plaintiff on said date. (Rollo, pp. 49-50).

The main issue in the instant petition hinges on the actual business relationship between PACMAC
and VULCAN on August 3, 1965 when the latter suddenly stopped deliveries of its products to the
former.

The conclusions of the appellate court on factual matters differ from those of the trial court. Hence, a
minute scrutiny by this Court is in order and resort to duly proven evidence becomes necessary.
(Serrano v. Court of Appeals, 139 SCRA 179; Legaspi v. Court of Appeals, 69 SCRA 360; Tolentino
v. De Jesus, 56 SCRA 167).

Although the appellate court found that there existed an implied contract of exclusive distributorship
between the two parties with PACMAC as distributor of VULCAN's products beginning in 1953, it
ruled that this implied contract was terminated when on December 6, 1962 both parties entered into
a formal written contract (Exhibit '6') of exclusive distributorship for two years beginning November
16, 1982 covering only two products, namely sodium silicates and adhesive products manufactured
by VULCAN. Under this theory, the appellate court opined that the terms in the written contract
superseded all previous contracts between the two parties. Consequently, the appellate court
concluded that since the contract provides for the expiration of the exclusive distributorship after 2
years, specifically on November 16, 1964, there could have been no gross and evident bad faith on
the part of VULCAN when on August 3, 1965 it terminated the exclusive distributors agreement
embodied in Exhibit "6."

The appellate court came up with this conclusion applying the parol evidence rule which is Section 7,
Rule 130 of the Revised Rules of Court, to wit:

When the terms of an agreement have been reduced to writing, it is to be considered

as containing all such terms, and, therefore, there can be, between the parties and
their successors in interest, no evidence of the terms of the agreement other than the
contents of the writing, ...

The petitioner now contends that the parol evidence rule was erroneously applied by the appellate
court because there was evidence of an oral agreement and acts implementing that agreement on
the part of both parties subsequent to the execution of the written contract which changed and
added to the terms of the distributorship arrangement. Under these circumstances, PACMAC argues
that the written contract was an inadequate measure of the entire agreement between the parties
thereto.

The stand of the petitioner is rightly premised on the principle that the parol evidence rule does not
preclude the admission of extrinsic evidence to prove subsequent agreements between the parties
to a written contract, to wit:
 The rule forbidding the admission of parol or extrinsic evidence to alter, vary, or
contradict a written instrument does not apply so as to prohibit the establishment by
parol of an agreement between the parties to a writing, entered into subsequent to
the time when the written instrument was executed, notwithstanding such agreement
may have the effect of adding to, changing, modifying, or even altogether abrogating
the contract of the parties as evidenced by the writing; for the parol evidence does
not in any way deny that the original agreement of the parties was that which the
writing purports to express, but merely goes to show that the parties have exercised
their right to change or abrogate the same, or to make a new and independent
contract. (32 C.J.S. 1008-1009 cited in Francisco, Evidence, Volume VII Part I 1973,
p. 167. See Canuto v. Mariano, 37 Phil, 840)

The appellate court, therefore, erred when it failed to consider the evidence proving that the
exclusive contract of distributorship between the parties went beyond the expiration of the two year
written contract between the parties.

The petitioner presented evidence to show that after sensing VULCAN's desire to go into distribution
of its own products, Patrocinio Bautista, president and general manager of PACMAC secured verbal
assurances from Russel Elliott VULCAN's president and general manager, to give the former at least
a year's notice in advance before cutting off the distributorship arrangement between the two parties.
This was given credence by the trial court over the denials of VULCAN.

Jose Basa, a witness for VULCAN testified that in a letter dated November 16, 1964 (Exh. "4,"
alleged true copy of letter) VULCAN notified PACMAC of the expiry date of the 2-year distributorship
agreement; that in reply to this letter, PACMAC through P.E. Bautista, asked for at least 3-months
notice before the business relationship could be effectively terminated by either of the parties. This
letter, marked as Exh. 5, was an alleged true copy of the letter written by P.E. Bautista. This was
denied by Bautista.

With two conflicting pieces of evidence before it, the trial court said:

... Of the two conflicting evidence on the point, the Court is more inclined to give
credence to the testimony of Bautista, than to Exh. 5 of defendant which was testified
to by witness Jose Basa whose testimony has heretofore been found to suffer from
doubtful veracity. Moreover, considering the extent and volume of business carried
on between plaintiff and defendant under the distributorship arrangement, it is
improbable that plaintiff would have bargained for only a minimum of three months'
notice within which to adjust its business. One year's notice could not have been
unreasonable it appearing that for the year ending December 31, 1966, plaintiff
managed to make a net income of only P68,404.57 (Exh. D-4) as compared to its net
income for the year 1964, when the distributorship arrangement was still intact, in the
amount of P218,313.33 (Exh. D-2). ... (Joint Record on Appeal, pp. 99-100)

We find no substantial reason from the records to deviate from, much less reverse, these factual
findings of the trial court. The trial court's conclusion that evidence on the one year notice to
terminate the exclusive distributorship arrangement between the two parties is more credible than
the proof of a three-month notice alleged by VULCAN due to the volume of business carried on by
the two parties is bolstered by the unrebutted evidence of PACMAC that before the distributorship
arrangement was terminated, more than 60% of its gross sales consisted of VULCAN's products.
VULCAN continued to supply the same amounts and under the same terms to PACMAC of its entire
range of products. After termination, gross sales of P2,621,857.46 were reduced by P1,570,000.00
in one year's sales.
The records establish that after the termination of the two year written contract, the parties agreed
on another term regarding the duration of their distributorship arrangement. They also agreed that
the distributorship arrangement would remain in full force until one year from and after notice of its
termination would have been given to PACMAC.

The inevitable conclusion, therefore, is that the parties' contract of exclusive distributorship
arrangement was still in existence on August 3, 1965 when VULCAN decided to stop deliveries of its
products to PACMAC. VULCAN's unilateral act of terminating the contract without legal justification
makes it liable for damages suffered by PACMAC pursuant to Article 1170 of the New Civil Code
which provides:

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.

The petitioner argues on the basis of the evidence it presented before the trial court that it is entitled
to actual and compensatory damages of at least P360,000.00 plus interest, exemplary damages of
at least P100,000.00, attorney's fees of at least P50,000.00 and litigation expenses of at least
P25,000,00.

The trial court reduced the claims for damages to more reasonable levels. We agree with its findings
that:

Neither can the Court reasonably go along with plaintiff that the measure of damages
due it should be based on the average monthly profit of P 31,307.68 it was getting
out of the sales of defendant's products during the existence of the distributorship
arrangement (Exh. D). Evidently and as can be gathered from the testimony of
plaintiff's witness Felicisimo S. de Ocampo, who prepared Exh. D, the average
monthly profit arrived at in the sum of P31,307.68 does not actually represent the
average net monthly profit from the sale of defendant's products, since the selling or
administrative expenses have not been taken into account. As a matter of fact,
Ocampo could not state what part of plaintiff's selling expenses referred to
defendant's products. Moreover, it was incumbent upon plaintiff to minimize its
damages by getting other suppliers and selling other products when defendant
altogether stopped selling to plaintiff. It is reasonable to assume that, indeed, plaintiff
did just this. The more equitable basis then would be the diminution in the net income
of plaintiff during the entire year following the termination of the distributorship
arrangement, or the difference between its net income of P218,313.33 in 1964,
shown by its own evidence (Exh. D-2), as against P68,404.75 in 1966, also shown by
its own evidence (Exh. D-4), which is P149,908.76. For having acted in gross and
evident bad faith, considering defendant's unjustified and sudden cutting off of its
sales to plaintiff, after having surreptitiously sold its products in the open market (see
E xhs 9-A, 10-A, 11-A and 12-A), all in a wilful breach of the distributorship
arrangement with plaintiff and mindless of the prejudice to the latter's business,
defendant is also liable to plaintiff for exemplary damages in the amount of
P30,000.00 and attorney's fees in the amount of P10,000.00.

On the other hand, upon defendant's counterclaim, plaintiff is in turn liable for the payment of its
admitted account with defendant in the amount of P304,855.50 as of September 30, 1965 (Exh. C or
1). Compensating the amounts due plaintiff under its complaint in the total sum of P189,908.76
against the amount defendant under its counterclaim in the sum of P304,855.50, there still remains a
net amount of G.R. No. 160886 September 20, 2006
MANILA TOWERS DEVELOPMENT CORPORATION, petitioner,
vs.
BONIFACIO NAKPIL, respondent.

DECISION

CALLEJO, SR., J.:

This is a consolidation of two Petitions for Review, assailing the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 72289 dated August 25, 2003 and the Resolution dated November 19, 2003
denying the motion for reconsideration thereof.

The Antecedents

A 14-storey high rise building was constructed at 777 Ongpin St., Sta. Cruz, Manila. Sometime in
1964, its owner, Cheong Kiao Ang, leased the building to about 200 Filipino Chinese tenants who
used the same for either residential or commercial purposes. One of these tenants was Atty.
Bonifacio Nakpil who leased Room 204 in the mezzanine floor. He used the unit as his law
office.2 The tenants of the building later formed the House International Building Tenants
Association, Inc. (HIBTAI).

The property was mortgaged with the Government Service Insurance System (GSIS) as security for
a loan Ang had earlier obtained. Upon failure to pay the loan, the GSIS had the real estate mortgage
foreclosed and the property sold at public auction, with GSIS as the winning bidder. The latter, in
turn, sold the property to the Centertown Marketing Corporation (CMC) which assigned all its rights
to its sister-corporation, the Manila Tower Development Corporation (MTDC) for P21,000,000.00.
The HIBTAI protested, claiming that its members had the priority to buy the property.3 The tenants
refused to pay their rentals and instead remitted them to HIBTAI.

On June 29, 1981, the City Engineer wrote the MTDC, through Luis Javellana, requesting that the
defects of the building be corrected. The City Engineer warned the MTDC that the defects were
serious and would endanger the lives of the tenants if not immediately corrected. The City Engineer
reiterated his request in a letter dated July 10, 1981 to MTDC urging that the building be immediately
repaired. However, before the MTDC could make the necessary repairs, the HIBTAI, on October 2,
1982, filed a complaint against the GSIS for injunction and damages in the Court of First Instance
(CFI) of Manila.

On January 31, 1983, the court rendered judgment dismissing the complaint. However, on February
23, 1983, HIBTAI filed another complaint for annulment of contract and damages in the CFI of
Manila, docketed as Civil Case No. 83-15875, against the CMC, MTDC and GSIS. It averred that
under Presidential Decree (P.D.) No. 1517, the tenants had the priority right to purchase the
property. The court rendered judgment dismissing the complaint, prompting HIBTAI to appeal the
decision to the appellate court. The ruling of the trial court was later affirmed on February 4, 1986.
HIBTAI assailed the ruling in this Court via petition for review. On June 30, 1987, this Court rendered
judgment affirming the decision of the CA.4 According to the Court, the tenants of the building, not
the HIBTAI, were the real parties-in-interest as parties-plaintiffs.

About eight (8) years later, on October 12, 1995, Atty. Samuel S. Samuela, the building
administrator, wrote Architect Juan A. Maravillas, Jr., then Officer-in-Charge (OIC), Office of the
Building Official, City of Manila, requesting for an immediate ocular inspection of the building to
determine its safety. The letter mentioned that, as far back as 1981, the City Engineer and Building
Official had ordered the building condemned after inspection. Atty. Samuela stated that when the
MTDC was about to initiate the repairs on the building, the tenants filed several suits against it; this
prevented MTDC from complying with the said order. During the pendency of these cases, the
tenants likewise took control of the building and even illegally put up structures in the building
without MTDC's consent. He pleaded to the Building Official to give priority to his request to prevent
undue injuries and protect the lives of the tenants.5

The City Building Official granted the request and scheduled an ocular inspection of the building at
2:00 p.m. on October 24, 1995.6

With prior notices to the tenants and in the presence of a representative of HIBTAI, Amado
Ramoneda, the representatives of the Office of the Building Official conducted an ocular inspection
of the building.7 On November 3, 1995, they submitted a Building Inspection Report with the
following findings:

I. STRUCTURAL ASPECT (Sec. 3.1 Rule VII-IRR)

1. Cracks on the exterior interior walls are prominent which manifest earthquake
movement and decrease in seismic resistance. Damages to beams and columns are
feasible.

II. ELECTRICAL ASPECT (Sec. 3.3 Rule VII-IRR)

2. Wiring system are already old, obsolete and not properly maintained;

3. Some junction boxes are not properly covered thus exposing the wiring
connections;

4. Usage of dangling extension cords and octopus wiring connections were likewise
observed.

III. SANITARY/PLUMBING ASPECT (Sec. 3.5 Rule VII-IRR)

5. Defective sanitary/plumbing installations;

6. Poor drainage system that caused the stagnation of waste water within the back
part (Ground Floor) of the building;

7. All sanitary/plumbing fixtures on vacated 9th, 10th & 11th floors, due to lack of
proper maintenance has los[t] their trap seals, this allowed the escape of toxicating
sewer gas from the system.

IV. ARCHITECTURAL ASPECT (Sec. 3.6 Rule VII-IRR).

8. Steel frames and roofings at deck are rusted/corroded and inadequately

maintained;

9. Broken window glass panes and rusted steel casement;

10. Inadequate light and ventilation resulting from illegal constructions at the required
open space areas;
 11. Illegal use of 14th floor as sauna bath parlor which is non-conforming to City
Ordinance.

OTHERS

12. Non-compliance with the provisions of BP 344, the Law to Enhance Mobility of
Disabled Persons;

13. Illegal construction at the estero easement area and at the required open spaces
in violations of Section 3.8 Rule VII-IRR.8 (Underscoring supplied)

The City Building Official recommended that the windows glass/frames be repaired and the illegally
appended structures removed. It was also recommended that the use of the sauna bath be
discontinued and the old electrical wiring system and fixtures be replaced. He also stated that the
structural integrity of the building was questionable, and that structural testing was needed.9

Consequently, on November 10, 1995, the City Building Official wrote a letter to the building
administrator, ordering him to cause the tenants to vacate the building and undertake the necessary
repairs and rehabilitation of the building. The following warning was also issued:

Failure to comply herewith shall constrain this Office to impose further administrative
sanctions in accordance with the provisions of the National Building Code PD. 1096, as well
as the other existing laws and ordinances. This is without prejudice to further legal action that
may be taken under the provisions of Articles 482 and 694 to 707 of the Civil Code of the
Philippines.10

However, the MTDC did not respond to the letter. On January 24, 1996, the City Building Official
issued a Closure Order to the MTDC and ordered the building administrator to cause the tenants to
vacate the building within fifteen (15) days from notice and to commence its repair. He also directed
MTDC to file an application for the necessary permits before the start of the actual repairs, together
with a certification on structural stability from the building's structural designer and to attach thereto
the results of the structural testing as well as the recommendation/evaluation reports, scope of
project activities, repair/renovation plans and retrofitting plans. The order would only be lifted after
the defects or deficiencies of the subject building or structure shall have been corrected or
substantially complied with in accordance with Section 21, Rule VIII-IRR, P.D. No. 1096, without
prejudice to further action that may be taken under the provisions of Articles 482, and 694 to 707 of
the Civil Code, as well as other existing laws and ordinances.11

The City Building Official conducted a reinspection of the building and, on March 26, 1996, made the
following recommendation:

It is recommended that because of:

1) the adamant refusal of the owners of the building to correct the serious defects noted by
this Office as early as 1981 up to the present, notwithstanding notices to this effect;

2) the directive of national as well as local leaders to intensify the campaign against buildings
which are dangerous to life and limb as exemplified in the tragic Ozone case in Quezon City;
and
 3) the possibility of City officials incurring criminal as well as administrative liabilities for
failure to take positive steps to protect the lives of the people against ruinous or dangerous
buildings.

The persistence of the owners of the building in not undertaking the required urgent repairs
allegedly because of suits filed against them, gives this Office no better alternative but to
recommend that the City Engineer be authorized and directed to make the necessary repairs
and all expenses thereto be shouldered by the owners of the building and also to order the
occupants of the building to immediately vacate the premises to give way to the repair and to
ensure the protection of their lives and property.

Approval of this request is urgently needed.12

The City Mayor approved the recommendation and directed the repairs of the building by the City
Building Official with the expenses therefor to be charged against the account of MTDC.13

On June 28, 1996, notices were sent to the tenants, giving them fifteen (15) days within which to
vacate the building to give way to its general repair.14 However, at the time, Atty. Nakpil was in the
United States for medical treatment, and his secretary was left behind to take care of the law office.

Felix Ong, one of the tenants in the building and the President of the HIBTAI, filed a petition for
prohibition with a plea for a writ of preliminary injunction and/or a temporary restraining order (TRO)
with damages against the MTDC, City Engineer and Police Major Franklin Gacutan, docketed as
Civil Case No. 96-79267. Ong prayed that a TRO be issued to enjoin respondents from conducting
repair and rehabilitation work within the building, which the court granted.

Clemente Sy, who claimed to be the Barangay Captain of Barangay No. 297, Zone 29 where the
building was located and the incumbent President of the House International Building Tenants
Association, filed a similar petition against the same respondents, including MTDC.15

At about 4:00 p.m. on July 19, 1996, a group of men led by Engr. Melvin Balagot, the Chief Slum
Clearance and Demolition Services of the Office of the City Building Official, entered the building
and, in compliance with the order of the City Mayor as recommended by the City Building Official,
commenced the repairs and tore down some of the structures. However, the repair works were
temporarily suspended on July 22, 1996 as a result of the TRO issued by the court in favor of Ong in
Civil Case No. 96-79267.

On July 23, 1996, Engr. Balagot submitted the following Report:

1. That all the occupants thereat already vacated the premises to give way for the repair
work of the subject structure except for the unit occupied by the security guards at the
ground floor;

2. That most of the interior walls were already dismantled by this Office to give way for
immediate replacement.

3. It is likewise reported that the said building is not safe for occupancy for the meantime.

For your information and further instruction.

(SGD)
 MELVIN Q. BALAGOT
Engineer V
Chief, Slum Clearance and Demolition Services.16

Upon his arrival in the Philippines, Atty. Nakpil filed, on November 5, 1996, a complaint in the
Regional Trial Court (RTC) of Manila against the MTDC, seeking for actual, moral, and exemplary
damages, attorney's fees, litigation expenses, costs of suit and other reliefs. The case was docketed
as Civil Case No. 65980. He alleged that the MTDC, through its agents and representatives and the
policemen who accompanied the demolition team, forced the guard to open the gate to the building,
and, thereafter, 200 people armed with hammer and crowbars started destroying the mezzanine
floor of the building on July 19, 1996. His room was destroyed, the walls and partitions were
completely hammered down, and the electricity was cut off. His personal belongings were either
scattered, thrown away, or stolen. He pointed out that he had been renting the premises and
complying with the conditions of the lease since 1965. The MTDC violated his right as lessee to the
possession of the premises, unlawfully depriving him of said possession without any lawful authority
or court order.17

Atty. Nakpil prayed that MTDC be ordered to pay the following:

a) P100,000 for actual damages, representing the value of the personal belongings and
important papers which were lost and/or stolen by the representatives of the defendant
during the actual demo[li]tion and tearing or hammering down of the walls and partitions of
the room of the plaintiff;

b) The sum of P500,000.00 as moral damages;

c) The sum of P100,000.00 as exemplary damages;

d) The sum equivalent to 20% of the amount due to the plaintiff as attorney's fees; and

e) The sum of P50,000 as litigation expenses, plus costs of suit.

Plaintiff prays for such other relief and remedies he is entitled to in the premises.18

Meantime, the trial court dismissed the complaint of Ong in Civil Case No. 96-79267. In view of this
development, the Office of the Mayor sent a letter dated March 6, 1998 to the President and officers
of the MTDC, and the owners of the building, directing them to undertake immediate repairs within
three (3) days from receipt thereof, otherwise, it will undertake the repair and all expenses shall be
charged against them.19 The Office of the Mayor made it clear that the order became necessary to
protect the people from any injury as a consequence of the dilapidated and serious deterioration of
the building. The MTDC forthwith applied for a demolition permit with the Office of the Building
Official which was granted on March 30, 1998.20 The MTDC later had the building demolished.

In due course, the complaint and summons were served on MTDC on April 14, 1998 in Civil Case
No. 65980.21 In its answer to the complaint, MTDC alleged that it was the City of Manila which
caused the repair of the building, following the tragic Ozone fire incident in Quezon City.
Consequently, it was not liable for Atty. Nakpil's claims.

Atty. Nakpil testified that he had been a lessee of Room 204 and used the room as a law office; on
July 19, 1996, he was in the United States for treatment when his daughter informed him, through
phone, that his place was being demolished. He rushed back home and arrived in Manila on July 30,
1996, and discovered that he had no more office to speak of. The demolition team (the sheriff,
policemen and laborers), armed with crowbars, looted the room and destroyed the pipes and
cabinets and scattered his things.22 He lost some of his books, a tanguile table, three paintings, two
manual typewriters, all valued at P100,000.00. He averred that he had been in the law practice for
30 years, all spent in Room 204; because of the demolition of his office, he could not resume his law
practice.

For his part, Joseph Villanueva declared that, since 1973, he had leased a portion of the mezzanine
floor, Room 200, which he used as his clinic. At around 3:00 p.m. on July 19, 1996, a group of
employees of the City Engineer's Office, accompanied by policemen and sheriffs, gained entry into
the building, cut the electric current, and destroyed the pipes with the use of heavy equipments and
crowbars. They demolished the mezzanine and upper floors and other parts of the building. Around
20 members of the demolition crew entered the office of Atty. Nakpil. Some members of the
demolition crew looted the room and took everything they could carry. He stated that what he and
the tenants received were notices to repair and not notice of demolition.

Atty. Nakpil presented Engr. Guillermo de Leon who testified that he was requested to conduct an
ocular inspection of the building. As per his report dated August 9, 1990, he assessed the building to
be safe, sound and stable. The building was not destroyed by the earthquake on July 6, 1990. He
found hairline cracks, caused probably by temperature. He never used any instrument to determine
the structural stability because there was no danger. He stated that upon inspection, he found no
hairline cracks and that the building could be saved by plastering; in fact, it could withstand any
earthquake.

Carmelita Tan, a member of the HIBTAI, testified that she owned a grocery store in the ground floor
and in the mezzanine. At about 4:00 p.m. on July 19, 1996, 100 persons, carrying hammers and
crowbars and long irons, gained entry into the building. She rushed to the mezzanine and saw that
ten of them were in the law office of Atty. Nakpil and that the door and partitions were damaged. The
lights were off at the time.

MTDC adduced testimonial and documentary evidence that the Office of the City Engineer, through
Engr. Melvin Balagot, Jr., commenced the repairs of the building on July 19, 1996, with the
assistance of the employees of the City Engineer's Office, laborers and policemen who were tasked
to check the flow of traffic. They removed the cracked interior walls of the building with crowbars,
hammers and other instruments, and some portions of the ceiling which needed to be
replaced.23 However, they did not remove the walls and partitions in the mezzanine floor.24 They
started the work on the 9th and 10th floors of the building,25 but had to stop due to the temporary
restraining order from the RTC of Manila on the complaint of Felix Ong. During the ocular inspection
of the building on August 8, 1996 conducted by the Clerk of Court in connection with Civil Case No.
96-79267, the Office of Atty. Nakpil was unoccupied.26

On May 20, 2001, the court rendered judgment in favor of MTDC and ordered the dismissal of the
complaint. The trial court declared that Atty. Nakpil failed to prove that the building was demolished
on July 30, 1996 and failed to link MTDC to the incident on July 19, 1996 and the loss of the
personal properties of Atty. Nakpil. As admitted by one of his witnesses (Villanueva), the employees
of the City Engineer's office were the ones who demolished the building, while Carmelita Tan
declared that she did not know who those people were.27

Atty. Nakpil appealed to the CA. On August 25, 2003, the CA rendered judgment granting the appeal
and reversing the decision of the RTC. The fallo of the decision reads:
 WHEREFORE premises considered, the appealed decision of the Regional Trial Court,
Branch 152 in Civil Case No. is hereby REVERSED and SET ASIDE. A new one is hereby
rendered ordering defendant-appellee, Manila Towers to pay herein plaintiff-appellant
Bonifacio Nakpil the amount of P50,000.00 as nominal damages.

SO ORDERED.28

The CA held that MTDC was remiss in its duty as lessor under Article 1654, that is, to make the
necessary repairs on the building. This led to the demolition of the leased premises, thereby
disturbing the peaceful and adequate enjoyment of the lessee. Thus, the failure of MTDC to fulfill
such obligation entitled Atty. Nakpil to damages. The appellate court cited Goldstein v.
Roces.29 However, the CA also ruled that no actual damages could be awarded to Atty. Nakpil since
he failed to present competent evidence to prove the actual damages sustained. Neither can moral
damages be awarded to him since he likewise failed to prove bad faith or any fraudulent act on the
part of MTDC. Thus, no exemplary damages could likewise be awarded, and, consequently, he was
not entitled to attorney's fees. According to the CA, the most that could be adjudged in his favor was
nominal damages for violation of his right.30

The parties filed their respective motions for reconsideration of the decision, which the CA denied in
its Resolution dated November 19, 2003.31

The parties filed their respective petitions for review on certiorari in this Court, seeking to reverse the
decision and resolution of the appellate court.

In G.R. No. 160867, Nakpil, petitioner therein, contends that, while actual damages must be proven
as a general rule and the amount of damages must possess at least a degree of certainty, it is not
necessary to prove exactly how much the loss was; it is enough that loss is proven. He insists that
he has presented proof that he suffered losses when his office was demolished and the value he
gave was a fair and reasonable assessment thereof. He maintains that as of June 1995, there were
already 245 volumes of the Supreme Court Reports Annotated (SCRA). In 1998, the value of each
volume of the SCRA was P520.00; hence, the value of 245 volumes would be P127,400.00, a matter
which the court can take judicial notice of. Assuming that the evidence he presented is not sufficient
to entitle him to an award of actual damages, the P50,000.00 nominal damages awarded to him is
too minimal. He maintains that he is entitled to moral damages because the MTDC had the building
demolished to have him evicted from his office; he suffered mental anguish and was embarrassed
by his eviction; he had his law office for more than 30 years and considered it his second home.

On the other hand, in G.R. No. 160886, MTDC, petitioner therein, avers that it cannot be made liable
for actual, moral and exemplary damages because it had not been remiss in its duty to make the
necessary repairs; it was prohibited from taking possession of the property by the tenants who had
filed several suits against it.32 It alleged that it acquired the building from the GSIS in 1981, and it
was the HIBTAI that had been managing the affairs of the said building and collected the rentals
from the tenants. It pointed out that in CA-G.R. No. 04393, the CA ruled that the HIBTAI had no right
to collect the rentals. Moreover, HIBTAI did not use the rentals to make the necessary repairs but
used it instead to pay its accounts and obligations. By their own actions, the tenants of the subject
building prevented MTDC from performing its duty to maintain them in their peaceful possession and
enjoyment of the property. Moreover, Nakpil failed to prove that it had anything to do with the
demolition/repairs and the loss of his personal property.

Nakpil counters that while MTDC may have failed to make the necessary repairs because it was
prevented by the tenants' association from doing so, there is no showing that it failed to maintain him
in the peaceful and adequate possession of the leased premises for the same reason. He contends
that MTDC allowed the city to demolish the building even when the order was only for its repair. He
posits that the MTDC is liable for damages because the MTDC, not a third person, deprived him of
his possession of the leased premises.33

The threshold issues are: (1) whether or not the MTDC is liable for actual, moral and exemplary
damages to Nakpil; and (2) whether the award of P50,000.00 for nominal damages has factual and
legal basis.

The Ruling of the Court

The petition of the MTDC in G.R. No. 160886 is meritorious. The petition of Nakpil in G.R. No.
160867 is denied for lack of merit.

Article 1654 of the Civil Code enumerates the obligations of the lessor:

(1) To deliver the thing which is the object of the contract in such a condition as to render it fit
for the use intended;

(2) To make on the same during the lease all the necessary repairs in order to keep it
suitable for the use for which it has been devoted, unless there is a stipulation to the
contrary;

(3) To maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire
duration of the contract.

Failure of the lessor to fulfill any of these obligations will render the lessor liable for damages.34 In
contracts, the obligor (lessor) who acted in good faith is liable for damages that are the material and
probable consequence of the breach of the obligation and which the parties have foreseen or could
have reasonably foreseen at the time the obligation was contracted. In case of fraud, bad faith,
malice or wanton attitude, he shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.35

We do not agree with the ruling of the CA that the MTDC committed a breach of its lease contract
with Nakpil when it failed to comply with its obligation as lessor, and that the MTDC is liable for
nominal damages. Breach of contract is the failure without legal reason to comply with the terms of a
contract. It is also defined as the failure, without legal excuse, to perform any promise which forms
the whole or part of the contract.36 There is no factual and legal basis for any award for damages to
respondent.

The duty to maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration
of the contract is merely a warranty that the lessee shall not be disturbed in his legal, and not
physical, possession.37 In the early case of Goldstein v. Roces,38 the Court, citing the commentaries
of Manresa, pointed out that the obligation to maintain the lessee in the peaceful and adequate
enjoyment of the leased property seeks to protect the lessee not only from acts of third persons but
also from the acts of the lessor, thus:

The lessor must see that the enjoyment is not interrupted or disturbed, either by others' acts
[save in the case provided for in the article 1560 (now Article 1664)], or by his own. By his
own acts, because, being the person principally obligated by the contract, he would openly
violate it if, in going back on his agreement, he should attempt to render ineffective in
practice the right in the thing he had granted to the lessee; and by others' acts, because he
 must guarantee the right he created, for he is obliged to give warranty in the manner we
have set forth in our commentary on article 1553, and, in this sense, it is incumbent upon him
to protect the lessee in the latter's peaceful enjoyment.39

When the act of trespass is done by third persons, it must be distinguished whether it is trespass in
fact or in law because the lessor is not liable for a trespass in fact or a mere act of trespass by a
third person.40 In the Goldstein case, trespass in fact was distinguished from legal trespass, thus: "if
the act of trespass is not accompanied or preceded by anything which reveals a juridic intention on
the part of the trespasser, in such wise that the lessee can only distinguish the material fact, stripped
of all legal form or reasons, we understand it to be trespass in fact only (de mero hecho)."41 Further,
the obligation under Article 1654(3) arises only when acts, termed as legal trespass (perturbacion de
derecho), disturb, dispute, object to, or place difficulties in the way of the lessee's peaceful
enjoyment of the premises that in some manner cast doubt upon the right of the lessor by virtue of
which the lessor himself executed the lease.42

What is evident in the present case is that the disturbance on the leased premises on July 19, 1996
was actually done by the employees under the City Engineer of Manila and the City Building Official
on orders of the City Mayor without the participation of the MTDC. It bears stressing that the City
Building Official is authorized and mandated under Section 214 of the National Building Code to
order the repair, maintenance or demolition of the building found or declared to be dangerous or
ruinous, depending upon the degree of danger to life, health, safety and/or well-being of the general
public and its occupants as provided in Section 215 thereof. This is without prejudice to the
provisions of Articles 482, 694 and 707 of the New Civil Code. Sections 214 and 215 of the National
Building Code read:

SECTION 214. Dangerous and Ruinous Buildings or Structures

Dangerous buildings are those which are herein declared as such or are structurally unsafe
or not provided with safe egress, or which constitute a fire hazard, or are otherwise
dangerous to human life, or which in relation to existing use, constitute a hazard to safety or
health or public welfare because of inadequate maintenance, dilapidation, obsolescence, or
abandonment; or which otherwise contribute to the pollution of the site or the community to
an intolerable degree.

SECTION 215. Abatement of Dangerous Buildings

When any building or structure is found or declared to be dangerous or ruinous, the Building
Official shall order its repair, vacation or demolition depending upon the degree of danger to
life, health, or safety. This is without prejudice to further action that may be taken under the
provisions of Articles 482 and 694 to 707 of the Civil Code of the Philippines.

When the personnel of the City Building Official/City Engineer in coordination with the Philippine
National Police undertook the repair/rehabilitation of the building, they did so in the lawful
performance of their duties, independently of and separate from the obligation of the MTDC to effect
the required immediate repair/rehabilitation of the building.

Admittedly, the MTDC requested the City Building Official for the inspection of the building to
determine its safety, conformably with its obligation under Article 1654 of the New Civil Code to
maintain peaceful and adequate enjoyment of the tenants of the leased premises, and to insure the
personal safety of the tenants and their properties. At the time, the Ozone Bar and Grill in Quezon
City had just been burned down, and many lives were lost.
There is no question that the possession by respondent of the leased premises had been disturbed
by the attempt of the personnel of the City Building Official to repair and rehabilitate the building due
to MTDC's failure to undertake the same. Any act or omission by the lessor which causes a
substantial interference with the actual possession of the lessee will constitute a breach of the
obligation of quiet enjoyment. In some jurisdictions, the lessor's failure to make repairs or alterations
to the leased premises as required by public authorities, particularly those that are substantial and
structural in nature, constitutes constructive eviction, which makes the lessor liable for
damages.43 Such conclusion is grounded on the fact that the lessors, in those cases, were obliged to
make structural and substantial repairs on the leased property. The same doctrine could very well be
applied in our jurisdiction considering that, under our laws, the lessor is likewise obliged to make the
necessary repairs on the leased premises which would undoubtedly include those that are structural
and substantial in nature. In fact, there may be a constructive eviction if the landlord does a wrongful
act or is guilty of any default or neglect whereby the leased premises are rendered unsafe, unfit, or
unsuitable for occupancy, in whole, or in substantial part, for the purposes for which they were
leased.44

It bears stressing, however, that two factors must exist before there can be a constructive eviction:
(1) an act or omission by the landlord, or someone acting under his authority, which permanently
interferes with the tenant's beneficial enjoyment or use of the leased premises; and (2) an
abandonment of possession by the lessee within a reasonable time.45

Nakpil failed to establish any of the foregoing factors. The City Building Official was tasked merely to
repair/rehabilitate the building and not to demolish the same and cause the placement eviction of the
tenants. Neither did respondent abandon the leased premises. Admittedly, the MTDC failed to make
the necessary repairs in the building despite requests of the City Building Official as early as June
29, 1981 and July 10, 1981. However, the MTDC cannot be faulted for such failure. No less than the
HIBTAI or its members prevented MTDC from instituting the necessary repairs. Even Villanueva,
Nakpil's witness, admitted that HIBTAI objected to the orders of the City Building Official for the
repair of the building.46

Moreover, a complaint for injunction and damages was filed by the HIBTAI on October 2, 1982
against the MTDC. Even after the dismissal of the complaint, on January 31, 1983, the HIBTAI filed
a complaint against the GSIS, CMC and MTDC with the RTC of Manila for the nullification of the
deed of conditional sale between the GSIS and the CMC and the deed of assignment executed by
the defendant CMC and the MTDC over the property. Plaintiff alleged therein that its members,
presumably including Nakpil, the tenants in the building had the priority right under P.D. No. 1517 to
purchase the property; that the CMC was not qualified to purchase the property from the GSIS under
its Articles of Information and, hence, the deed of conditional sale was ultra vires; consequently, the
deed of assignment executed by the CMC and its sister corporation was null and void. The tenants
in the building, including Nakpil, refused to pay rentals and remitted the same to the HIBTAI which
used the money partly to finance its suits against the MTDC, thus depriving the latter from
generating funds for the repair of the building. In fine, the tenants, through the HIBTAI, already
controlled the premises. The RTC dismissed the complaint of HIBTAI. The Intermediate Appellate
Court affirmed the dismissal on February 4, 1986. The HIBTAI filed a petition for review in this Court
and, on June 30, 1987, the petition was denied for lack of merit.47 The Court ruled that the HIBTAI
had no personality to assail the contracts and to invoke P.D. No. 1517 for its members, including
Nakpil. Shortly, thereafter, in 1988, a complaint was filed against the GSIS by one of the tenants
entitled Dy v. Government Service Insurance System.48 In 1994, a similar complaint was filed
against the GSIS by another tenant entitled Cruz v. GSIS.49

Even Nakpil admitted that the MTDC was prevented by the HIBTAI and its members from
undertaking any repairs in the building. The only recourse of the MTDC was for the
repair/rehabilitation of the building through the Office of the City Engineer/City Building Official. Thus,
in 1995, it requested for an immediate ocular inspection of the building to determine the condition
and safety of the building under Sections 214 and 215 of the National Building Code. The MTDC had
no involvement in the actual repairs/rehabilitation of the building, nor in the selection, supervision
and control of the laborers to initially repair/rehabilitate the building.

Moreover, Atty. Nakpil failed to present preponderance of evidence to prove that any of the laborers
under the Office of the City Building Official/City Engineer carried away his books, table, painting,
and typewriter. Villanueva merely testified that the laborers carried away "things they could carry."
The evidence of Nakpil shows that the mezzanine floor was dark, as the lights had been turned off to
prevent a conflagration. If at all the laborers had taken any of the materials from any of the rooms in
the building, these were building materials which they were authorized to carry away under Section
10, Rule II of the Implementing Rules of the National Building Code which reads:

10. The building/structure as repaired or in case of demolition, the building materials

gathered after the demolition thereof shall be held by the OBO until full reimbursement of the
cost of repair, renovation, demolition and removal is made by the owner which, in no case,
shall extend beyond thirty (30) days from the date of completion of the repair, renovation,
demolition and removal. After such period, said building materials of the building thus
repaired, renovated or removed shall be sold at public auction to satisfy the claim of the
OBO. Any amount in excess of the claim of the government realized from the sale of the
building and/or building materials shall be delivered to the owner.

Assuming that Atty. Nakpil lost any of his personal properties, at the very least, he should have
inquired from the office of the City Engineer/City Building Official and requested that they be
returned to him.

WHEREFORE, premises considered, the petition in G.R. No 160867 is DENIED. The petition in G.R.
No. 160886 is GRANTED. The Decision of the Court of Appeals is REVERSED AND SET ASIDE.
The decision of the Regional Trial Court is AFFIRMED. No costs.

SO ORDERED.

P114,946.74, exclusive of interest, due defendant from plaintiff. Defendant's claim for
interest on plaintiff's account at twelve (12%) percent per annum is not sufficiently
supported by the evidence. Except for the sodium silicates and adhesives subject of
the written two-year agreement (Exh. 6), wherein it was stipulated that nonpayment
within sixty (60) days would make plaintiff liable to one (1%) percent interest charge
per month until the account is paid, there is nothing in the evidence to prove that the
plaintiff's accounts as to the other products were also subject to the same rate of
penalty, or what part, if any, of plaintiff's accounts pertained to unpaid purchases of
sodium silicates and adhesives. However, defendant is entitled to interest at the legal
rate on the amount due it from plaintiff after compensating their respective claims.
(Joint Record on Appeal, pp. 100-103).

WHEREFORE, the instant petition is GRANTED. The questioned decision of the Intermediate
Appellate Court is REVERSED and SET ASIDE. The trial court's decision is REINSTATED.

SO ORDERED.

[G.R. No. 122166. March 11, 1998

 CRESENTE Y. LLORENTE, JR., Petitioner, v. SANDIGANBAYAN and LETICIA G.
FUERTES, Respondents.

DECISION

PANGANIBAN, J.:

In a prosecution for violation of Section 3[e] of the Anti-Graft Law, that is, causing undue injury to
any party, the government prosecutors must prove actual injury to the offended party; speculative or
incidental injury is not sufficient.

The Case

Before us is a petition for review of the Decision promulgated on June 23, 1995 and the Resolution
promulgated on October 12, 1995 of the Sandiganbayan in Criminal Case No. 18343, finding
Cresente Y. Llorente, Jr. guilty as charged.

Llorente, then municipal mayor of Sindangan, Zamboanga del Norte, was charged with violation of
Sec. 3[e] of Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act,
under an Information dated October 22, 1992, textually reproduced as follows:[1]

That in or about and during the period of July, 1990 to October, 1991, or for sometime
subsequent thereto, in the Municipality of Sindangan, Province of Zamboanga del Norte,
Philippines, and within the jurisdiction of this Honorable Court, the above-named accused
Cresente Y. Llorente, Jr., a public officer, being then the Mayor of Sindangan, Zamboanga
del Norte, in the exercise of his official and administrative functions, did then and there,
wilfully, unlawfully and criminally with evident bad faith refuse to sign and approve the
payrolls and vouchers representing the payments of the salaries and other emoluments of
Leticia G. Fuertes, without just valid cause and without due process of law, thereby causing
undue injury to the said Leticia G. Fuertes.

CONTRARY TO LAW.

Duly arraigned on March 29, 1993, Petitioner, with the assistance of counsel, entered a plea of NOT
GUILTY.[2] After trial in due course, the Sandiganbayan[3] rendered the assailed Decision,
disposing as follows:[4]

WHEREFORE, judgment is hereby rendered finding accused Mayor Cresente Y. Llorente,

Jr. GUILTY beyond reasonable doubt as principal of the crime of Violation of Section 3(e) of
Republic Act 3019, as amended, and he is hereby sentenced to suffer imprisonment of SIX
(6) YEARS and ONE (1) MONTH, as minimum to SEVEN (7) YEARS, as maximum; to
further suffer perpetual disqualification from public office; and to pay the costs.

Respondent Court denied the subsequent motion for reconsideration in the assailed Resolution,
thus:[5]

WHEREFORE, accuseds Motion for Reconsideration and/or New Trial is hereby DENIED
for lack of merit. His Motion for Marking of Additional Exhibits Cum Offer of Documentary
Exhibits in Support of Motion for Reconsideration and/or New Trial is now rendered moot
and academic.
Hence, this petition.[6]

The Facts

Version of the Prosecution

As found by Respondent Court, the prosecutions version of the facts of this case is as follows:[7]

After appreciating all the evidence on both sides, the following uncontroverted facts may be
gleaned:

1. Accused Mayor Cresente Y. Llorente, Jr., at the time the alleged act was committed, was the
Municipal Mayor of Sindangan, Zamboanga del Norte.

2. Private [C]omplainant, Leticia C. Fuertes, is the duly appointed Assistant Municipal Treasurer in
the same municipality since October 18, 1985.

3. Starting 1986, private complainant was detailed to different offices, as follows:

(a) Municipality of Katipunan, Zamboanga del Norte from April, 1986 to August, 1987 as OIC
Municipal Treasurer.

(b) Municipality of Roxas, Zamboanga del Norte from September, 1987 to March, 1988 as OIC
Municipal Treasurer.

(c) Office of the Provincial Treasurer of Zamboanga del Norte from April, 1988 to May, 1988.

(d) Municipality of Pian, Zamboanga del Norte from June, 1988 to June, 1990 as OIC Municipal
Treasurer.

4. In July, 1990, she was returned to her post as Assistant Municipal Treasurer in the town of
Sindangan.

She was not provided with office table and chair nor given any assignment; neither her daily
time record and application for leave acted upon by the municipal treasurer per instruction of
accused Mayor (Exh. G-2; G-3).
5. On July 23, 1990, the Sangguniang Bayan of Sindangan, Zamboanga del Norte, presided
by accused Mayor, passed Resolution No. SB 214 (Exh. 3), vehemently objecting to the
assignment of complainant as Assistant Municipal Treasurer of Sindangan.
6. On March 12, 1991, accused Municipal Mayor received a letter (SB Resolution No. 36)
from the Sangguniang Bayan of the Municipality of Pian, demanding from the private
complainant return of the amount overpaid to her as salaries (par. 9, p. 2 of Exh. 4 counter-
affidavit of accused Mayor).
7. On May 22, 1991, private complainant filed a Petition for Mandamus with Damages (Exh.
E) against the accused Mayor and the Municipality of Sindangan before Branch II, Regional
Trial Court of Sindangan, Zamboanga del Norte docketed as Special Proceedings No. 45,
for the alleged unjustified refusal of Mayor Llorente to sign and/or approve her payrolls
and/or vouchers representing her salaries and other emoluments as follows: (a) salary for
 the month of June, 1990 in the amount of P5,452.00 under disbursement voucher dated
September 5, 1990 (Exh. H). Although complainant rendered services at the municipality of
Pian during this period, she could not collect her salary there considering that as of that
month, Pian had already appointed an Assistant Municipal Treasurer. When she referred
the matter to the Provincial Auditor, she was advised to claim her salary for that month with
her mother agency, the Municipality of Sindangan, [(]p. 12, TSN of August 9, 1994; 10th
paragraph of complainants Supplemental Affidavit marked Exh. G); (b) salary differential for
the period from July 1, 1989 to April 30, 1990 in the total amount of P19,480.00 under
disbursement voucher dated August, 1990 (Exh. I); (c) 13th month pay, cash gift and
clothing allowance under Supplemental Budget No. 5, CY 1990 in the total amount
of P7,275 per disbursement voucher dated December 4, 1990 (Exh. J); (d) vacation leave
commutation for the period from October to December 31, 1990 in the total amount
of P16,356.00 per disbursement voucher dated December 3, 1990 (Exh. K); (e) RATA for
the months of July, August and September, 1990, January and February, 1991 in the total
amount of P5,900.00 (par. 12 & 16 of Exh. E); and (f) salaries for January and February,
1991 in the total amount of P10,904.00 (par. 17 of Exh. E).
8. Accused Mayor did not file an answer; instead, he negotiated for an amicable settlement
of the case (p. 24, TSN of August 10, 1994). Indeed, a Compromise Agreement (Exh. A)
dated August 27, 1991, between the accused and private complainant was submitted to and
approved by the court, hereto quoted as follows:

COMPROMISE AGREEMENT

That the parties have agreed, as they hereby agree, to settle this case amicably on the basis of the
following terms and conditions, to wit:

(a) That the respondent Mayor Cresente Y. Llorente, Jr. binds himself to sign and/or approve all
vouchers and/or payrolls for unpaid salaries, RATA, Cash-gifts, 13th month pay, clothing allowance,
salary differentials and other emoluments which the petitioner is entitled is Assistant Municipal
Treasurer of Sindangan, Zamboanga del Norte;

(b) That the parties herein hereby waive, renounce and relinquish their other claims and counter-
claims against each other;

(c) That the respondent Mayor Cresente Y. Llorente Jr. binds himself to sign and/or approve all
subsequent vouchers and payrolls of the herein petitioner.

9. On August 27, 1991, a Decision (Exh. B) was rendered by Judge Wilfredo Ochotorena on
the basis of the aforesaid compromise agreement.
10. For his failure to comply with the terms of the compromise agreement, private
complainant, thru counsel, filed a Motion for Execution on September 12, 1991. A Writ of
Execution (Exh. C) was issued by the Court on September 17, 1991, and served [on] the
accused on September 23, 1991.
11. As shown in the Sheriffs Return dated November 19, 1991 (Exh. D), private complainant
was paid her salaries for the period from January, 1991 to August, 1991, while the rest of
her salaries including the RATA and other emoluments were not paid considering the
alleged need of a supplemental budget to be enacted by the Sangguniang Bayan of
Sindangan per verbal allegation of the municipal treasurer.
 12. Complainant was not also paid her salaries from July to December 1990; September
and October, 1991; RATA for the period from July 1990 to June 1994 (admission of
accused, pp. 8-9, TSN of June 27, 1994, a.m.; Exh. E; p. 17, TSN of June 27, 1994).
13. Sometime in 1993, accused municipal mayor received from the Municipality of Pian, Bill
No. 93-08 (Exh. 1), demanding from the Municipality of Sindangan settlement of
overpayment to complainant Fuertes in the amount of P50,643.93 per SB Resolution No. 6
sent on July 23, 1990. The bill was settled by the Municipality of Sindangan in December,
1993 per Disbursement Voucher No. 101-9312487 dated December 2, 1993 (Exh. 2).
14. Private complainant was able to receive complete payment of her claims only on
January 4, 1993 in the form of checks all dated December 29, 1992 (as appearing on Exhs.
H, I, J, K of the prosecution, Exhs. 6, 7, 8, of the defense) except her RATA which was
given to her only on July 25, 1994, covering the period from July 1990 to December, 1993
amounting to P55,104.00, as evidenced by Disbursement Voucher dated July 25, 1994
(Exh. 5).

Version of the Defense

While admitting some delays in the payment of the complainants claims, petitioner sought to prove
the defense of good faith -- that the withholding of payment was due to her failure to submit the
required money and property clearance, and to the Sangguniang Bayans delayed enactment of a
supplemental budget to cover the claims. He adds that such delays did not result in undue injury to
complainant. In his memorandum, petitioner restates the facts as follows:[8]

1. Complainant xxx was appointed assistant municipal treasurer of Sindangan, Zamboanga

del Norte on October 18, 1985. However, starting 1986 until July 1990, or for a period of
about four (4) and one half (1/2) years, she was detailed in other municipalities and in the
Office of the Provincial Treasurer of Zamboanga del Norte. She returned as assistant
treasurer of Sindangan in July 1990. (Decision, pp. 5-6).
2. As complainant had been working in municipallities and offices other than in Sindangan
for more than four (4) years, her name was removed from the regular payroll of Sindangan,
and payment of past salaries and other emoluments had to be done by vouchers. When
complainant xxx presented her vouchers to petitioner, the latter required her to submit
clearances from the different offices to which she was detailed, as well as a certificate of last
payment as required by COA regulations (Tsn, p. 11, Aug. 10, 1994). Instead of submitting
the required documents, Mrs. Fuertes said that what I did, I endorsed my voucher to the
mayor through the municipal treasurer (Tsn, p. 13, June 27, 1994). The municipal treasurer
could not, however, process the vouchers and certify as to the availability of funds until after
the Sangguniang Bayan had passed a supplemental budget for the purpose (Exhs. D and 6-
c Motion), which came only in December 1992.
3. Petitioner, in the meanwhile, received on March 12, 1991 SB Resolution No. 36 from the
Municipality of Pinan, demanding from Mrs. xxx Fuertes the reimbursement of P105,915.00,
and because of this demand, he needed time to verify the matter before acting on Mrs.
Fuertes claims (Exh. 4). Mrs. Fuertes admitted that she had at the time problems of
accountability with the Municipality of Pinan. She testified:

Q. Counsel now is asking you, when you went back to Sindangan there was [sic] still problems of the
claims either against you or against the Municipality of Sindangan by the municipalities had, [sic] in
their minds, overpaid you?
A. Yes, your Honor, that was evidence[d] by the bill of the Municipality of Pinan to the Municipality of
Sindangan. (Tsn, p. 18, Aug. 3, 194).

4. Petitioner also stated that he could not act on complainants claims because she had not
submitted the required money and property accountability clearance from Pinan (Tsn, 11,
Aug. 10, 1994) and that at the time the Sangguniang Bayan had not appropriated funds for
the purpose. (Tsn, pp. 18, 30, 42-43, Aug. 10, 1994). Nonetheless, petitioner included Mrs.
Fuertes name in the regular annual budget beginning 1991 (Exhs. 4-b, 4-d, 4-f), as a result
of which she had been since then receiving her regular monthly salary.
5. On May 21, 1991, Mrs. Fuertes filed a complaint xxx. Petitioner filed his answer to the
complaint, alleging as a defense, that plaintiff did not exhaust administrative remedies.
(Annex B, p. 3, Petition; Exh. 1-Motion). On August 27, 1991, the parties entered into a
compromise agreement, which the trial court approved (Exh. B). x x x.
6. Upon motion of counsel for Mrs. Fuertes, the trial court issued a writ of execution of the
compromise judgment. However, the writ of execution was addressed only to petitioner; it
was not served on the municipal Sangguniang Bayan. x x x.
Thus, Mrs. Fuertes had been receiving her regular salary from January, 1991 because
petitioner had included her name in the regular budget beginning 1991, which fact
complainant did not dispute. With respect to her other claims for past services in other
offices, Municipal Treasurer, Mrs. Narcisa Caber, informed that a supplemental budget for
such purpose to be passed by the Sangguniang Bayan was necessary before she could be
paid thereof. Being the municipal treasurer, Mrs. Caber knew that without such
supplemental budget, payment of Mrs. Fuertes other claims could not be made because the
law requires that disbursements shall be made in accordance with the ordinance authorizing
the annual or supplemental appropriations (Sec. 346, RA 7160) and that no money shall be
disbursed unless xxx the local treasurer certifies to the availability of funds for the purpose.
(Sec. 344, RA 7160).
7. Petitioner had instructed the municipal budget officer to prepare the supplemental budget
for payment of complainants unpaid claims for submission to the Sangguniang [Bayan] for
enactment. (Tsn, pp. 32-33, Aug. 10, 1994). The budget officer, Mr. Narciso Siasico stated
as follows:
1. I am the budget officer for the Municipality of Sindangan, Zamboanga del Norte,
a position I have held since 1981.

xxx xxx xxx

3. Immediately after said mandamus case was settled through a compromise

agreement, Mayor Llorente instructed me to prepare the necessary budget
proposals for the deliberation and approval of the Sangguniang Bayan;

xxx xxx xxx.

8. Instead of waiting for the Sangguniang Bayan to enact the budget or of securing
an alias writ of execution to compel the Sangguniang Bayan to pass the same, Mrs. Fuertes
filed a criminal complaint with the Office of the Ombudsman under date of October 28, 1991,
admitting receipt of her salaries from January 1991 and saying she had not been paid her
other claims in violation of the compromise judgment. (Exh. F). She had thus made the
Office of the Ombudsman a collecting agency to compel payment of the judgment
obligation.
 9. While the budget proposal had been prepared and submitted to the Sangguniang Bayan
for action, it took time for the Sangguniang Bayan to pass the supplemental budget and for
the Provincial Board to approve the same. It was only on December 27, 1992 that the
municipal treasurer and the municipal accountant issued a certification of availability of
funds for the purpose. Petitioner approved the vouchers immediately, and in a period of one
week, Mrs. Fuertes was paid all claims, as evidenced by the prosecutions Exhs. H, I, J and
K, which were the four vouchers of Mrs. Fuertes, xxxx.

xxx xxx xxx

11. Petitioner testified that he could not immediately sign or approve the vouchers of Mrs.
Fuertes for the following reasons:
a) The Sangguniang Bayan had not appropriated the amounts to pay Mrs. Fuertes.
(Tsn, pp. 18, 30, 42-43, Aug. 10, 1994).
b) Municipal Treasurer Caber, to whom Mrs. Fuertes endorsed her vouchers for
processing, and the Municipal Accountant issued the certificate of availability of
funds only on December 27, 1992 (Tsn, p. 42, Aug. 10, 1994; Exhs. H, I, J and K);
and the delay in the issuance of the certificate of availability of funds was due to the
delay by the Provincial Board to approve the supplemental budget. (Tsn, p. 43,
Aug. 10, 1994).
[c]) He received on March 12, 1991 a demand from the Municipality of Pinan,
Zamboanga del Norte, where Mrs. Fuertes last worked, for the reimbursement of
P105,915.00, and the matter had to be clarified first. (Exh. 4). Mrs. Fuertes
admitted that she had some problem of accountability with the Municipality of
Pinan. (Tsn, p. 18, 1994). It took time before this matter could be clarified by the
Municipality of Pinan reducing its claim to P50,647.093 and the Municipality of
Sindangan paying said claim. (Exh. 2; Decision, p. 9).
[d]) Mrs. Fuertes had not submitted the required clearance from the Municipality of
Pinan. (Tsn, p. 11, Aug. 10, 1994). He did not insist on this requirement after the
trial court issued the writ of execution to implement the compromise judgment.
(Tsn, p. 23, Aug. 10, 1994). Nonetheless, in the post audit of Mrs. Fuertes
accountability, the Commission on Audit issued a notice of suspension of the
amount of P5,452.00 from Mrs. Fuertes for her failure to submit: 1. Clearance for
money & property accountability from former office. 2. Certification as [sic] last day
of service in former office. 3. Certification of last salary received & issued by the
disbursing officer in former office, certified by chief accountant and verified by
resident auditor. (Exh. 2-Motion).
12. The Information dated October 12, 1992 filed against petitioner alleged that petitioner as
mayor did not sign and approve the vouchers of Mrs. Fuertes for payment of her salaries
and other emoluments from July 1, 1990 to October 1991, which caused her undue injury.
However, the prosecutions Exh. D, the sheriffs return dated November 19, 1991, stated that
Mrs. Fuertes had received her salary from January 1, 1991 up to the present, which meant
that even before the information was filed, she had been paid her regular salaries from
January 1, 1991 to October 1991. The supplemental budget to cover payment of her other
claims for past services was passed only in December 1992 and the municipal treasurer
and accountant issued the certificate of availability of funds only on December 27, 1992,
and Mrs. Fuertes got paid of [sic] all her other claims, including those not claimed in the
Information, within one week therefrom. (Exhs. H, I, J, and K).

xxx xxx xxx.

 Ruling of the Sandiganbayan

Respondent Court held that the delay or withholding of complainants salaries and emoluments was
unreasonable and caused complainant undue injury. Being then the sole breadwinner in their family,
the withholding of her salaries caused her difficulties in meeting her familys financial obligations like
paying for the tuition fees of her four children. Petitioners defense that complainant failed to attach
the required money and property clearance to her vouchers was held to be an afterthought that was
brought about, in the first place, by his own failure to issue any memorandum requiring its
submission. That the voucher form listed the clearance as one of the requirements for its approval
had neither been brought to complainants attention, nor raised by petitioner as defense in his
answer. In any event, the payment of complainants salary from January to November 1991,
confirmed by the sheriffs return, showed that the clearance was not an indispensable requirement,
because petitioner could have acted upon or approved the disbursement even without it. The alleged
lack of a supplemental budget was also rejected, because it was petitioners duty as municipal mayor
to prepare and submit the executive and supplemental budgets under Sections 318, 320, and 444
(3)(ii) of the Local Government Code,[9] and the complainants claims as assistant municipal
treasurer, a permanent position included in the plantilla for calendar year 1990 and 1991, were
classified as current operating expenditures for the same calendar years, which were chargeable
against the general funds of the town of Sindangan. Except for the representation and transportation
allowance, Fuertes claims for thirteenth month pay, cash gift and clothing allowance were already
covered by Supplemental Budget No. 5 for calendar year 1990. Petitioners contention that funds
covering complainants claims were made available only in December 1992 was unbelievable,
considering that an ordinance enacting a supplemental budget takes effect upon its approval or on
the date fixed therein under Sec. 320 of the Local Government Code.

The Sandiganbayan also ruled that the petitioners evident bad faith was the direct and proximate
cause of Fuertes undue injury. Complainants salaries and allowances were withheld for no valid or
justifiable reasons. Such delay was intended to harass complainant, because petitioner wanted to
replace her with his political protege whom he eventually designated as municipal treasurer,
bypassing Fuertes who was next in seniority. Bad faith was further evidenced by petitioners
instructions to the outgoing municipal treasurer not to give the complaining witness any work
assignment, not to provide her with office table and chair, not to act on her daily time record and
application for leave of absence, instructions which were confirmed in the municipal treasurers
certification. (Exh. G-2).

The Issues

In his memorandum, petitioner submits the following issues:[10]

1. Could accused be held liable under Sec. 3(e) of R.A. 3019 in the discharge of his official
administrative duties, a positive act, when what was imputed to him was failing and refusing
to sign and/or approve the vouchers of Mr[s]. Fuertes on time or by inaction on his obligation
under the compromise agreement (ibid., p. 19), a passive act? Did not the act come under
Sec. 3(f) of R.A. 3019, of [sic] which accused was not charged with?
2. Assuming, arguendo, that his failure and refusal to immediately sign and approve the
vouchers of Mrs. Fuertes comes [sic] under Sec. 3(e), the questions are:

(a) Did not the duty to sign and approve the same arise only after the Sangguniang Bayan had
passed an appropriations ordinance, and not before? In other words, was the non-passage of the
appropriation ordinance a justifiable reason for not signing the vouchers?
(b) Did Mrs. Fuertes suffer undue injury, as the term is understood in Sec. 3(e), she having been
paid all her claims?

(c) Did petitioner not act in good faith in refusing to immediately sign the vouchers and implement
the compromise agreement until the Sangguniang Bayan had enacted the appropriation ordinance
and until Mrs. Fuertes submitted the clearance from the Municipality of Pinan, Zamboanga del
Norte?

Restated, petitioner claims that the prosecution failed to establish the elements of undue injury and
bad faith. Additionally, petitioner submits that a violation of Section 3[e] of RA 3019 cannot be
committed through nonfeasance.

The Courts Ruling

The petition is meritorious. After careful review of the evidence on record and thorough deliberation
on the applicable provision of the Anti-Graft Law, the Court agrees with the solicitor generals
assessment that the prosecution failed to establish the elements of the crime charged.

First Issue: Undue Injury

Petitioner was charged with violation of Section 3[e] of R.A. 3019, which states:

SEC. 3. Corrupt practices of public officers.In addition to acts or omissions of public officers
already penalized by existing law, the following shall constitute corrupt practices of any
public officer and are hereby declared to be unlawful:

xxx xxx xxx

(e) Causing any undue injury to any party, including the Government, or giving any private
party any unwarranted benefits, advantage or preference in the discharge of his official,
administrative or judicial functions through manifest partiality, evident bad faith or gross
inexcusable negligence. This provision shall apply to officers and employees of offices or
government corporations charged with the grant of licenses or permits or other concessions.

To hold a person liable under this section, the concurrence of the following elements must be
established beyond reasonable doubt by the prosecution:

(1) that the accused is a public officer or a private person charged in conspiracy with the
former;
(2) that said public officer commits the prohibited acts during the performance of his or her
official duties or in relation to his or her public positions;
(3) that he or she causes undue injury to any party, whether the government or a private
party; and
(4) that the public officer has acted with manifest partiality, evident bad faith or gross
inexcusable negligence.[11]

The solicitor general, in his manifestation,[12] points out that undue injury requires proof of actual
injury or damage, citing our ruling in Alejandro vs. People[13] and Jacinto vs.
Sandiganbayan.[14] Inasmuch as complainant was actually paid all her claims, there was thus no
undue injury established.

This point is well-taken. Unlike in actions for torts, undue injury in Sec. 3[e] cannot be presumed
even after a wrong or a violation of a right has been established. Its existence must be proven as
one of the elements of the crime. In fact, the causing of undue injury, or the giving of any
unwarranted benefits, advantage or preference through manifest partiality, evident bad faith or gross
inexcusable negligence constitutes the very act punished under this section. Thus, it is required that
the undue injury be specified, quantified and proven to the point of moral certainty.

In jurisprudence, undue injury is consistently interpreted as actual damage. Undue has been defined
as more than necessary, not proper, [or] illegal; and injury as any wrong or damage done to another,
either in his person, rights, reputation or property[;] [that is, the] invasion of any legally protected
interest of another. Actual damage, in the context of these definitions, is akin to that in civil law.[15]

In turn, actual or compensatory damages is defined by Article 2199 of the Civil Code as follows:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved. Such
compensation is referred to as actual or compensatory damages.

Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful or
negligent act or omission shall have a fair and just compensation commensurate to the loss
sustained as a consequence of the defendants act. Actual pecuniary compensation is awarded as a
general rule, except where the circumstances warrant the allowance of other kinds of
damages.[16] Actual damages are primarily intended to simply make good or replace the loss
caused by the wrong.[17]

Furthermore, damages must not only be capable of proof, but must be actually proven with a
reasonable degree of certainty. They cannot be based on flimsy and non-substantial evidence or
upon speculation, conjecture or guesswork.[18] They cannot include speculative damages which are
too remote to be included in an accurate estimate of the loss or injury.

In this case, the complainant testified that her salary and allowance for the period beginning July
1990 were withheld, and that her family underwent financial difficulty which resulted from the delay in
the satisfaction of her claims.[19] As regards her money claim, payment of her salaries from January
1991 until November 19, 1991 was evidenced by the Sheriffs Return dated November 19, 1991
(Exh. D). She also admitted having been issued a check on January 4, 1994 to cover her salary from
June 1 to June 30, 1990; her salary differential from July 1, 1989 to April 30, 1990; her thirteenth-
month pay; her cash gift; and her clothing allowances. Respondent Court found that all her monetary
claims were satisfied. After she fully received her monetary claims, there is no longer any basis for
compensatory damages or undue injury, there being nothing more to compensate.

Complainants testimony regarding her familys financial stress was inadequate and largely
speculative. Without giving specific details, she made only vague references to the fact that her four
children were all going to school and that she was the breadwinner in the family. She, however, did
not say that she was unable to pay their tuition fees and the specific damage brought by such
nonpayment. The fact that the injury to her family was unspecified or unquantified does not satisfy
the element of undue injury, as akin to actual damages. As in civil cases, actual damages, if not
supported by evidence on record, cannot be considered.[20]
Other than the amount of the withheld salaries and allowances which were eventually received, the
prosecution failed to specify and to prove any other loss or damage sustained by the complainant.
Respondent Court insists that complainant suffered by reason of the long period of time that her
emoluments were withheld.

This inconvenience, however, is not constitutive of undue injury. In Jacinto, this Court held that the
injury suffered by the complaining witness, whose salary was eventually released and whose
position was restored in the plantilla, was negligible; undue injury entails damages that are more
than necessary or are excessive, improper or illegal.[21] In Alejandro, the Court held that the
hospital employees were not caused undue injury, as they were in fact paid their salaries.[22]

Second Issue: No Evident Bad Faith

In the challenged Decision, Respondent Court found evident bad faith on the part of the petitioner,
holding that, without any valid or justifiable reason, accused withheld the payment of complainants
salaries and other benefits for almost two (2) years, demonstrating a clear manifestation of bad
faith.[23] It then brushed aside the petitioners defenses that complainant failed to submit money and
property clearances for her vouchers, and that an appropriation by the Sangguniang Bayan was
required before complainants vouchers could be approved. It said:[24]

Secondly, his reliance on the failure of complainant to submit the clearances which were
allegedly necessary for the approval of vouchers is futile in the light of the foregoing
circumstances:

xxx xxx xxx

b. The evidence on record shows that complainants salaries for the period from January to
November 1991 (included as subject matter in the mandamus case) were duly paid, as confirmed in
the Sheriffs Return dated November 19, 1991 (Exh. D). This means that accused, even without the
necessary clearance, could have acted upon or approved complainants disbursement vouchers if he
wanted to.

c. It may be true that a clearance is an indispensable requirement before complainant will be paid of
her claims, but accused could not just hide behind the cloak of the clearance requirement in order to
exculpate himself from liability. As the approving officer, it was his duty to direct complainant to
submit the same. Moreover, accused could not just set aside the obligation he voluntarily imposed
upon himself when he entered into a compromise agreement binding himself to sign complainants
vouchers without any qualification as to the clearance requirement. Perforce, he could have seen to
it that complainant secured the same in order that he could comply with the said obligation.

xxx xxx xxx

Fourthly, accuseds contention that the delay in the release of complainants claim could not be
attributed to him because the vouchers were only submitted to him for his signature on December
24-27, 1992; that the approval of the budget appropriations/resolutions depends on the Sangguniang
Bayan, Budget Officer and the Sangguniang Panlalawigan, is unavailing.

As revealed in the alleged newly discovered evidence themselves, particularly x x x SB Res. No. 202
and Appropriation Ordinance No. 035, both dated May 21, 1990 (Exh. 5-a- Motion), the
Sangguniang Bayan appropriated a budget of P5M in the General Fund for calendar year 1991 [the
Budget Officer does not approve the budget but assists the Municipal Mayor and the Sangguniang
Bayan in the preparation of the budget (Sec. 475, Local Government Code of 1991)]. Complainants
claims consisted of her salaries and other benefits for 1990 and 1991 which were classified as
Current Operating Expenditures chargeable against the General Fund. It is undisputed that she was
holding her position as Assistant Municipal Treasurer in a permanent capacity (her position was also
designated Assistant Department Head), which was included in the plantilla for calender years 1990
and 1991 (Exhs. 4-a & '4-b', Motion). In Program Appropriation and Obligation by Object (Exhs. 4-c
& 4-c, Motion), appropriations were made for current operating expenditures to which complainants
claims properly appertained. xxx. Verily, complainants claims were covered by appropriations duly
approved by the officials concerned, signifying that adequate funds were available for the purpose.
In fact, even complainants claims for her 13th month pay, cash gift and clothing allowance, subject
matter of Disbursement Voucher marked Exhibit J which would need a supplemental budget was
covered by Supplemental Budget No. 5 for CY 1990 duly approved by the authorities concerned as
shown in the voucher itself. This means that the said claim was already obligated (funds were
already reserved for it) as of calendar year 1990. xxxx. It is clear, then, that as regards availability of
funds, there was no obstacle for the release of all the complainants claims.

The Court disagrees. Respondent Court cannot shift the blame on the petitioner, when it was the
complainant who failed to submit the required clearance. This requirement, which the complainant
disregarded, was even printed at the back of the very vouchers sought to be approved. As assistant
municipal treasurer, she ought to know that this is a condition for the payment of her claims. This
clearance is required by Article 443 of the Implementing Rules and Regulations of the Local
Government Code of 1991:

Art. 443. Property Clearances When an employee transfers to another government office,
retires, resigns, is dismissed, or is separated from the service, he shall be required to
secure supplies or property clearance from the supply officer concerned, the provincial or
city general services officer concerned, the municipal mayor and the municipal treasurer, or
the punong barangay and the barangay treasurer, as the case may be. The local chief
executive shall prescribe the property clearance form for this purpose.

For her own failure to submit the required clearance, complainant is not entirely blameless for the
delay in the approval of her claims.

Also, given the lack of corresponding appropriation ordinance and certification of availability of funds
for such purpose, petitioner had the duty not to sign the vouchers. As chief executive of the
municipality Llorente could not have approved the voucher for the payment of complainants salaries
under Sec. 344, Local Government Code of 1991.[25] Also, Appropriation Ordinance No.
020[26] adding a supplemental budget for calendar year 1990 was approved on April 10, 1989, or
almost a year before complainant was transferred back to Sindangan. Hence, she could not have
been included therein. SB Resolution No. 202 and Appropriation Ordinance No. 035,[27] which fixed
the municipal budget for calendar year 1991, was passed only on May 21, 1990, or almost another
year after the transfer took effect. The petitioners failure to approve the complainants vouchers was
therefore due to some legal obstacles,[28] and not entirely without reason. Thus, evident bad faith
cannot be completely imputed to him.

Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest purpose or
some moral obliquity and conscious doing of a wrong; a breach of sworn duty through some motive
or intent or ill will; it partakes of the nature of fraud. (Spiegel v. Beacon Participations, 8 NE
2nd Series, 895, 1007). It contemplates a state of mind affirmatively operating with furtive design or
some motive of self interest or ill will for ulterior purposes (Air France v. Carrascoso, 18 SCRA 155,
166-167). Evident bad faith connotes a manifest deliberate intent on the part of the accused to do
wrong or cause damage. [29]
In Jacinto, evident bad faith was not appreciated because the actions taken by the accused were not
entirely without rhyme or reason; he refused to release the complainants salary because the latter
failed to submit her daily time record; he refused to approve her sick-leave application because he
found out that she did not suffer any illness; and he removed her name from the plantilla because
she was moonlighting during office hours. Such actions were measures taken by a superior against
an erring employee who studiously ignored, if not defied, his authority.[30]

In Alejandro, evident bad faith was ruled out, because the accused gave his approval to the
questioned disbursement after relying on the certification of the bookkeeper on the availability of
funds for such disbursement.[31]

Third Issue: Interpretation of Causing

The Court does not completely agree with petitioners assertion that the imputed act does not fall
under Sec. 3[e] which, according to him, requires a positive act -- a malfeasance or
misfeasance. Causing means to be the cause or occasion of, to effect as an agent, to bring into
existence, to make or to induce, to compel.[32] Causing is, therefore, not limited to positive acts
only. Even passive acts or inaction may cause undue injury. What is essential is that undue injury,
which is quantifiable and demonstrable, results from the questioned official act or inaction.

In this case, the prosecution accused petitioner of failing or refusing to pay complainants salaries on
time, while Respondent Court convicted him of unduly delaying the payment of complainants claims.
As already explained, both acts did not, however, legally result in undue injury or in giving any
unwarranted benefits, advantage or preference in the discharge of his official, [or] administrative x x
x functions. Thus, these acts are not punishable under Sec. 3[e].

It would appear that petitioners failure or refusal to act on the complainants vouchers, or the delay in
his acting on them more properly falls under Sec. 3[f]:

(f) Neglecting or refusing, after due demand or request, without sufficient justification, to act
within a reasonable time on any matter pending before him for the purpose of obtaining,
directly or indirectly, from any person interested in the matter some pecuniary or material
benefit or advantage, or for purpose of favoring his own interest or giving undue advantage
in favor of or discriminating against any other interested party.

Here, the neglect or refusal to act within a reasonable time is the criminal act, not the causing of
undue injury. Thus, its elements are:

1) The offender is a public officer;

2) Said officer has neglected or has refused to act without sufficient justification after due
demand or request has been made on him;
3) Reasonable time has elapsed from such demand or request without the public officer
having acted on the matter pending before him; and
4) Such failure to so act is for the purpose of obtaining, directly or indirectly, from any
person interested in the matter some pecuniary or material benefit or advantage in favor of
an interested party, or discriminating against another.[33]
However, petitioner is not charged with a violation of Sec. 3[f]. Hence, further disquisition is not
proper. Neither may this Court convict petitioner under Sec. 3[f] without violating his constitutional
right to due process.

WHEREFORE, the petition is hereby GRANTED. Petitioner is ACQUITTED of violating Section 3[e]
of R.A. 3019, as amended. No costs.

SO ORDERED.

EN BANC

G.R. No. L-39380 April 14, 1978

LUALHATI L. LINA, petitioner,

vs.
The Honorable AMANTE P. PURISIMA in his capacity as Presiding Judge of the Court of First
Instance of Manila, PHILIPPINE VETERANS BANK, and ESTEBAN CABANOS, respondents.

Honesto Salcedo and Pantaleon Z. Salcedo for petitioner.

Levy M. Narvaez for respondents.

BARREDO, J.:

Petition for certiorari and mandamus to annul the two successive orders of dismissal, for supposed
lack of jurisdiction, of petitioner's complaint in Special Civil Action No. 94986 of the Court of First
Instance of Manila issued by respondent judge and to command said respondent to try and decide
the said case on the merits.

The first order of dismissal in question dated August 14, 1974 is as follows:

Petition in this case is for the writ of mandamus to compel respondents 'to restore
petitioner to the position she was excluded from' in the Philippine Veterans Bank.

While the petition avers that respondent Esteban Cabanos, as President of the Bank,
'in grave abuse of discretion and authority forcibly excluded petitioner from the
position without valid cause, nor basis in law, it also states that the removal of
petitioner was 'upon recommendation of Branch Manager, Julio Tamondong,
"..."which recommendation and action of respondent Esteban Cabanos was later
approved by the Board of Directors of the said Bank.

The petition likewise avers that petitioner has appealed to the Office of the President,
but the latter denied the same.

The allegation in the petition that respondent Cabanos committed "grave abuse of
discretion and authority" in dismissing petitioner from her office is a legal conclusion,
not a statement of the ultimate facts giving rise to the cause of action being asserted.
Why petitioner's removal from office by Cabanos was in grave abuse of discretion is
not averred.
 Neither is it shown in the petition why petitioner entitled to the office from which she
was removed — to reinstatement in other words.

It is equally noticeable that while annexed to the petition is the letter of Assistant
Executive Secretary Ronaldo B. Zamora to Atty. Pantaleon Z. Salcedo informing him
of the denial of petitioner's request for reconsideration as contained in the therewith
enclosed copy of the 2nd endorsement of said office, the petition before the Court
does not include said enclosure as an annex, nor copied therein, which should show
why the said request for reconsideration was denied, one of the ultimate facts which
must necessarily be looked into should the petition be given due course. For that
matter, neither is the letter or notice of petitioner's removal from office included in the
petition.

Considering an the foregoing observations, the Court does not find the petition to be
sufficient in form and substance to justify the process of requiring respondents to
answer the petition pursuant to Section 6 of Rule 65 of the Rules of Court.

Wherefore, the petition is hereby dismissed.

In an attempt to cure the suppose defects pointed out in the foregoing order, petitioner filed an
amended petition, which, however, met the same fate as the original one. The Second order of
dismissal dated September 3, 1974 runs thus:

Before the Court is petitioner's motion to admit amended petition, with the amended
petition already attached,, filed obviously for the purpose of correcting defects in the
original petition which was earlier dismissed by the Court upon the ground that it
found the same not to be sufficient in form and substance.

Documents not annexed to the original petition which were pointed out in the order
dismissing the original petition are now annexed to the amended petition. And the
nature of their contents explain why they were conveniently suppressed in the
original petition.

It now appears from the annexes of the amended petition that petitioner was
dismissed by respondent president of the Philippine Veterans Bank pursuant to
Letters of Instruction No. 14 and No. 19-A, for being notoriously undesirable. (Annex
"H"). This being the case, petitioner had a right to appeal from her dismissal, and the
venue of the appeal is the Office of the President. She did appeal. (Annex "G"). But
the appeal was denied. (Annex "H"- letter from the Office of the President).

The aforesaid letter from the Office of the President in effect affirmed the position
taken by respondent Cabanos in dismissing petitioner pursuant to Letter of
Instruction No. 14-A.

Since the removal of petitioner is pursuant to a Letter of Instruction issued by the

President pursuant to Proclamation No. 1081, the validity or legality of said act is
beyond the power of the courts to review, much less modify or reverse, whether by
means of the writ of certiorari and/or mandamus, or any other court process. This is
one of the express hesitations upon the power of Courts imposed by General Order
No.3 issued by the President on September 22, 1972. Said general order provides:

xxx xxx xxx

 I do hereby further order that the Judiciary shall continue to function in accordance
with its present organization and personnel, and shall try and decide in accordance
with existing laws all criminal and civil cases, except the following cases:

1. Those involving the validity, legality, or constitutionality of any decree, order or act
issued, promulgated or performed by me or by my duly designated representative
pursuant to Proclamation No. 1081, dated Sept. 21, 1972.

2. Those involving the validity, legality or constitutionality of any rules, orders or acts
issued, promulgated or performed by public servants pursuant to decrees, orders,
rules and regulations issued and promulgated by me or by my duly designated
representative pursuant to Proclamation No. 1081, dated Sept. 21, 1972.

Foregoing considered, the amended petition is hereby dismissed upon the grounds
already stated in the order dated August 14, 1974, and upon the more important
ground that the relief prayed for therein is for the present beyond the power of the
Court to extend.

Considering that petitioner filed an amended complaint purporting to comply with the tenor of the first
order of dismissal in question, it is unnecessary for Us to make any ruling as to the propriety of His
Honor's action of dismissing the original complaint.

Anent the second order, it is at once obvious that petitioner's right to redress against the same is
beyond dispute. Respondent court's invocation of General Order No. 3 of September 21, 1972 is
nothing short of an unwarranted abdication of judicial authority, which no judge duly imbued with the
implications of the paramount principle of independence of the judiciary should ever think of doing. It
is unfortunate indeed that respondent judge is apparently unaware that it is a matter of highly
significant historical fact that this Court has always deemed General Order No. 3 including its
amendment by General Orders No. 3-a 1 as practically inoperative even in the light of Proclamation
1081 of September 21, 1972 and Proclamation 1104 of January 17, 1973 placing the whole
Philippines under martial law. While the members of the Court are not agreed on whether or not
particular instances of attack against the validity of certain Presidential Decrees raise political
questions which the judiciary would not interfere with, there is unanimity among Us in the view that it
is for the Court rather than the Executive to determine whether or not We may take cognizance of
any given case involving the validity of acts of the Executive Department purportedly under the
authority of the martial law proclamations.

In this regard, to the credit of President Marcos, it has been noted by the Court that the President
has publicly acknowledged as one of the distinctive cardinal features of the prevailing martial law
regime that the constitutional authority, prerogatives and jurisdiction of the Supreme Court, as they
have ever existed in normal times, remain integrally unimpaired despite the proclamation of martial
law. In plainer terms, it has been repeatedly announced by the President, even to international or
foreign audiences, that our martial law government is subject, as by constitutional mandate it should
always be, to the authority and jurisdiction of the Supreme Court. And undoubtedly, in appropriate
cases, such pronouncements can apply to the judiciary as a whole. Accordingly, We do not hesitate
to reject the reasoning advanced by respondent court as a constitutionally-uncalled- for
submissiveness to the Executive, certainly unworthy of the judicial office. We hold that the legal
premise of the impugned order is absolutely erroneous from the point of view of sacred constitutional
principles. Such an order does not deserve to be given sanction by this Court as being in keeping
with the role of the courts in this momentous era of our national existence as a democratic republic
committed to hold inviolate the independence of the judiciary at all times, so long as the constitution
continues to be in force.
Now, strictly speaking and observing the usual procedural rules, what has just been said should
suffice to dispose of this case. In other words, in the light of Our view that respondent court
committed a grave error in declaring itself jurisdictionally impotent in the premises, ordinarily, what
remains for Us to do is only to direct that petitioner's case be tried and decided by respondent judge
on the merits. But this is the Supreme Court whose power and duty to do substantial justice in every
case before it are inherent, plenary and imperative, hence extensive to all instances where it
appears that final resolution of the controversy before it is feasible without denying any of the parties
involved full opportunity to be heard. Stated differently, if in any case elevated to this Court for the
correction of any supposed procedural error of any lower court, it should be found that indeed there
has been a mistake, and it further appears that all the facts needed for a complete determination of
the whole controversy are already before the Court undisputed or uncontroverted by the parties, the
Supreme Court may at its option, whenever it feels the best interests of justice would be thereby
subserved, dispense with the usual procedure of remanding the case to the court of origin for its own
judgment, and instead, the Supreme Court may already resolve the pertinent determinative issues
and render the final judgment on the merits. The obvious reason for such an extension in the
exercise of the Court's pervasive power is that any other procedure would amount to an
unnecessary rigmarole which can only augment the expenses, efforts and anxieties of the parties
and uselessly delay the administration of justice, no other result for all concerned being anyway
perceptible.

Such is the situation in the case at bar. Although no trial was held in the court below, the pleadings
before Us portray all the vital issues between the parties. The facts alleged by both of them are
mutually uncontroverted and, on the other hand, the legal issues are properly joined. Respondents
have from all appearances unquestioningly submitted all matters controversy for resolution of this
Court. In fact, in their "Manifestation and Comment" dated November 12, 1975 respondents state
their position in this respect unequivocally thus:

That they join with the petitioner in her Motion With Leave for Early Resolution dated
September 20, 1976, consistent with herein respondents submittal that the instant
case be resolved by this Honorable Tribunal' without further remanding the case to
the court of origin' as manifested in their Reply dated July 14, 1975.

Accordingly, We shall now proceed to determined petitioner's prayer for mandamus on its merits.

In this connection, it may be stated that on May 22, 1975, subsequent to the hearing of this case,
respondents filed a manifestation to the effect that on May 12, 1975, the following Administrative
Order No. 6, Series of 1975, had been issued:

ADMINISTRATIVE ORDER NO. 6

SERIES OF 1975

SUBJECT: Reinstatement to the Service of LUALHATI L. LINA

In line with the policy of management to promote industrial peace, Administrative

Order No. 75 dated October 16, 1972, is set aside, and Miss LUALHATI L. LINA is
hereby reinstated to her former position as Bookkeeper in the Bank, effective upon
assumption to duty, with entitlement to the pay and allowances appurtenant thereto.
This order of reinstatement is without prejudice to the outcome of the proceedings
pending before the Supreme Court.

(SGD.) ESTEBAN B. CABANOS

That manifestation reads in full as follows:

COME NOW the respondents PHILIPPINE VETERANS BANK and ESTEBAN B.

CABANOS in his capacity as President of the Bank, thru the undersigned counsel
and to this Honorable Court most respectfully manifest: —

l. That the principal issue in this case is the questioned ruling and/or order of the
lower court presided by the respondent Judge Amante P. Purisima to the effect that
the relief prayed for by the petitioner for mandamus and damages is beyond the
power of the court to extend;

2. That respondents, without necessarily admitting the correctness of the position

taken by the petitioner, have issued Administrative Order No. 6 dated May 12, 1975,
reinstating petitioner to her former position as bookkeeper, effective upon
assumption of office, without prejudice to the result of the proceedings pending
before the Honorable Supreme Court, a certified xerox copy of which is hereto
attached as Annex 'A';

3. That respondents in addition to reinstatement, will pay all back salaries and other
emoluments due her from October 17, 1972;

4. That the respondents in addition to reinstatement and payment of back wages and
other emoluments are willing to reimburse the petitioner the actual expenses incurred
by her in connection with this case;

5. That the reinstatement of the petitioner is in line with the policy of Management to
eliminate all possible irritants between labor and management, to reassure labor of
the fairness of management, in order to promote industrial peace.

WHEREFORE, it is most respectfully prayed that the manifestation be duly

considered in whatever resolution this Honorable Court may deem just and proper in
the premises.

Notwithstanding her receipt of the above communications, petitioner has not returned to her work.
Instead, she flied the following "Comments and Manifestation" on June 19, 1975:

PETITIONER, by counsel pursuant to and in compliance with the Court's resolution

dated May 29, 1975, and received by counsel on June 9, 1975, now comes before
this Honorable Tribunal to submit these comments and manifestations and
respectfully avers that —

1. Petitioner concurs with the manifestation of respondents to the effect that she be
restored to the position she was excluded from 'effective upon assumption of office
without prejudice to the result of the proceedings pending before the Honorable
Supreme Court'; the payment of her back salaries and other emoluments she is
entitled to and the reimbursement of her expenses actually incurred in connection
with the case at bar-, provided that her claim for damages, actual moral and
exemplary shag stand unaffected by her concurrence to respondents' manifestation
and shall remain subject to the resolution of this most Honorable Tribunal
 2. The above entitled case arose out of the dismissal by the lower court of the
petition for mandamus with damages filed by your petitioner, docketed as Special
Civil Action No. 94986 upon the only ground that the relief prayed for in the said
petition is 'beyond the power of the court to extend.'

3. The petition in the Lower Court sought two specific purposes. These purposes are:
(1) the restoration of petitioner to the position she was excluded from including the
payment of her back salaries, actual expenses incurred in connection with the case
and other emoluments due her by virtue of the office, and (2) the payment of
damages, actual moral and exemplary as a result of her dismissal.

4. The manifestation of respondents speaks only of the restoration of petitioner to the

position she was excluded from and the payment of her back salaries, other
emoluments due her and the actual expenses incurred in connection with the case at
bar, but leaving out, or perhaps purposely omitting the question of damages prayed
for in the petition of origin out of the manifestation and excluding also the award of
attorney's fees to petitioner.

5. The concurrence therefore, of your petitioner to the manifestation of respondents

is only limited to the matters therein mentioned but without prejudice to her claim of
actual moral and exemplary damages. (Pp, 111-112, Record,)

with prayer that:

WHEREFORE, it is most respectfully prayed to this Most Honorable Tribunal that an

order be issued to respondents to -

a. restore your petitioner to her former position;

b. pay your petitioner's back salaries, and other emoluments due her by virtue of the
office,

c. reimburse your petitioner the expenses she actually incurred in connection with the
case;

d. pay attorney's fees as prayed for in the petition of origin which includes actual
moral and exemplary or in the alternative, to remand the question of damages to the
court of origin.

FURTHER, petitioner prays for such other relief deemed just, proper and equitable
under the premises. (Pp. 112-113, Record.)

which prayer she reiterated in her subsequent motions of September 24, 1976, November 8, 1976
and September 13, 1977.

With this denouement in the circumstances of this case after the same was submitted for Our
decision it has become unnecessary for Us to pass on the claims of petitioner to (1) reinstatement,
(2) back salaries and other emoluments due her by virtue of her office and (3) reimbursement of all
expenses actually incurred by her in connection with this case. Respondents have already
committed themselves to accede to her prayer in these respects, thus:
 Your respondents hereby respectfully submit that it is no longer necessary for the
petitioner to pray to this Honorable Tribunal that judgment be rendered ordering
respondents to:

l. Restore your petitioner movant to her former position;

2. Pay your petitioner movant her back salaries and other emoluments due her by
virtue of the position,

3. Reimburse your petitioner movant the expenses actually incurred in connection

with the case, including attorney's fees;

because the respondents, though without admitting the validity of the cause of action
of the petitioner, have already voluntarily and freely expressed their absolute and
unqualified willingness and ability to comply with those demands of petitioner, as
respondents have expressed in the Administrative Order No. 6 dated May 12, 1975
and in their Manifestation dated May 22, 1975 wherein they further unconditionally
committed themselves that petitioner can return to work any time without waiting for
any resolution of this Honorable Tribunal. That which is already being voluntarily
complied with need not be ordered anymore. (Manifestation and Comment of
respondents dated November 12, 1976.)

In the same Manifestation and Comment just partially quoted, however, respondents pleaded as
follows:

However, because of the unexplained failure of petitioner to report back to work

pursuant to Administrative Order No. 6, the herein respondent bank's commitment to
pay back salaries and allowances, we beg leave, should be confined and limited to
the period from October 16, 1972 (date of her dismissal) up to only some reasonable
time from May 12, 1975 when Administrative Order No. 6 was issued.

Thus, the only issue left for determination and resolution of this Honorable Tribunal is
whether or not the respondent is still liable for moral or exemplary damages despite
respondents' voluntary action to reinstate petitioner and pay her back salaries,
allowances and actual damages. As regards this issue, both petitioner and
respondents are in unison in moving that this Honorable Tribunal resolve the said
issue without remanding the case to the court of origin. The willingness and voluntary
action of respondent Bank to reinstate petitioner, to pay all back salaries and
allowances and actual expenses incurred by petitioner, we beg leave of this
Honorable Tribunal to be considered in the determination and passing judgment
upon the petitioner's claim for moral and/or exemplary damages.

In this connection the respondents Bank and Esteban B. Cabanos profess good faith
as they were impelled not by ill-will nor personal malice, but only by their ultimate
purpose to serve the best interest of the Bank and the Goals of the New
Dispensation and the Program of Reform in and out of the Government service.

WHEREFORE, the herein represented respondents move for the early resolution of
the instant case without further remanding the same to the court of origin and in the
consideration of the facto and law applicable to the instant case, herein respondents
further respectfully pray that this Honorable Tribunal take into account the honest
and sincere gesture of the respondents in issuing Administrative Order No. 6 dated
 May 12, 1975 in clear manifestation of their desire to promote industrial peace, to
reassure labor of the fairness of management in the respondent Philippine Veterans
Bank.

Herein respondents also pray that no award of moral and exemplary damages be
imposed against them.

In the factual premises just stated, We do not believe petitioner is entitled to more than what
respondents are willing to concede. For a moment some members of the Court entertained the
thought of awarding her moral and exemplary damages plus attomey's fees. On further reflection,
however, the Court has come to the unanimous conclusion that petitioner's reaction to the well taken
decision of respondents to rectify whatever legal injury had been caused her by her dismissal, that
indeed appears to be rather precipitate, does not conform with law and justice. It is Our considered
view that upon receipt of the above-quoted memorandum of May 12, 1975 and, particularly, the
manifestation of respondents of May 22, 1975, which were duly served on her counsel, it became
the inescapable duty of petitioner to immediately report for work without having to wait for Our final
action. Indeed, by her posture of obstinacy in refusing to report for duty after respondent insistently
reiterated their conformity, in their Manifestation and Comment of November 12, 1976 above
referred to and partly quoted, to her demand for reinstatement, payment of back salaries and all
incidental expenses, she lost every ground of fairness and equity she might have initially had as a
result of her abrupt separation from the service. As may be observed, respondents' order of
reinstatement and formal tender of her back salaries and expenses was expressly subject to the
ultimate outcome of this case. There was, therefore, nothing anymore that petitioner could risk by
immediately reporting for work, insofar as her right to relief in law is concerned. All she could be
entitled to could not have been more securely safeguarded. Under these circumstances, We have
no alternative than to hold that she has deprived herself of legal and equitable basis for the
additional relief of moral and exemplary damages.

The unbending rule of jurisprudence in this jurisdiction ' regarding the right of an employee or worker
to reinstatement after an unlawful dismissal does not permit him or her to stand Idly by for a long
time while awaiting the settlement of the issue. Concomitant with the right to be taken back is the
obligation of the dismissed employee or worker to endeavor to secure gainful employment
elsewhere. The foundation of such a rule is the principle of no work, no pay. In this particular case,
petitioner's failure to report for duty as directed might have impaired the public service being
performed by her employer, considering that her expected return must have derailed any plans for
her replacement.

Besides, the law on damages imposes upon the claimant, regardless of the unquestionability of his
or her entitlement thereto, to minimize the same as much as possible. Such indeed is the demand of
equity, for the juridical concept of damages is nothing more than to repair what has been lost
materially and morally. It may not be taken advantage of to allow unjust enrichment. Any relevant act
of unfairness on the part of the claimant correspondingly writes off the moral wrong involved in the
juridical injury inflicted upon him or her.

WHEREFORE, the respondent court's order of September 3, 1974 is hereby declared null and void
and set aside, and Civil Case No. 94986 is deemed terminated in accordance with the terms of this
decision. The Court further rules that petitioner should report for work within thirty (30) days from
service of this decision upon her counsel of record, on pain of her losing her job, if she fails to do so.
Respondents' tender of her back salaries and expenses in accordance with their manifestations
before the Court of May 22, 1975 and November 12, 1976 is declared well taken, and whether or not
petitioner returns for work as herein indicated, she should be paid what she has been promised
which, for clarity, We hold includes (a) payment of petitioner's back salaries from October 16, 1972,
the date of her dismissal up to one month or thirty (30) days after her counsel's receipt of the
respondents' Manifestation and Comment of November 12, 1976 above referred to and (b)
reimbursement of her expenses actually incurred in connection with this case, including attorney's
fees equivalent to ten (10) per centum of the amount of total recovery as herein allowed. (2)

No costs.

Castro (C.J), Fernando, Antonio, Muñoz Palma, Aquino, Concepcion, Jr., Santos, Fernandez, and
Guerrero, JJ., concur.

Separate Opinions

TEEHANKEE, J, concurring:

The case at bar graphically portrays the grave in. justice inflicted upon government employees who
have been summary dismissed "for being notoriously undesirable" when in truth and in fact their
record shows the contrary. it is to the credit of respondent Cabanas, as president of respon. dent
bank, that he ordered her immediate reinstatement upon realizing petitioner's high efficiency record,
when She sought redress with this Court.

The interests of substantial and expeditious justice justify the Court's disposition of the case on the
merits, aside from the fact that respondents have in effect confessed judgment, With their
manifestation that they had already voluntarily ordered the reinstatement of petitioner with the
payment of back salaries and expenses actually incurred in the case, including attomey's fees.

The Court's judgment is however, incomplete, insofar as it directs that she be reimbursed her actual
litigation expenses without determination of such amount, since no trial was held in the lower court
which had wrongly dismissed her complaint. The judgment's footnote expresses the expectation that
"(T)he amount of the actual expenses may be threshed out by the par. ties in the most reasonable
and expeditious manner that Will avoid further litigation between them Or recourse to this court by
any of them. " The judgment should, however, fully dispose of the controversy. In my view, the
judgment should provide for the remand of the case to the lower court only for the purpose of fixing
and determining the amount of such litigation expenses, without prejudice to the parties coming to
an agreement as to a mutually acceptable amount to be paid to petitioner by way of reimbursement.

MAKASIAR, J.,dissenting:

1. Despite the order for her to return or for her reinstatement dated May 12, 1975 without prejudice
to the outcome of this case, petitioner did not return for about three years, insisting that this case
should first be decided. Such an arrogant attitude is unreasonable and amounts to abandonment of
her office or position. Hence, she should not be reinstated. mandamus to compel reinstatement can
only prosper if filed within one (1) year from the accrual of the cause of action. She did not work
since she received the order for her reinstatement. Consequently, she is not entitled to back salary,
even if reinstated, much less to moral and exemplary damages since there is no proof of bad faith on
the part of the respondent Bank and bank president. To pay her back salaries, damages and
attorney's fees would be immoral and reprehensible under the circumstances.

The Philippine Veterans Bank is an agency or instrumentality of the government; because only
government corporations can be created by special law (Sec. 7, Art. XIV, 1935 Constitution; Sec. 4,
Art. XIV, 1973 Constitution). The Philippine Veterans Bank exists by virtue of a special charter,
Republic Act No. 3518. Emphasizing that it is a government agency is the fact that her case was
raised to the Office of the President. Moreover, it is funded or subsidized by the State (Sec. 3[b],
Rep. Act No. 3518).

2. The case should at most be remanded to the trial court for reception of evidence on her efficiency
as well as on the charge that she is not cooperative, has poor public relations, and cannot get along
with her co-employees and other persons, in order to determine whether she is really notoriously
undesirable.

With respect to her efficiency rating, she could be a favorite of her superiors.

If it is true that petitioner, a pharmacist, was appointed bookkeeper, this may demonstrate illegal
discrimination in her favor from the start; because of the existence in Manila of many eligibles due to
the numerous commerce and business administration graduates who are more qualified since they
have more bookkeeping and accounting units or subjects. There are many of these more competent
unemployed walking the streets. The function of a bookkeeper in a bank is delicate; any error may
result in a serious prejudice to the bank, to its clients or customers and shareholders or any other
person dealing with the bank.

For a considerable period of time after her appointment, petitioner must have been trained — for free
— for her book. keeping duties during which time she was being paid her salary.

3. The fact that respondents offered to pay her back wages and expenses pursuant to the
manifestations of May 22, 1975 and November 12, 1976, cannot be considered estoppel against the
respondent Bank; because there is no estoppel against the government that can be generated by
the unauthorized acts of its officers. The funds which are in the custody of the bank do not belong to
its officers. As heretofore stated, initially, the bank was capitalized by the government (Sec. 3[b],
R.A. 3518). Such funds can only be disposed of by the Bank for its lawful obligations.

Separate Opinions

TEEHANKEE, J, concurring:

The case at bar graphically portrays the grave in. justice inflicted upon government employees who
have been summary dismissed "for being notoriously undesirable" when in truth and in fact their
record shows the contrary. it is to the credit of respondent Cabanas, as president of respon. dent
bank, that he ordered her immediate reinstatement upon realizing petitioner's high efficiency record,
when She sought redress with this Court.

The interests of substantial and expeditious justice justify the Court's disposition of the case on the
merits, aside from the fact that respondents have in effect confessed judgment, With their
manifestation that they had already voluntarily ordered the reinstatement of petitioner with the
payment of back salaries and expenses actually incurred in the case, including attomey's fees.

The Court's judgment is however, incomplete, insofar as it directs that she be reimbursed her actual
litigation expenses without determination of such amount, since no trial was held in the lower court
which had wrongly dismissed her complaint. The judgment's footnote expresses the expectation that
"(T)he amount of the actual expenses may be threshed out by the par. ties in the most reasonable
and expeditious manner that Will avoid further litigation between them Or recourse to this court by
any of them. " The judgment should, however, fully dispose of the controversy. In my view, the
judgment should provide for the remand of the case to the lower court only for the purpose of fixing
and determining the amount of such litigation expenses, without prejudice to the parties coming to
an agreement as to a mutually acceptable amount to be paid to petitioner by way of reimbursement.

MAKASIAR, J.,dissenting:

1. Despite the order for her to return or for her reinstatement dated May 12, 1975 without prejudice
to the outcome of this case, petitioner did not return for about three years, insisting that this case
should first be decided. Such an arrogant attitude is unreasonable and amounts to abandonment of
her office or position. Hence, she should not be reinstated. mandamus to compel reinstatement can
only prosper if filed within one (1) year from the accrual of the cause of action. She did not work
since she received the order for her reinstatement. Consequently, she is not entitled to back salary,
even if reinstated, much less to moral and exemplary damages since there is no proof of bad faith on
the part of the respondent Bank and bank president. To pay her back salaries, damages and
attorney's fees would be immoral and reprehensible under the circumstances.

The Philippine Veterans Bank is an agency or instrumentality of the government; because only
government corporations can be created by special law (Sec. 7, Art. XIV, 1935 Constitution; Sec. 4,
Art. XIV, 1973 Constitution). The Philippine Veterans Bank exists by virtue of a special charter,
Republic Act No. 3518. Emphasizing that it is a government agency is the fact that her case was
raised to the Office of the President. Moreover, it is funded or subsidized by the State (Sec. 3[b],
Rep. Act No. 3518).

2. The case should at most be remanded to the trial court for reception of evidence on her efficiency
as well as on the charge that she is not cooperative, has poor public relations, and cannot get along
with her co-employees and other persons, in order to determine whether she is really notoriously
undesirable.

With respect to her efficiency rating, she could be a favorite of her superiors.

If it is true that petitioner, a pharmacist, was appointed bookkeeper, this may demonstrate illegal
discrimination in her favor from the start; because of the existence in Manila of many eligibles due to
the numerous commerce and business administration graduates who are more qualified since they
have more bookkeeping and accounting units or subjects. There are many of these more competent
unemployed walking the streets. The function of a bookkeeper in a bank is delicate; any error may
result in a serious prejudice to the bank, to its clients or customers and shareholders or any other
person dealing with the bank.

For a considerable period of time after her appointment, petitioner must have been trained — for free
— for her book. keeping duties during which time she was being paid her salary.

3. The fact that respondents offered to pay her back wages and expenses pursuant to the
manifestations of May 22, 1975 and November 12, 1976, cannot be considered estoppel against the
respondent Bank; because there is no estoppel against the government that can be generated by
the unauthorized acts of its officers. The funds which are in the custody of the bank do not belong to
its officers. As heretofore stated, initially, the bank was capitalized by the government (Sec. 3[b],
R.A. 3518). Such funds can only be disposed of by the Bank for its lawful obligations.

Footnotes

1 Which extended the injunction of General Order No. 3 to cases involving the
validity of the martial law proclamation itself.

2 On the basis of her last salary as indicated in Annex 4 of respondents' Compliance

and Manifestation dated February 10, 1975, which is Three Hundred Forty (P340.00)
Pesos a month or Four Thousand Eighty (P 4,080) Pesos, per annum and
considering that

there are exactly four (4) years and two (2) months from October 12, 1972. the date
of her dismiss up to December 12, 1975, which is one month after respondents,
manifestation of November 12, 1976, the total back salaries due petitioner would
amount to slightly more or less P17,000. The amount of the actual expenses may be
threshed out by the Parties in the most reasonable and expeditious manner that will
avoid further litigation between them or recourse to this Court by any of them.

EN BANC

G.R. No. 108164 February 23, 1995

FAR EAST BANK AND TRUST COMPANY, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, LUIS A. LUNA and CLARITA S. LUNA, respondents.

VITUG, J.:

Some time in October 1986, private respondent Luis A. Luna applied for, and was accorded, a
FAREASTCARD issued by petitioner Far East Bank and Trust Company ("FEBTC") at its Pasig
Branch. Upon his request, the bank also issued a supplemental card to private respondent Clarita S.
Luna.

In August 1988, Clarita lost her credit card. FEBTC was forthwith informed. In order to replace the
lost card, Clarita submitted an affidavit of loss. In cases of this nature, the bank's internal security
procedures and policy would appear to be to meanwhile so record the lost card, along with the
principal card, as a "Hot Card" or "Cancelled Card" in its master file.

On 06 October 1988, Luis tendered a despedida lunch for a close friend, a Filipino-American, and
another guest at the Bahia Rooftop Restaurant of the Hotel Intercontinental Manila. To pay for the
lunch, Luis presented his FAREASTCARD to the attending waiter who promptly had it verified
through a telephone call to the bank's Credit Card Department. Since the card was not honored, Luis
was forced to pay in cash the bill amounting to P588.13. Naturally, Luis felt embarrassed by this
incident.

In a letter, dated 11 October 1988, private respondent Luis Luna, through counsel, demanded from
FEBTC the payment of damages. Adrian V. Festejo, a vice-president of the bank, expressed the
bank's apologies to Luis. In his letter, dated 03 November 1988, Festejo, in part, said:

In cases when a card is reported to our office as lost, FAREASTCARD undertakes the
necessary action to avert its unauthorized use (such as tagging the card as hotlisted), as it is
always our intention to protect our cardholders.

An investigation of your case however, revealed that FAREASTCARD failed to inform you
about its security policy. Furthermore, an overzealous employee of the Bank's Credit Card
Department did not consider the possibility that it may have been you who was presenting
the card at that time (for which reason, the unfortunate incident occurred). 1

Festejo also sent a letter to the Manager of the Bahia Rooftop Restaurant to assure the latter that
private respondents were "very valued clients" of FEBTC. William Anthony King, Food and Beverage
Manager of the Intercontinental Hotel, wrote back to say that the credibility of private respondent had
never been "in question." A copy of this reply was sent to Luis by Festejo.

Still evidently feeling aggrieved, private respondents, on 05 December 1988, filed a complaint for
damages with the Regional Trial Court ("RTC") of Pasig against FEBTC.

On 30 March 1990, the RTC of Pasig, given the foregoing factual settings, rendered a decision
ordering FEBTC to pay private respondents (a) P300,000.00 moral damages; (b) P50,000.00
exemplary damages; and (c) P20,000.00 attorney's fees.

On appeal to the Court of Appeals, the appellate court affirmed the decision of the trial court.

Its motion for reconsideration having been denied by the appellate court, FEBTC has come to this
Court with this petition for review.

There is merit in this appeal.

In culpa contractual, moral damages may be recovered where the defendant is shown to have acted
in bad faith or with malice in the breach of the contract. 2 The Civil Code provides:

Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
(Emphasis supplied)

Bad faith, in this context, includes gross, but not simple, negligence.3 Exceptionally, in a contract
of carriage, moral damages are also allowed in case of death of a passenger attributable to the fault
(which is presumed4 ) of the common carrier.5

Concededly, the bank was remiss in indeed neglecting to personally inform Luis of his own card's
cancellation. Nothing in the findings of the trial court and the appellate court, however, can
sufficiently indicate any deliberate intent on the part of FEBTC to cause harm to private respondents.
Neither could FEBTC's negligence in failing to give personal notice to Luis be considered so gross
as to amount to malice or bad faith.

Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity; it is different from the negative idea of negligence in that malice or bad
faith contemplates a state of mind affirmatively operating with furtive design or ill will.6

We are not unaware of the previous rulings of this Court, such as in American Express International,
Inc., vs. Intermediate Appellate Court (167 SCRA 209) and Bank of Philippine Islands
vs. Intermediate Appellate Court (206 SCRA 408), sanctioning the application of Article 21, in
relation to Article 2217 and Article 22197 of the Civil Code to a contractual breach similar to the case
at bench. Article 21 states:

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.

Article 21 of the Code, it should be observed, contemplates a conscious act to cause harm. Thus,
even if we are to assume that the provision could properly relate to a breach of contract, its
application can be warranted only when the defendant's disregard of his contractual obligation is so
deliberate as to approximate a degree of misconduct certainly no less worse than fraud or bad faith.
Most importantly, Article 21 is a mere declaration of a general principle in human relations that
clearly must, in any case, give way to the specific provision of Article 2220 of the Civil Code
authorizing the grant of moral damages in culpa contractual solely when the breach is due to fraud
or bad faith.

Mr. Justice Jose B.L. Reyes, in his ponencia in Fores vs. Miranda8 explained with great clarity the
predominance that we should give to Article 2220 in contractual relations; we quote:

Anent the moral damages ordered to be paid to the respondent, the same must be
discarded. We have repeatedly ruled (Cachero vs. Manila Yellow Taxicab Co. Inc., 101 Phil.
523; 54 Off. Gaz., [26], 6599; Necesito, et al. vs. Paras, 104 Phil., 75; 56 Off. Gaz., [23]
4023), that moral damages are not recoverable in damage actions predicated on a breach of
the contract of transportation, in view of Articles 2219 and 2220 of the new Civil Code, which
provide as follows:

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

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

xxx xxx xxx

Art. 2220. Wilful injury to property may be a legal ground for awarding moral
damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.

By contrasting the provisions of these two articles it immediately becomes apparent that:
(a) In case of breach of contract (including one of transportation) proof of bad faith or fraud
(dolus), i.e., wanton or deliberately injurious conduct, is essential to justify an award of moral
damages; and

(b) That a breach of contract can not be considered included in the descriptive term
"analogous cases" used in Art. 2219; not only because Art. 2220 specifically provides for the
damages that are caused contractual breach, but because the definition of quasi-delict in Art.
2176 of the Code expressly excludes the cases where there is a "preexisitng contractual
relations between the parties."

Art. 2176. Whoever by act or omission causes damage to another, there

being fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this
Chapter.

The exception to the basic rule of damages now under consideration is a mishap resulting in
the death of a passenger, in which case Article 1764 makes the common carrier expressly
subject to the rule of Art. 2206, that entitles the spouse, descendants and ascendants of the
deceased passenger to "demand moral damages for mental anguish by reason of the death
of the deceased" (Necesito vs. Paras, 104 Phil. 84, Resolution on motion to reconsider,
September 11, 1958). But the exceptional rule of Art. 1764 makes it all the more evident that
where the injured passenger does not die, moral damages are not recoverable unless it is
proved that the carrier was guilty of malice or bad faith. We think it is clear that the mere
carelessness of the carrier's driver does not per se constitute or justify an inference of malice
or bad faith on the part of the carrier; and in the case at bar there is no other evidence of
such malice to support the award of moral damages by the Court of Appeals. To award
moral damages for breach of contract, therefore, without proof of bad faith or malice on the
part of the defendant, as required by Art. 2220, would be to violate the clear provisions of the
law, and constitute unwarranted judicial legislation.

xxx xxx xxx

The distinction between fraud, bad faith or malice in the sense of deliberate or wanton wrong
doing and negligence (as mere carelessness) is too fundamental in our law to be ignored
(Arts. 1170-1172); their consequences being clearly differentiated by the Code.

Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties
have foreseen or could have reasonably foreseen at the time the obligation
was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

It is to be presumed, in the absence of statutory provision to the contrary, that this difference
was in the mind of the lawmakers when in Art. 2220 they limited recovery of moral damages
to breaches of contract in bad faith. It is true that negligence may be occasionally so gross
as to amount to malice; but the fact must be shown in evidence, and a carrier's bad faith is
 not to be lightly inferred from a mere finding that the contract was breached through
negligence of the carrier's employees.

The Court has not in the process overlooked another rule that a quasi-delict can be the cause for
breaching a contract that might thereby permit the application of applicable principles on tort9 even
where there is a pre-existing contract between the plaintiff and the defendant (Phil. Airlines vs. Court
of Appeals, 106 SCRA 143; Singson vs. Bank of Phil. Islands, 23 SCRA 1117; and Air France vs.
Carrascoso, 18 SCRA 155). This doctrine, unfortunately, cannot improve private respondents' case
for it can aptly govern only where the act or omission complained of would constitute an actionable
tort independently of the contract. The test (whether a quasi-delict can be deemed to underlie the
breach of a contract) can be stated thusly: Where, without a pre-existing contract between two
parties, an act or omission can nonetheless amount to an actionable tort by itself, the fact that the
parties are contractually bound is no bar to the application of quasi-delict provisions to the case.
Here, private respondents' damage claim is predicated solely on their contractual relationship;
without such agreement, the act or omission complained of cannot by itself be held to stand as a
separate cause of action or as an independent actionable tort.

The Court finds, therefore, the award of moral damages made by the court a quo, affirmed by the
appellate court, to be inordinate and substantially devoid of legal basis.

Exemplary or corrective damages, in turn, are intended to serve as an example or as correction for
the public good in addition to moral, temperate, liquidated or compensatory damages (Art. 2229,
Civil Code; see Prudenciado vs. Alliance Transport System, 148 SCRA 440; Lopez vs. Pan
American World Airways, 16 SCRA 431). In criminal offenses, exemplary damages are imposed
when the crime is committed with one or more aggravating circumstances (Art. 2230, Civil Code).
In quasi-delicts, such damages are granted if the defendant is shown to have been so guilty of gross
negligence as to approximate malice (See Art. 2231, Civil Code; CLLC E.G. Gochangco Workers
Union vs. NLRC, 161 SCRA 655; Globe Mackay Cable and Radio Corp. vs. CA, 176 SCRA 778).
In contracts and quasi-contracts, the court may award exemplary damages if the defendant is found
to have acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner (Art. 2232, Civil
Code; PNB vs. Gen. Acceptance and Finance Corp., 161 SCRA 449).

Given the above premises and the factual circumstances here obtaining, it would also be just as
arduous to sustain the exemplary damages granted by the courts below (see De Leon vs. Court of
Appeals, 165 SCRA 166).

Nevertheless, the bank's failure, even perhaps inadvertent, to honor its credit card issued to private
respondent Luis should entitle him to recover a measure of damages sanctioned under Article 2221
of the Civil Code providing thusly:

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.

Reasonable attorney's fees may be recovered where the court deems such recovery to be just and
equitable (Art. 2208, Civil Code). We see no issue of sound discretion on the part of the appellate
court in allowing the award thereof by the trial court.

WHEREFORE, the petition for review is given due course. The appealed decision is MODIFIED by
deleting the award of moral and exemplary damages to private respondents; in its stead, petitioner is
ordered to pay private respondent Luis A. Luna an amount of P5,000.00 by way of nominal
damages. In all other respects, the appealed decision is AFFIRMED. No costs.
SO ORDERED.