G.R. No.

L-36413 September 26, 1988

MALAYAN INSURANCE CO., INC., petitioner,

vs.
THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO
CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO.,
INC., respondents.

Freqillana Jr. for petitioner.

B.F. Estrella & Associates for respondent Martin Vallejos.

Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc.

PADILLA, J.:

Review on certiorari  of the judgment * of the respondent appellate court in CA-G.R. No.
47319-R, dated 22 February 1973, which affirmed, with some modifications, the
decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of First
Instance of Pangasinan.

The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private
respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from
18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No.
351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own
damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967,
at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P.
Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger
bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for
short) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to
the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C.
Vallejos, who was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan
Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan,
which was docketed as Civil Case No. U-2021. He prayed therein that the defendants be
ordered to pay him, jointly and severally, the amount of P15,000.00, as reimbursement for
medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and
compensatory damages; and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an
excessive speed and bumped the PANTRANCO bus which had moved to, and stopped at, the
shoulder of the highway in order to avoid the jeep; and that it had observed the diligence of a
good father of a family to prevent damage, especially in the selection and supervision of its
employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any
and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied
liability to the plaintiff, claiming that the fault in the accident was solely imputable to the
PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the herein
petitioner wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the
amount of P5,000.00 for hospitalization and other expenses, and, in his cross-claim against
the herein petitioner, he alleged that the petitioner had issued in his favor a private car
comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy,
as insured, for the damage to his motor vehicle, as well as for any liability to third persons
arising out of any accident during the effectivity of such insurance contract, which policy was
in full force and effect when the vehicular accident complained of occurred. He prayed that he
be reimbursed by the insurance company for the amount that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint
against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio
Choy, at the time of the accident, was an employee of the San Leon Rice Mill, Inc.
performing his duties within the scope of his assigned task, and not an employee of Sio Choy;
and that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P.
Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the Civil
Code. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill,
Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon
Rice Mill, Inc. to reimburse and indemnify the petitioner for any sum that it may be ordered to
pay the plaintiff.

After trial, judgment was rendered as follows:

WHEREFORE, in view of the foregoing findings of this Court judgment is

hereby rendered in favor of the plaintiff and against Sio Choy and Malayan
Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as
follows:

(a) P4,103 as actual damages;

(b) P18,000.00 representing the unearned income of plaintiff Martin C.

Vallejos for the period of three (3) years;

(c) P5,000.00 as moral damages;

(d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs.

The above-named parties against whom this judgment is rendered are hereby
held jointly and severally liable. With respect, however, to Malayan Insurance
Co., Inc., its liability will be up to only P20,000.00.
 As no satisfactory proof of cost of damage to its bus was presented by
defendant Pantranco, no award should be made in its favor. Its counter-claim
for attorney's fees is also dismissed for not being proved. 1

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio
Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and
severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however,
that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner
insurance company for whatever amount it has been ordered to pay on its policy, since the
San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the
insurance company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to
order the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half
(1/2) of the entire amount of damages, petitioner may be ordered to pay jointly and severally
with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar as it
concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being
understood that no other aspect of the decision of the Court of Appeals shall be reviewed,
hence, execution may already issue in favor of respondent Martin C. Vallejos against the
respondents, without prejudice to the determination of whether or not petitioner shall be
entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of
whatever the former may pay on the P20,000.00 it has been adjudged to pay respondent
Vallejos." 3

However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to
petitioner, it is important to determine first the nature or basis of the liability of petitioner to
respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill,
Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld
by the Court of Appeals, was correct in holding petitioner and respondents Sio Choy and San
Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is
entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its insurance policy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court,
that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and
severally liable to respondent Vallejos.

We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio
Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable
to respondent Vallejos for the damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the
ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides:
 Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his
driver, if the former, who was in the vehicle, could have, by the use of due
diligence, prevented the misfortune it is disputably presumed that a driver was
negligent, if he had been found guilty of reckless driving or violating traffic
regulations at least twice within the next preceding two months.

If the owner was not in the motor vehicle, the provisions of article 2180 are
applicable.

On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc.
to plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time
of the motor vehicle mishap, is Article 2180 of the Civil Code which reads:

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.

xxx xxx xxx

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 ill any business or industry.

xxx xxx xxx

The responsibility treated in this article shall cease when the persons herein
mentioned proved that they observed all the diligence of a good father of a
family to prevent damage.

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal
tortfeasors who are primarily liable to respondent Vallejos. The law states that the
responsibility of two or more persons who are liable for a quasi-delict is solidarily.4

On the other hand, the basis of petitioner's liability is its insurance contract with respondent
Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than
P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third
party liability clause included in the private car comprehensive policy existing between
petitioner and respondent Sio Choy at the time of the complained vehicular accident.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he
was bumped by another passenger jeepney. He died as a result thereof. In the damage suit
filed by the heirs of said passenger against the driver and owner of the jeepney at fault as well
as against the insurance company which insured the latter jeepney against third party liability,
the trial court, affirmed by this Court, adjudged the owner and the driver of the jeepney at
fault jointly and severally liable to the heirs of the victim in the total amount of P9,572.95 as
damages and attorney's fees; while the insurance company was sentenced to pay the heirs the
amount of P5,500.00 which was to be applied as partial satisfaction of the judgment rendered
against said owner and driver of the jeepney. Thus, in said Guingon case, it was only the
owner and the driver of the jeepney at fault, not including the insurance company, who were
held solidarily liable to the heirs of the victim.
While it is true that where the insurance contract provides for indemnity against liability to
third persons, such third persons can directly sue the insurer, 6 however, the direct liability of
the insurer under indemnity contracts against third party liability does not mean that the
insurer can be held solidarily liable with the insured and/or the other parties found at fault.
The liability of the insurer is based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it
cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal
tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-
insurer were solidarily liable with said two (2) respondents by reason of the indemnity
contract against third party liability-under which an insurer can be directly sued by a third
party — this will result in a violation of the principles underlying solidary obligation and
insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the
solidary debtors. 7 On the other hand, insurance is defined as "a contract whereby one
undertakes for a consideration to indemnify another against loss, damage, or liability arising
from an unknown or contingent event." 8

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San
Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00,
with the qualification that petitioner's liability is only up to P20,000.00. In the context of a
solidary obligation, petitioner may be compelled by respondent Vallejos to pay
the entire obligation of P29,013.00, notwithstanding the qualification made by the trial court.
But, how can petitioner be obliged to pay the entire obligation when the amount stated in its
insurance policy with respondent Sio Choy for indemnity against third party liability is only
P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect
that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay
P29,103.00 is made solidary, is an evident breach of the concept of a solidary obligation.
Thus, We hold that the trial court, as upheld by the Court of Appeals, erred in holding
petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to
respondent Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled
that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the
ground that said respondent is not privy to the contract of insurance existing between
petitioner and respondent Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts. Thus —

... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co.

vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer
is entitled to be subrogated pro tanto to any right of action which the insured
may have against the third person whose negligence or wrongful act caused the
loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

The right of subrogation is of the highest equity. The loss in the first instance is
that of the insured but after reimbursement or compensation, it becomes the
 loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs.
Cincinnati Ins. Co., 22 Ohio St. 382).

Although many policies including policies in the standard form, now provide
for subrogation, and thus determine the rights of the insurer in this respect, the
equitable right of subrogation as the legal effect of payment inures to the
insurer without any formal assignment or any express stipulation to that effect
in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance
company pays for the loss, such payment operates as an equitable assignment
to the insurer of the property and all remedies which the insured may have for
the recovery thereof. That right is not dependent upon , nor does it grow out of
any privity of contract (emphasis supplied) or upon written assignment of
claim, and payment to the insured makes the insurer assignee in equity
(Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE
2d 18). 9

It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot
exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as
such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill,
Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire
obligation the right to be reimbursed by his co-debtors for the share which corresponds to
each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interest for the payment already made. If the
payment is made before the debt is due, no interest for the intervening period
may be demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby
becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc.
are solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00.
Vallejos may enforce the entire obligation on only one of said solidary debtors. If Sio Choy as
solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer
of Sio Choy, is compelled to pay P20,000.00 of said entire obligation, petitioner would be
entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by
the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 )

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the
Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without
pronouncement as to costs.
SO ORDERED.

G.R. No. L-28046 May 16, 1983

PHILIPPINE NATIONAL BANK, plaintiff-appellant,

vs.
INDEPENDENT PLANTERS ASSOCIATION, INC., ANTONIO DIMAYUGA,
DELFIN FAJARDO, CEFERINO VALENCIA, MOISES CARANDANG, LUCIANO
CASTILLO, AURELIO VALENCIA, LAURO LEVISTE, GAVINO GONZALES,
LOPE GEVANA and BONIFACIO LAUREANA, defendants-appellees.

Basa, Ilao, del Rosario Diaz for plaintiff-appellant.

Laurel Law Office for Dimayuga.

Tomas Yumol for Fajardo, defendant-appellee.

PLANA, J.:

Appeal by the Philippine National Bank (PNB) from the Order of the defunct Court of First
Instance of Manila (Branch XX) in its Civil Case No. 46741 dismissing PNB's complaint
against several solidary debtors for the collection of a sum of money on the ground that one of
the defendants (Ceferino Valencia) died during the pendency of the case (i.e., after the
plaintiff had presented its evidence) and therefore the complaint, being a money claim based
on contract, should be prosecuted in the testate or intestate proceeding for the settlement of
the estate of the deceased defendant pursuant to Section 6 of Rule 86 of the Rules of Court
which reads:

SEC. 6. Solidary obligation of decedent.— the obligation of the decedent is

solidary with another debtor, the claim shall be filed against the decedent as if
he were the only debtor, without prejudice to the right of the estate to recover
contribution from the other debtor. In a joint obligation of the decedent, the
claim shall be confined to the portion belonging to him.

The appellant assails the order of dismissal, invoking its right of recourse against one, some or
all of its solidary debtors under Article 1216 of the Civil Code —

ART. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not been fully collected.

The sole issue thus raised is whether in an action for collection of a sum of money based on
contract against all the solidary debtors, the death of one defendant deprives the court of
jurisdiction to proceed with the case against the surviving defendants.

It is now settled that the quoted Article 1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his solidary debtors, as he deems fit or
convenient for the protection of his interests; and if, after instituting a collection suit based on
contract against some or all of them and, during its pendency, one of the defendants dies, the
court retains jurisdiction to continue the proceedings and decide the case in respect of the
surviving defendants. Thus in Manila Surety & Fidelity Co., Inc. vs. Villarama et al., 107
Phil. 891 at 897, this Court ruled:
 Construing Section 698 of the Code of Civil Procedure from whence the
aforequoted provision (Sec. 6, Rule 86) was taken, this Court held that where
two persons are bound in solidum for the same debt and one of them dies, the
whole indebtedness can be proved against the estate of the latter, the decedent's
liability being absolute and primary; and if the claim is not presented within
the time provided by the rules, the same will be barred as against the estate. It
is evident from the foregoing that Section 6 of Rule 87 (now Rule 86) provides
the procedure should the creditor desire to go against the deceased debtor, but
there is certainly nothing in the said provision making compliance with such
procedure a condition precedent before an ordinary action against the surviving
solidary debtors, should the creditor choose to demand payment from the latter,
could be entertained to the extent that failure to observe the same would
deprive the court jurisdiction to take cognizance of the action against the
surviving debtors. Upon the other hand, the Civil Code expressly allows the
creditor to proceed against any one of the solidary debtors or some or all of
them simultaneously. There is, therefore, nothing improper in the creditor's
filing of an action against the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the estate of the deceased debtor
wherein his claim could be filed.

Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this Court, speaking thru Mr.
Justice Makasiar, reiterated the doctrine.

A cursory perusal of Section 6, Rule 86 of the Revised Rules of

Court reveals that nothing therein prevents a creditor from
proceeding against the surviving solidary debtors. Said
provision merely sets up the procedure in enforcing
collection in case a creditor chooses to pursue his claim against
the estate of the deceased solidary, debtor.

It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
creditor the right to 'proceed against anyone of the solidary
debtors or some or all of them simultaneously.' The choice is
undoubtedly left to the solidary, creditor to determine against
whom he will enforce collection. In case of the death of one of
the solidary debtors, he (the creditor) may, if he so chooses,
proceed against the surviving solidary debtors without necessity
of filing a claim in the estate of the deceased debtors. It is not
mandatory for him to have the case dismissed against the
surviving debtors and file its claim in the estate of the deceased
solidary debtor . . .

As correctly argued by petitioner, if Section 6, Rule 86 of the

Revised Rules of Court were applied literally, Article 1216 of
the New Civil Code would, in effect, be repealed since under
the Rules of Court, petitioner has no choice but to proceed
against the estate of Manuel Barredo only. Obviously, this
provision diminishes the Bank's right under the New Civil,
Code to proceed against any one, some or all of the solidary
 debtors. Such a construction is not sanctioned by the principle,
which is too well settled to require citation, that a substantive
law cannot be amended by a procedural rule. Otherwise stared,
Section 6, Rule 86 of the Revised Rules of Court cannot be
made to prevail over Article 1216 of the New Civil Code, the
former being merely procedural, while the latter, substantive.

WHEREFORE the appealed order of dismissal of the court a quo in its Civil Case No. 46741
is hereby set aside in respect of the surviving defendants; and the case is remanded to the
corresponding Regional Trial Court for proceedings. proceedings. No costs.

SO ORDERED.

G.R. No. 209969, September 27, 2017

JOSE SANICO AND VICENTE CASTRO, Petitioners, v. WERHERLINA P. COLIPANO,

Respondent.

DECISION

CAGUIOA, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
filed by petitioners Jose Sanico (Sanico) and Vicente Castro (Castro), assailing the Decision2
dated September 30, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889. The
CA affirmed with modification the Decision3 dated October 27, 2006 of the Regional Trial
Court, Branch 25, Danao City (RTC) which found Sanico and Castro liable for breach of'
contract of carriage and awarded actual and compensatory damages for loss of income in
favor of respondent Werherlina P. Colipano (Colipano). The CA reduced the compensatory
damages that the RTC awarded.

Antecedents

Colipano filed a complaint on January 7, 1997 for breach of contract of carriage and damages
against Sanico and Castro.4 In her complaint, Colipano claimed that at 4:00 P.M. more or less
of December 25, 1993, Christmas Day, she and her daughter were; paying passengers in the
jeepney operated by Sanico, which was driven by Castro.5 Colipano claimed she was made to
sit on an empty beer case at the edge of the rear entrance/exit of the jeepney with her sleeping
child on her lap.6 And, at an uphill incline in the road to Natimao-an, Carmen, Cebu, the
jeepney slid backwards because it did not have the power to reach the top.7 Colipano pushed
both her feet against the step board to prevent herself and her child from being thrown out of
the exit, but because the step board was wet, her left foot slipped and got crushed between the
step board and a coconut tree which the jeepney bumped, causing the jeepney to stop its
backward movement.8 Colipano's leg was badly injured and was eventually amputated.9
Colipano prayed for actual damages, loss of income, moral damages, exemplary damages, and
attorney's fees.10

In their answer, Sanico and Castro admitted that Colipano's leg was crushed and amputated
but claimed that it! was Colipano's fault that her leg was crushed.11 They admitted that the
jeepney slid backwards because the jeepney lost power.12 The conductor then instructed
everyone not to panic but Colipano tried to disembark and her foot got caught in between the
step board and the coconut tree.13 Sanico claimed that he paid for all the hospital and medical
expenses of Colipano,14 and that Colipano eventually freely and voluntarily executed an
Affidavit of Desistance and Release of Claim.15

After trial, the RTC found that Sanico and Castro breached the contract of carriage between
them and Colipano but only awarded actual and compensatory damages in favor of Colipano.
The dispositive portion of the RTC Decision states:

WHEREFORE, premises considered, this Court finds the defendants LIABLE for breach of
contract of carriage and are solidarily liable to pay plaintiff:

Actual damages in the amount of P2,098.80; and

Compensatory damages for loss of income in the amount of P360,000.00.

No costs.

SO ORDERED.16

Only Sanico and Castro appealed to the CA, which affirmed with modification the RTC
Decision. The dispositive portion of the CA Decision states:

IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY GRANTED. The
Decision dated October 27, 2006 of the Regional Trial Court, Branch 25, Danao City, in Civil
Case No. DNA-418, is AFFIRMED with MODIFICATION in that the award for
compensatory damages for loss of income in paragraph 2 of the dispositive portion of the
RTC's decision, is reduced to P200,000.00.
SO ORDERED.17

Without moving for the reconsideration of the CA Decision, Sanico and Castro filed this
petition before the Court assailing the CA Decision.

Issues

Whether the CA erred in finding that Sanico and Castro breached the contract of carriage with
Colipano;

Whether the Affidavit of Desistance and Release of Claim is binding on Colipano; and

Whether the CA erred in the amount of damages awarded.

The Court's Ruling

The Court partly grants the petition.

Only Sanico breached the contract of carriage.

Here, it is beyond dispute that Colipano was injured while she was a passenger in the jeepney
owned and operated by Sanico that was being driven by Castro. Both the CA and RTC found
Sanico and Castro jointly and severally liable. This, however, is erroneous because only
Sanico was the party to the contract of carriage with Colipano.

Since the cause of action is based on a breach of a contract of carriage, the liability of Sanico
is direct as the contract is between him and Colipano. Castro, being merely the driver of
Sanico's jeepney, cannot be made liable as he is not a party to the contract of carriage.

In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for breach of a
contract of carriage is dismissible as against the employee who was driving the bus because
the parties to the contract of carriage are only the passenger, the bus owner, and the operator,
viz.:
The complaint against Caccam was therefore properly dismissed. He was not a party to the
contract; he was a mere employee of the BAL. The parties to that contract are Juana
Soberano, the passenger, and the MRR and its subsidiary, the BAL, the bus owner and
operator, respectively; and consequent to the inability of the defendant companies to carry
Juana Soberano and her baggage arid personal effects securely and safely to her destination as
imposed by law (art. 1733, in relation to arts. 1736 and 1755, N.C.C.), their liability to her
becomes direct and immediate.19

Since Castro was not a party to the contract of carriage, Colipano had no cause of action
against him and the pomplaint against him should be dismissed. Although he was driving the
jeepney, he was a mere employee of Sanico, who was the operator and owner of the jeepney.
The obligation to carry Colipano safely to her destination was with Sanico. In fact, the
elements of a contract of carriage existeid between Colipano and Sanico: consent, as shown
when Castro, as employee of Sanico, accepted Colipano as a passenger when he allowed
Colipano to board the jeepney, and as to Colipano, when she boarded the jeepney; cause or
consideration, when Colipano, for her part, paid her fare; and, object, the transportation of
Colipano from the place of departure to the place of destination.20

Having established that the contract of carriage was only between Sanico and Colipano and
that therefore Colipano had no cause of action against Castro, the Court next determines
whether Sanico breached his obligations to Colipano under the contract.

Sanico is liable as operator and owner of a common carrier.

Specific to a contract of carriage, ithe Civil Code requires common carriers to observe
extraordinary diligence in safely transporting their passengers. Article 1733 of the Civil Code
states:

ART. 1733. Common carriers, fijpm the nature of their business and for reasons of public
policy, are bbund to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them, according to all the circumstances of each
case.

Such extraordinary diligence in the vigilance over the goods is further expressed in Articles
1734, 1735 and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the
passengers is further set forth in Articles 1755 and 1756.

This extraordinary diligence, following Article 1755 of the Civil Code, means that common
carriers have the obligation to carry passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard for all the
circumstances.
In case of death of or injury to their passengers, Article 1756 of the Civil Code provides that
common carriers are presumed to have been at fault or negligent, and this presumption can be
overcome only by proof of the extraordinary diligence exercised to ensure the safety of the
passengers.21

Being an operator and owner of a common carrier, Sanico was required to observe
extraordinary diligence in safely transporting Colipano. When Colipano's leg was injured
while she was a passenger in Sanico's jeepney, the presumption of fault or negligence on
Sanico's part arose and he had the burden to prove that he exercised the extraordinary
diligence required of him. He failed to do this.

In Calalas v. Court of Appeals,22 the Court found that allowing the respondent in that case to
be seated in an extension seat, which was a wooden stool at the rear of the jeepney, "placed
[the respondent] in a peril greater than that to which the other passengers were exposed."23
The Court further ruled that the petitioner in Calalas was not only "unable to overcome the
presumption of negligence imposed on him for the injury sustained by [the respondent], but
also, the evidence shows he was actually negligent in transporting passengers."24

Calalas squarely applies here. Sanico failed to rebut the presumption of fault or negligence
under the Civil Code. More than this, the evidence indubitably established Sanico's
negligence when Castro made Colipano sit on an empty beer case at the edge of the rear
entrance/exit of the jeepney with her sleeping child on her lap, which put her and her child in
greater peril than the other passengers. As the CA correctly held:

For the driver, Vicente Castro, to allow a seat extension made of an empty case of beer clearly
indicates lack of prudence. Permitting Werherlina to occupy an improvised seat in the rear
portion of the jeepney, with a child on her lap to boot, exposed her and her child in a peril
greater than that to which the other passengers were exposed. The use of an improvised seat
extension is undeniable, in view of the testimony of plaintiffs witness, which is consistent
with Werherlina's testimonial assertion. Werherlina and her witness's testimony were
accorded belief by the RTC. Factual findings of the trial court are entitled to great weight on
appeal and should not be disturbed except for strong and valid reasons, because the trial court
ip in a better position to examine the demeanor of the witnesses while testifying.25

The CA also correctly held that the!defense of engine failure, instead of exonerating Sanico,
only aggravated his already precarious position.26 The engine failure "hinted lack of regular
check and maintenance to ensure that the engine is at its best, considering that the jeepney
regularly passes through a mountainous area."27 This failure to ensure that the jeepney can
safely transport passengers through its route which required navigation through a
mountainous area is proof of fault on Sanico's part. In the face of such evidence, there is no
question as to Sanico's fault or negligence.
Further, common carriers may also be liable for damages when they contravene the tenor of
their obligations. Article 1170 of the Civil Code states:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence,
or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner contravene the tenor'
of the obligation includes any illicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance."29 There is no question
here that making Colipano sit on the empty beer case was a clear showing of how Sanico
contravened the tenor of his obligation to safely transport Colipano from the place of
departure to the place of destination as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, and with due regard for all the circumstances.

Sanico's attempt to evade liability by arguing that he exercised extraordinary diligence when
he hired; Castro, who was allegedly an experienced and time-tested driver, whom he had even
accompanied on a test-drive and in whom he was personally convinced of the driving skills,30
are not enough to exonerate him from liability - because the liability of common carriers does
not cease upon p!roof that they exercised all the diligence of a good father of a family irii the
selection. and supervision of their employees. This is the express mandate of Article 1759 of
the Civil Code:

ART. 1759. Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common carriers.

This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

The only defenses available to common carriers are (1) proof that they observed extraordinary
diligence as prescribed in Article 1756,31 and (2) following Article 1174 of the Civil Code,
proof that the injury or death was brought about by an event which "could not be foreseen, or
which, though foreseen, were inevitable," or a fortuitous event.

The Court finds that neither of these defenses obtain. Thus, Sanico is liable for damages to
Colipano because of the injury that Colipano suffered as a passenger of Sanico's jeepney.

The Affidavit of Desistance and Release of Claim is void.

Sanico cannot be exonerated from liability under the Affidavit of Desistance and Release of
Claim32and his payment of the hospital and medical bills of Colipano amounting to
P44,900.00.33

The RTC ruled that "the Affidavit of Desistance and Release of Claim is not binding on
plaintiff [Colipano] in the absence of proof that the contents thereof were sufficiently
translated and explained to her."34 The CA affirmed the findings of the RTC and ruled that
the document was not binding on Colipano, as follows:

Finally, We sustain the RTC's finding that the affidavit of desistance and release of claim,
offered by defendants-appellants, are not binding on Werherlina, quoting with approval its
reflection on the matter, saying:

xxx this Court finds that the Affidavit of Desistance and Release of Claim is not binding on
plaintiff in the absence of proof that the contents thereof were sufficiently explained to her. It
is clear from the plaintiffs circumstances that she is not able to understand English, more so
stipulations stated in the said Affidavit and Release. It is understandable that in her pressing
need, the plaintiff may have been easily convinced to sign the document with the promise that
she will be compensated for her injuries.35

The Court finds no reason to depart from these findings of the CA and the RTC.

For there to be a valid waiver, the following requisites are essential:

(1) that the person making the waiver possesses the right, (2) that he has the capacity and
power to dispose of the right, (3) that the waiver must be clear and unequivocal although it
may be made expressly or impliedly, and (4) that the waiver is not contrary to law, public
policy, public order, morals, good customs or prejudicial to a third person with a right
recognized by law.36

While the first two requirements can be said to exist in this case, the third and fourth
requirements are, however, lacking.

For the waiver to be clear and unequivocal, the person waiving the right should understand
what she is waiving and the effect of such waiver. Both the CA and RTC made the factual
deitermination that Colipano was not able to understand English and that there was no proof
that the documents and their contents and effects were explained to her. These findings of the
RTC, affirmed by the CA, are entitled to great weight and respect.37 As this Court held in
Philippine National Railways Corp. v. Vizcara38:

It is a well-established rule that factual fill dings by the CA are conclusive on the parties and
are not reviewable byj this Court. They are entitled to great weight and respect, even finality,
especially when, as in this case, the CA affirmed the factual findings arrived at by the trial
court.39
Although there are exceptions to this rule,40 the exceptions are absent here.

Colipano could not have clearly and unequivocally waived her right to claim damages when
she had no understanding of the right she was waiving and the extent of that right. Worse, she
was made to sign a document written in a language she did not understand.

The fourth requirement for a valid waiver is also lacking as the waiver, based on the attendant
facts, can only be construed as contrary to public policy. The doctrine in Gatchalian v.
Delim,41 which the CA correctly cited,42 is applicable here:

Finally, because what is involved here is the liability of a common carrier for injuries
sustained by passengers in respect of whose safety a common carrier must exercise
extraordinary diligence, we must construe any such purported waiver most strictly against the
common carrier. For a waiver to be valid and effective, it must not be contrary to law, morals,
public policy or good customs. To uphold a supposed waiver of any right to claim damages by
an injured passenger, under circumstances like those exhibited in this case, would be to dilute
and weaken the standard of extraordinary diligence exacted by the law from common carriers
and hence to render that standard unenforceable. We believe such a purported waiver is
offensive to public policy.43

"[P]ublic policy refers to the aims of the state to promote the social and general well-being of
the inhabitants."44 The Civil Code requires extraordinary diligence from common carriers
because the nature of their business requires the public to put their safety and lives in the
hands of these common carriers. The State imposes this extraordinary diligence to promote
the well-being of the public who avail themselves of the services of common carriers. Thus, in
instances of injury or death, a waiver of the right to claim damages is strictly construed
against the common carrier so as not to dilute or weaken the public policy behind the required
standard of extraordinary diligence.

It was for this reason that in Gatchalian, the waiver was considered offensive to public policy
because it was shown that the passenger was still in the hospital and was dizzy when she
signed the document. It was also shown that when she saw the other passengers signing the
document, she signed it without reading it. .

Similar to Gatchalian, Colipano testified that she did not understand the document she
signed.45 She also did not understand the nature and extent of her waiver as the content of the
document was not explained to her.46 The waiver is therefore void because it is contrary to
public policy.47
The Court reiterates that waivers executed under similar circumstances are indeed contrary to
public policy and are void.48 To uphold waivers taken from injured passengers who have no
knowledge of their entitlement under the law and the extent of liability of common carriers
would indeed dilute the extraordinary diligence required from common carriers, and
contravene a public policy reflected in the Civil Code.

Amount of compensatory damages granted is incorrect.

On the amount of damages, the RiTC awarded P2,098.80 as actual damages and P360,000.00
as compensatoiy damages for loss of income, as follows:

[T]his Court can only award actual damages in the amount that is duly supported by receipts,
that is, P2,098.80 mid not P7,277.80 as prayed for by plaintiff as there is no basis for the
amount prayed for. However, considering that plaintiff has suffered the loss of one leg which
has caused her to be limited in her movement thus resulting in loss of livelihood, she is
entitled to compensatory damages for lost income at the rate of P12,000.00/year for thirty
years in the amount of P360,000.00.49

The CA, on the other hand, modified the award of the RTC by reducing the compensatory
damages from P360,000.00 to P200,000.00, thus:

By virtue of their negligence, defendants-appellants are liable to pay Werheiiina

compensatory damages for loss of earning capacity. In arriving at the proper amount, the
Supremip Court has consistently used the following formula:

Net Earning Capacity

Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross annual income)]

where life expectancy

2/3 (80 - the age of the deceased).

Based on the stated formula, the damages due to Werherlina for loss of earning capacity is:

Net Earning Capacity

[2/3 x (80-30)] x (P12,000.00 x (50%)

=

(2/3 x 50) x P6,000.00

33.33 x P6,000.00

P200,000.00

The award of the sum of P200,000.00 as compensatory damages for loss of earning capacity
is in order, notwithstanding the objections of defendants-appellants with respect to lack of
evidence on Werherlina's age and annual income.50

Sanico argues that Colipano failed to present documentary evidence to support her age and
her income, so that her testimony is self-serving and that there was no basis for the award of
compensatory damages in her favor.51 Sanico is gravely mistaken.

The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of Irene B. Bien52 that
testimonial evidence cannot be objected to on the ground of being self-serving, thus:

"Self-serving evidence" is not to be taken literally to mean any evidence that serves its
proponent's interest. The term, if used with any legal sense, refers only to acts or declarations
made by a party in his own interest at some place and time out of court, and it does not
include testimony that he gives as a witness in court. Evidence of this sort is excluded on the
same ground as any hearsay evidence, that is, lack of opportunity for cross-examination by
the adverse party and on the consideration that its admission would open the door to fraud and
fabrication. In contrast, a party's testimony in court is sworn and subject to cross-examination
by the other party, and therefore, not susceptible to an objection on the ground that it is self-
serving.53

Colipano was subjected to cross-examination and both the RTC and CA believed her
testimony on her age and annual income. In fact, as these are questions of facts, these findings
of the RTC and CA are likewise binding on the Court.54
Further, although as a general rule, documentary evidence is required to prove loss of earning
capacity, Colipano's testimony on her annual earnings of P12,000.00 is an allowed exception.
There are two exceptions to the general rule and Colipano's testimonial evidence falls under
the second exception, viz.:

By way of exception, damages for loss of earning capacity may be awarded despite the
absence of documentary evidence when (1) the deceased is self-employed earning less than
the minimum wage under current labor laws, and judicial notice may be taken of the fact that
in the deceased's line of work no documentary evidence is available; or (2) the deceased is
employed as a daily wage worker earning less than the minimum wage under current labor
laws.55

The CA applied the correct formula for computing the loss of Colipano's earning capacity:

Net earning capacity = Life expectancy x [Gross Annual Income - Living Expenses (50% of
gross annual income)], where life expectancy = 2/3 (80-the age of the deceased).56

However, the CA erred when it used Colipano's age at the time she testified as basis for
computing the loss of earning capacity.57 The loss of earning capacity commenced when
Colipano's leg was crushed on December 25, 1993. Given that Colipano was 30 years old
when she testified on October 14, 1997, she was roughly 27 years old on December 25, 1993
when the injury was sustained. Following the foregoing formula, the net earning capacity of
Colipano is P212,000.00.58

Sanico is liable to pay interest.

Interest is a form of actual or compensatory damages as it belongs to Chapter 259 of Title

XVIII on Damages of the Civil Code. Under Article 2210 of the Civil Code, "[i]nterest may,
in the discretion of the court, be allowed upon damages awarded for breach of contract." Here,
given the gravity of the breach of the contract of carriage causing the serious injury to the leg
of Colipano that resulted in its amputation, the Court deems it just and equitable to award
interest from the date of the RTC decision. Since the award of damages was given by the RTC
in its Decision dated October 27, 2006, the interest on the amount awarded shall be deemed to
run beginning October 27, 2006.

As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of Appeals,60 the Court
ruled that "[w]hen an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum."61 Further, upon finality of the judgment awarding a sum of
money, the rate of interest shall be 12% per annum from such finality until satisfaction
because the interim period is considered a forbearance of credit.62 Subsequently, in Nacar v.
Gallery Frames,63 the rate of legal interest for loans or forbearance of any money, goods or
credits and the rate allowed in judgments was lowered from 12% to 6%. Thus, the applicable
rate of interest to the award of damages to Colipano is 6%.

WHEREFORE, premises considered, the petition for review is hereby PARTLY GRANTED.
As to petitioner Vicente Castro, the Decision of the Court of Appeals dated September 30,
2013 is REVERSED and SET ASIDE and the complaint against him is dismissed for lack of
cause of action. As to petitioner Jose Sanico, the Decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATIONS, Petitioner Jose Sanico is liable and ordered to pay
respondent Werherlina Colipano the following amounts:Actual damages in the amount of
P2,098.80;

Compensatory damages for loss of income in the amount of P212,000.00;

Interest on the total amount of the damages awarded in 1 and 2 at the rate of 6% per annum
reckoned from October 27, 2006 until finality of this Decision. The total amount of the
foregoing shall, in turn, earn interest at the rate of 6% per annum from finality of this
Decision until full payment thereof.

SO ORDERED.

Peralta,**(Acting Chairperson), Perlas-Bernabe, and Reyes, Jr., JJ., concur.

Carpio, J., on official leave.

SPOUSES ALEXANDER AND JULIE LAM, Doing Business Under the Name and Style
"COLORKWIK LABORATORIES" AND "COLORKWIK PHOTO SUPPLY",
Petitioners,
vs.
KODAK PHILIPPINES, LTD., Respondent.

DECISION

LEONEN, J.:

This is a Petition for Review on Certiorari filed on April 20, 2005 assailing the March 30,
2005 Decision1 and September 9, 2005 Amended Decision2 of the Court of Appeals, which
modified the February 26, 1999 Decision3 of the Regional Trial Court by reducing the
amount of damages awarded to petitioners Spouses Alexander and Julie Lam (Lam
Spouses).4 The Lam Spouses argue that respondent Kodak Philippines, Ltd.’s breach of their
contract of sale entitles them to damages more than the amount awarded by the Court of
Appeals.5

On January 8, 1992, the Lam Spouses and Kodak Philippines, Ltd. entered into an agreement
(Letter Agreement) for the sale of three (3) units of the Kodak Minilab System 22XL6
(Minilab Equipment) in the amount of ₱1,796,000.00 per unit,7 with the following terms:

This confirms our verbal agreement for Kodak Phils., Ltd. To provide Colorkwik
Laboratories, Inc. with three (3) units Kodak Minilab System 22XL . . . for your proposed
outlets in Rizal Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor
photo counter in Cotabato City under the following terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based
on prevailing equipment price provided said equipment packages will be purchased not later
than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in
advance immediately after signing of the contract.

* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE

THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the
balance shall be re-amortized for the remaining 36 months and the prevailing interest shall be
applied.

5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE

MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]8

On January 15, 1992, Kodak Philippines, Ltd. delivered one (1) unit of the Minilab
Equipment in Tagum, Davao Province.9 The delivered unit was installed by Noritsu
representatives on March 9, 1992.10 The Lam Spouses issued postdated checks amounting to
₱35,000.00 each for 12 months as payment for the first delivered unit, with the first check due
on March 31, 1992.11

The Lam Spouses requested that Kodak Philippines, Ltd. not negotiate the check dated March
31, 1992 allegedly due to insufficiency of funds.12 The same request was made for the check
due on April 30, 1992. However, both checks were negotiated by Kodak Philippines, Ltd. and
were honored by the depository bank.13 The 10 other checks were subsequently dishonored
after the Lam Spouses ordered the depository bank to stop payment.14

Kodak Philippines, Ltd. canceled the sale and demanded that the Lam Spouses return the unit
it delivered together with its accessories.15 The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November 18, 1992 on account of Kodak
Philippines, Ltd.’s failure to deliver the two (2) remaining Minilab Equipment units.16

On November 25, 1992, Kodak Philippines, Ltd. filed a Complaint for replevin and/or
recovery of sum of money. The case was raffled to Branch 61 of the Regional Trial Court,
Makati City.17 The Summons and a copy of Kodak Philippines, Ltd.’s Complaint was
personally served on the Lam Spouses.18

The Lam Spouses failed to appear during the pre-trial conference and submit their pre-trial
brief despite being given extensions.19 Thus, on July 30, 1993, they were declared in
default.20 Kodak Philippines, Ltd. presented evidence ex-parte.21 The trial court issued the
Decision in favor of Kodak Philippines, Ltd. ordering the seizure of the Minilab Equipment,
which included the lone delivered unit, its standard accessories, and a separate generator
set.22 Based on this Decision, Kodak Philippines, Ltd. was able to obtain a writ of seizure on
December 16, 1992 for the Minilab Equipment installed at the Lam Spouses’ outlet in Tagum,
Davao Province.23 The writ was enforced on December 21, 1992, and Kodak Philippines,
Ltd. gained possession of the Minilab Equipment unit, accessories, and the generator set.24

The Lam Spouses then filed before the Court of Appeals a Petition to Set Aside the Orders
issued by the trial court dated July 30, 1993 and August 13, 1993. These Orders were
subsequently set aside by the Court of Appeals Ninth Division, and the case was remanded to
the trial court for pre-trial.25

On September 12, 1995, an Urgent Motion for Inhibition was filed against Judge Fernando V.
Gorospe, Jr.,26 who had issued the writ of seizure.27 The ground for the motion for inhibition
was not provided. Nevertheless, Judge Fernando V. Gorospe Jr. inhibited himself, and the
case was reassigned to Branch 65 of the Regional Trial Court, Makati City on October 3,
1995.28

In the Decision dated February 26, 1999, the Regional Trial Court found that Kodak
Philippines, Ltd. defaulted in the performance of its obligation under its Letter Agreement
with the Lam Spouses.29 It held that Kodak Philippines, Ltd.’s failure to deliver two (2) out
of the three (3) units of the Minilab Equipment caused the Lam Spouses to stop paying for the
rest of the installments.30 The trial court noted that while the Letter Agreement did not
specify a period within which the delivery of all units was to be made, the Civil Code
provides "reasonable time" as the standard period for compliance:

The second paragraph of Article 1521 of the Civil Code provides:

Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send them within a reasonable time.

What constitutes reasonable time is dependent on the circumstances availing both on the part
of the seller and the buyer. In this case, delivery of the first unit was made five (5) days after
the date of the agreement. Delivery of the other two (2) units, however, was never made
despite the lapse of at least three (3) months.31

Kodak Philippines, Ltd. failed to give a sufficient explanation for its failure to deliver all three
(3) purchased units within a reasonable time.32

The trial court found:

Kodak would have the court believe that it did not deliver the other two (2) units due to the
failure of defendants to make good the installments subsequent to the second. The court is not
convinced. First of all, there should have been simultaneous delivery on account of the
circumstances surrounding the transaction. . . . Even after the first delivery . . . no delivery
was made despite repeated demands from the defendants and despite the fact no installments
were due. Then in March and in April (three and four months respectively from the date of the
agreement and the first delivery) when the installments due were both honored, still no
delivery was made.

Second, although it might be said that Kodak was testing the waters with just one delivery -
determining first defendants’ capacity to pay - it was not at liberty to do so. It is implicit in the
letter agreement that delivery within a reasonable time was of the essence and failure to so
deliver within a reasonable time and despite demand would render the vendor in default.

....

Third, at least two (2) checks were honored. If indeed Kodak refused delivery on account of
defendants’ inability to pay, non-delivery during the two (2) months that payments were
honored is unjustified.33
Nevertheless, the trial court also ruled that when the Lam Spouses accepted delivery of the
first unit, they became liable for the fair value of the goods received:

On the other hand, defendants accepted delivery of one (1) unit. Under Article 1522 of the
Civil Code, in the event the buyer accepts incomplete delivery and uses the goods so
delivered, not then knowing that there would not be any further delivery by the seller, the
buyer shall be liable only for the fair value to him of the goods received. In other words, the
buyer is still liable for the value of the property received. Defendants were under obligation to
pay the amount of the unit. Failure of delivery of the other units did not thereby give unto
them the right to suspend payment on the unit delivered. Indeed, in incomplete deliveries, the
buyer has the remedy of refusing payment unless delivery is first made. In this case though,
payment for the two undelivered units have not even commenced; the installments made were
for only one (1) unit.

Hence, Kodak is right to retrieve the unit delivered.34

The Lam Spouses were under obligation to pay for the amount of one unit, and the failure to
deliver the remaining units did not give them the right to suspend payment for the unit already
delivered.35 However, the trial court held that since Kodak Philippines, Ltd. had elected to
cancel the sale and retrieve the delivered unit, it could no longer seek payment for any
deterioration that the unit may have suffered while under the custody of the Lam Spouses.36

As to the generator set, the trial court ruled that Kodak Philippines, Ltd. attempted to mislead
the court by claiming that it had delivered the generator set with its accessories to the Lam
Spouses, when the evidence showed that the Lam Spouses had purchased it from Davao Ken
Trading, not from Kodak Philippines, Ltd.37 Thus, the generator set that Kodak Philippines,
Ltd. wrongfully took from the Lam Spouses should be replaced.38

The dispositive portion of the Regional Trial Court Decision reads:

PREMISES CONSIDERED, the case is hereby dismissed. Plaintiff is ordered to pay the
following:

1) PHP 130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2) PHP 1,300,000.00 as actual expenses in the renovation of the Tagum, Davao and Rizal
Ave., Manila outlets.

SO ORDERED.39

On March 31, 1999, the Lam Spouses filed their Notice of Partial Appeal, raising as an issue
the Regional Trial Court’s failure to order Kodak Philippines, Ltd. to pay: (1) ₱2,040,000 in
actual damages; (2) ₱50,000,000 in moral damages; (3) ₱20,000,000 in exemplary damages;
(4) ₱353,000 in attorney’s fees; and (5) ₱300,000 as litigation expenses.40 The Lam Spouses
did not appeal the Regional Trial Court’s award for the generator set and the renovation
expenses.41

Kodak Philippines, Ltd. also filed an appeal. However, the Court of Appeals42 dismissed it
on December 16, 2002 for Kodak Philippines, Ltd.’s failure to file its appellant’s brief,
without prejudice to the continuation of the Lam Spouses’ appeal.43 The Court of Appeals’
December 16, 2002 Resolution denying Kodak Philippines, Ltd.’s appeal became final and
executory on January 4, 2003.44

In the Decision45 dated March 30, 2005, the Court of Appeals Special Fourteenth Division
modified the February 26, 1999 Decision of the Regional Trial Court:

WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999

of the Regional Trial Court, Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.
Plaintiff-appellant is ordered to pay the following:

1. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and

2. P440,000.00 as actual damages;

3. P25,000.00 as moral damages; and

4. P50,000.00 as exemplary damages.

SO ORDERED.46 (Emphasis supplied)

The Court of Appeals agreed with the trial court’s Decision, but extensively discussed the
basis for the modification of the dispositive portion.

The Court of Appeals ruled that the Letter Agreement executed by the parties showed that
their obligations were susceptible of partial performance. Under Article 1225 of the New
Civil Code, their obligations are divisible:

In determining the divisibility of an obligation, the following factors may be considered, to

wit: (1) the will or intention of the parties, which may be expressed or presumed; (2) the
objective or purpose of the stipulated prestation; (3) the nature of the thing; and (4) provisions
of law affecting the prestation.

Applying the foregoing factors to this case, We found that the intention of the parties is to be
bound separately for each Minilab Equipment to be delivered as shown by the separate
purchase price for each of the item, by the acceptance of Sps. Lam of separate deliveries for
the first Minilab Equipment and for those of the remaining two and the separate payment
arrangements for each of the equipment. Under this premise, Sps. Lam shall be liable for the
entire amount of the purchase price of the Minilab

Equipment delivered considering that Kodak had already completely fulfilled its obligation to
deliver the same. . . .

Third, it is also evident that the contract is one that is severable in character as demonstrated
by the separate purchase price for each of the minilab equipment. "If the part to be performed
by one party consists in several distinct and separate items and the price is apportioned to
each of them, the contract will generally be held to be severable. In such case, each distinct
stipulation relating to a separate subject matter will be treated as a separate contract."
Considering this, Kodak's breach of its obligation to deliver the other two (2) equipment
cannot bar its recovery for the full payment of the equipment already delivered. As far as
Kodak is concerned, it had already fully complied with its separable obligation to deliver the
first unit of Minilab Equipment.47 (Emphasis supplied)

The Court of Appeals held that the issuance of a writ of replevin is proper insofar as the
delivered Minilab Equipment unit and its standard accessories are concerned, since Kodak
Philippines, Ltd. had the right to possess it:48

The purchase price of said equipment is P1,796,000.00 which, under the agreement is payable
with forty eight (48) monthly amortization. It is undisputed that Sps. Lam made payments
which amounted to Two Hundred Seventy Thousand Pesos (P270,000.00) through the
following checks: Metrobank Check Nos. 00892620 and 00892621 dated 31 March 1992 and
30 April 1992 respectively in the amount of Thirty Five Thousand Pesos (P35,000.00) each,
and BPI Family Check dated 31 July 1992 amounting to Two Hundred Thousand Pesos
(P200,000.00). This being the case, Sps. Lam are still liable to Kodak in the amount of One
Million Five Hundred Twenty Six Thousand Pesos (P1,526,000.00), which is payable in
several monthly amortization, pursuant to the Letter Agreement. However, Sps. Lam admitted
that sometime in May 1992, they had already ordered their drawee bank to stop the payment
on all the other checks they had issued to Kodak as payment for the Minilab Equipment
delivered to them. Clearly then, Kodak ha[d] the right to repossess the said equipment,
through this replevin suit. Sps. Lam cannot excuse themselves from paying in full the
purchase price of the equipment delivered to them on account of Kodak’s breach of the
contract to deliver the other two (2) Minilab Equipment, as contemplated in the Letter
Agreement.49 (Emphasis supplied)

Echoing the ruling of the trial court, the Court of Appeals held that the liability of the Lam
Spouses to pay the remaining balance for the first delivered unit is based on the second
sentence of Article 1592 of the New Civil Code.50 The Lam Spouses’ receipt and use of the
Minilab Equipment before they knew that Kodak Philippines, Ltd. would not deliver the two
(2) remaining units has made them liable for the unpaid portion of the purchase price.51

The Court of Appeals noted that Kodak Philippines, Ltd. sought the rescission of its contract
with the Lam Spouses in the letter dated October 14, 1992.52 The rescission was based on
Article 1191 of the New Civil Code, which provides: "The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him."53 In its letter, Kodak Philippines, Ltd. demanded that the Lam Spouses
surrender the lone delivered unit of Minilab Equipment along with its standard accessories.54

The Court of Appeals likewise noted that the Lam Spouses rescinded the contract through its
letter dated November 18, 1992 on account of Kodak Philippines, Inc.’s breach of the parties’
agreement to deliver the two (2) remaining units.55

As a result of this rescission under Article 1191, the Court of Appeals ruled that "both parties
must be restored to their original situation, as far as practicable, as if the contract was never
entered into."56 The Court of Appeals ratiocinated that Article 1191 had the effect of
extinguishing the obligatory relation as if one was never created:57

To rescind is to declare a contract void in its inception and to put an end to it as though it
never were. It is not merely to terminate it and to release parties from further obligations to
each other but abrogate it from the beginning and restore parties to relative positions which
they would have occupied had no contract been made.58
The Lam Spouses were ordered to relinquish possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd. was ordered to return the amount of
₱270,000.00, tendered by the Lam Spouses as partial payment.59

As to the actual damages sought by the parties, the Court of Appeals found that the Lam
Spouses were able to substantiate the following:

Incentive fee paid to Mr. Ruales in the amount of P100,000.00; the rider to the contract of
lease which made the Sps. Lam liable, by way of advance payment, in the amount of
P40,000.00, the same being intended for the repair of the flooring of the leased premises; and
lastly, the payment of P300,000.00, as compromise agreement for the pre-termination of the
contract of lease with Ruales.60

The total amount is ₱440,000.00. The Court of Appeals found that all other claims made by
the Lam Spouses were not supported by evidence, either through official receipts or check
payments.61

As regards the generator set improperly seized from Kodak Philippines, Ltd. on the basis of
the writ of replevin, the Court of Appeals found that there was no basis for the Lam Spouses’
claim for reasonable rental of ₱5,000.00. It held that the trial court’s award of 12% interest, in
addition to the cost of the generator set in the amount of ₱130,000.00, is sufficient
compensation for whatever damage the Lam Spouses suffered on account of its improper
seizure.62

The Court of Appeals also ruled on the Lam Spouses’ entitlement to moral and exemplary
damages, as well as attorney’s fees and litigation expenses:

In seeking recovery of the Minilab Equipment, Kodak cannot be considered to have

manifested bad faith and malevolence because as earlier ruled upon, it was well within its
right to do the same. However, with respect to the seizure of the generator set, where Kodak
misrepresented to the court a quo its alleged right over the said item, Kodak’s bad faith and
abuse of judicial processes become self-evident. Considering the off-setting circumstances
attendant, the amount of P25,000.00 by way of moral damages is considered sufficient.

In addition, so as to serve as an example to the public that an application for replevin should
not be accompanied by any false claims and misrepresentation, the amount of P50,000.00 by
way of exemplary damages should be pegged against Kodak.
With respect to the attorney’s fees and litigation expenses, We find that there is no basis to
award Sps. Lam the amount sought for.63

Kodak Philippines, Ltd. moved for reconsideration of the Court of Appeals Decision, but it
was denied for lack of merit.64 However, the Court of Appeals noted that the Lam Spouses’
Opposition correctly pointed out that the additional award of ₱270,000.00 made by the trial
court was not mentioned in the decretal portion of the March 30, 2005 Decision:

Going over the Decision, specifically page 12 thereof, the Court noted that, in addition to the
amount of Two Hundred Seventy Thousand (P270,000.00) which plaintiff-appellant should
return to the defendantsappellants, the Court also ruled that defendants-appellants should, in
turn, relinquish possession of the Minilab Equipment and the standard accessories to plaintiff-
appellant. Inadvertently, these material items were not mentioned in the decretal portion of the
Decision. Hence, the proper correction should herein be made.65

The Lam Spouses filed this Petition for Review on April 14, 2005. On the other hand, Kodak
Philippines, Ltd. filed its Motion for Reconsideration66 before the Court of Appeals on April
22, 2005.

While the Petition for Review on Certiorari filed by the Lam Spouses was pending before this
court, the Court of Appeals Special Fourteenth Division, acting on Kodak Philippines, Ltd.’s
Motion for Reconsideration, issued the Amended Decision67 dated September 9, 2005. The
dispositive portion of the Decision reads:

WHEREFORE, premises considered, this Court resolved that:

A. Plaintiff-appellant’s Motion for Reconsideration is hereby DENIED for lack of merit.

B. The decretal portion of the 30 March 2005 Decision should now read as follows:

"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision dated 26 February 1999

of the Regional Trial Court, Branch 65 in Civil Cases No. 92-3442 is hereby MODIFIED.
Plaintiff-appellant is ordered to pay the following:

a. P270,000.00 representing the partial payment made on the Minilab equipment.

b. P130,000.00 representing the amount of the generator set, plus legal interest at 12% per
annum from December 1992 until fully paid;

c. P440,000.00 as actual damages;

d. P25,000.00 as moral damages; and

e. P50,000.00 as exemplary damages.

Upon the other hand, defendants-appellants are hereby ordered to return to plaintiff-appellant
the Minilab equipment and the standard accessories delivered by plaintiff-appellant.

SO ORDERED."

SO ORDERED.68 (Emphasis in the original)

Upon receiving the Amended Decision of the Court of Appeals, Kodak Philippines, Ltd. filed
a Motion for Extension of Time to File an Appeal by Certiorari under Rule 45 of the 1997
Rules of Civil Procedure before this court.69

This was docketed as G.R. No. 169639. In the Motion for Consolidation dated November 2,
2005, the Lam Spouses moved that G.R. No. 167615 and G.R. No. 169639 be consolidated
since both involved the same parties, issues, transactions, and essential facts and
circumstances.70

In the Resolution dated November 16, 2005, this court noted the Lam Spouses’ September 23
and September 30, 2005 Manifestations praying that the Court of Appeals’ September 9, 2005
Amended Decision be considered in the resolution of the Petition for Review on Certiorari.71
It also granted the Lam Spouses’ Motion for Consolidation.72

In the Resolution73 dated September 20, 2006, this court deconsolidated G.R No. 167615
from G.R. No. 169639 and declared G.R. No. 169639 closed and terminated since Kodak
Philippines, Ltd. failed to file its Petition for Review.
II

We resolve the following issues:

First, whether the contract between petitioners Spouses Alexander and Julie Lam and
respondent Kodak Philippines, Ltd. pertained to obligations that are severable, divisible, and
susceptible of partial performance under Article 1225 of the New Civil Code; and

Second, upon rescission of the contract, what the parties are entitled to under Article 1190 and
Article 1522 of the New Civil Code.

Petitioners argue that the Letter Agreement it executed with respondent for three (3) Minilab
Equipment units was not severable, divisible, and susceptible of partial performance.
Respondent’s recovery of the delivered unit was unjustified.74

Petitioners assert that the obligations of the parties were not susceptible of partial performance
since the Letter Agreement was for a package deal consisting of three (3) units.75 For the
delivery of these units, petitioners were obliged to pay 48 monthly payments, the total of
which constituted one debt.76 Having relied on respondent’s assurance that the three units
would be delivered at the same time, petitioners simultaneously rented and renovated three
stores in anticipation of simultaneous operations.77 Petitioners argue that the divisibility of
the object does not necessarily determine the divisibility of the obligation since the latter is
tested against its susceptibility to a partial performance.78 They argue that even if the object
is susceptible of separate deliveries, the transaction is indivisible if the parties intended the
realization of all parts of the agreed obligation.79

Petitioners support the claim that it was the parties’ intention to have an indivisible agreement
by asserting that the payments they made to respondent were intended to be applied to the
whole package of three units.80 The postdated checks were also intended as initial payment
for the whole package.81 The separate purchase price for each item was merely intended to
particularize the unit prices, not to negate the indivisible nature of their transaction.82 As to
the issue of delivery, petitioners claim that their acceptance of separate deliveries of the units
was solely due to the constraints faced by respondent, who had sole control over delivery
matters.83

With the obligation being indivisible, petitioners argue that respondent’s failure to comply
with its obligation to deliver the two (2) remaining Minilab Equipment units amounted to a
breach. Petitioners claim that the breach entitled them to the remedy of rescission and
damages under Article 1191 of the New Civil Code.84
Petitioners also argue that they are entitled to moral damages more than the ₱50,000.00
awarded by the Court of Appeals since respondent’s wrongful act of accusing them of non-
payment of their obligations caused them sleepless nights, mental anguish, and wounded
feelings.85 They further claim that, to serve as an example for the public good, they are
entitled to exemplary damages as respondent, in making false allegations, acted in evident bad
faith and in a wanton, oppressive, capricious, and malevolent manner.86

Petitioners also assert that they are entitled to attorney’s fees and litigation expenses under
Article 2208 of the New Civil Code since respondent’s act of bringing a suit against them was
baseless and malicious. This prompted them to engage the services of a lawyer.87

Respondent argues that the parties’ Letter Agreement contained divisible obligations
susceptible of partial performance as defined by Article 1225 of the New Civil Code.88 In
respondent’s view, it was the intention of the parties to be bound separately for each
individually priced Minilab Equipment unit to be delivered to different outlets:89

The three (3) Minilab Equipment are intended by petitioners LAM for install[a]tion at their
Tagum, Davao del Norte, Sta. Cruz, Manila and Cotabato City outlets. Each of these units [is]
independent from one another, as many of them may perform its own job without the other.
Clearly the objective or purpose of the prestation, the obligation is divisible.

The nature of each unit of the three (3) Minilab Equipment is such that one can perform its
own functions, without awaiting for the other units to perform and complete its job. So much
so, the nature of the object of the Letter Agreement is susceptible of partial performance, thus
the obligation is divisible.90

With the contract being severable in character, respondent argues that it performed its
obligation when it delivered one unit of the Minilab Equipment.91 Since each unit could
perform on its own, there was no need to await the delivery of the other units to complete its
job.92 Respondent then is of the view that when petitioners ordered the depository bank to
stop payment of the issued checks covering the first delivered unit, they violated their
obligations under the Letter Agreement since respondent was already entitled to full
payment.93

Respondent also argues that petitioners benefited from the use of the Minilab Equipment for
10 months—from March to December 1992— despite having paid only two (2) monthly
installments.94 Respondent avers that the two monthly installments amounting to ₱70,000.00
should be the subject of an offset against the amount the Court of Appeals awarded to
petitioners.95
Respondent further avers that petitioners have no basis for claiming damages since the seizure
and recovery of the Minilab Equipment was not in bad faith and respondent was well within
its right.96

III

The Letter Agreement contained an indivisible obligation.

Both parties rely on the Letter Agreement97 as basis of their respective obligations. Written
by respondent’s Jeffrey T. Go and Antonio V. Mines and addressed to petitioner Alexander
Lam, the Letter Agreement contemplated a "package deal" involving three (3) units of the
Kodak Minilab System 22XL, with the following terms and conditions:

This confirms our verbal agreement for Kodak Phils., Ltd. to provide Colorkwik Laboratories,
Inc. with three (3) units Kodak Minilab System 22XL . . . for your proposed outlets in Rizal
Avenue (Manila), Tagum (Davao del Norte), and your existing Multicolor photo counter in
Cotabato City under the following terms and conditions:

1. Said Minilab Equipment packages will avail a total of 19% multiple order discount based
on prevailing equipment price provided said equipment packages will be purchased not later
than June 30, 1992.

2. 19% Multiple Order Discount shall be applied in the form of merchandise and delivered in
advance immediately after signing of the contract.

* Also includes start-up packages worth P61,000.00.

3. NO DOWNPAYMENT.

4. Minilab Equipment Package shall be payable in 48 monthly installments at THIRTY FIVE

THOUSAND PESOS (P35,000.00) inclusive of 24% interest rate for the first 12 months; the
balance shall be re-amortized for the remaining 36 months and the prevailing interest shall be
applied.
5. Prevailing price of Kodak Minilab System 22XL as of January 8, 1992 is at ONE
MILLION SEVEN HUNDRED NINETY SIX THOUSAND PESOS.

6. Price is subject to change without prior notice.

*Secured with PDCs; 1st monthly amortization due 45 days after installation[.]98

Based on the foregoing, the intention of the parties is for there to be a single transaction
covering all three (3) units of the Minilab Equipment. Respondent’s obligation was to deliver
all products purchased under a "package," and, in turn, petitioners’ obligation was to pay for
the total purchase price, payable in installments.

The intention of the parties to bind themselves to an indivisible obligation can be further
discerned through their direct acts in relation to the package deal. There was only one
agreement covering all three (3) units of the Minilab Equipment and their accessories. The
Letter Agreement specified only one purpose for the buyer, which was to obtain these units
for three different outlets. If the intention of the parties were to have a divisible contract, then
separate agreements could have been made for each Minilab Equipment unit instead of
covering all three in one package deal. Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all three acquired units.99 The "no
downpayment" term contained in the Letter Agreement was also applicable to all the Minilab
Equipment units. Lastly, the fourth clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment Package."

In ruling that the contract between the parties intended to cover divisible obligations, the
Court of Appeals highlighted: (a) the separate purchase price of each item; (b) petitioners’
acceptance of separate deliveries of the units; and (c) the separate payment arrangements for
each unit.100 However, through the specified terms and conditions, the tenor of the Letter
Agreement indicated an intention for a single transaction. This intent must prevail even
though the articles involved are physically separable and capable of being paid for and
delivered individually, consistent with the New Civil Code:

Article 1225. For the purposes of the preceding articles, obligations to give definite things and
those which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is
indivisible if so provided by law or intended by the parties. (Emphasis supplied)

In Nazareno v. Court of Appeals,101 the indivisibility of an obligation is tested against

whether it can be the subject of partial performance:

An obligation is indivisible when it cannot be validly performed in parts, whatever may be the
nature of the thing which is the object thereof. The indivisibility refers to the prestation and
not to the object thereof. In the present case, the Deed of Sale of January 29, 1970 supposedly
conveyed the six lots to Natividad. The obligation is clearly indivisible because the
performance of the contract cannot be done in parts, otherwise the value of what is transferred
is diminished. Petitioners are therefore mistaken in basing the indivisibility of a contract on
the number of obligors.102 (Emphasis supplied, citation omitted)

There is no indication in the Letter Agreement that the units petitioners ordered were covered
by three (3) separate transactions. The factors considered by the Court of Appeals are mere
incidents of the execution of the obligation, which is to deliver three units of the Minilab
Equipment on the part of respondent and payment for all three on the part of petitioners. The
intention to create an indivisible contract is apparent from the benefits that the Letter
Agreement afforded to both parties. Petitioners were given the 19% discount on account of a
multiple order, with the discount being equally applicable to all units that they sought to
acquire. The provision on "no downpayment" was also applicable to all units. Respondent, in
turn, was entitled to payment of all three Minilab Equipment units, payable by installments.

IV

With both parties opting for rescission of the contract under Article 1191, the Court of
Appeals correctly ordered for restitution.

The contract between the parties is one of sale, where one party obligates himself or herself to
transfer the ownership and deliver a determinate thing, while the other pays a certain price in
money or its equivalent.103 A contract of sale is perfected upon the meeting of minds as to
the object and the price, and the parties may reciprocally demand the performance of their
respective obligations from that point on.104

The Court of Appeals correctly noted that respondent had rescinded the parties’ Letter
Agreement through the letter dated October 14, 1992.105 It likewise noted petitioners’
rescission through the letter dated November 18, 1992.106 This rescission from both parties is
founded on Article 1191 of the New Civil Code:
The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfilment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

Rescission under Article 1191 has the effect of mutual restitution.107 In Velarde v. Court of
Appeals:108

Rescission abrogates the contract from its inception and requires a mutual restitution of
benefits received.

....

Rescission creates the obligation to return the object of the contract. It can be carried out only
when the one who demands rescission can return whatever he may be obliged to restore. To
rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as
if no contract has been made.109 (Emphasis supplied, citations omitted)

The Court of Appeals correctly ruled that both parties must be restored to their original
situation as far as practicable, as if the contract was never entered into. Petitioners must
relinquish possession of the delivered Minilab Equipment unit and accessories, while
respondent must return the amount tendered by petitioners as partial payment for the unit
received. Further, respondent cannot claim that the two (2) monthly installments should be
offset against the amount awarded by the Court of Appeals to petitioners because the effect of
rescission under Article 1191 is to bring the parties back to their original positions before the
contract was entered into. Also in Velarde:

As discussed earlier, the breach committed by petitioners was the nonperformance of a

reciprocal obligation, not a violation of the terms and conditions of the mortgage contract.
Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the contract
does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this
controversy.

Considering that the rescission of the contract is based on Article 1191 of the Civil Code,
mutual restitution is required to bring back the parties to their original situation prior to the
inception of the contract. Accordingly, the initial payment of ₱800,000 and the corresponding
mortgage payments in the amounts of ₱27,225, ₱23,000 and ₱23,925 (totaling ₱874,150.00)
advanced by petitioners should be returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.110 (Emphasis supplied)

When rescission is sought under Article 1191 of the Civil Code, it need not be judicially
invoked because the power to resolve is implied in reciprocal obligations.111 The right to
resolve allows an injured party to minimize the damages he or she may suffer on account of
the other party’s failure to perform what is incumbent upon him or her.112 When a party fails
to comply with his or her obligation, the other party’s right to resolve the contract is
triggered.113 The resolution immediately produces legal effects if the non-performing party
does not question the resolution.114 Court intervention only becomes necessary when the
party who allegedly failed to comply with his or her obligation disputes the resolution of the
contract.115 Since both parties in this case have exercised their right to resolve under Article
1191, there is no need for a judicial decree before the resolution produces effects.

The issue of damages is a factual one. A petition for review on certiorari under Rule 45 shall
only pertain to questions of law.116 It is not the duty of this court to re-evaluate the evidence
adduced before the lower courts.117 Furthermore, unless the petition clearly shows that there
is grave abuse of discretion, the findings of fact of the trial court as affirmed by the Court of
Appeals are conclusive upon this court.118 In Lorzano v. Tabayag, Jr.:119

For a question to be one of law, the same must not involve an examination of the probative
value of the evidence presented by the litigants or any of them. The resolution of the issue
must rest solely on what the law provides on the given set of circumstances. Once it is clear
that the issue invites a review of the evidence presented, the question posed is one of fact.

....

For the same reason, we would ordinarily disregard the petitioner’s allegation as to the
propriety of the award of moral damages and attorney’s fees in favor of the respondent as it is
a question of fact. Thus, questions on whether or not there was a preponderance of evidence
to justify the award of damages or whether or not there was a causal connection between the
given set of facts and the damage suffered by the private complainant or whether or not the
act from which civil liability might arise exists are questions of fact.

Essentially, the petitioner is questioning the award of moral damages and attorney’s fees in
favor of the respondent as the same is supposedly not fully supported by evidence. However,
in the final analysis, the question of whether the said award is fully supported by evidence is a
factual question as it would necessitate whether the evidence adduced in support of the same
has any probative value. For a question to be one of law, it must involve no examination of
the probative value of the evidence presented by the litigants or any of them.120 (Emphasis
supplied, citations omitted)

The damages awarded by the Court of Appeals were supported by documentary evidence.121
Petitioners failed to show any reason why the factual determination of the Court of Appeals
must be reviewed, especially in light of their failure to produce receipts or check payments to
support their other claim for actual damages.122

Furthermore, the actual damages amounting to ₱2,040,000.00 being sought by petitioners123

must be tempered on account of their own failure to pay the rest of the installments for the
delivered unit. This failure on their part is a breach of their obligation, for which the liability
of respondent, for its failure to deliver the remaining units, shall be equitably tempered on
account of Article 1192 of the New Civil Code.124 In Central Bank of the Philippines v.
Court of Appeals:125

Since both parties were in default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the
entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his
₱17,000.00 debt within 3 years as stipulated, they are both liable for damages.

Article 1192 of the Civil Code provides that in case both parties have committed a breach of
their reciprocal obligations, the liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue ₱17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his ₱17,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the
₱17,000.00, it is just that he should account for the interest thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also appears to be sufficient. Moral damages are
granted to alleviate the moral suffering suffered by a party due to an act of another, but it is
not intended to enrich the victim at the defendant’s expense.127 It is not meant to punish the
culpable party and, therefore, must always be reasonable vis-a-vis the injury caused.128
Exemplary damages, on the other hand, are awarded when the injurious act is attended by bad
faith.129 In this case, respondent was found to have misrepresented its right over the
generator set that was seized. As such, it is properly liable for exemplary damages as an
example to the public.130

However, the dispositive portion of the Court of Appeals Amended Decision dated September
9, 2005 must be modified to include the recovery of attorney’s fees and costs of suit in favor
of petitioners. In Sunbanun v. Go:131

Furthermore, we affirm the award of exemplary damages and attorney’s fees. Exemplary
damages may be awarded when a wrongful act is accompanied by bad faith or when the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which
would justify an award of exemplary damages under Article 2232 of the Civil Code. Since the
award of exemplary damages is proper in this case, attorney’s fees and cost of the suit may
also be recovered as provided under Article 2208 of the Civil Code.132 (Emphasis supplied,
citation omitted)

Based on the amount awarded for moral and exemplary damages, it is reasonable to award
petitioners ₱20,000.00 as attorney’s fees.

WHEREFORE, the Petition is DENIED. The Amended Decision dated September 9, 2005 is
AFFIRMED with MODIFICATION. Respondent Kodak Philippines, Ltd. is ordered to pay
petitioners Alexander and Julie Lam:

(a) P270,000.00, representing the partial payment made on the Minilab Equipment;

(b) P130,000.00, representing the amount of the generator set, plus legal interest at 12% .per
annum from December 1992 until fully paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab System 22XL unit and its standard
accessories to respondent.

SO ORDERED.

FIRST DIVISION

G.R. No. 183794, June 13, 2016

SPOUSES JAIME AND MATILDE POON, Petitioners, v. PRIME SAVINGS BANK

REPRESENTED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION AS
STATUTORY LIQUIDATOR, Respondent.

DECISION

SERENO, C.J.:

Before this Court is a Petition for Review on Certiorari 1 assailing the Court of Appeals (CA)
Decision2 which affirmed the Decision3 issued by Branch 21, Regional Trial Court (RTC) of
Naga City.

The RTC ordered the partial rescission of the penal clause in the lease contract over the
commercial building of Spouses Jaime and Matilde Poon (petitioners). It directed petitioners
to return to Prime Savings Bank (respondent) the sum of P1,740,000, representing one-half of
the unused portion of its advance rentals, in view of the closure of respondent's business upon
order by the Bangko Sentral ng Pilipinas (BSP).

Antecedent Facts

The facts are undisputed.

Petitioners owned a commercial building in Naga City, which they used for their bakery
business. On 3 November 2006, Matilde Poon and respondent executed a 10-year Contract of
Lease4 (Contract) over the building for the latter's use as its branch office in Naga City. They
agreed to a fixed monthly rental of P60,000, with an advance payment of the rentals for the
first 100 months in the amount of P6,000,000. As agreed, the advance payment was to be
applied immediately, while the rentals for the remaining period of the Contract were to be
paid on a monthly basis.5chanrobleslaw

In addition, paragraph 24 of the Contract provides:ChanRoblesVirtualawlibrary

24. Should the lease[d] premises be closed, deserted or vacated by the LESSEE, the LESSOR
shall have the right to terminate the lease without the necessity of serving a court order and to
immediately repossess the leased premises. Thereafter the LESSOR shall open and enter the
leased premises in the presence of a representative of the LESSEE (or of the proper
authorities) for the purpose of taking a complete inventory of all furniture, fixtures, equipment
and/or other materials or property found within the leased premises.

The LESSOR shall thereupon have the right to enter into a new contract with another party.
All advanced rentals shall be forfeited in favor of the LESSOR.6chanroblesvirtuallawlibrary
Barely three years later, however, the BSP placed respondent under the receivership of the
Philippine Deposit Insurance Corporation (PDIC) by virtue of BSP Monetary Board
Resolution No. 22,7 which reads:ChanRoblesVirtualawlibrary
On the basis of the report of Mr. Candon B. Guerrero, Director of Thrift Banks and Non-Bank
Financial Institutions (DTBNBF1), in his memorandum dated January 3, 2000, which report
showed that the Prime Savings Bank, Inc. (a) is unable to pay its liabilities as they became
due in the ordinary course of business; (b) has insufficient realizable assets as determined by
the Bangko Sentral ng Pilipinas to meet its liabilities; (c) cannot continue in business without
involving probable losses to its depositors and creditors; and (d) has wilfully violated cease
and desist orders under Section 37 that has become final, involving acts or transactions
which amount to fraud or a dissipation of the assets of the institution; x x x.8 (Emphasis
supplied)
The BSP eventually ordered respondent's liquidation under Monetary Board Resolution No.
664.9chanrobleslaw

On 12 May 2000, respondent vacated the leased premises and surrendered them to
petitioners.10 Subsequently, the PDIC issued petitioners a demand letter11 asking for the return
of the unused advance rental amounting to P3,480,000 on the ground that paragraph 24 of the
lease agreement had become inoperative, because respondent's closure constituted force
majeure. The PDIC likewise invoked the principle of rebus sic stantibus under Article 1267
of Republic Act No. 386 (Civil Code) as alternative legal basis for demanding the refund.

Petitioners, however, refused the PDIC's demand.12 They maintained that they were entitled to
retain the remainder of the advance rentals following paragraph 24 of their Contract.

Consequently, respondent sued petitioners before the RTC of Naga City for a partial
rescission of contract and/or recovery of a sum of money.

The RTC Ruling

After trial, the RTC ordered the partial rescission of the lease agreement, disposing as
follows:ChanRoblesVirtualawlibrary
WHEREFORE, judgment is hereby entered ordering the partial rescission of the Contract of
Lease dated November 3, 1996 particularly the second paragraph of Par. 24 thereof and
directing the defendant-spouses Jaime and Matilde Poon to return or refund to the Plaintiff the
sum of One Million Seven Hundred Forty Thousand Pesos (P1,740,000) representing one-half
of the unused portion of the advance rentals.
Parties' respective claims for damages and attorney's fees are dismissed.

No costs.13chanroblesvirtuallawlibrary
The trial court ruled that the second clause in paragraph 24 of the Contract was penal in
nature, and that the clause was a valid contractual agreement.14 Citing Provident Savings Bank
v. CA15 as legal precedent, it ruled that the premature termination of the lease due to the BSP's
closure of respondent's business was actually involuntary. Consequently, it would be
iniquitous for petitioners to forfeit the entire amount of P 3,480,000. 16 Invoking its equity
jurisdiction under Article 1229 of the Civil Code,17 the trial court limited the forfeiture to only
one-half of that amount to answer for respondent's unpaid utility bills and E-VAT, as well as
petitioner's lost business opportunity from its former bakery business.18chanrobleslaw

The CA Ruling

On appeal, the CA affirmed the RTC Decision,19 but had a different rationale for applying
Article 1229. The appellate court ruled that the closure of respondent's business was not a
fortuitous event. Unlike Provident Savings Bank,20 the instant case was one in which
respondent was found to have committed fraudulent acts and transactions. Lacking, therefore,
was the first requisite of a fortuitous event, i.e, that the cause of the breach of obligation must
be independent of the will of the debtor.21chanrobleslaw

Still, the CA sustained the trial court's interpretation of the proviso on the forfeiture of
advance rentals as a penal clause and the consequent application of Article 1229. The
appellate court found that the forfeiture clause in the Contract was intended to prevent
respondent from defaulting on the latter's obligation to finish the term of the lease. It further
found that respondent had partially performed that obligation and, therefore, the reduction of
the penalty was only proper. Similarly, it ruled that the RTC had properly denied petitioners'
claims for actual and moral damages for lack of basis. 22chanrobleslaw

On 10 July 2008,23 the CA denied petitioners' Motion for Reconsideration. Hence, this

Petition.

Issues

The issues to be resolved are whether (1) respondent may be released from its contractual
obligations to petitioners on grounds of fortuitous event under Article 1174 of the Civil Code
and unforeseen event under Article 1267 of the Civil Code; (2) the proviso in the parties'
Contract allowing the forfeiture of advance rentals was a penal clause; and (3) the penalty
agreed upon by the parties may be equitably reduced under Article 1229 of the Civil Code.

COURT RULING

We DENY the Petition.

Preliminarily, we address petitioners' claim that respondent had no cause of action for
rescission, because this case does not fall under any of the circumstances enumerated in
Articles 138124 and 138225cralawred of the Civil Code.

The legal remedy of rescission, however, is by no means limited to the situations covered by
the above provisions. The Civil Code uses rescission in two different contexts, namely: (1)
rescission on account of breach of contract under Article 1191; and (2) rescission by reason of
lesion or economic prejudice under Article 1381.26 While the term "rescission" is used in
Article 1191, "resolution" was the original term used in the old Civil Code, on which the
article was based. Resolution is a principal action based on a breach by a party, while
rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion
under Article 1381 of the New Civil Code. 27chanrobleslaw

It is clear from the allegations in paragraphs 12 and 13 of the Complaint 28 that respondent's
right of action rested on the alleged abuse by petitioners of their right under paragraph 24 of
the Contract. Respondent's theory before the trial court was that the tenacious enforcement by
petitioners of their right to forfeit the advance rentals was tainted with bad faith, because they
knew that respondent was already insolvent. In other words, the action instituted by
respondent was for the rescission of reciprocal obligations under Article 1191. The lower
courts, therefore, correctly ruled that Articles 1381 and 1382 were inapposite.

We now resolve the main issues.

The closure of respondent's business was neither a fortuitous nor an unforeseen event that
rendered the lease agreement functus officio.

Respondent posits that it should be released from its contract with petitioners, because the
closure of its business upon the BSP's order constituted a fortuitous event as the Court held
in Provident Savings Bank.29chanrobleslaw

The cited case, however, must always be read in the context of the earlier Decision in Central
Bank v. Court of Appeals.30 The Court ruled in that case that the Monetary Board had acted
arbitrarily and in bad faith in ordering the closure of Provident Savings Bank. Accordingly, in
the subsequent case of Provident Savings Bank it was held that fuerza mayor had interrupted
the prescriptive period to file an action for the foreclosure of the subject
mortgage.31chanrobleslaw

In contrast, there is no indication or allegation that the BSP's action in this case was tainted
with arbitrariness or bad faith. Instead, its decision to place respondent under receivership and
liquidation proceedings was pursuant to Section 30 of Republic Act No. 7653.32 Moreover,
respondent was partly accountable for the closure of its banking business. It cannot be said,
then, that the closure of its business was independent of its will as in the case of Provident
Savings Bank. The legal effect is analogous to that created by contributory negligence in
quasi-delict actions.

The period during which the bank cannot do business due to insolvency is not a fortuitous
event,33 unless it is shown that the government's action to place a bank under receivership or
liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted
without jurisdiction.34chanrobleslaw

As an alternative justification for its premature termination of the Contract, respondent lessee
invokes the doctrine of unforeseen event under Article 1267 of the Civil Code, which
provides:ChanRoblesVirtualawlibrary
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
The theory of rebus sic stantibus in public international law is often cited as the basis of the
above article. Under this theory, the parties stipulate in light of certain prevailing conditions,
and the theory can be made to apply when these conditions cease to exist.35 The Court,
however, has once cautioned that Article 1267 is not an absolute application of the principle
of rebus sic stantibus, otherwise, it would endanger the security of contractual relations. After
all, parties to a contract are presumed to have assumed the risks of unfavorable developments.
It is only in absolutely exceptional changes of circumstance, therefore, that equity demands
assistance for the debtor.36chanrobleslaw

Tagaytay Realty Co., Inc. v. Gacutan37 lays down the requisites for the application of Article
1267, as follows:

chanRoblesvirtualLawlibrary1. The event or change in circumstance could not have been

foreseen at the time of the execution of the contract.

2. It makes the performance of the contract extremely difficult but not impossible.

3. It must not be due to the act of any of the parties.

4. The contract is for a future prestation.38chanrobleslaw

The difficulty of performance should be such that the party seeking to be released from a
contractual obligation would be placed at a disadvantage by the unforeseen event. Mere
inconvenience, unexpected impediments, increased expenses,39 or even pecuniary inability to
fulfil an engagement,40 will not relieve the obligor from an undertaking that it has knowingly
and freely contracted.

The law speaks of "service." This term should be understood as referring to the performance
of an obligation or a prestation.41 A prestation is the object of the contract; i.e., it is the
conduct (to give, to do or not to do) required of the parties.42 In a reciprocal contract such as
the lease in this case, one obligation of respondent as the lessee was to pay the agreed rents
for the whole contract period.43 It would be hard-pressed to complete the lease term since it
was already out of business only three and a half years into the 10-year contract period.
Without a doubt, the second and the fourth requisites mentioned above are present in this
case.

The first and the third requisites, however, are lacking. It must be noted that the lease
agreement was for 10 years. As shown by the unrebutted testimony of Jaime Poon during
trial, the parties had actually considered the possibility of a deterioration or loss of
respondent's business within that period:ChanRoblesVirtualawlibrary
ATTY. SALES
Q. Now to the offer of that real estate broker for possible lease of your property at No. 38
General Luna Street, Naga City which was then the Madam Poon Bakery, what did you
tell your real estate broker?
WITNESS (JAIME POON)
A. When Mrs. Lauang approached me, she told me that she has a client who wants to lease
a property in Naga City.
Q. Did she disclose to you the identity of her client?
A. Yes, Sir.
Q. What was the name of her client?
A. That is the Prime Savings Bank.
Q. After you have known that it was the Prime Savings Bank that [wanted] to lease your
property located at No. 38 General Luna St., Naga City, what did you tell Mrs.
Lauang[?]
A. I told her that if the price is good, I am willing to give up the place where this bakery of
mine is situated.
Q. So, did Mrs. Lauang give you the quotation as to the price?
A. Yes, Sir.
Q. What was the amount?
A. She asked first if how much I demand for the price.
Q. What did you tell her?
A. I told her, if they can give me P100,000.00 for the rental, I will give up the place.
Q. What do you mean P100,000.00 rental?
A. That is only for the establishment [concerned].
Q. What was the period to be covered by the P100,000.00 rental?
A. That is monthly basis.
Q. So after telling Mrs. Lauang that you can be amenable to lease the place for
P100,000.00 monthly, what if any, did Mrs. Lauang tell you?
A. She told me it is very high. And then she asked me if it is still negotiable, I answered,
yes.
Q. So, what happened after your clarified to her that [it is] still negotiable?
A. She asked me if there is other condition, and I answered her, yes, if your client can give
me advances I can lease my property.
xxxx
Q. So what is your answer when you were asked for the amount of the advances?
A. I told her I need 7 million pesos because I need to pay my debts.
x x
xx
Q. Who was with her when she came over?
A. A certain guy name Ricci and said that he is the assistant manager of the Prime Savings
Bank.
Q. What did you and Mr. Ricci talk about?
A. I told him the same story as I talked with Mrs. Lauang.
Q. Was the agreement finally reached between you and Mr. Ricci?
A. Not yet, Sir.
Q. What happened after that?
A. He said that he [will discuss] the matter with his higher officer, the branch manager in
 the person of Henry Lee.
Q. Were you able to meet this Henry Lee?
A. After a week later.
Q. Who was with Henry Lee?
A. Mrs. Lauang.
Q. Was there a final agreement on the day when you and Henry Lee met?
A. Not yet, he offered to reduce the rental and also the advances. Finally I gave way after 2
or 3 negotiations.
Q. What happened after 2 or 3 negotiations?
A. We arrived at P60,000.00 for monthly rentals and P6,000,000.00 advances for 100
months.
Q. Was the agreement between you and the representative of the Prime Savings Bank
reduced into writing?
A. Yes Sir.
x x
xx
Q. Now, Mr. Poon, I would like to direct your attention to paragraphs 4 and 5 of the
contract of lease which I read: Inasmuch as the leased property is presently mortgaged
with the PCI Bank, the Lessor and the Lessee hereby agree that another property with a
clean title shall serve as security for herein Lessee; Provided that the mortgaged
property with PCI Bank is cancelled, the Lessee agrees that the above-mentioned
property shall be released to herein Lessor; paragraph 5 says: It is hereby stipulated that
should the leased property be foreclosed by the PCI Bank or any other banking or
financial institution, all unused rentals shall be returned by the Lessor to the Lessee.
Now, my question is: Who asked or requested that paragraphs 4 and 5 be incorporated
in the contract of lease?
A. Mr. Lee himself.
Q. The representative of the plaintiff?
A. Yes, Sir.
Q. Q. For what purpose did Mr. Lee ask these matters to be incorporated?
A. Because they are worried that my building might be foreclosed because it is under
[mortgage] with the PCI Bank, that is why I gave them protection of a clean title.
But I also asked them, what will happen to me, in case your bank will be closed?
Q. When you asked that question, what did Mr. Lee tell you?
A. He told me that I don't have to worry I will have P6,000,000 advances.
Q. What was your protection as to the 6 million payment made by the plaintiff?
A. That is the protection for me because during that time I have my bakery and I myself
[spent] 2 million for the improvement of that bakery and I have sacrificed that for the
sake of the offer of lease.
Q. In what manner that you are being protected for that 6 million pesos?
A. They said that if in case the bank will be closed that advance of 6 million pesos will
be forfeited in my favor.
Q. And that is what is found in paragraph 24 of the Contract of Lease which I asked
you to read?
A. That is true.44
Clearly, the closure of respondent's business was not an unforeseen event. As the lease was
long-term, it was not lost on the parties that such an eventuality might occur, as it was in fact
covered by the terms of their Contract. Besides, as We have previously discussed, the event
was not independent of respondent's will.

The forfeiture clause in the Contract is penal in nature.

Petitioners claim that paragraph 24 was not intended as a penal clause. They add that
respondent has not even presented any proof of that intent. It was, therefore, a reversible error
on the part of the CA to construe its forfeiture provision of the Contract as penal in nature.

It is settled that a provision is a penal clause if it calls for the forfeiture of any remaining
deposit still in the possession of the lessor, without prejudice to any other obligation still
owing, in the event of the termination or cancellation of the agreement by reason of the
lessee's violation of any of the terms and conditions thereof. This kind of agreement may be
validly entered into by the parties. The clause is an accessory obligation meant to ensure the
performance of the principal obligation by imposing on the debtor a special prestation in case
of nonperformance or inadequate performance of the principal obligation.45chanrobleslaw

It is evident from the above-quoted testimony of Jaime Poon that the stipulation on the
forfeiture of advance rentals under paragraph 24 is a penal clause in the sense that it provides
for liquidated damages.

Notably, paragraph 5 of the Contract also provides:ChanRoblesVirtualawlibrary

5. It is hereby stipulated that should the leased property be foreclosed by PCI Bank or any
other banking or financial institution, all unused rentals shall be returned by the LESSOR to
the LESSEE; x x x.46chanroblesvirtuallawlibrary
In effect, the penalty for the premature termination of the Contract works both ways. As the
CA correctly found, the penalty was to compel respondent to complete the 10-year term of the
lease. Petitioners, too, were similarly obliged to ensure the peaceful use of their building by
respondent for the entire duration of the lease under pain of losing the remaining advance
rentals paid by the latter.

The forfeiture clauses of the Contract, therefore, served the two functions of a penal clause,
i.e., (1) to provide for liquidated damages and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in case of breach.47 As the CA correctly
found, the prestation secured by those clauses was the parties' mutual obligation to observe
the fixed term of the lease. For this reason, We sustain the lower courts' finding that the
forfeiture clause in paragraph 24 is a penal clause, even if it is not expressly labelled as such.

A reduction of the penalty agreed upon by the parties is warranted under Article 1129 of
the Civil Code.

We have no reason to doubt that the forfeiture provisions of the Contract were deliberately
and intelligently crafted. Under Article 1196 of the Civil Code, 48 the period of the lease
contract is deemed to have been set for the benefit of both parties. Its continuance, effectivity
or fulfillment cannot be made to depend exclusively upon the free and uncontrolled choice of
just one party.49 Petitioners and respondent freely and knowingly committed themselves to
respecting the lease period, such that a breach by either party would result in the forfeiture of
the remaining advance rentals in favor of the aggrieved party.

If this were an ordinary contest of rights of private contracting parties, respondent lessee
would be obligated to abide by its commitment to petitioners. The general rule is that courts
have no power to ease the burden of obligations voluntarily assumed by parties, just because
things did not turn out as expected at the inception of the contract. 50chanrobleslaw

It must be noted, however, that this case was initiated by the PDIC in furtherance of its
statutory role as the fiduciary of Prime Savings Bank.51 As the state-appointed receiver and
liquidator, the PDIC is mandated to recover and conserve the assets of the foreclosed bank on
behalf of the latter's depositors and creditors. 52 In other words, at stake in this case are not just
the rights of petitioners and the correlative liabilities of respondent lessee. Over and above
those rights and liabilities is the interest of innocent debtors and creditors of a delinquent bank
establishment. These overriding considerations justify the 50% reduction of the penalty
agreed upon by petitioners and respondent lessee in keeping with Article 1229 of the Civil
Code, which provides:ChanRoblesVirtualawlibrary
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
The reasonableness of a penalty depends on the circumstances in each case, because what is
iniquitous and unconscionable in one may be totally just and equitable in another.53 In
resolving this issue, courts may consider factors including but not limited to the type, extent
and purpose of the penalty; the nature of the obligation; the mode of the breach and its
consequences; the supervening realities; and the standing and relationship of the
parties.54chanrobleslaw

Under the circumstances, it is neither fair nor reasonable to deprive depositors and creditors of
what could be their last chance to recoup whatever bank assets or receivables the PDIC can
still legally recover. Besides, nothing has prevented petitioners from putting their building to
other profitable uses, since respondent surrendered the premises immediately after the closure
of its business. Strict adherence to the doctrine of freedom of contracts, at the expense of the
rights of innocent creditors and investors, will only work injustice rather than promote justice
in this case.55 Such adherence may even be misconstrued as condoning profligate bank
operations. We cannot allow this to happen. We are a Court of both law and equity; We
cannot sanction grossly unfair results without doing violence to Our solemn obligation to
administer justice fairly and equally to all who might be affected by our
decisions.56chanrobleslaw

Neither do We find any error in the trial court's denial of the damages and attorney's fees
claimed by petitioners. No proof of the supposed expenses they have incurred for the
improvement of the leased premises and the payment of respondent's unpaid utility bills can
be found in the records. Actual and compensatory damages must be duly proven with a
reasonable degree of certainty.57chanrobleslaw

To recover moral and exemplary damages where there is a breach of contract, the breach must
be palpably wanton, reckless, malicious, in bad faith, oppressive, or abusive. Attorney's fees
are not awarded even if a claimant is compelled to litigate or to incur expenses where no
sufficient showing of bad faith exists.58 None of these circumstances have been shown in this
case.

Finally, in line with prevailing jurisprudence,59 legal interest at the rate of 6% per annum is
imposed on the monetary award computed from the finality of this Decision until full
payment.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED. The
Court of Appeals Decision dated 29 November 2007 and its Resolution dated 10 July 2008 in
CA-G.R. CV No. 75349 are hereby MODIFIED in that legal interest at the rate of 6% per
annum is imposed on the monetary award computed from the finality of this Decision until
full payment.

No costs.

SO ORDERED.chanRoblesvirtualLawlibrary

FIRST DIVISION

G.R. No. L-41093 October 30, 1978

ROBES-FRANCISCO REALTY & DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH XXXIV), and LOLITA
MILLAN, respondents.

Purugganan & Bersamin for petitioner.

Salvador N. Beltran for respondent.

MUÑOZ PALMA, J.:

This is a direct appeal on questions of law from a decision of the Court of First Instance of
Rizal, Branch XXXIV, presided by the Honorable Bernardo P. Pardo, the dispositive portion
of which reads:

WHEREFORE, judgment is hereby rendered commanding the defendant to

register the deed of absolute sale it had executed in favor of plaintiff with the
Register of Deeds of Caloocan City and secure the corresponding title in the
name of plaintiff within ten (10) days after finality of this decision; if, for any
 reason, this not possible, defendant is hereby sentenced to pay plaintiff the sum
of P5,193.63 with interest at 4% per annum from June 22, 1972 until fully
paid.

In either case, defendant is sentenced to pay plaintiff nominal damages in the

amount of P20,000.00 plus attorney's fee in the amount of P5,000.00 and costs.

SO ORDERED.

Caloocan City, February 11, 1975. (rollo, p. 21)

Petitioner corporation questions the award for nominal damages of P20,000.00 and attorney's
fee of P5,000.00 which are allegedly excessive and unjustified.

In the Court's resolution of October 20, 1975, We gave due course to the Petition only as
regards the portion of the decision awarding nominal damages. 1

The following incidents are not in dispute:

In May 1962 Robes-Francisco Realty & Development Corporation, now petitioner, agreed to
sell to private respondent Lolita Millan for and in consideration of the sum of P3,864.00,
payable in installments, a parcel of land containing an area of approximately 276 square
meters, situated in Barrio Camarin, Caloocan City, known as Lot No. 20, Block No. 11 of its
Franville Subdivision. 2

Millan complied with her obligation under the contract and paid the installments stipulated
therein, the final payment having been made on December 22, 1971. The vendee made a total
payment of P5,193.63 including interests and expenses for registration of title.3

Thereafter, Lolita Millan made repeated demands upon the corporation for the execution of
the final deed of sale and the issuance to her of the transfer certificate of title over the lot. On
March 2, 1973, the parties executed a deed of absolute sale of the aforementioned parcel of
land. The deed of absolute sale contained, among others, this particular provision:

That the VENDOR further warrants that the transfer certificate of title of the
above-described parcel of land shall be transferred in the name of the
VENDEE within the period of six (6) months from the date of full payment
and in case the VENDOR fails to issue said transfer certificate of title, it shall
bear the obligation to refund to the VENDEE the total amount already paid for,
plus an interest at the rate of 4% per annum. (record on appeal, p. 9)

Notwithstanding the lapse of the above-mentioned stipulated period of six (6) months, the
corporation failed to cause the issuance of the corresponding transfer certificate of title over
the lot sold to Millan, hence, the latter filed on August 14, 1974 a complaint for specific
performance and damages against Robes-Francisco Realty & Development Corporation in the
Court of First Instance of Rizal, Branch XXXIV, Caloocan City, docketed therein as Civil
Case No. C-3268. 4

The complaint prayed for judgment (1) ordering the reformation of the deed of absolute sale;
(2) ordering the defendant to deliver to plaintiff the certificate of title over the lot free from
any lien or encumbrance; or, should this be not possible, to pay plaintiff the value of the lot
which should not be less than P27,600.00 (allegedly the present estimated value of the lot);
and (3) ordering the defendant to pay plaintiff damages, corrective and actual in the sum of
P15 000.00. 5

The corporation in its answer prayed that the complaint be dismissed alleging that the deed of
absolute sale was voluntarily executed between the parties and the interest of the plaintiff was
amply protected by the provision in said contract for payment of interest at 4% per annum of
the total amount paid, for the delay in the issuance of the title. 6

At the pretrial conference the parties agreed to submit the case for decision on the pleadings
after defendant further made certain admissions of facts not contained in its answer. 7

Finding that the realty corporation failed to cause the issuance of the corresponding transfer
certificate of title because the parcel of land conveyed to Millan was included among other
properties of the corporation mortgaged to the GSIS to secure an obligation of P10 million
and that the owner's duplicate certificate of title of the subdivision was in the possession of
the Government Service Insurance System (GSIS), the trial court, on February 11, 1975,
rendered judgment the dispositive portion of which is quoted in pages 1 and 2 of this
Decision. We hold that the trial court did not err in awarding nominal damages; however, the
circumstances of the case warrant a reduction of the amount of P20,000.00 granted to private
respondent Millan.

There can be no dispute in this case under the pleadings and the admitted facts that petitioner
corporation was guilty of delay, amounting to nonperformance of its obligation, in issuing the
transfer certificate of title to vendee Millan who had fully paid up her installments on the lot
bought by her. Article 170 of the Civil Code expressly provides that those who in the
performance of their obligations are guilty of fraud, negligence, or delay, and those who in
any manner contravene the tenor thereof, are liable for damages.

Petitioner contends that the deed of absolute sale executed between the parties stipulates that
should the vendor fail to issue the transfer certificate of title within six months from the date
of full payment, it shall refund to the vendee the total amount paid for with interest at the rate
of 4% per annum, hence, the vendee is bound by the terms of the provision and cannot
recover more than what is agreed upon. Presumably, petitioner in invoking Article 1226 of the
Civil Code which provides that in obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of noncompliance, if there is
no stipulation to the contrary.

The foregoing argument of petitioner is totally devoid of merit. We would agree with
petitioner if the clause in question were to be considered as a penal clause. Nevertheless, for
very obvious reasons, said clause does not convey any penalty, for even without it, pursuant
to Article 2209 of the Civil Code, the vendee would be entitled to recover the amount paid by
her with legal rate of interest which is even more than the 4% provided for in the clause. 7-A

It is therefore inconceivable that the aforecited provision in the deed of sale is a penal clause
which will preclude an award of damages to the vendee Millan. In fact the clause is so worded
as to work to the advantage of petitioner corporation.
Unfortunately, the vendee, now private respondent, submitted her case below without
presenting evidence on the actual damages suffered by her as a result of the nonperformance
of petitioner's obligation under the deed of sale. Nonetheless, the facts show that the right of
the vendee to acquire title to the lot bought by her was violated by petitioner and this entitles
her at the very least to nominal damages.

The pertinent provisions of our Civil Code follow:

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

Art. 2222. The court may award nominal damages in every obligation arising
from any source enumerated in article 1157, or in every case where any
property right has been invaded.

Under the foregoing provisions nominal damages are not intended for indemnification of loss
suffered but for the vindication or recognition of a right violated or invaded. They are
recoverable where some injury has been done the amount of which the evidence fails to show,
the assessment of damages being left to the discretion of the court according to the
circumstances of the case. 8

It is true as petitioner claims that under American jurisprudence nominal damages by their
very nature are small sums fixed by the court without regard to the extent of the harm done to
the injured party.

It is generally held that a nominal damage is a substantial claim, if based upon

the violation of a legal right; in such case, the law presumes a damage,
although actual or compensatory damages are not proven; in truth nominal
damages are damages in name only and not in fact, and are allowed, not as an
equivalent of a wrong inflicted, but simply in recogniton of the existence of a
technical injury. (Fouraker v. Kidd Springs Boating and Fishing Club, 65 S.
W. 2d 796-797, citing 17 C.J. 720, and a number of authorities).9

In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al. 1956, which was an action for
damages arising out of a vehicular accident, this Court had occasion to eliminate an award of
P10,000.00 imposed by way of nominal damages, the Court stating inter alia that the amount
cannot, in common sense, be demeed "nominal".10

In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L. Cuenca, 1965, this Court,

however, through then Justice Roberto Concepcion who later became Chief Justice of this
Court, sustained an award of P20,000.00 as nominal damages in favor of respnodent Cuenca.
The Court there found special reasons for considering P20,000.00 as "nominal". Cuenca who
was the holder of a first class ticket from Manila to Tokyo was rudely compelled by an agent
of petitioner Airlines to move to the tourist class notwithstanding its knowledge that Cuenca
as Commissioner of Public Highways of the Republic of the Philippines was travelling in his
official capacity as a delegate of the country to a conference in Tokyo." 11
Actually, as explained in the Court's decision in Northwest Airlines, there is no conflict
between that case and Medina, for in the latter, the P10,000.00 award for nominal damages
was eliminated principally because the aggrieved party had already been awarded P6,000.00
as compensatory damages, P30,000.00 as moral damages and P10,000.00 as exemplary
damages, and "nominal damages cannot coexist with compensatory damages," while in the
case of Commissioner Cuenca, no such compensatory, moral, or exemplary damages were
granted to the latter. 12

At any rate, the circumstances of a particular case will determine whether or not the amount
assessed as nominal damages is within the scope or intent of the law, more particularly,
Article 2221 of the Civil Code.

In the situation now before Us, We are of the view that the amount of P20,000.00 is
excessive. The admitted fact that petitioner corporation failed to convey a transfer certificate
of title to respondent Millan because the subdivision property was mortgaged to the GSIS
does not in itself show that there was bad faith or fraud. Bad faith is not to be presumed.
Moreover, there was the expectation of the vendor that arrangements were possible for the
GSIS to make partial releases of the subdivision lots from the overall real estate mortgage. It
was simply unfortunate that petitioner did not succeed in that regard.

For that reason We cannot agree with respondent Millan Chat the P20,000.00 award may be
considered in the nature of exemplary damages.

In case of breach of contract, exemplary damages may be awarded if the guilty party acted in
wanton, fraudulent, reckless, oppressive or malevolent manner. 13 Furthermore, exemplary or
corrective damages are to be imposed by way of example or correction for the public good,
only if the injured party has shown that he is entitled to recover moral, temperate or
compensatory damages."

Here, respondent Millan did not submit below any evidence to prove that she suffered actual
or compensatory damages. 14

To conclude, We hold that the sum of Ten Thousand Pesos (P10,000.00) by way of nominal
damages is fair and just under the following circumstances, viz: respondent Millan bought the
lot from petitioner in May, 1962, and paid in full her installments on December 22, 1971, but
it was only on March 2, 1973, that a deed of absolute sale was executed in her favor, and
notwithstanding the lapse of almost three years since she made her last payment, petitioner
still failed to convey the corresponding transfer certificate of title to Millan who accordingly
was compelled to file the instant complaint in August of 1974.

PREMISES CONSIDERED, We modify the decision of the trial court and reduce the nominal
damages to Ten Thousand Pesos (P10,000.00). In all other respects the aforesaid decision
stands.

Without pronouncement as to costs.

SO ORDERED.
G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner,
vs.
HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.

Gloria A. Fortun for petitioner.

Roselino Reyes Isler for respondents.

CUEVAS, J.:

This is a petition to review the Resolution dated June 30, 1980 of the then Court of Appeals (now
the Intermediate Appellate Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo
versus the Hon. Florellana Castro-Bartolome, etc." and the Order of said court dated August 20,
1980, denying petitioner's motion for reconsideration of the above resolution.

Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958 of the
then Court of First Instance of Rizal (now the Regional Trial Court), Branch XV filed by private
respondent Antonio P. So, on July 23, 1979, for the collection of the sum of P17,498.98 plus
attorney's fees and costs. The other defendants were Offshore Catertrade Inc., Johnny Tan and
Pilar Tan. The amount of P117,498.98 sought to be collected represents the value of the checks
issued by said defendants in payment for foodstuffs delivered to and received by them. The said
checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision 1 based on the compromise agreement submitted
by the parties, the pertinent portion of which reads as follows:
 1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00 and
defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P10,000.00 the amount
of P55,000.00 on or before December 24, 1979, the balance of P55,000.00,
defendants individually and jointly agree to pay within a period of six months from
January 1980, or before June 30, 1980; (Emphasis supplied)

xxx xxx xxx

4. That both parties agree that failure on the part of either party to comply with the
foregoing terms and conditions, the innocent party will be entitled to an execution
of the decision based on this compromise agreement and the defaulting party
agrees and hold themselves to reimburse the innocent party for attorney's fees,
execution fees and other fees related with the execution.

xxx xxx xxx

On December 26, 1979, herein private respondent (then plaintiff filed a Motion for Execution on
the ground that defendants failed to make the initial payment of P55,000.00 on or before
December 24, 1979 as provided in the Decision. Said motion for execution was opposed by
herein petitioner (as one of the defendants) contending that his inability to make the payment was
due to private respondent's own act of making himself scarce and inaccessible on December 24,
1979. Petitioner then prayed that private respondent be ordered to accept his payment in the
amount of P13,750.00.  2

During the hearing of the Motion for Execution and the Opposition thereto on January 16, 1980,
petitioner, as one of the four defendants, tendered the amount of P13,750.00, as his prorata
share in the P55,000.00 initial payment. Another defendant, Pilar P. Tan, offered to pay the same
amount. Because private respondent refused to accept their payments, demanding from them the
full initial installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said amount
with the Clerk of Court. The amount deposited was subsequently withdrawn by private
respondent. 3

On the same day, January 16, 1980, the lower court ordered the issuance of a writ of execution
for the balance of the initial amount payable, against the other two defendants, Offshore
Catertrade Inc. and Johnny Tan   who did not pay their shares.
4

On January 22, 1980, private respondent moved for the reconsideration and/or modification of
the aforesaid Order of execution and prayed instead for the "execution of the decision in its
entirety against all defendants, jointly and severally."   Petitioner opposed the said motion arguing
5

that under the decision of the lower court being executed which has already become final, the
liability of the four (4) defendants was not expressly declared to be solidary, consequently each
defendant is obliged to pay only his own pro-rata or 1/4 of the amount due and payable.

On March 17, 1980, the lower court issued an Order reading as follows:

ORDER

Regardless of whatever the compromise agreement has intended the payment

whether jointly or individually, or jointly and severally, the fact is that only
P27,500.00 has been paid. There appears to be a non-payment in accordance
with the compromise agreement of the amount of P27,500.00 on or before
December 24, 1979. The parties are reminded that the payment is condition sine
qua non to the lifting of the preliminary attachment and the execution of an
affidavit of desistance.
 WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same
was set for hearing on March 25,1980.

Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the
satisfaction of the sum of P82,500.00 as against the properties of the defendants (including
petitioner), "singly or jointly hable." 
6

On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of sheriff's sale,
for the sale of certain furnitures and appliances found in petitioner's residence to satisfy the sum
of P82,500.00. The public sale was scheduled for April 2, 1980 at 10:00 a.m.  7

Petitioner's motion for reconsideration of the Order of Execution dated March 17, 1980 which was
set for hearing on March 25, 1980, was upon motion of private respondent reset to April 2, 1980
at 8:30 a.m. Realizing the actual threat to property rights poised by the re-setting of the hearing of
s motion for reconsideration for April 2, 1980 at 8:30 a.m. such that if his motion for
reconsideration would be denied he would have no more time to obtain a writ from the appellate
court to stop the scheduled public sale of his personal properties at 10:00 a.m. of the same day,
April 2, 1980, petitioner filed on March 26, 1980 a petition for certiorari and prohibition with the
then Court of Appeals (CA-G.R. No. SP-10573), praying at the same time for the issuance of a
restraining order to stop the public sale. He raised the question of the validity of the order of
execution, the writ of execution and the notice of public sale of his properties to satisfy fully the
entire unpaid obligation payable by all of the four (4) defendants, when the lower court's decision
based on the compromise agreement did not specifically state the liability of the four (4)
defendants to be solidary.

On April 2, 1980, the lower court denied petitioner's motion for reconsideration but the scheduled
public sale in that same day did not proceed in view of the pendency of a certiorari proceeding
before the then Court of Appeals.

On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as
follows:

This Court, however, finds the present petition to have been filed prematurely.
The rule is that before a petition for certiorari can be brought against an order of a
lower court, all remedies available in that court must first be exhausted. In the
case at bar, herein petitioner filed a petition without waiting for a resolution of the
Court on the motion for reconsideration, which could have been favorable to the
petitioner. The fact that the hearing of the motion for reconsideration had been
reset on the same day the public sale was to take place is of no moment since the
motion for reconsideration of the Order of March 17, 1980 having been
seasonably filed, the scheduled public sale should be suspended. Moreover,
when the defendants, including herein petitioner, defaulted in their obligation
based on the compromise agreement, private respondent had become entitled to
move for an execution of the decision based on the said agreement.

WHEREFORE, the instant petition for certiorari and prohibition with preliminary
injunction is hereby denied due course. The restraining order issued in our
resolution dated April 9, 1980 is hereby lifted without pronouncement as to costs.

SO ORDERED.

Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower
court had already denied the motion referred to and consequently, the legal issues being raised
in the petition were already "ripe" for determination.   The said motion was however denied by the
8

Court of Appeals in its Resolution dated August 20, 1980.

Hence, this petition for review, petitioner contending that the Court of Appeals erred in

(a) declaring as premature, and in denying due course to the petition to restrain implementation
of a writ of execution issued at variance with the final decision of the lower court filed barely four
(4) days before the scheduled public sale of the attached movable properties;

(b) denying reconsideration of the Resolution of June 30, 1980, which declared as premature the
filing of the petition, although there is proof on record that as of April 2, 1980, the motion referred
to was already denied by the lower court and there was no more motion pending therein;

(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the
defendants, under the final decision of the lower court, to be only joint;

(d) not holding the lower court's order of execution dated March 17, 1980, the writ of execution
and the notice of sheriff's sale, executing the lower court's decision against "all defendants, singly
and jointly", to be at variance with the lower court's final decision which did not provide for
solidary obligation; and

(e) not declaring as invalid and unlawful the threatened execution, as against the properties of
petitioner who had paid his pro-rata share of the adjudged obligation, of the total unpaid amount
payable by his joint co-defendants.

The foregoing assigned errors maybe synthesized into the more important issues of —

1. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of
Execution issued by the lower court, dated March 17, 1980, proper, despite the pendency of a
motion for reconsideration of the same questioned Order?

2. What is the nature of the liability of the defendants (including petitioner), was it merely joint, or
was it several or solidary?

Anent the first issue raised, suffice it to state that while as a general rule, a motion for
reconsideration should precede recourse to certiorari in order to give the trial court an opportunity
to correct the error that it may have committed, the said rule is not absolutes   and may be 9

dispensed with in instances where the filing of a motion for reconsideration would serve no useful
purpose, such as when the motion for reconsideration would raise the same point stated in the
motion 10 or where the error is patent for the order is void 11 or where the relief is extremely urgent, as in cases where execution had
already been ordered 12 where the issue raised is one purely of law. 13

In the case at bar, the records show that not only was a writ of execution issued but petitioner's
properties were already scheduled to be sold at public auction on April 2, 1980 at 10:00 a.m. The
records likewise show that petitioner's motion for reconsideration of the questioned Order of
Execution was filed on March 17, 1980 and was set for hearing on March 25, 1980 at 8:30 a.m.,
but upon motion of private respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the
very same clay when petitioner's properties were to be sold at public auction. Needless to state
that under the circumstances, petitioner was faced with imminent danger of his properties being
immediately sold the moment his motion for reconsideration is denied. Plainly, urgency prompted
recourse to the Court of Appeals and the adequate and speedy remedy for petitioner under the
situation was to file a petition for certiorari with prayer for restraining order to stop the sale. For
him to wait until after the hearing of the motion for reconsideration on April 2, 1980 before taking
recourse to the appellate court may already be too late since without a restraining order, the
public sale can proceed at 10:00 that morning. In fact, the said motion was already denied by the
lower court in its order dated April 2, 1980 and were it not for the pendency of the petition with the
Court of Appeals and the restraining order issued thereafter, the public sale scheduled that very
same morning could have proceeded.

The other issue raised refers to the nature of the liability of petitioner, as one of the defendants in
Civil Case No. 33958, that is whether or not he is liable jointly or solidarily.

In this regard, Article 1207 and 1208 of the Civil Code provides —

Art. 1207. The concurrence of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the prestation. Then is
a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which
the preceding article refers the contrary does not appear, the credit or debt shall
be presumed to be divided into as many equal shares as there are creditors and
debtors, the credits or debts being considered distinct from one another, subject
to the Rules of Court governing the multiplicity of quits.

The decision of the lower court based on the parties' compromise agreement, provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00

and defendants agree to acknowledge the validity of such claim and further bind
themselves to initially pay out of the total indebtedness of P110,000.00, the
amount of P5,000.00 on or before December 24, 1979, the balance of
P55,000.00, defendants individually and jointly agree to pay within a period of six
months from January 1980 or before June 30, 1980. (Emphasis supply)

Clearly then, by the express term of the compromise agreement and the decision based upon it,
the defendants obligated themselves to pay their obligation "individually and jointly".

The term "individually" has the same meaning as "collectively", "separately", "distinctively",
respectively or "severally". An agreement to be "individually liable" undoubtedly creates a several
obligation, 14 and a "several obligation is one by which one individual binds himself to perform the whole obligation. 15

In the case of Parot vs. Gemora 16 We therein ruled that "the phrase juntos or separadamente or in the promissory note is
an express statement making each of the persons who signed it individually liable for the payment of the fun amount of the obligation
contained therein." Likewise in Un Pak Leung vs. Negorra 17 We held that "in the absence of a finding of facts that the defendants made
themselves individually hable for the debt incurred they are each liable only for one-half of said amount

The obligation in the case at bar being described as "individually and jointly", the same is
therefore enforceable against one of the numerous obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby DISMISSED.

Cost against petitioner.

SO ORDERED.