B.

Sources of Civil Obligations

Sagrada Orden vs. NACOCO | G.R. No. L-3756 | June 30, 1952

LABRADOR, J.:

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

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

The present action is to recover the reasonable rentals from August, 1946, the date when the defendant began
to occupy the premises, to the date it vacated it. The defendant does not contest its liability for the rentals at
the rate of P3,000 per month from February 23, 1949 (the date specified in the judgment in Civil Case No.
5007), but resists the claim therefor prior to this date. It interposes the defense that it occupied the property
in good faith, under no obligation whatsoever to pay rentals for the use and occupation of the warehouse.
Judgment was rendered for the plaintiff to recover from the defendant the sum of P3,000 a month, as
reasonable rentals, from August, 1946, to the date the defendant vacates the premises. The judgment
declares that plaintiff has always been the owner, as the sale to the Japanese purchaser was void Ab Initio;
that the Alien Property Administration never acquired any rights to the property, but that it held the same in
trust until the determination as to whether or not the owner is an enemy citizen. The trial court further
declares that defendant can not claim any better rights than its predecessor, the Alien Property
Administrator, and that as defendant has used the property and had subleased portion thereof, it must pay
reasonable rentals for its occupation.

Against this judgment this appeal has been interposed, the following assignment of error having been made
on defendant-appellant's behalf:
"The trial court erred in holding the defendant liable for rentals or compensation for the use and occupation of
the property from the middle of August, 1946, to December 14, 1948.
"1. Want of "ownership rights" of the Philippine Alien Property Administrator did not render illegal or
invalidate its grant to the defendant of the free use of the property.

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

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

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

"5. Defendant's possession was in good faith.

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

In reply, plaintiff-appellee's counsel contends that the Philippine Alien Property Administration (PAPA) was a
mere administrator of the owner (who ultimately was decided to be plaintiff), and that as defendant has used
it for commercial purposes and has leased portion of it, it should be responsible therefor to the owner, who
had been deprived of the possession for so many years. (Appellee's brief, pp. 20, 23.)

We can not understand how the trial court, from the mere fact that plaintiff-appellee was the owner of the
property and the defendant-appellant the occupant, which used it for its own benefit but by the express
permission of the Alien Property Custodian of the United States, so easily jumped to the conclusion that the
occupant is liable for the value of such use and occupation. If defendant-appellant is liable at all, its
obligation must arise from any of the four sources of obligations, namely, law, contract or quasi-contract,
crime, or negligence. (Article 1089, Spanish Civil Code.) Defendant-appellant is not guilty of any offense at all,
because it entered the premises and occupied it with the permission of the entity which had the legal control
and administration thereof, the Alien Property Administration. Neither was there any negligence on its part.
There was also no privity (of contract or obligation) between the Alien Property Custodian and the Taiwan
Tekkosho, which had secured the possession of the property from the plaintiff-appellee by the use of duress,
such that the Alien Property Custodian or its permittee (defendant-appellant) may be held responsible for the
supposed illegality of the occupation of the property by the said Taiwan Tekkosho. The Alien Property
Administration had the control and administration of the property not as successor to the interests of the
enemy holder of the title, the Taiwan Tekkosho, but by express provision of law (Trading with the Enemy Act
of the United States, 40 Stat. 411, 50 U.S.C.A. 189). Neither is it a trustee of the former owner, the plaintiff-
appellee herein, but a trustee of the Government of the United States (32 Op. Atty. Gen. 249, 50 U.S.C.A.
283), in its own right, to the exclusion of, and against the claim or title of, the enemy owner. (Youghiogheny &
Ohio Coal Co. vs. Lasevich (1920) 179 N.W. 855, 171 Wis., 347; 50 U.S.C.A. 282-283.) From August, 1946,
when defendant-appellant took possession, to the date of the judgment on February 28, 1948, the Alien
Property Administration had the absolute control of the property as trustee of the Government of the United
States, with power to dispose of it by sale or otherwise, as though it were the absolute owner. (U.S. vs.
Chemical Foundation (C.G.A. Del. 1925) 5 F. [2d] 191; 50 U.S.C.A. 283.) Therefore, even if defendant-
appellant were liable to the Alien Property Administration for rentals, these would not accrue to the benefit of
the plaintiff-appellee, the old owner, but to the United States Government.

But there is another ground why the claim for rentals can not be made against defendant-appellant. There
was no express agreement between the Alien Property Custodian and the defendant-appellant for the latter to
pay rentals on the property. The existence of an implied agreement to that effect is contrary to the
circumstances. The Copra Export Management Company, which preceded the defendant-appellant in the
possession and use of the property, does not appear to have paid rentals therefor, as it occupied it by what
the parties denominated a "custodianship agreement," and there is no provision therein for the payment of
rentals or of any compensation for its custody and/or occupation and use. The Trading with the Enemy Act,
as originally enacted, was purely a measure of conservation, hence it is very unlikely that rentals were
demanded for the use of the property. When the National Coconut Corporation succeeded the Copra Export
Management Company in the possession and use of the property, it must have been also free from payment of
rentals, especially as it was a Government corporation, and steps were then being taken by the Philippine
Government to secure the property for the National Coconut Corporation. So that the circumstances do not
justify the finding that there was an implied agreement that.the defendant-appellant was to pay for the use
and occupation of the premises at all.

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

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

Wherefore, that part of the judgment appealed from, which sentences defendant-appellant to pay rentals from
August, 1946, to February 23, 1949, is hereby reversed. In all other respects the judgment is affirmed. Costs
of this appeal shall be against the plaintiff-appellee.

Paras, C. J., Pablo, Bengzon, Padilla, Tuazon, Montemayor, and Bautista Angelo, JJ., concur.

The MetroBank vs. Rosales and Yo Yuk To | 13 Jan 2014

DEL CASTILLO, J.:

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

This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the April 2, 2008 Decision
and the May 30, 2008 Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 89086.

Factual Antecedents

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

In 2000, respondents opened a Joint Peso Account with petitioner's Pritil-Tondo Branch. As of August 4,
2004, respondents' Joint Peso Account showed a balance of P2,515,693.52.

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

On March 3, 2003, respondents opened with petitioner's Pritil-Tondo Branch a Joint Dollar Account with an
initial deposit of US$14,000.00.

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

On September 3, 2003, petitioner, through its Special Audit Department Head Antonio Ivan Aguirre, filed
before the Office of the Prosecutor of Manila a criminal case for Estafa through False Pretences,
Misrepresentation, Deceit, and Use of Falsified Documents, docketed as I.S. No. 03I-25014, against
respondent Rosales. Petitioner accused respondent Rosales and an unidentified woman as the ones
responsible for the unauthorized and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fang's dollar
account with petitioner's Escolta Branch. Petitioner alleged that on February 5, 2003, its branch in Escolta
received from the PLRA a Withdrawal Clearance for the dollar account of Liu Chiu Fang; that in the afternoon
of the same day, respondent Rosales went to petitioner's Escolta Branch to inform its Branch Head, Celia A.
Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw her dollar deposits in cash; that Gutierrez
told respondent Rosales to come back the following day because the bank did not have enough dollars; that
on February 6, 2003, respondent Rosales accompanied an unidentified impostor of Liu Chiu Fang to the
bank; that the impostor was able to withdraw Liu Chiu Fang's dollar deposit in the amount of US$75,000.00;
that on March 3, 2003, respondents opened a dollar account with petitioner; and that the bank later
discovered that the serial numbers of the dollar notes deposited by respondents in the amount of
US$11,800.00 were the same as those withdrawn by the impostor.

Respondent Rosales, however, denied taking part in the fraudulent and unauthorized withdrawal from the
dollar account of Liu Chiu Fang. Respondent Rosales claimed that she did not go to the bank on February 5,
2003. Neither did she inform Gutierrez that Liu Chiu Fang was going to close her account. Respondent
Rosales further claimed that after Liu Chiu Fang opened an account with petitioner, she lost track of her.
Respondent Rosales' version of the events that transpired thereafter is as follows:

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

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

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

Petitioner alleged that respondents have no cause of action because it has a valid reason for issuing the "Hold
Out" order.[49] It averred that due to the fraudulent scheme of respondent Rosales, it was compelled to
reimburse Liu Chiu Fang the amount of US$75,000.00[50] and to file a criminal complaint for Estafa against
respondent Rosales.[51]

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

Ruling of the Regional Trial Court

On January 15, 2007, the RTC rendered a Decision[55] finding petitioner liable for damages for breach of
contract.[56] The RTC ruled that it is the duty of petitioner to release the deposit to respondents as the act of
withdrawal of a bank deposit is an act of demand by the creditor.[57] The RTC also said that the recourse of
petitioner is against its negligent employees and not against respondents.[58] The dispositive portion of the
Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering [petitioner] METROPOLITAN BANK
& TRUST COMPANY to allow [respondents] ANA GRACE ROSALES and YO YUK TO to withdraw their Savings
and Time Deposits with the agreed interest, actual damages of P50,000.00, moral damages of P50,000.00,
exemplary damages of P30,000.00 and 10% of the amount due [respondents] as and for attorney's fees plus
the cost of suit.

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

SO ORDERED.

Ruling of the Court of Appeals

Aggrieved, petitioner appealed to the CA.

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

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

SO ORDERED.

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

Issues

Hence, this recourse by petitioner raising the following issues:

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

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

THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL DAMAGES, EXEMPLARY DAMAGES, AND
ATTORNEY'S FEES.

Petitioner's Arguments

Petitioner contends that the CA erred in not applying the "Hold Out" clause stipulated in the Application and
Agreement for Deposit Account. It posits that the said clause applies to any and all kinds of obligation as it
does not distinguish between obligations arising ex contractu or ex delictu. Petitioner also contends that the
fraud committed by respondent Rosales was clearly established by evidence; thus, it was justified in issuing
the "Hold-Out" order.

Petitioner likewise denies that its employees were negligent in releasing the dollars. It claims that it was the
deception employed by respondent Rosales that caused petitioner's employees to release Liu Chiu Fang's
funds to the impostor.

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

Respondents' Arguments

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

The Petition is bereft of merit.

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

The "Hold Out" clause does not apply

to the instant case.

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

Authority to Withhold, Sell and/or Set Off:

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

xxxx

JOINT ACCOUNT

xxxx

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

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

The "Hold Out" clause applies only if there is a valid and existing obligation arising from any of the sources of
obligation enumerated in Article 1157 of the Civil Code, to wit: law, contracts, quasi-contracts, delict, and
quasi-delict. In this case, petitioner failed to show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a criminal case was filed by petitioner against
respondent Rosales, this is not enough reason for petitioner to issue a "Hold Out" order as the case is still
pending and no final judgment of conviction has been rendered against respondent Rosales. In fact, it is
significant to note that at the time petitioner issued the "Hold Out" order, the criminal complaint had not yet
been filed. Thus, considering that respondent Rosales is not liable under any of the five sources of obligation,
there was no legal basis for petitioner to issue the "Hold Out" order. Accordingly, we agree with the findings of
the RTC and the CA that the "Hold Out" clause does not apply in the instant case.

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

Respondents are entitled to moral and

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

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

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

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

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

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

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

SO ORDERED.

Carpio, (Chairperson), Brion, Perez, and Perlas-Bernabe, JJ. concur.

Saludaga vs. FEU | G.R. No. 179337 | 30 April 2008

YNARES-SATIAGO, J.:

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

The antecedent facts are as follows:

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

Petitioner thereafter filed a complaint for damages against respondents on the ground that they breached
their obligation to provide students with a safe and secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party Complaint against Galaxy Development and Management
Corporation (Galaxy), the agency contracted by respondent FEU to provide security services within its
premises and Mariano D. Imperial (Imperial), Galaxy's President, to indemnify them for whatever would be
adjudged in favor of petitioner, if any; and to pay attorney's fees and cost of the suit. On the other hand,
Galaxy and Imperial filed a Fourth-Party Complaint against AFP General Insurance.

On November 10, 2004, the trial court rendered a decision in favor of petitioner, the dispositive portion of
which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered ordering:
FEU and Edilberto de Jesus, in his capacity as president of FEU to pay jointly and severally Joseph Saludaga
the amount of P35,298.25 for actual damages with 12% interest per annum from the filing of the complaint
until fully paid; moral damages of P300,000.00, exemplary damages of P500,000.00, attorney's fees of
P100,000.00 and cost of the suit;

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

And the 4th party complaint is dismissed for lack of cause of action. No pronouncement as to costs.
SO ORDERED.
Respondents appealed to the Court of Appeals which rendered the assailed Decision, the decretal portion of
which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision dated November 10, 2004 is hereby REVERSED
and SET ASIDE. The complaint filed by Joseph Saludaga against appellant Far Eastern University and its
President in Civil Case No. 98-89483 is DISMISSED.

SO ORDERED.
Petitioner filed a Motion for Reconsideration which was denied; hence, the instant petition based on the
following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO LAW AND JURISPRUDENCE IN
RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

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

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

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY AS THE AGENCY WHICH WOULD
PROVIDE SECURITY SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.
Petitioner is suing respondents for damages based on the alleged breach of student-school contract for a safe
learning environment. The pertinent portions of petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants or any of their representative did not bother to visit
and inquire about his condition. This abject indifference on the part of the defendants continued even after
plaintiff was discharged from the hospital when not even a word of consolation was heard from them. Plaintiff
waited for more than one (1) year for the defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of defendants served to exacerbate plaintiff's miserable
condition.

xxxx

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

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

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

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

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

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

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

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

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

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

Consequently, respondents' defense of force majeure must fail. In order for force majeure to be considered,
respondents must show that no negligence or misconduct was committed that may have occasioned the loss.
An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing
damage and injury to another; nonetheless, showing that the immediate or Proximate Cause of the damage or
injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the
result of a person's participation - whether by active intervention, neglect or failure to act - the whole
occurrence is humanized and removed from the rules applicable to acts of God.

Article 1170 of the Civil Code provides that those who are negligent in the performance of their obligations are
liable for damages. Accordingly, for breach of contract due to negligence in providing a safe learning
environment, respondent FEU is liable to petitioner for damages. It is essential in the award of damages that
the claimant must have satisfactorily proven during the trial the existence of the factual basis of the damages
and its causal connection to defendant's acts.

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

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

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

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

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

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

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

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but
also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents cannot be held liable for damages under
Art. 2180 of the Civil Code because respondents are not the employers of Rosete. The latter was employed by
Galaxy. The instructions issued by respondents' Security Consultant to Galaxy and its security guards are
ordinarily no more than requests commonly envisaged in the contract for services entered into by a principal
and a security agency. They cannot be construed as the element of control as to treat respondents as the
employers of Rosete.

As held in Mercury Drug Corporation v. Libunao:

In Soliman, Jr. v. Tuazon, we held that where the security agency recruits, hires and assigns the works of its
watchmen or security guards to a client, the employer of such guards or watchmen is such agency, and not
the client, since the latter has no hand in selecting the security guards.

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

xxxx

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

We now come to respondents' Third Party Claim against Galaxy. In Firestone Tire and Rubber Company of the
Philippines v. Tempengko, we held that:
The third-party complaint is, therefore, a procedural device whereby a `third party' who is neither a party nor
privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiff's complaint. Were it not for
this provision of the Rules of Court, it would have to be filed independently and separately from the original
complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiff's claim against a third-
party in the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from
one particular set of facts.

Respondents and Galaxy were able to litigate their respective claims and defenses in the course of the trial of
petitioner's complaint. Evidence duly supports the findings of the trial court that Galaxy is negligent not only
in the selection of its employees but also in their supervision. Indeed, no administrative sanction was imposed
against Rosete despite the shooting incident; moreover, he was even allowed to go on leave of absence which
led eventually to his disappearance. Galaxy also failed to monitor petitioner's condition or extend the
necessary assistance, other than the P5,000.00 initially given to petitioner. Galaxy and Imperial failed to
make good their pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU with an unqualified security guard,
which resulted to the latter's breach of obligation to petitioner, it is proper to hold Galaxy liable to respondent
FEU for such damages equivalent to the above-mentioned amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable with Galaxy for being grossly negligent in
directing the affairs of the security agency. It was Imperial who assured petitioner that his medical expenses
will be shouldered by Galaxy but said representations were not fulfilled because they presumed that
petitioner and his family were no longer interested in filing a formal complaint against them.

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of the Court of Appeals in CA-G.R. CV
No. 87050 nullifying the Decision of the trial court and dismissing the complaint as well as the August 23,
2007 Resolution denying the Motion for Reconsideration are REVERSED and SET ASIDE. The Decision of the
Regional Trial Court of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for
damages for breach of its obligation to provide students with a safe and secure learning atmosphere, is
AFFIRMED with the following MODIFICATIONS:

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

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

the award of exemplary damages is DELETED.

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

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

SO ORDERED.

Austria-Martinez, Chico-Nazario, Nachura, and Reyes, JJ., concur.

People’s Car vs. Commando Security |L-36840 | 22 May 1973

TEEHANKEE, J.:

In this appeal from the adverse judgment of the Davao court of first instance limiting plaintiff-appellant's
recovery under its complaint to the sum of P1,000.00 instead of the actual damages of P8,489.10 claimed and
suffered by it as a direct result of the wrongful acts of defendant security agency's guard assigned at plaintiff's
premises in pursuance of their "Guard Service Contract", the Court finds merit in the appeal and accordingly
reverses the trial court's judgment.
The appeal was certified to this Court by a special division of the Court of Appeals on a four-to-one vote as per
its resolution of April 14, 1973 that "since the case was submitted to the court a quo for decision on the
strength of the stipulation of facts, only questions of law can be involved in the present appeal."

The Court has accepted such certification and docketed this appeal on the strength of its own finding from
the records that plaintiff's notice of appeal was expressly to this Court (not to the appellate court) "on pure
questions of law" and its record on appeal accordingly prayed that "the corresponding records be certified and
forwarded to the Honorable Supreme Court." The trial court so approved the same on July 3, 1971 instead of
having required the filing of a petition for review of the judgment sought to be appealed from directly with this
Court, in accordance with the provisions of Republic Act 5440. By some unexplained and hitherto
undiscovered error of the clerk of court, furthermore, the record on appeal was erroneously forwarded to the
appellate court rather than to this Court.
The parties submitted the case for judgment on a stipulation of facts. There is thus no dispute as to the
factual bases of plaintiff's complaint for recovery of actual damages against defendant, to wit, that under the
subsisting "Guard Service Contract" between the parties, defendant-appellee as a duly licensed security
service agency undertook in consideration of the payments made by plaintiff "to safeguard and protect the
business premises of (plaintiff) from theft, pilferage, robbery, vandalism and all other unlawful acts of any
person or persons prejudicial to the interest of (plaintiff)."

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

As a result of these wrongful acts of defendant's security guard, the car of plaintiff's customer, Joseph Luy,
which had been left with plaintiff for servicing and maintenance, "suffered extensive damage in the total
amount of P7,079.10" besides the car rental value "chargeable to defendant" in the sum of P1,410.00 for a car
that plaintiff had to rent and make available to its said customer to enable him to pursue his business and
occupation for the period of forty-seven (47) days (from April 25 to June 10, 1970) that it took plaintiff to
repair the damaged car, or total actual damages incurred by plaintiff in the sum of P8,489.10.

Plaintiff claimed that defendant was liable for the entire amount under paragraph 5 of their contract
whereunder defendant assumed "sole responsibility for the acts done during their watch hours" by its guards,
whereas defendant contended, without questioning the amount of the actual damages incurred by plaintiff,
that its liability "shall not exceed one thousand (P1,000.00) pesos per guard post" under paragraph 4 of their
contract.

The parties thus likewise stipulated on this sole issue submitted by them for adjudication, as follows:

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

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

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

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

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

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

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

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

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

The trial court's approach that "had plaintiff understood the liability of the defendant to fall under paragraph
5, it should have told Joseph Luy, owner of the car, that under the Guard Service Contract, it was not liable
for the damage but the defendant and had Luy insisted on the liability of the plaintiff, the latter should have
challenged him to bring the matter to court. If Luy accepted the challenge and instituted an action against the
plaintiff, it should have filed a third-party complaint against the Commando Security Service Agency. But if
Luy instituted the action against the plaintiff and the defendant, the plaintiff should have filed a crossclaim
against the latter,"[9] was unduly technical and unrealistic and untenable.

Plaintiff was in law liable to its customer for the damages caused the customer's car, which had been
entrusted into its custody. Plaintiff therefore was in law justified in making good such damages and relying in
turn on defendant to honor its contract and indemnify it for such undisputed damages, which had been
caused directly by the unlawful and wrongful acts of defendant's security guard in breach of their contract. As
ordained in Article 1159, Civil Code, "obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."

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

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

IT IS SO ORDERED.

Makalintal, Acting C.J., Zaldivar, Ruiz Castro, Fernando, Barredo, Makasiar, Antonio, and Esguerra, JJ.,
concur.

Cruz vs. Tuazon and Co. | G.R. No. L-23749 | 29 April 1977

Appeal from the order dated August 13, 1964 of the Court of First Instance of Quezon City in Civil Case No.
Q-7751, Faustino Cruz vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing the complaint of
appellant Cruz for the recovery of improvements he has made on appellees' land and to compel appellees to
convey to him 3,000 square meters of land on three grounds: (1) failure of the complaint to state a cause of
action; (2) the cause of action of plaintiff is unenforceable under the Statute of Frauds; and (3) the action of
the plaintiff has already prescribed.
Actually, a perusal of plaintiff-appellant's complaint below shows that he alleged two separate causes of
action, namely: (1) that upon request of the Deudors (the family of Telesforo Deudor who laid claim on the
land in question on the strength of an "informacion posesoria" ) plaintiff made permanent improvements
valued at P30,400.00 on said land having an area of more or less 20 quinones and for which he also incurred
expenses in the amount of P7,781.74, and since defendants-appellees are being benefited by said
improvements, he is entitled to reimbursement from them of said amounts and (2) that in 1952, defendants
availed of plaintiff's services as an intermediary with the Deudors to work for the amicable settlement of Civil
Case No. Q-135, then pending also in the Court of First Instance of Quezon City, and involving 50 quinones of
land, of Which the 20 quinones aforementioned form part, and notwithstanding his having performed his
services, as in fact, a compromise agreement entered into on March 16, 1963 between the Deudors and the
defendants was approved by the court, the latter have refused to convey to him the 3,000 square meters of
land occupied by him, (a part of the 20 quinones above) which said defendants had promised to do "within ten
years from and after date of signing of the compromise agreement", as consideration for his services.

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

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

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

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

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

Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the plaintiffs claim for the
reimbursement of the amounts of P38,400.00 and P7,781.74 is concerned, it is not a privy to
the plaintiff's agreement to assist the Deudors n improving the 50 quinones. On the other
hand, the plaintiff countered that, by holding and utilizing the improvements introduced by
him, the defendants are unjustly enriching and benefiting at the expense of the plaintiff; and
that said improvements constitute a lien or charge of the property itself
 On the issue that the complaint insofar as it claims the reimbursement for the services
rendered and expenses incurred by the plaintiff, states no cause of action, the Court is of the
opinion that the same is well-founded. It is found that the defendants are not parties to the
supposed express contract entered into by and between the plaintiff and the Deudors for the
clearing and improvement of the 50 quinones. Furthermore in order that the alleged
improvement may be considered a lien or charge on the property, the same should have been
made in good faith and under the mistake as to the title. The Court can take judicial notice of
the fact that the tract of land supposedly improved by the plaintiff had been registered way
back in 1914 in the name of the predecessors-in-interest of defendant J. M. Tuason & Co., Inc.
This fact is confirmed in the decision rendered by the Supreme Court on July 31, 1956 in Case
G. R. No. L-5079 entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such being the
case, the plaintiff cannot claim good faith and mistake as to the title of the land.

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

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

WHEREFORE, the plaintiffs complaint is hereby ordered DISMISSED without pronouncement

as to costs.

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

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

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

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

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

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

ARGUMENT

Plaintiff's complaint contains two (2) causes of action — the first being an action for sum of
money in the amount of P7,781.74 representing actual expenses and P38,400.00 as reasonable
compensation for services in improving the 50 quinones now in the possession of defendants.
The second cause of action deals with the 3,000 sq. ms. which defendants have agreed to
transfer into Plaintiff for services rendered in effecting the compromise between the Deudors
and defendants;

Under its order of August 3, 1964, this Honorable Court dismissed the claim for sum of money
on the ground that the complaint does not state a cause of action against defendants. We
respectfully submit:
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF ACTION AGAINST
DEFENDANTS IN SO FAR AS PLAINTIFF'S CLAIM FOR PAYMENT OF SERVICES AND
REIMBURSEMENT OF HIS EXPENSES IS CONCERNED.

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

ORDER

xxx xxx xxx

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

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

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

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

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

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

ART. 19. Every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give every-one his due and observe honesty and good faith.

We respectfully draw the attention of this Honorable Court to the fact that ARTICLE 2142
(SUPRA) DEALS WITH QUASI-CONTRACTS or situations WHERE THERE IS NO CONTRACT
BETWEEN THE PARTIES TO THE ACTION. Further, as we can readily see from the title thereof
(Title XVII), that the Same bears the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or
obligations which do not arise from contracts. While it is true that there was no agreement
between plaintiff and defendants herein for the improvement of the 50 quinones since the latter
are presently enjoying and utilizing the benefits brought about through plaintiff's labor and
expenses, defendants should pay and reimburse him therefor under the principle that 'no one
may enrich himself at the expense of another.' In this posture, the complaint states a cause of
action against the defendants.
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. MS. THE SAME HAS NOT
PRESCRIBED AND THE STATUTE OF FRAUDS IS NOT APPLICABLE THERETO.

The Statute of Frauds is CLEARLY inapplicable to this case:

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

ORDER

xxx xxx xxx

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

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

COMPLAINT

xxx xxx xxx

12). That plaintiff conferred with the aforesaid representatives of defendants several times and
on these occasions, the latter promised and agreed to cede, transfer and convey unto plaintiff
the 3,000 sq. ms. (now known as Lots 16-B, 17 and 18) which plaintiff was then occupying and
continues to occupy as of this writing, for and in consideration of the following conditions:

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

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

(b) That as of date of signing the compromise agreement, plaintiff shall be the
owner of the 3,000 sq. ms. but the documents evidencing his title over this
property shall be executed and delivered by defendants to plaintiff within ten
(10) years from and after date of signing of the compromise agreement;

(c) That plaintiff shall, without any monetary expense of his part, assist in
clearing the 20 quinones of its occupants;

13). That in order to effect a compromise between the parties. plaintiff not only as well acted as
emissary of both parties in conveying their respective proposals and counter- proposals until
succeeded in convinzing the DEUDORS to settle with defendants amicably. Thus, on March 16,
1953, a Compromise Agreement was entered into by and between the DEUDORS and the
defendant companies; and on April 11, 1953, this agreement was approved by this Honorable
Court;

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

That plaintiff further assisted defendants' employees in the actual demolition and

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

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

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

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

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

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

2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO EXECUTORY

CONTRACTS: CONTRACTS WHICH ARE EITHER TOTALLY OR PARTIALLY
PERFORMED ARE WITHOUT THE STATUE. The statute of frauds is
applicable only to executory contracts. It is neither applicable to executed
contracts nor to contracts partially performed. The reason is simple. In executory
contracts there is a wide field for fraud because unless they be in writing there
is no palpable evidence of the intention of the contracting parties. The statute
has been enacted to prevent fraud. On the other hand the commission of fraud
in executed contracts is reduced to minimum in executed contracts because (1)
the intention of the parties is made apparent by the execution and (2) execution
concludes, in most cases, the rights of the parties.

Under paragraphs 13 and 14 of the complaint (supra) one can readily see that the plaintiff has
fulfilled ALL his obligation under the agreement between him defendants concerning the 3,000
sq. ms. over which the latter had agreed to execute the proper documents of transfer. This fact
is further projected in paragraph 15 of the complaint where plaintiff states;

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

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

Plaintiff's Cause of Action had NOT Prescribed:

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

xxx xxx xxx

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

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

(b) That as of date of signing the compromise agreement, plaintiff shall be the
owner of the 3,000 sq. ms. but the documents evidencing his title over this
property shall be executed and delivered by defendants to plaintiff within ten
(10) years from and after date of signing of the compromise agreement.

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

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

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

PRAYER

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

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

On September 7, 1964, the trial court denied the motion for reconsiderations thus:
 After considering the plaintiff's Motion for Reconsideration of August 20, 1964 and it appearing
that the grounds relied upon in said motion are mere repetition of those already resolved and
discussed by this Court in the order of August 13, 1964, the instant motion is hereby denied
and the findings and conclusions arrived at by the Court in its order of August 13, 1964 are
hereby reiterated and affirmed.

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

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

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

I. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT ON THE GROUND
THAT APPELLANT'S CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE
UNDER THE STATUTE OF FRAUDS;

II. THAT THE COURT A QUO FURTHER COMMITTED ERROR IN DISMISSING APPELLANT'S
COMPLAINT ON THE GROUND THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
BARRED BY THE STATUTE OF LIMITATIONS; and

III. THAT THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT FOR FAILURE TO
STATE A CAUSE OF ACTION IN SO FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF
EXPENSES AND FOR SERVICES RENDERED IN THE IMPROVEMENT OF THE FIFTY (50)
QUINONES IS CONCERNED.

We agree with appellant that the Statute of Frauds was erroneously applied by the trial court. It is elementary
that the Statute refers to specific kinds of transactions and that it cannot apply to any that is not enumerated
therein. And the only agreements or contracts covered thereby are the following:

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

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

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

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

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

promise to marry;

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

(e) An agreement for the leasing for a longer period than one year, or for the sale
of real property or of an interest therein:
 (f) a representation as to the credit of a third person.

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

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

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

We cannot, however, escape taking judicial notice, in relation to the compromise agreement relied upon by
appellant, that in several cases We have decided, We have declared the same rescinded and of no effect. In J.
M. Tuason & Co., Inc. vs. Bienvenido Sanvictores, 4 SCRA 123, the Court held:

It is also worthy of note that the compromise between Deudors and Tuason, upon which
Sanvictores predicates his right to buy the lot he occupies, has been validly rescinded and set
aside, as recognized by this Court in its decision in G.R. No. L-13768, Deudor vs. Tuason,
promulgated on May 30, 1961.

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

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

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

From the very language of this provision, it is obvious that a presumed qauasi-contract cannot emerge as
against one party when the subject mater thereof is already covered by an existing contract with another
party. Predicated on the principle that no one should be allowed to unjustly enrich himself at the expense of
another, Article 2124 creates the legal fiction of a quasi-contract precisely because of the absence of any
actual agreement between the parties concerned. Corollarily, if the one who claims having enriched somebody
has done so pursuant to a contract with a third party, his cause of action should be against the latter, who in
turn may, if there is any ground therefor, seek relief against the party benefited. It is essential that the act by
which the defendant is benefited must have been voluntary and unilateral on the part of the plaintiff. As one
distinguished civilian puts it, "The act is voluntary. because the actor in quasi-contracts is not bound by any
pre-existing obligation to act. It is unilateral, because it arises from the sole will of the actor who is not
previously bound by any reciprocal or bilateral agreement. The reason why the law creates a juridical
relations and imposes certain obligation is to prevent a situation where a person is able to benefit or take
advantage of such lawful, voluntary and unilateral acts at the expense of said actor." (Ambrosio Padilla, Civil
Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since appellant has a clearer and more direct recourse
against the Deudors with whom he had entered into an agreement regarding the improvements and
expenditures made by him on the land of appellees. it Cannot be said, in the sense contemplated in Article
2142, that appellees have been enriched at the expense of appellant.
In the ultimate. therefore, Our holding above that appellant's first two assignments of error are well taken
cannot save the day for him. Aside from his having no cause of action against appellees, there is one plain
error of omission. We have found in the order of the trial court which is as good a ground as any other for Us
to terminate this case favorably to appellees. In said order Which We have quoted in full earlier in this
opinion, the trial court ruled that "the grounds relied upon in said motion are mere repetitions of those
already resolved and discussed by this Court in the order of August 13, 1964", an observation which We fully
share. Virtually, therefore. appellant's motion for reconsideration was ruled to be pro-forma. Indeed, a cursory
reading of the record on appeal reveals that appellant's motion for reconsideration above-quoted contained
exactly the same arguments and manner of discussion as his February 6, 1964 "Opposition to Motion to
Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on Appeal) as well as his February 17, 1964
"Opposition to Motion to Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on Appeal and his
February 29, 1964 "Rejoinder to Reply Oil Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We
cannot see anything in said motion for reconsideration that is substantially different from the above
oppositions and rejoinder he had previously submitted and which the trial court had already considered when
it rendered its main order of dismissal. Consequently, appellant's motion for reconsideration did not suspend
his period for appeal. (Estrada vs. Sto. Domingo, 28 SCRA 890, 905-6.) And as this point was covered by
appellees' "Opposition to Motion for Reconsideration" (pp. 8689), hence, within the frame of the issues below,
it is within the ambit of Our authority as the Supreme Court to consider the same here even if it is not
discussed in the briefs of the parties. (Insular Life Assurance Co., Ltd. Employees Association-NATU vs.
Insular Life Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. No. L-25291).

Now, the impugned main order was issued on August 13, 1964, while the appeal was made on September 24,
1964 or 42 days later. Clearly, this is beyond the 30-day reglementary period for appeal. Hence, the subject
order of dismissal was already final and executory when appellant filed his appeal.

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

Fernando (Chairman), Antonio, Aquino and Martin, .JJ., concur. Concepcion, Jr., JJ., took no part. Martin, J.,
was designated to sit in the Second Division.

Gutierrez Hermanos vs. Orense | G.R. No. L-9188 | 4 December 1914

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

On March 5, 1913, counsel for Gutierrez Hermanos filed a complaint, afterwards amended, in the Court of
First Instance of Albay against Engacio Orense, in which he set forth that on and before February 14, 1907,
the defendant Orense had been the owner of a parcel of land, with the buildings and improvements thereon,
situated in the pueblo of Guinobatan, Albay, the location, area and boundaries of which were specified in the
complaint; that the said property has up to date been recorded in the new property registry in the name of the
said Orense, according to certificate No. 5, with the boundaries therein given; that, on February 14, 1907,
Jose Duran, a nephew of the defendant, with the latter's knowledge and consent, executed before a notary a
public instrument whereby he sold and conveyed to the plaintiff company, for P1,500, the aforementioned
property, the vendor Duran reserving to himself the right to repurchase it for the same price within a period of
four years from the date of the said instrument; that the plaintiff company had not entered into possession of
the purchased property, owing to its continued occupancy by the defendant and his nephew, Jose Duran, by
virtue of a contract of lease executed by the plaintiff to Duran, which contract was in force up to February 14,
1911; that the said instrument of sale of the property, executed by Jose Duran, was publicly and freely
confirmed and ratified by the defendant Orense; that, in order to perfect the title to the said property, but that
the defendant Orense refused to do so, without any justifiable cause or reason, wherefore he should be
compelled to execute the said deed by an express order of the court, for Jose Duran is notoriously insolvent
and cannot reimburse the plaintiff company for the price of the sale which he received, nor pay any sum
whatever for the losses and damages occasioned by the said sale, aside from the fact that the plaintiff had
suffered damage by losing the present value of the property, which was worth P3,000; that, unless such deed
of final conveyance were executed in behalf of the plaintiff company, it would be injured by the fraud
perpetrated by the vendor, Duran, in connivance with the defendant; that the latter had been occupying the
said property since February 14, 1911, and refused to pay the rental thereof, notwithstanding the demand
made upon him for its payment at the rate of P30 per month, the just and reasonable value for the occupancy
of the said property, the possession of which the defendant likewise refused to deliver to the plaintiff
company, in spite of the continuous demands made upon him, the defendant, with bad faith and to the
prejudice of the firm of Gutierrez Hermanos, claiming to have rights of ownership and possession in the said
property. Therefore it was prayed that judgment be rendered by holding that the land and improvements in
question belong legitimately and exclusively to the plaintiff, and ordering the defendant to execute in the
plaintiff's behalf the said instrument of transfer and conveyance of the property and of all the right, interest,
title and share which the defendant has therein; that the defendant be sentenced to pay P30 per month for
damages and rental of the property from February 14, 1911, and that, in case these remedies were not
granted to the plaintiff, the defendant be sentenced to pay to it the sum of P3,000 as damages, together with
interest thereon since the date of the institution of this suit, and to pay the costs and other legal expenses.

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

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

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

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

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

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

The plaintiff firm, therefore, charged Jose Duran, in the Court of First Instance of the said province, with
estafa, for having represented himself in the said deed of sale to be the absolute owner of the aforesaid land
and improvements, whereas in reality they did not belong to him, but to the defendant Orense. However, at
the trial of the case Engracio Orense, called as a witness, being interrogated by the fiscal as to whether he
and consented to Duran's selling the said property under right of redemption to the firm of Gutierrez
Hermanos, replied that he had. In view of this statement by the defendant, the court acquitted Jose Duran of
the charge of estafa.

As a result of the acquittal of Jose Duran, based on the explicit testimony of his uncle, Engacio Orense, the
owner of the property, to the effect that he had consented to his nephew Duran's selling the property under
right of repurchase to Gutierrez Hermanos, counsel for this firm filed a complainant praying, among other
remedies, that the defendant Orense be compelled to execute a deed for the transfer and conveyance to the
plaintiff company of all the right, title and interest with Orense had in the property sold, and to pay to the
same the rental of the property due from February 14, 1911.itc-alf

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

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

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

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

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

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

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

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

If the defendant Orense acknowledged and admitted under oath that he had consented to Jose Duran's selling
the property in litigation to Gutierrez Hermanos, it is not just nor is it permissible for him afterward to deny
that admission, to the prejudice of the purchaser, who gave P1,500 for the said property.
The contract of sale of the said property contained in the notarial instrument of February 14, 1907, is alleged
to be invalid, null and void under the provisions of paragraph 5 of section 335 of the Code of Civil Procedure,
because the authority which Orense may have given to Duran to make the said contract of sale is not shown
to have been in writing and signed by Orense, but the record discloses satisfactory and conclusive proof that
the defendant Orense gave his consent to the contract of sale executed in a public instrument by his nephew
Jose Duran. Such consent was proven in a criminal action by the sworn testimony of the principal and
presented in this civil suit by other sworn testimony of the same principal and by other evidence to which the
defendant made no objection. Therefore the principal is bound to abide by the consequences of his agency as
though it had actually been given in writing (Conlu vs. Araneta and Guanko, 15 Phil. Rep., 387; Gallemit vs.
Tabiliran, 20 Phil. Rep., 241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)

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

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

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

Arellano, C.J., Johnson, Carson, Moreland and Araullo, JJ., concur.

Adille vs. CA | G.R. No. L-44546 | 29 January 1988

SARMIENTO, J.:

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

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

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

The antecedent facts are quoted from the decision appealed from:

xxx xxx xxx

... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an
area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property;
she married twice in her lifetime; the first, with one Bernabe Adille, with whom she had as an
only child, herein defendant Rustico Adille; in her second marriage with one Procopio Asejo,
her children were herein plaintiffs, — now, sometime in 1939, said Felisa sold the property
in pacto de retro to certain 3rd persons, period of repurchase being 3 years, but she died in
1942 without being able to redeem and after her death, but during the period of redemption,
herein defendant repurchased, by himself alone, and after that, he executed a deed of extra-
judicial partition representing himself to be the only heir and child of his mother Felisa with
the consequence that he was able to secure title in his name alone also, so that OCT. No.
21137 in the name of his mother was transferred to his name, that was in 1955; that was why
after some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs, filed
present case for partition with accounting on the position that he was only a trustee on an
 implied trust when he redeemed,-and this is the evidence, but as it also turned out that one of
plaintiffs, Emeteria Asejo was occupying a portion, defendant counterclaimed for her to vacate
that, —

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

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

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

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

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

xxx xxx xxx

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

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

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

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

There is no merit in this petition.

The right of repurchase may be exercised by a co-owner with aspect to his share alone.  While the records
show that the petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not
make him the owner of all of it. In other words, it did not put to end the existing state of co-ownership.

Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the
remaining co-owners. 6 There is no doubt that redemption of property entails a necessary expense. Under the
Civil Code:

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

The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one
co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the part of
all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title thereto in
his name. 7 But the provision does not give to the redeeming co-owner the right to the entire property. It does
not provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate
the existing co-ownership. While his half-brothers and sisters are, as we said, liable to him for reimbursement
as and for their shares in redemption expenses, he cannot claim exclusive right to the property owned in
common. Registration of property is not a means of acquiring ownership. It operates as a mere notice of
existing title, that is, if there is one.

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

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

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

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

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

We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been
preceded by repudiation (of the co-ownership). The act of repudiation, in turn is subject to certain conditions:
(1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other
co-owners; (3) the evidence thereon is clear and conclusive, and (4) he has been in possession through open,
continuous, exclusive, and notorious possession of the property for the period required by law. 

The instant case shows that the petitioner had not complied with these requisites. We are not convinced that
he had repudiated the co-ownership; on the contrary, he had deliberately kept the private respondents in the
dark by feigning sole heirship over the estate under dispute. He cannot therefore be said to have "made
known" his efforts to deny the co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is
occupying a portion of the land up to the present, yet, the petitioner has not taken pains to eject her
therefrom. As a matter of fact, he sought to recover possession of that portion Emeteria is occupying only as a
counterclaim, and only after the private respondents had first sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title,  but it has likewise been
our holding that the Torrens title does not furnish a shield for fraud.  It is therefore no argument to say that
the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the
long-standing rule that registration operates as a universal notice of title.

For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate
registered in 1955. While actions to enforce a constructive trust prescribes in ten years,  reckoned from the
date of the registration of the property, we, as we said, are not prepared to count the period from such a date
in this case. We note the petitioner's sub rosa efforts to get hold of the property exclusively for himself
beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he
is "the only heir and child of his mother Feliza with the consequence that he was able to secure title in his
name also."  Accordingly, we hold that the right of the private respondents commenced from the time they
actually discovered the petitioner's act of defraudation.  According to the respondent Court of Appeals, they
"came to know [of it] apparently only during the progress of the litigation."  Hence, prescription is not a bar.

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

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

SO ORDERED,

Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Andres vs. Mantrust | G.R. No. 82670 | 15 September 1989

CORTES, J.:

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

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

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

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

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

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

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

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

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

With costs against defendant-appellee.

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

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

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

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

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

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

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

For this article to apply the following requisites must concur: "(1) that he who paid was not under obligation
to do so; and, (2) that payment was made by reason of an essential mistake of fact" [City of Cebu v. Piccio,
110 Phil. 558, 563 (1960)].

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

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

The contention is without merit.

The contract of petitioner, as regards the sale of garments and other textile products, was with FACETS. It
was the latter and not private respondent which was indebted to petitioner. On the other hand, the contract
for the transmittal of dollars from the United States to petitioner was entered into by private respondent with
FNSB. Petitioner, although named as the payee was not privy to the contract of remittance of dollars. Neither
was private respondent a party to the contract of sale between petitioner and FACETS. There being no
contractual relation between them, petitioner has no right to apply the second $10,000.00 remittance
delivered by mistake by private respondent to the outstanding account of FACETS.

Petitioner next contends that the payment by respondent bank of the second $10,000.00 remittance was not
made by mistake but was the result of negligence of its employees. In connection with this the Court of
Appeals made the following finding of facts:

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

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

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

It is evident that the claim of petitioner is anchored on the appreciation of the attendant facts which petitioner
would have this Court review. The Court holds that the finding by the Court of Appeals that the second
$10,000.00 remittance was made by mistake, being based on substantial evidence, is final and conclusive.
The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of
the Revised Rules of Court has been stated in Remalante v. Tibe, G.R. No. 59514, February 25, 1988, 158
SCRA 138, thus:

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

The rule is that principles of equity cannot be applied if there is a provision of law specifically applicable to a
case [Phil. Rabbit Bus Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA 433; Zabat, Jr. v.
Court of Appeals, G.R. No. L36958, July 10, 1986, 142 SCRA 587; Rural Bank of Paranaque, Inc. v.
Remolado, G.R. No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil. 788 (1956)]. Hence, the
Court in the case of De Garcia v. Court of Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129,
citing Aznar v. Yapdiangco,  G.R. No. L-18536, March 31, 1965, 13 SCRA 486, held:

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

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

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

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

SO ORDERED.

Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur. Feliciano, J., is on leave.

Puyat & Sons vs. Manila | G.R. No. L-17447 | 30 April 1963

PAREDES, J.:

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

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

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

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

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

On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed an action for refund of Retail
DealerlsTaxes paid by it, corresponding to the first Quarter of 1950 up to the third Quarter of 1956,
amounting to P33,785.00, against the City of Manila and its City Treasurer.The case was submitted on the
following stipulation of facts, to wit--
"1. That the plaintiff is a corporation duly organized and existing according to the laws of the
Philippines, with offices at Manila; while defendant City Manila is a Municipal Corporation duly
organized in accordance with the laws of the Philippines, and defendant Marcelino Sarmiento is the
dulyqualified incumbent City Treasurer of Manila;

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

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

Amount
Period Date Paid O.R. No. Assessed
and Paid.

First Quarter 1950 Jan. 25, 1950 436271X P1,255.00

Second Quarter 1950 Apr. 25, 1950 215895X 1,250.00

Third Quarter 1950 Jul. 25, 1950 243321X 1,250.00

Fourth Quarter 1950 Oct. 25, 1950 271165X 1,250.00

(Follows the assessment for different quarters in 1951, 1952,

1953, 1954 and 1955, fixing the same amount quarterly.) x x x..

First Quarter 1956 Jan. 25, 1956 823047X 1,250.00

Second Quarter 1956 Apr. 25, 1956 855949X 1,250.00

Third Quarter 1956 Jul. 25, 1956 880789X 1,250.00

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

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

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

xxx     xxx     xxx

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

"7. That on July 24, 1958, the defendant City Treasurer of Maniladefinitely denied said request for
refund.
 "8. Hence on August 21, 1958, plaintiff filed the present complaint.

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

Said judgment was directly appealed to this Court on two dominant issues to wit: (1) Whether or not the
amounts paid by plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as amended by Ordinance
No. 3364of the City of Manila, without protest, are refundable;(2) Assuming arguendo, that plaintiff-appellee
is entitled to the refund of the retail taxes in question, whether or not the claim for refund filed in October
1956, in so far as said claim refers to taxes paid from 1950 to 1952 has already prescribed. .

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

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

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

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

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

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

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

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

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

"Every person who through an act or performance by another, or any other means, acquires or comes into
possession of something at the expense of the latter without just or legal grounds, shall return the same to
him"(Art. 22, Civil Code). It would seems unedifying for the government, (here the City of Manila), that
knowing it has no right at all to collect or to receive money for alleged taxes paid by mistake, it would be
reluctant to return the same. No one should enrich itself unjustly at the expense of another (Art. 2125, Civil
Code)..

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

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

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

The next issue in discussion is that of prescription. Appellants maintain that article 1146 (NCC), which
provides for a period of four (4) years (upon injury to the rights of the plaintiff), apply to the case. On the other
hand, appellee contends that provisions of Act 190 (Code of Civ. Procedure) should apply, insofar as payments
made before the effectivity of the New Civil Code on August 30, 1950, the period of which is ten (10) years,
(Sec. 40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article 1145 (NCC), for payments made after
said effectivity, providing for a period of six (6) years (upon quasi-contracts like solutio indebiti). Even if the
provisionsof Act No. 190 should apply to those payments made before the effectivity of the new Civil Code,
because "prescription already runnig before the effectivity of this Code shall be governed by laws previously in
force x x x" (art. 1116, NCC), for payments made after said effectivity,providing for a period of six (6) years
(upon quasi-contracts like solutio indebiti). Even if the provisions of Act No. 190should apply to those
payments made before the effectivity of the new Civil Code, because "prescription already running before the
effectivity of of this Code shall be govern by laws previously in force xxx " (Art. 1116, NCC), Still payments
made before August 30, 1950 are no longer recoverable in view of the second paragraph of said article (1116),
which provides:"but if since the time this Code took effect the entire period herein required for prescription
should elapse the present Code shall be applicable even though by the former laws a longer period might be
required". Anent the payments made after August 30, 1950, it is abvious that the action has prescribed with
respect to those made before October 30, 1950 only, considering the fact that the prescription of action is
interrupted xxx when is a writteen extra-judicial demand x x x" (Art. 1155, NCC), and the written demand in
the case at bar was made on October 30, 1956 (Stipulation of Facts).MODIFIED in the sense that only
payments made on or after October 30, 1950 should be refunded, the decision appealed from is affirmed, in
all other respects. No costs. .

Bengzon, C.J., Bautista Angelo, Labrador, Concepcion,Dizon, Regala and Makalintal, JJ., concur.
Padilla, Reyes, J.B.L., and Barrera, JJ., too no part.
Decision affirmed.

CBK Power Company Limited vs. CIR | G.R. Nos. 198729-30 | 15 January 2014

SERENO, CJ:

This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure filed by CBK
Power Company Limited (petitioner). The Petition assails the Decision dated 27 June 2011 and Resolution
dated 16 September 2011 of the Court of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos. 658 and 659.
The assailed Decision and Resolution reversed and set aside the Decision dated 3 March 2010 and Resolution
dated 6 July 2010 rendered by the CTA Special Second Division in C.T.A. Case No. 7621, which partly
granted the claim of petitioner for the issuance of a tax credit certificate representing the latter's alleged
unutilized input taxes on local purchases of goods and services attributable to effectively zero-rated sales to
National Power Corporation (NPC) for the second and third quarters of 2005.

The Facts

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

On 29 December 2004, petitioner filed an Application for VAT Zero-Rate with the Bureau of Internal Revenue
(BIR) in accordance with Section 108(B)(3) of the National Internal Revenue Code (NIRC) of 1997, as amended.
The application was duly approved by the BIR. Thus, petitioner ’s sale of electricity to the NPC from 1 January
2005 to 31 October 2005 was declared to be entitled to the benefit of effectively zero-rated value added tax
(VAT).

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

Period Covered Date Of Filing

1st quarter of 2005 30-Jun-05

2nd quarter of 2005 15-Sep-05

3rd quarter of 2005 28-Oct-05

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

THE CTA SPECIAL SECOND DIVISION RULING

After trial on the merits, the CTA Special Second Division rendered a Decision on 3 March 2010. Applying
Commissioner of Internal Revenue v. Mirant Pagbilao Corporation (Mirant), the court a quo ruled that
petitioner had until the following dates within which to file both administrative and judicial claims:

Taxable Quarter Last Day to

 2005 Close of the quarter File Claim for
Refund

1st quarter 31-Mar-05 31-Mar-07

2nd quarter 30-Jun-05 30-Jun-07

3rd quarter 30-Sep-05 30-Sep-07

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

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

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

THE CTA EN BANC RULING

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

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

Hence, this Petition.

ISSUE

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

THE COURT’S RULING

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

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

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

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

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within
thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred
twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

Petitioner’s sales to NPC are effectively zero-rated

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

In Panasonic Communications Imaging Corporation of the Philippines v. Commissioner of Internal

Revenue,13 this Court ruled:

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

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

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

Administrative Claim

Section 112(A) provides that after the close of the taxable quarter when the sales were made, there is a two-
year prescriptive period within which a VAT-registered person whose sales are zero-rated or effectively zero-
rated may apply for the issuance of a tax credit certificate or refund of creditable input tax.

Our VAT Law provides for a mechanism that would allow VAT-registered persons to recover the excess input
taxes over the output taxes they had paid in relation to their sales. For the refund or credit of excess or
unutilized input tax, Section 112 is the governing law. Given the distinctive nature of creditable input tax, the
law under Section 112 (A) provides for a different reckoning point for the two-year prescriptive period,
specifically for the refund or credit of that tax only.

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

However, the fact remains that Section 112 is the controlling provision for the refund or credit of input tax
during the time that petitioner filed its claim with which they ought to comply. It must be emphasized that the
Court merely clarified in Mirant that Sections 204 and 229, which prescribed a different starting point for the
two-year prescriptive limit for filing a claim for a refund or credit of excess input tax, were not applicable.
Input tax is neither an erroneously paid nor an illegally collected internal revenue tax.

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

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

Period Covered Close of the Taxable Last day to File Administrative Date of Filing
Quarter Claim

1st quarter 2005 31-Mar-05 31-Mar-07 30-Jun-05

2nd quarter 2005 30-Jun-05 30-Jun-07 15-Sep-05

3rd quarter 2005 30-Sep-05 30-Sep-07 28-Oct-05

Judicial Claim

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

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

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

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

Prescinding from San Roque in the consolidated case Mindanao II Geothermal Partnership v. Commissioner of
Internal Revenue and Mindanao I Geothermal Partnership v. Commissioner of Internal Revenue, this Court
has ruled thus:

Notwithstanding a strict construction of any claim for tax exemption or refund, the Court in San Roque
recognized that BIR Ruling No. DA-489-03 constitutes equitable estoppel in favor of taxpayers. BIR Ruling No.
DA-489-03 expressly states that the "taxpayer-claimant need not wait for the lapse of the 120-day period
before it could seek judicial relief with the CTA by way of Petition for Review." This Court discussed BIR
Ruling No. DA-489-03 and its effect on taxpayers, thus:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a

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

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

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

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

Period Covered Administrative Expiration of 120- Last day to file Judicial Claim
Claim Filed days Judicial Claim Filed

1st quarter 2005 30-Jun-05 28-Oct-05 27-Nov-05 18-Apr-07

2nd quarter 2005 15-Sep-05 13-Jan-06 13-Feb-06

3rd quarter 2005 28-Oct-05 26-Feb-06 28-Mar-06

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

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

Unlike San Roque and Taganito, Philex’s case is not one of premature filing but of late filing. Philex did not file
any petition with the CTA within the 120-day period. Philex did not also file any petition with the CTA within
30 days after the expiration of the 120-day period. Philex filed its judicial claim long after the expiration of the
120-day period, in fact 426 days after the lapse of the 120-day period. In any event, whether governed by
jurisprudence before, during, or after the Atlas case, Philex’s judicial claim will have to be rejected because of
late filing. Whether the two-year prescriptive period is counted from the date of payment of the output VAT
following the Atlas doctrine, or from the close of the taxable quarter when the sales attributable to the input
VAT were made following the Mirant and Aichi doctrines, Philex’s judicial claim was indisputably filed late.

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

Likewise, while petitioner filed its administrative and judicial claims during the period of applicability of BIR
Ruling No. DA-489-03, it cannot claim the benefit of the exception period as it did not file its judicial claim
prematurely, but did so long after the lapse of the 30-day period following the expiration of the 120-day
period. Again, BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-
exhaustion of the 120-day period for the Commissioner to act on an administrative claim, but not its late
filing.
As this Court enunciated in San Roque , petitioner cannot rely on Atlas either, since the latter case was
promulgated only on 8 June 2007. Moreover, the doctrine in Atlas which reckons the two-year period from the
date of filing of the return and payment of the tax, does not interpret − expressly or impliedly − the 120+30
day periods. Simply stated, Atlas referred only to the reckoning of the prescriptive period for filing an
administrative claim.

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

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

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

There is solutio indebiti when:

(1) Payment is made when there exists no binding relation between the payor, who has no duty to pay,
and the person who received the payment; and

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

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

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

Second, the payment of input tax was not made through mistake, since petitioner was legally obligated to pay
for that liability. The entitlement to a refund or credit of excess input tax is solely based on the distinctive
nature of the VAT system. At the time of payment of the input VAT, the amount paid was correct and proper.

Finally, equity, which has been aptly described as "a justice outside legality," is applied only in the absence of,
and never against, statutory law or judicial rules of procedure. Section 112 is a positive rule that should
preempt and prevail over all abstract arguments based only on equity. Well-settled is the rule that tax refunds
or credits, just like tax exemptions, are strictly construed against the taxpayer. The burden is on the taxpayer
to show strict compliance with the conditions for the grant of the tax refund or credit.

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

Cangco vs. Manila RailRoad Co. | G.R. No. L-12191| October 14, 1918

FISHER, J.:

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

On the side of the train where passengers alight at the San Mateo station there is a cement platform which
begins to rise with a moderate gradient some distance away from the company's office and extends along in
front of said office for a distance sufficient to cover the length of several coaches. As the train slowed down
another passenger, named Emilio Zuñiga, also an employee of the railroad company, got off the same car,
alighting safely at the point where the platform begins to rise from the level of the ground. When the train had
proceeded a little farther the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact
with a sack of watermelons with the result that his feet slipped from under him and he fell violently on the
platform. His body at once rolled from the platform and was drawn under the moving car, where his right arm
was badly crushed and lacerated. It appears that after the plaintiff alighted from the train the car moved
forward possibly six meters before it came to a full stop.

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

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

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

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

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

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

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

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

Upon this point the Court said:

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

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

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

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

This distinction was again made patent by this Court in its decision in the case of Bahia vs. Litonjua and
Leynes, (30 Phil. rep., 624), which was an action brought upon the theory of the extra-contractual liability of
the defendant to respond for the damage caused by the carelessness of his employee while acting within the
scope of his employment. The Court, after citing the last paragraph of article 1903 of the Civil Code, said:
 From this article two things are apparent: (1) That when an injury is caused by the negligence of a
servant or employee there instantly arises a presumption of law that there was negligence on the part
of the master or employer either in selection of the servant or employee, or in supervision over him
after the selection, or both; and (2) that that presumption is  juris tantum and not  juris et de jure,
and consequently, may be rebutted. It follows necessarily that if the employer shows to the satisfaction
of the court that in selection and supervision he has exercised the care and diligence of a good father
of a family, the presumption is overcome and he is relieved from liability.

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

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

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

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

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

The position of a natural or juridical person who has undertaken by contract to render service to another, is
wholly different from that to which article 1903 relates. When the sources of the obligation upon which
plaintiff's cause of action depends is a negligent act or omission, the burden of proof rests upon plaintiff to
prove the negligence — if he does not his action fails. But when the facts averred show a contractual
undertaking by defendant for the benefit of plaintiff, and it is alleged that plaintiff has failed or refused to
perform the contract, it is not necessary for plaintiff to specify in his pleadings whether the breach of the
contract is due to willful fault or to negligence on the part of the defendant, or of his servants or agents. Proof
of the contract and of its nonperformance is sufficient prima facie to warrant a recovery.
 As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor should
assume the burden of proof of its existence, as the only fact upon which his action is based; while on
the contrary, in a case of negligence which presupposes the existence of a contractual obligation, if the
creditor shows that it exists and that it has been broken, it is not necessary for him to prove
negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).

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

This distinction between culpa aquiliana, as the source of an obligation, and culpa contractual as a mere

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

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

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

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

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

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to recover damages
for the personal injuries caused by the negligence of defendant's chauffeur while driving defendant's
automobile in which defendant was riding at the time. The court found that the damages were caused by the
negligence of the driver of the automobile, but held that the master was not liable, although he was present at
the time, saying:
 . . . unless the negligent acts of the driver are continued for a length of time as to give the owner a
reasonable opportunity to observe them and to direct the driver to desist therefrom. . . . The act
complained of must be continued in the presence of the owner for such length of time that the owner
by his acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil. Rep., 8), it is true
that the court rested its conclusion as to the liability of the defendant upon article 1903, although the facts
disclosed that the injury complaint of by plaintiff constituted a breach of the duty to him arising out of the
contract of transportation. The express ground of the decision in this case was that article 1903, in dealing
with the liability of a master for the negligent acts of his servants "makes the distinction between private
individuals and public enterprise;" that as to the latter the law creates a rebuttable presumption of negligence
in the selection or direction of servants; and that in the particular case the presumption of negligence had not
been overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as though founded
in tort rather than as based upon the breach of the contract of carriage, and an examination of the pleadings
and of the briefs shows that the questions of law were in fact discussed upon this theory. Viewed from the
standpoint of the defendant the practical result must have been the same in any event. The proof disclosed
beyond doubt that the defendant's servant was grossly negligent and that his negligence was the proximate
cause of plaintiff's injury. It also affirmatively appeared that defendant had been guilty of negligence in its
failure to exercise proper discretion in the direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were to be regarded as constituting culpa
aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69) whether negligence occurs an
incident in the course of the performance of a contractual undertaking or its itself the source of an extra-
contractual undertaking obligation, its essential characteristics are identical. There is always an act or
omission productive of damage due to carelessness or inattention on the part of the defendant. Consequently,
when the court holds that a defendant is liable in damages for having failed to exercise due care, either
directly, or in failing to exercise proper care in the selection and direction of his servants, the practical result
is identical in either case. Therefore, it follows that it is not to be inferred, because the court held in the
Yamada case that defendant was liable for the damages negligently caused by its servants to a person to
whom it was bound by contract, and made reference to the fact that the defendant was negligent in the
selection and control of its servants, that in such a case the court would have held that it would have been a
good defense to the action, if presented squarely upon the theory of the breach of the contract, for defendant
to have proved that it did in fact exercise care in the selection and control of the servant.

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

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

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

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

We are of the opinion that the correct doctrine relating to this subject is that expressed in Thompson's work
on Negligence (vol. 3, sec. 3010) as follows:

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

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

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

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

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

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of P3,290.25,
and for the costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J.,  dissenting

With one sentence in the majority decision, we are of full accord, namely, "It may be admitted that had
plaintiff waited until the train had come to a full stop before alighting, the particular injury suffered by him
could not have occurred." With the general rule relative to a passenger's contributory negligence, we are
likewise in full accord, namely, "An attempt to alight from a moving train is negligence per se." Adding these
two points together, should be absolved from the complaint, and judgment affirmed.

Johnson, J., concur.

Gutierrez vs. Gutierrez | G.R. No. 34840 | 23 September 1931

MALCOLM, J.:

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

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

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

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained
that the youth Bonifacio was in incompetent chauffeur, that he was driving at an excessive rate of speed, and
that, on approaching the bridge and the truck, he lost his head and so contributed by his negligence to the
accident. The guaranty given by the father at the time the son was granted a license to operate motor vehicles
made the father responsible for the acts of his son. Based on these facts, pursuant to the provisions of article
1903 of the Civil Code, the father alone and not the minor or the mother, would be liable for the damages
caused by the minor.
We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the
same time, we believe that, as has been done in other cases, we can take cognizance of the common law rule
on the same subject. In the United States, it is uniformly held that the head of a house, the owner of an
automobile, who maintains it for the general use of his family is liable for its negligent operation by one of his
children, whom he designates or permits to run it, where the car is occupied and being used at the time of the
injury for the pleasure of other members of the owner's family than the child driving it. The theory of the law
is that the running of the machine by a child to carry other members of the family is within the scope of the
owner's business, so that he is liable for the negligence of the child because of the relationship of master and
servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes [1914], 91 Atl., 322.) The liability of
Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests on a different basis,
namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the
complaint, not controverted, and the evidence. The reason for this conclusion reaches to the findings of the
trial court concerning the position of the truck on the bridge, the speed in operating the machine, and the
lack of care employed by the chauffeur. While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the trial judge. In
its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with
neither being willing to slow up and give the right of way to the other, with the inevitable result of a collision
and an accident.

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

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

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

Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.