G.R. No.

90856 July 23, 1992

ARTURO DE GUZMAN, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER MA. LOURDES A.
SALES, AVELINO D. VALLESTEROL, ALEJANDRO Q. FRIAS, LINDA DE LA CRUZ,
CORAZON M. DE LA FUENTE, LILIA F. FLORO, and MARIO F. JAYME, respondents.

CRUZ, J.:

It is a fundamental principle of law and human conduct that a person "must, in the exercise of
his rights and in the performance of his duties, act with justice, give every one his due, and
observe honesty and good faith." 1 This is the principle we shall apply in the case at bar to
gauge the petitioner's motives in his dealings with the private respondents.

Arturo de Guzman was the general manager of the Manila office of the Affiliated Machineries
Agency, Ltd., which was based in Hongkong. On June 30, 1986, he received a telex message
from Leo A. Fialla, managing director of AMAL in its main office, advising him of the closure of
the company due to financial reverses. This message triggered the series of events that are the
subject of this litigation.

Immediately upon receipt of the advise, De Guzman notified all the personnel of the Manila
office. The employees then sent a letter to AMAL accepting its decision to close, subject to the
payment to them of their current salaries, severance pay, and other statutory benefits. De
Guzman joined them in these representations.

These requests were, however, not heeded. Consequently, the employees, now herein private
respondents, lodged a complaint with the NLRC against AMAL, through Leo A. Fialla and Arturo
de Guzman, for illegal dismissal, unpaid wages or commissions, separation pay, sick and
vacation leave benefits, 13th month pay, and bonus.

For his part, the petitioner began selling some of AMAL's assets and applied the proceeds
thereof, as well as the remaining assets, to the payment of his claims against the company. He
also organized Susarco, Inc., with himself as its president and his wife as one of the
incorporators and a member of the board of directors. This company is engaged in the same
line of business and has the same clients as that of the dissolved AMAL.

With this development, Susarco and its officers were impleaded in the amended complaint of
the private respondents. Later, William Quasha and/or Cirilo Asperilla were also included in the
suit as the resident agents of AMAL of the Philippines.

On November 7, 1986, the petitioner filed his own complaint with the NLRC against AMAL for
his remaining unsatisfied claims.

On May 29, 1987, Labor Arbiter Eduardo G. Magno, to whom the petitioner's complaint was
assigned, rendered a decision ordering AMAL to pay the petitioner the amount of P371,469.59
as separation pay, unpaid salary and commissions, after deducting the value of the assets
earlier appropriated by the petitioner. 2
On September 30, 1987, Labor Arbiter Ma. Lourdes A. Sales, who tried the private respondents'
complaint, rendered a decision —

1. Ordering Respondents AMAL and Arturo de Guzman to pay jointly and

severally to each Complainant separation pay computed at one-half month pay
for every year of service, backwages for one month, unpaid salaries for June 16-
30, 1986, 13th month pay from January to June 30, 1986 and incentive leave pay
equivalent to two and-a-half days pay;

2. Dismissing the complaint against respondents Leo Fialla, William Quasha,

Susarco, Inc. and its directors Susan de Guzman, Pacita Castaneda, George
Estomata and Cynthia Serrano for lack of basis and/or merit;

3. Dismissing the claims for damages for lack of basis;

4. Ordering respondents AMAL and Arturo de Guzman to pay jointly and

severally attorney's fees to Complainants equivalent to 10% of the monetary
awards herein. 3

This decision was on appeal affirmed in toto by the NLRC, which is now faulted for grave abuse
of discretion in this petition for certiorari.

The petitioner does not dispute the jurisdiction of the Labor Arbiter and NLRC over the
complaint of the private respondents against AMAL in view of their previous employment
relationship. He argues, however, that the public respondents acted without or in excess of
jurisdiction in holding him jointly and severally liable with AMAL as he was not an employer of
the private respondents.

The Solicitor General and the private respondents disagree. They maintain that the petitioner,
being AMAL's highest local representative in the Philippines, may be held personally
answerable for the private respondents' claims because he is included in the term "employer"
under Art. 212 (c),
(now e) of the Labor Code which provides:

Art. 212. Definitions. —

xxx xxx xxx

c. "Employer" includes any person acting in the interest of an employer, directly

or indirectly. . . .

In the leading case of A.C. Ransom Labor Union-CCLU vs. NLRC, 4 as affirmed in the

subsequent cases of Gudez vs. NLRC, 5 and Maglutac vs.
NLRC,   this Court treated the president of the employer corporation as an "employer" and held
6

him solidarily liable with the said corporation for the payment of the employees' money claims.
So was the vice-president of the employer corporation in the case of Chua vs. NLRC. 7

The aforecited cases will not apply to the instant case, however, because the persons who were
there made personally liable for the employees' claims were stockholders-officers of the
respondent corporation. In the case at bar, the petitioner, while admittedly the highest ranking
local representative of AMAL in the Philippines, is nevertheless not a stockholder and much less
a member of the board of directors or an officer thereof. He is at most only a managerial
employee under Art. 212 (m) of the Labor Code, which reads in relevant part as follows:

Art 212. Definitions. —

xxx xxx xxx

m. Managerial employee is one who is vested with powers and prerogatives to

lay down and execute management policies and/or to
hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees. .
..

As such, the petitioner cannot be held directly responsible for the decision to close the business
that resulted in his separation and that of the private respondents. That decision came directly
and exclusively from AMAL. The petitioner's participation was limited to the enforcement of this
decision in line with his duties as general manager of the company. Even in a normal situation,
in fact, he would not be liable, as a managerial employee of AMAL, for the monetary claims of
its employees. There should be no question that the private respondents' recourse for such
claims cannot be against the petitioner but against AMAL and AMAL alone.

The judgment in favor of the private respondents could have been enforced against the
properties of AMAL located in this country except for one difficulty. The problem is that these
properties have already been appropriated by the petitioner to satisfy his own claims against the
company.

By so doing, has the petitioner incurred liability to the private respondents?

The Labor Arbiter believed he had because of his bad faith and ruled as follows:

Considering that Respondent A. de Guzman is guilty of bad faith in appropriating

for himself the properties of Respondent AMAL to the prejudice of Complainants
herein whose claims are known to Respondent at the time he made the
disposition of AMAL's properties, he is held jointly and severally liable with
Respondent AMAL for the award of unpaid wages, separation pay, backwages
for one month, 13th month pay and cash value of unused vacation leave.

In Velayo v. Shell Co. of the Philippines, 8 Commercial Air Lines, Inc. (CALI), knowing that it did
not have enough assets to pay off its liabilities, called a meeting of its creditors where it
announced that in case of non-agreement on a pro-rata distribution of its assets, including the
C-54 plant in California, it would file insolvency proceedings. Shell Company of the Philippines,
one of its creditors, took advantage of this information and immediately made a telegraphic
assignment of its credits in favor of its sister corporation in the United States. The latter
thereupon promptly attached the plane in California and disposed of the same, thus depriving
the other creditors of their proportionate share in its value. The Court declared that Shell had
acted in bad faith and betrayed the trust of the other creditors of CALI. The said company was
ordered to pay them compensatory damages in a sum equal to the value of the C-54 plane at
the time it assigned its credit and exemplary damages in the sum of P25,000.00.
We quote with approval the following observations of Labor Arbiter Sales in her decision:

While the legitimacy of Respondent A. de Guzman's claims against AMAL is not

questioned, it must be stated that the manner and the means by which he
satisfied such claims are evidently characterized by bad faith on his part. For
one, Respondent A. de Guzman took advantage of his position as General
Manager and arrogated to himself the right to retain possession and ownership of
all properties owned and left by AMAL in the Philippines, even if he knew that
Complainants herein have similar valid claims for unpaid wages and other
employee benefits from the Respondent AMAL. . . .

Another strong indication of bad faith on the part of Respondent A. de Guzman is

his filing of a separate complaint against AMAL before the NLRC Arbitration
Branch about four (4) months after the filing of the instant case without informing
this Office about the existence of said case during the proceedings in the instant
case. This case was deemed submitted for decision on May 18, 1987 but it was
only on June 2, 1987 that Respondent A. de Guzman formally notified this Office
through his Supplemental Position Paper of his pending complaint before Arbiter
Eduardo Magno docketed as NLRC Case No. 11-4441-86. Under Rule V,
Section 4 of the revised rules of the NLRC, it is provided that:

Sec. 4. CONSOLIDATION OF CASES — where there are two or

more cases pending before different Labor Arbiters in the same
Regional Arbitration Branch involving the same employer and
issues or the same parties with different issues, the case which
was filed last shall be consolidated with the first to avoid
unnecessary costs or delay. Such cases shall be disposed of by
the Labor Arbiter to whom the first case was assigned. (Emphasis
supplied).

Had Respondent A. de Guzman given timely notice of his complaint, his case
could have been consolidated with this case and the issues in both cases could
have been resolved in a manner that would give due consideration to the rights
and liabilities of all parties in interest at the least, in case consolidation is
objected to or no longer possible, the Complainants herein could have been
given a chance to intervene in the other case so that whatever disposition might
be rendered by Arbiter Magno would include consideration of Complainants'
claims herein.

It is not disputed that the petitioner in the case at bar had his own claims against AMAL and
consequently had some proportionate right over its assets. However, this right ceased to exist
when, knowing fully well that the private respondents had similarly valid claims, he took
advantage of his position as general manager and applied AMAL's assets in payment
exclusively of his own claims.

According to Tolentino in his distinguished work on the Civil Code:

The exercise of a right ends when the right disappears, and it disappears when it
is abused, especially to the prejudice of others. The mask of a right without the
spirit of justice which gives it life, is repugnant to the modern concept of social
 law. It cannot be said that a person exercises a right when he unnecessarily
prejudices another or offends morals or good customs. Over and above the
specific precepts of positive law are the supreme norms of justice which the law
develops and which are expressed in three principles: honeste vivere, alterum
non laedre and just suum quique tribuere; and he who violates them violates the
law. For this reason, it is not permissible to abuse our rights to prejudice others. 9

The modern tendency, he continues, is to depart from the classical and traditional theory, and to
grant indemnity for damages in cases where there is an abuse of rights, even when the act is
not illicit. Law cannot be given an anti-social effect. If mere fault or negligence in one's acts can
make him liable for damages for injury caused thereby, with more reason should abuse or bad
faith make him liable. A person should be protected only when he acts in the legitimate exercise
of his right, that is, when he acts with prudence and in good faith; but not when he acts with
negligence or abuse. 10

The above-mentioned principles are contained in Article 19 of the Civil Code which provides:

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

This is supplemented by Article 21 of the same Code thus:

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

Applying these provisions, we hold that although the petitioner cannot be made solidarily liable
with AMAL for the monetary demand of its employees, he is nevertheless directly liable to them
for his questionable conduct in attempting to deprive them of their just share in the assets of
AMAL.

Under Art. 2219, (10) of the Civil Code, moral damages may be recovered for the acts referred
to in Art. 21. In Bert Osmeña & Associates vs. Court of Appeals, 11 we held that "fraud and bad
faith having been established, the award of moral damages is in order." And in Pan Pacific
Company (Phil.) vs. Phil. Advertising Corp., 12 moral damages were awarded against the
defendant for its wanton and deliberate refusal to pay the just debt due the plaintiff.

It is settled that the court can grant the relief warranted by the allegation and the proof even if it
is not specifically sought by the injured party. 13 In the case at bar, while the private respondents
did not categorically pray for damages, they did allege that the petitioner, taking advantage of
his position as general manager, had appropriated the properties of AMAL in payment of his
own claims against the company. That was averment enough of the injury they suffered as a
result of the petitioner's bad faith.

The fact that no actual or compensatory damages was proven before the trial court does not
adversely affect the private respondents' right to recover moral damages. We have held that
moral damages may be awarded in the cases referred to in the chapter on Human Relations of
the Civil Code (Articles 19-36) without need of proof that the wrongful act complained of had
caused any physical injury upon the complainant. 14
When moral damages are awarded, exemplary damages may also be decreed. 15 Exemplary
damages are imposed by the way of example or correction for the public good, in additional to
moral, temperate, liquidated or compensatory damages. 16 According to the Code Commission,
"exemplary damages are required by public policy, for wanton acts must be suppressed. They
are an antidote so that the poison of wickedness may not run through the body politic." 17 These
damages are legally assessible against him.

The petitioner asserts that, assuming the private respondents to have a cause of action against
him for his alleged bad faith, the civil courts and not the Labor Arbiter have jurisdiction over the
case.

In Associated Citizen Bank, et al. vs. Judge Japson, 18 this Court held:

Primarily, the issue to be resolved is whether or not the respondent court has
jurisdiction to hear and decide an action for damages based on the dismissal of
the employee.

On all fours to the above issue is the ruling of this Court in Primero
v. Intermediate Appellate Court (156 SCRA 435 [1987]) which once again
reiterated the doctrine that the jurisdiction of the Labor Arbiter under Article 217
of the Labor Code is broad and comprehensive enough to include claims for
moral and exemplary damages sought to be recovered by an employee whose
services has been illegally terminated by is employer (Ebon v. De Guzman, 113
SCRA 55 [1982]; Aguda v. Vallejos, 113 SCRA 69 [1982]; Getz Corporation v.
Court of Appeals, 116 SCRA 86 [1982]).

For the unlawful termination of employment, this Court in Primero v. Intermediate

Appellate Court, supra, ruled that the Labor Arbiter had the exclusive and original
jurisdiction over claims for moral and other forms of damages, so that the
employee in the proceedings before the Labor Arbiter should prosecute his
claims not only for reliefs specified under the Labor Code but also for damages
under the Civil Code.

. . . Question of damages which arose out of or connected with the labor

dispute should be determined by the labor tribunal to the exclusion of the regular
courts of justice (Limquiaco, Jr. v. Ramolete, 156 SCRA 162 [1987]). The regular
courts have no jurisdiction over claims for moral and exemplary damages arising
from illegal dismissal of an employee (Vargas v. Akai Philippines, Inc., 156 SCRA
531 [1987]).

Although the question of damages arising from the petitioner's bad faith has not directly sprung
from the illegal dismissal, it is clearly intertwined therewith. The predicament of the private
respondents caused by their dismissal was aggravated by the petitioner's act in the arrogating
to himself all of AMAL's assets to the exclusion of its other creditors, including its employees.
The issue of bad faith is incidental to the main action for illegal dismissal and is thus properly
cognizable by the Labor Arbiter.

We agree that, strictly speaking, the determination of the amount thereof would require a
remand to the Labor Arbiter. However, inasmuch as the private respondents were separated in
1986 and this case has been pending since then, the interests of justice demand the direct
resolution of this motion in this proceeding.

As this Court has consistently declared:

. . . it is a cherished rule of procedure for this Court to always strive to settle the
entire controversy in a single proceeding leaving no root or branch to bear the
seeds of future litigation. No useful purpose will be served if this case is
remanded to the trial court only to have its decision raised again tot the
Indeterminate Appellate Court and from there to this Court. (Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37)

Remand of the case to the lower court for further reception of evidence is not
necessary where the court is in a position to resolve the dispute based on the
records before it. On many occasions, the Court, in the public interest and the
expeditious administration of justice, has resolved actions on the merits instead
of remanding them to the trial court for further proceedings, such as where the
ends of justice would not be subserved by the remand of the case or when public
interest demands an early disposition of the case. (Lianga Bay Logging Co., Inc.
v. CA, 157 SCRA 357)

Sound practice seeks to accommodate the theory which avoids waste of time,
effort and expense, both to the parties and the government, not to speak of delay
in the disposal of the case (cf. Fernandez v. Garcia, 92 Phil. 592, 597). A marked
characteristics of our judicial set-up is that where the dictates of justice so
demand . . . the Supreme Court should act, and act with finality. (Li Siu Liat v.
Republic, 21 SCRA 1039, 1046, citing Samal v. CA, 99 Phil. 230 and U.S. v.
Gimenez, 34 Phil. 74). In this case, the dictates of justice do demand that this
Court act, and act with finality. (Beautifont, Inc. v. CA, 157 SCRA 481)

It is stressed that the petitioner's liability to the private respondents is a direct liability in the form
of moral and exemplary damages and not a solidary liability with AMAL for the claims of its
employees against the company. He is being held liable not because he is the general manager
of AMAL but because he took advantage of his position by applying the properties of AMAL to
the payment exclusively of his own claims to the detriment of other employees.

WHEREFORE, the questioned decision is AFFIRMED but with the modification that the
petitioner shall not be held jointly and severally liable with AMAL for the private respondents'
money claims against the latter. However, for his bad faith in arrogating to himself AMAL's
properties to the prejudice of the private respondents, the petitioner is ordered: 1) to pay the
private respondents moral damages in the sum of P20,00.00 and exemplary damages in the
sum of P20,00.00; and 2) to return the assets of AMAL that he has appropriated, or the value
thereof, with legal interests thereon from the date of the appropriation until they are actually
restored, these amounts to be proportionately distributed among the private respondents in
satisfaction of the judgment rendered in their favor against AMAL.

SO ORDERED.
G.R. No. 122823 November 25, 1999

SEA COMMERCIAL COMPANY, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES, INC. and TIRSO
JAMANDRE, respondents.

GONZAGA-REYES, J.:

In this petition for review by certiorari, SEA Commercial Company, Inc. (SEACOM) assails the
decision of the Court of Appeals in CA-G.R. CV NO. 31263 affirming in toto the decision of the
Regional Trial Court of Manila, Branch 5, in Civil Case No. 122391, in favor of Jamandre
Industries, Inc. (JII) et al., the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the defendant and

against the plaintiff, ordering the plaintiff:

1) To pay defendant the sum of P66,156.15 (minus 18,843.85) with legal interest
thereon, from the date of the filing of the counterclaim until fully paid;

2) To pay defendant P2,000.00 as moral and exemplary damages;

3) To pay attorney's fees in the sum of P10,000.00; and

4) To pay the costs of this suit.

SO ORDERED.

SEACOM is a corporation engaged in the business of selling and distributing agricultural

machinery, products and equipment. On September 20, 1966, SEACOM and JII entered into a
dealership agreement whereby SEACOM appointed JII as its exclusive dealer in the City and
Province of Iloilo 1. Tirso Jamandre executed a suretyship agreement binding himself jointly and
severally with JII to pay for all obligations of JII to SEACOM 2. The agreement was subsequently
amended to include Capiz in the territorial coverage and to make the dealership agreement on a
non-exclusive basis 3 . In the course of the dealership agreement, JII allegedly incurred a
balance of P18,843.85 for unpaid deliveries, and SEACOM brought action to recover said
amount plus interest and attorney's fees.

JII filed an Answer denying the obligation and interposing a counterclaim for damages
representing unrealized profits when JII sold to the Farm System Development Corporation
(FSDC) twenty one (21) units of Mitsubishi power tillers. In the counterclaim, JII alleged that as
a dealer in Capiz, JII contracted to sell in 1977 twenty-four (24) units of Mitsubishi power tillers
to a group of farmers to be financed by said corporation, which fact JII allegedly made known to
petitioner, but the latter taking advantage of said information and in bad faith, went directly to
FSDC and dealt with it and sold twenty one (21) units of said tractors, thereby depriving JII of
unrealized profit of eighty-five thousand four hundred fifteen and 61/100 pesos (P85,415.61).

The trial court rendered its decision on January 24, 1990 ordering JII to pay SEACOM the
amount of Eighteen Thousand Eight Hundred Forty Three and 85/100 (P18,843.85)
representing its outstanding obligation. The trial court likewise granted JII's counterclaim for
unrealized profits, and for moral and exemplary damages and attorney' fees as above quoted.

SEACOM appealed the decision on the counterclaim.

The Court of Appeals held that while there exists no agency relationship between SEACOM and
JII, SEACOM is liable for damages and unrealized profits to JII.

This Court, however, is convinced that with or without the existence of an agency
relationship between appellant SEACOM and appellee JII and notwithstanding
the error committed by the lower court in finding that an agency relationship
existed between appellant and defendant corporation the former is liable for the
unrealized profits which the latter could have gained had not appellant unjustly
stepped in and in bad faith unethically intervened.

It should be emphasized that the very purpose of the dealership agreement is for
SEACOM to have JII as its dealer to sell its products in the provinces of Capiz
and Iloilo. In view of this agreement, the second assigned error that the lower
court erred in holding that appellant learned of the FSDC transaction from
defendant JII is clearly immaterial and devoid of merit. The fact that the
dealership is on a non-exclusive basis does not entitle appellant SEACOM to join
the fray as against its dealer. To do so, is to violate the norms of conduct
enjoined by Art. 19 of the Civil Code. By virtue of such agreement, the
competition in the market as regards the sale of farm equipment shall be
between JII, as the dealer of SEACOM and other companies, not as against
SEACOM itself. However, SEACOM, not satisfied with the presence of its dealer
JII in the market, joined the competition even as the against the latter and,
therefore, changed the scenario of the competition thereby rendering inutile the
dealership agreement which they entered into the manifest prejudice of JII.
Hence, the trial court was correct when it applied Art. 19 of the Civil Code in the
case at bar in that appellant SEACOM acted in bad faith when it competed with
its own dealer as regards the sale of farm machineries, thereby depriving
appellee JII of the opportunity to gain a clear profit of P85,000.00.

and affirmed the judgment appealed from in toto.

Hence this petition for review on certiorari, which submits the following reasons for the
allowance thereof:

THE RESPONDENT COURT OF APPEALS DECIDED QUESTIONS OF

SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW AND
JURISPRUDENCE, CONSIDERING THAT:
 A

THE RESPONDENT COURT OF APPEALS GARAVELY ERRED IN RULING

THAT PETITIONER IS LIABLE TO PAY DAMAGES AND UNREALIZED
PROFITS TO THE PRIVATE RESPONDENTS DESPITE THE FACT THAT NO
AGENCY RELATIONSHIP EXISTS BETWEEN THEM.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PETITIONER ACTED IN BAD FAITH AGAINST THE PRIVATE
RESPONDENT CORPORATION DESPITE THE FACT THAT SAID RULING IS
CONTRARY TO THE EVIDENCE ON RECORD.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE NON-EXCLUSIVITY CLAUSE IN THE DEALERSHIP AGREEMENT
EXECUTED BETWEEN THE PETITIONER AND PRIVATE RESPONDENT
CORPORATION PRECLUDES THE PETITIONER FROM COMPETING WITH
THE PRIVATE RESPONDENT CORPORAITON.

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO UNREALIZED PROFITS,
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES. 4

Petitioner SEACOM disputes the conclusion of the Court of Appeals that despite the fact that no
agency relationship existed between the parties, the SEACOM is still liable in damages and
unrealized profits for the reason that it acted in bad faith. Petitioner SEACOM invokes the non-
exclusivity clause in the dealership agreement and claims that the transaction with FSDC was
concluded pursuant to a public bidding and not on the basis of alleged information it received
from private respondent Tirso Jamandre. Moreover, petitioner SEACOM claims that it did not
underprice its products during the public bidding wherein both SEACOM and JII participated.
Petitioner also disputes the award of moral damages to JII which is a corporation, in the
absence of any evidence that the said corporation had a good reputation which was debased.

Private respondents in their comment, contends that the four assigned errors raise mixed
questions of fact and law and are therefore beyond the jurisdiction of the Supreme Court which
may take cognizance of only questions of law. The assigned errors were also refuted to secure
affirmance of the appealed decision. JII maintains that the bidding set by FSDC on March 24,
1997 was scheduled after the demonstration conducted by JII, and after JII informed SEACOM
about the preference of the farmers to buy Mitsubishi tillers. JII further rebuts the SEACOM's
contention that the transaction with FSDC was pursuant to a public bidding with full disclosure to
the public and private respondent JII considering that JII had nothing to do with the list of 37
bidders and cannot be bound by the listing made by SEACOM's employee; moreover, JII did not
participate in the bidding not having been informed about it. Furthermore, the price at which
SEACOM sold to FSDC was lower than the price it gave to JII. Also, even if the dealership
agreement was not exclusive, it was breached when petitioner in bad faith sold directly to FSDC
with whom JII had previously offered the subject farm equipment. With respect to the awards of
moral and exemplary damages, JII seeks an affirmation of the ruling of the Court of Appeals
justifying the awards.

SEACOM filed Reply defending the jurisdiction of this Court over the instant petition since the
decision of the Court of Appeals was "based on a misapprehension of facts". SEACOM insists
that FSDC's purchase was made pursuant to a public bidding, and even if SEACOM did not
participate thereon, JII would not necessarily have closed the deal since thirty seven (37)
bidders participated. SEACOM contends that no evidence was presented to prove that the
bidding was a fraudulent scheme of SEACOM and FSDC. SEACOM further controverts JII's
contention that JII did not take part in the bidding as Tirso Jamandre was one of the bidders and
that SEACOM underpriced its products to entice FSDC to buy directly from it. In fine, JII is not
entitled to the award of unrealized profits and damages.

In its Rejoinder, private responder insist that there is an agency relationship, citing the evidence
showing that credit memos and not cash vouchers were issued to JII by SEACOM for every
delivery from November 26, 1976 to December 24, 1978. Private respondents maintain that
SEACOM "torpedoed the emerging deal between JII and FSDC after being informed about it by
JII by dealing directly with FSDC at a lower price" and after betraying JII, SEACOM would cover
up the deceit by conniving with FSDC to post up a "sham public bidding.

SEACOM's sur-rejoinder contains basically a reiteration of its contention in previous pleadings.

Additionally, it is contended that private respondents are barred from questioning in their
Rejoinder, the finding of the Court of Appeals that there is no agency relationship between the
parties since this matter was not raised as error in their comment.

The core issue is whether SEACOM acted in bad faith when it competed with its own dealer as
regards the sale of farm machineries to FSDC.

Both the trial court and the Court of Appeals held affirmatively; the trial court found that JII was
an agent of SEACOM and the act of SEACOM in dealing directly with FSDC was unfair and
unjust to its agent, and that there was fraud in the transaction between FSDC and SEACOM to
the prejudice of JII. On the other hand, the Court of Appeals ruled that there was no agency
relationship between the parties but SEACOM is nevertheless liable in damages for having
acted in bad faith when it competed with its own dealer in the sale of the farm machineries to
FSDC. Both courts invoke as basis for the award Article 19 of the Civil Code which reads as
follows:

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

The principle of abuse of rights stated in the above article, departs from the classical theory that
"he who uses a right injures no one". The modern tendency is to depart from the classical and
traditional theory, and to grant indemnity for damages in cases where there is an abuse of
rights, even when the act is not illicit. 5

Art. 19 was intended to expand the concept of torts by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to provide specifically in
statutory law. 6 If mere fault or negligence in one's acts can make him liable for damages for
injury caused thereby, with more reason should abuse or bad faith make him liable. The
absence of good faith is essential to abuse of right. Good faith is an honest intention to abstain
from taking any unconscientious advantage of another, even through the forms or technicalities
of the law, together with an absence of all information or belief of fact which would render the
transaction unconscientious. In business relations, it means good faith as understood by men of
affairs. 7

While Article 19 may have been intended as a mere declaration of

principle 8, the "cardinal law on human conduct" expressed in said article has given rise to
certain rules, e.g. that where a person exercises his rights but does so arbitrarily or unjustly or
performs his duties in a manner that is not in keeping with honesty and good faith, he opens
himself to liability. 9 The elements of an abuse of rights under Article 19 are: (1) there is a legal
right or duty; (2) which is exercised in bad faith; (3) for the sole intent of prejudicing or injuring
another. 10

The issue whether JII is "entitled to recovery on its counterclaim for unrealized profit in the
twenty one (21) units of Mitsubishi power tillers sold by SEACOM to FSDC" was resolved by the
trial court in favor of JII on the basis of documentary evidence 11 showing that (1) JII has
informed SEACOM as early as February 1977 of the promotions undertaken by JII for the sale
of 24 contracted units to FSDC and in connection therewith, requested a 50% discount to make
the price competitive, and to increase the warranty period for eight months to one year. In said
letter Jamandre clarified that they were not amenable to SEACOM's offering directly to FSDC"
and to be only given the usual overriding commission as "we have considerable investments on
this transaction". (2) In response, the general sales manager of SEACOM declined to give the
requested 50% discount and offered a "less 30% less 10% up to end March . . . on cash before
delivery basis", granted the requested extension of the warranty period and stated that "we are
glad to note that you have quite a number of units pending with the FSDC."

The trial court ruled that with said information, SEACOM dealt directly with FSDC and offered its
units at a lower price, leaving FSDC "no choice but to accept the said offer of (SEACOM)".

In affirming the judgment of the of the trial court, the Court of Appeals held that by virtue of the
dealership agreement the competition in the market as regards the sale of farm equipment shall
be between JII, as the dealer of SEACOM, and other companies, not as against SEACOM itself,
the Court stated:

However, SEACOM not satisfied with the presence of its dealer JII in the market,
joined the competition even as against the latter, and thereby changed the
scenario of the competition thereby rendering inutile the dealership agreement
which they entered into to the manifest prejudice of JII. Hence the trial court trial
court was correct when it applied Art. 19 of the Civil Code in the case at bar in
that appellant SEACOM acted in bad faith when it competed with its own dealer
as regards the sale of farm machineries, thereby depriving appellee JII of the
opportunity to gain a clear profit of P85,000.00.

We find no cogent reason to overturn the factual finding of the two courts that SEACOM joined
the bidding for the sale of the farm equipment after it was informed that JII was already
promoting the sales of said equipment to the FSDC. Moreover, the conclusion of the trial court
that the SEACOM offered FSDC a lower price than the price offered by JII to FSDC is supported
by the evidence: the price offered by JII to FSDC is P27,167 per unit 12 but the prices at which
SEACOM sold to FSDC were at P22,867.00 for Model CT 83-2, P21,093.50 for model CT 83-E,
and P18,979.25 for model CT 534. The fact that SEACOM may have offered to JII, in lieu of a
requested 50% discount, a discount effectively translating to 37% of the list price and actually
sold to FSDC at 35% less than the list price 13 does not detract from the fact that by participating
in the bidding of FSDC, it actually competed with its own dealer who had earlier conducted
demonstrations and promoted its own products for the sale of the very same equipment, Exh.
"N" for the plaintiff confirms that both SEACOM and Jamandre participated in the
bidding. 14 However, the SEACOM was awarded the contract directly from Manila. 15 The
testimony of Tirso Jamandre that JII was the sole representative of SEACOM in the local
demonstrations to convince the farmers and cooperative officers to accept the Mitsubishi brand
of equipment in preference to other brands, was unrebutted by SEACOM.

Clearly, the bad faith of SEACOM was established. By appointing as a dealer of its agricultural
equipment, SEACOM recognized the role and undertaking of JII to promote and sell said
equipment. Under the dealership agreement, JII was to act as a middleman to sell SEACOM's
products, in its area of operations, i.e. Iloilo and Capiz provinces, to the exclusion of other
places, 16 to send its men to Manila for training on repair, servicing and installation of the items
to be handled by it, and to comply with other personnel and vehicle requirements intended for
the benefit of the dealership. 17 After being informed of the demonstrations JII had conducted to
promote the sales of SEACOM equipment, including the operations at JII's expense conducted
for five months, and the approval of its facilities (service and parts) by FSDC, 18 SEACOM
participated in the bidding for the said equipment at a lower price, placing itself in direct
competition with its own dealer. The actuations of SEACOM are tainted by bad faith.

Even if the dealership agreement was amended to make it on a non-exclusive

basis, 19 SEACOM may not exercise its right unjustly or in a manner that is not in keeping with
honesty or good faith; otherwise it opens itself to liability under the abuse of right rule embodied
in Article 19 of the Civil Code above-quoted. This provision, together with the succeeding article
on human relation, was intended to embody certain basic principles "that are to be observed for
the rightful relationship between human being. and for the stability of the social order." 20 What is
sought to be written into the law is the pervading principle of equity and justice above strict
legalism. 21

We accordingly resolve to affirm the award for unrealized profits. The Court of Appeals noted
that the trial court failed to specify to which the two appellees the award for moral and
exemplary damages in granted. However, in view of the fact that moral damages are not as a
general rule granted to a corporation, and that Tirso Jamandre was the one who testified on his
feeling very aggrieved and on his mental anguish and sleepless nights thinking of how
SEACOM "dealt with us behind (our) backs", 22 the award should go to defendant Jamandre,
President of JII.

WHEREFORE. the judgment appealed from is AFFIRMED with the modification that the award
of P2,000.00 in moral and exemplary damages shall be paid to defendant Tirso Jamandre.

Costs against appellant.

SO ORDERED.
G.R. No. 159590             October 18, 2004

HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, petitioner,

vs.
CECILIA DIEZ CATALAN, respondent.

x----------------------------x

G.R. No. 159591             October 18, 2004

HSBC INTERNATIONAL TRUSTEE LIMITED, petitioner,

vs.
CECILIA DIEZ CATALAN, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us are two petitions for review on certiorari under Rule 45 of the Rules of Court
separately filed by the Hongkong and Shanghai Banking Corporation Limited (HSBANK) and
HSBC International Trustee Limited (HSBC TRUSTEE). They seek the reversal of the
consolidated Decision,1 dated August 14, 2003, of the Court of Appeals (CA) in CA-G.R. SP
Nos. 75756 and 75757, which dismissed the petitions for certiorari of herein petitioners assailing
the Order, dated May 15, 2002, of the Regional Trial Court, Branch 44, Bacolod City (RTC) in
Civil Case No. 01-11372 that denied their respective motions to dismiss the amended complaint
of respondent Cecilia Diez Catalan.

The factual antecedents are as follows:

On January 29, 2001, respondent filed before the RTC, a complaint for a sum of money
with damages against petitioner HSBANK, docketed as Civil Case No. 01-11372, due to
HSBANK’s alleged wanton refusal to pay her the value of five HSBANK checks issued
by Frederick Arthur Thomson (Thomson) amounting to HK$3,200,000.00.2

On February 7, 2001, summons was served on HSBANK at the Enterprise Center, Tower I,
Ayala Avenue corner Paseo de Roxas St., Makati City.3 HSBANK filed a Motion for Extension of
Time to File Answer or Motion to Dismiss dated February 21, 2001. 4 Then, it filed a Motion to
Dismiss, dated March 8, 2001, on the grounds that (a) the RTC has no jurisdiction over the
subject matter of the complaint; (b) the RTC has not acquired jurisdiction for failure of the
plaintiff to pay the correct filing or docket fees; (c) the RTC has no jurisdiction over the person of
HSBANK; (d) the complaint does not state a cause of action against HSBANK; and (e) plaintiff
engages in forum-shopping.5

On September 10, 2001, Catalan filed an Amended Complaint impleading petitioner HSBC
TRUSTEE as co-defendant and invoking Article 19 of the Civil Code as basis for her cause of
action.6

The Amended Complaint alleges:

Defendants HSBANK and HSBC TRUSTEE, doing business in the Philippines, are
corporations duly organized under the laws of the British Virgin Islands with head office
at 1 Grenville Street, St. Helier Jersey, Channel Islands and with branch offices at Level
12, 1 Queen’s Road Central, Hongkong and may be served with summons and other
court processes through their main office in Manila with address at HSBC, the Enterprise
Center, Tower 1, Ayala Avenue corner Paseo de Roxas Street, Makati City.

Sometime in March 1997, Thomson issued five HSBANK checks payable to Catalan, to wit:

CHECK NO. DATE AMOUNT

807852 Mar. 15, 1997 $600,000.00
807853 Mar. 17, 1997 800,000.00
807854 Mar. 17, 1997 600,000.00
807855 Mar. 22, 1997 600,000.00
807856 Mar. 23, 1997 600,000.00

TOTAL $3,200,000.00

The checks when deposited were returned by HSBANK purportedly for reason of "payment
stopped" pending confirmation, despite the fact that the checks were duly funded. On March 18,
1997, Thomson wrote a letter to a certain Ricky Sousa 7 of HSBANK confirming the checks he
issued to Catalan and requesting that all his checks be cleared. On March 20, 1997, Thomson
wrote another letter to Sousa of HSBANK requesting an advice in writing to be sent to the
Philippine National Bank, through the fastest means, that the checks he previously issued to
Catalan were already cleared. Thereafter, Catalan demanded that HSBANK make good the
checks issued by Thomson. On May 16, 1997, Marilou A. Lozada, personal secretary and
attorney-in-fact of Thomson, wrote a letter to Sousa of HSBANK informing him that HSBANK’s
failure to clear all the checks had saddened Thomson and requesting that the clearing of the
checks be facilitated. Subsequently, Thomson died and Catalan forwarded her demand to
HSBC TRUSTEE. Catalan sent photocopies of the returned checks to HSBC TRUSTEE. Not
satisfied, HSBC TRUSTEE through deceit and trickery, required Catalan, as a condition for the
acceptance of the checks, to submit the original copies of the returned checks, purportedly, to
hasten payment of her claim. HSBC TRUSTEE succeeded in its calculated deception because
on April 21, 1999, Catalan and her former counsel went to Hongkong at their own expense to
personally deliver the originals of the returned checks to the officers of HSBC TRUSTEE,
anxious of receiving the money value of the checks but HSBC TRUSTEE despite receipt of the
original checks, refused to pay Catalan’s claim. Having seen and received the original of the
checks, upon its request, HSBC TRUSTEE is deemed to have impliedly accepted the checks.
Moreover, the refusal of HSBANK and HSBC TRUSTEE to pay the checks is equivalent to
illegal freezing of one’s deposit. On the assurance of HSBC TRUSTEE that her claim will soon
be paid, as she was made to believe that payments of the checks shall be made by HSBC
TRUSTEE "upon sight," the unsuspecting Catalan left the originals of the checks with HSBC
TRUSTEE and was given only an acknowledgment receipt. Catalan made several demands and
after several more follow ups, on August 16, 1999, Phoenix Lam, Senior Vice President of
HSBC TRUSTEE, in obvious disregard of her valid claim, informed Catalan that her claim is
disapproved. No reason or explanation whatsoever was made why her claim was disapproved,
neither were the checks returned to her. Catalan appealed for fairness and understanding, in
the hope that HSBC TRUSTEE would act fairly and justly on her claim but these demands were
met by a stonewall of silence. On June 9, 2000, Catalan through counsel sent a last and final
demand to HSBC TRUSTEE to remit the amount covered by the checks but despite receipt of
said letter, no payment was made. Clearly, the act of the HSBANK and HSBC TRUSTEE in
refusing to honor and pay the checks validly issued by Thomson violates the abuse of rights
principle under Article 19 of the Civil Code which requires that everyone must act with justice,
give everyone his due and observe honesty and good faith. The refusal of HSBANK and HSBC
TRUSTEE to pay the checks without any valid reason is intended solely to prejudice and injure
Catalan. When they declined payment of the checks despite instructions of the drawer,
Thomson, to honor them, coupled with the fact that the checks were duly funded, they acted in
bad faith, thus causing damage to Catalan. A person may not exercise his right unjustly or in a
manner that is not in keeping with honesty or good faith, otherwise he opens himself to liability
for abuse of right.8

Catalan prays that HSBANK and HSBC TRUSTEE be ordered to pay ₱20,864,000.00
representing the value of the five checks at the rate of ₱6.52 per HK$1 as of January 29, 2001
for the acts of HSBANK and HSBC TRUSTEE in refusing to pay the amount justly due her, in
addition to moral and exemplary damages, attorney’s fees and litigation expenses.9

On October 2, 2001, HSBANK filed a Motion to Dismiss Amended Complaint on the grounds
that: (a) the RTC has no jurisdiction over the subject matter of the complaint since the action is
a money claim for a debt contracted by Thomson before his death which should have been filed
in the estate or intestate proceedings of Thomson; (b) Catalan engages in forum shopping by
filing the suit and at the same time filing a claim in the probate proceeding filed with another
branch of the RTC; (c) the amended complaint states no cause of action against HSBANK since
it has no obligation to pay the checks as it has not accepted the checks and Catalan did not re-
deposit the checks or make a formal protest; (d) the RTC has not acquired jurisdiction over the
person of HSBANK for improper service of summons; and, (e) it did not submit to the jurisdiction
of the RTC by filing a motion for extension of time to file a motion to dismiss.10

Meanwhile, on October 17, 2001, summons for HSBC TRUSTEE was tendered to the In House
Counsel of HSBANK (Makati Branch) at the Enterprise Center, Tower 1, Ayala Avenue corner
Paseo de Roxas, Makati. Without submitting itself to the jurisdiction of the RTC, HSBC
TRUSTEE filed a Special Appearance for Motion to Dismiss Amended Complaint, dated
October 29, 2001, questioning the jurisdiction of the RTC over it.11 HSBC TRUSTEE alleges that
tender of summons through HSBANK Makati did not confer upon the RTC jurisdiction over it
because: (a) it is a corporation separate and distinct from HSBANK; (b) it does not hold office at
the HSBANK Makati or in any other place in the Philippines; (c) it has not authorized HSBANK
Makati to receive summons for it; and, (d) it has no resident agent upon whom summons may
be served because it does not transact business in the Philippines.

Subsequently, HSBC TRUSTEE filed a Submission, dated November 15, 2001, attaching the
Affidavit executed in Hongkong by Phoenix Lam, Senior Vice-President of HSBC TRUSTEE,
attesting to the fact that: 1) HSBC TRUSTEE has not done nor is it doing business in the
Philippines; 2) it does not maintain any office in Makati or anywhere in the Philippines; 3) it has
not appointed any agent in Philippines; and 4) HSBANK Makati has no authority to receive any
summons or court processes for HSBC TRUSTEE.12

On May 15, 2002, the RTC issued an Order denying the two motions to dismiss. 13 The RTC
held that it has jurisdiction over the subject matter of the action because it is an action for
damages under Article 19 of the Civil Code for the acts of unjustly refusing to honor the checks
issued by Thomson and not a money claim against the estate of Thomson; that Catalan did not
engage in forum-shopping because the elements thereof are not attendant in the case; that the
question of cause of action should be threshed out or ventilated during the proceedings in the
main action and after the plaintiff and defendants have adduced evidence in their favor; that it
acquired jurisdiction over the person of defendants because the question of whether a foreign
corporation is doing business or not in the Philippines cannot be a subject of a Motion to
Dismiss but should be ventilated in the trial on the merits; and defendants voluntarily submitted
to the jurisdiction of the RTC setting up in their Motions to Dismiss other grounds aside from
lack of jurisdiction.

HSBANK and HSBC TRUSTEE filed separate motions for reconsideration14 but both proved
futile as they were denied by the RTC in an Order dated December 20, 2002.15

On February 21, 2003, Catalan moved to declare HSBANK and HSBC TRUSTEE in default for
failure to file their answer to the amended complaint.

On March 5, 2003, HSBANK and HSBC TRUSTEE filed separate petitions for certiorari and/or
prohibition with the CA, docketed as CA-G.R. SP Nos. 7575616 and 75757,17 respectively.

Subsequently, HSBANK and HSBC TRUSTEE filed before the RTC separate Answers ad
cautelam, both dated March 18, 2003, as a "precaution against being declared in default and
without prejudice to the separate petitions for certiorari and/or prohibition then pending with the
CA."18

Meanwhile, the two petitions for certiorari before the CA were consolidated and after responsive
pleadings were filed, the cases were deemed submitted for decision.

In a consolidated Decision dated August 14, 2003, the CA dismissed the two petitions for
certiorari.19 The CA held that the filing of petitioners’ answers before the RTC rendered moot
and academic the issue of the RTC’s lack of jurisdiction over the person of the petitioners; that
the RTC has jurisdiction over the subject matter since it is one for damages under Article 19 of
the Civil Code for the alleged unjust acts of petitioners and not a money claim against the estate
of Thomson; and, that the amended complaint states a cause of action under Article 19 of the
Civil Code which could merit a favorable judgment if found to be true. The CA noted that
Catalan may have prayed for payment of the value of the checks but ratiocinated that she
merely used the value as basis for the computation of the damages.
Hence, the present petitions.

In G.R. No. 159590, HSBANK submits the following assigned errors:

I.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING

THAT THE COURT A QUO, ACTING AS AN (SIC) REGULAR COURT, HAS
JURISDICTION OVER THE AMENDED COMPLAINT SEEKING TO ORDER
HSBC TRUSTEE, THE EXECUTOR OF THE DECEASED FREDERICK
ARTHUR THOMSON, TO PAY SUBJECT CHECKS ISSUED BY THE LATE
FREDERICK ARTHUR THOMSON, ADMITTEDLY IN PAYMENT OF HIS
INDEBTEDNESS TO CATALAN.

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING

THAT THE AMENDED COMPLAINT DOES NOT SEEK TO ORDER HSBANK
AND HSBC INTERNATIONAL TRUSTEE LIMITED TO PAY THE OBLIGATION
OF THE (SIC) FREDERICK ARTHUR THOMSON AS EVIDENCED BY THE
CHECKS, BUT PRAYS FOR DAMAGES EQUIVALENT OR COMPUTED ON
THE BASIS OF THE VALUE OF THE CHECKS BECAUSE THE DEFENDANTS
FAILED TO COMPLY WITH THE MANDATES OF ARTICLE 19 OF THE NEW
CIVIL CODE.

III.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING

THAT ALLEGATIONS IN THE AMENDED COMPLAINT MAKE OUT A CAUSE
OF ACTION WHICH COULD MERIT A FAVORABLE JUDGMENT IF FOUND TO
BE TRUE, OR IN NOT HOLDING THAT THE AMENDED COMPLAINT STATES
NO CAUSE OF ACTION AGAINST HSBANK, AS DRAWEE BANK.

IV.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN

DISREGARDING THE FACT THAT CATALAN ENGAGED IN FORUM
SHOPPING BY FILING THE AMENDED COMPLAINT WHILE HER PETITION
FOR THE PROBATE OF THE SUPPOSED WILL OF THE DECEASED
FREDERICK ARTHUR THOMSON IS PENDING WITH ANOTHER BRANCH OF
THE COURT A QUO.

V.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING

THAT HSBANK HAD SUBMITTED TO THE JURISDICTION OF THE COURT A
QUO BY SUBMITTING AN ANSWER TO THE AMENDED COMPLAINT.20
In G.R. No. 159591, HSBC TRUSTEE also assigns the foregoing first, second and fifth errors as
its own.21 In addition, it claims that:

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT ORDERING THE

DISMISSAL OF THE AMENDED COMPLAINT AGAINST HSBC TRUSTEE DESPITE
THE FACT IT HAS NOT BEEN DULY SERVED WITH SUMMONS.22

HSBANK and HSBC TRUSTEE contend in common that Catalan has no cause of action for
abuse of rights under Article 19 of the Civil Code; that her complaint, under the guise of a claim
for damages, is actually a money claim against the estate of Thomson arising from checks
issued by the latter in her favor in payment of indebtedness.

HSBANK claims that the money claim should be dismissed on the ground of forum-shopping
since Catalan also filed a petition for probate of the alleged last will of Thomson before RTC,
Branch 48, Bacolod City, docketed as Spec. Proc No. 00-892. In addition, HSBANK imputes
error upon the CA in holding that by filing an answer to the amended complaint, petitioners are
estopped from questioning the jurisdiction of the RTC.

HSBC TRUSTEE maintains that the RTC did not acquire jurisdiction over it for improper service
of summons.

In her Comment, Catalan insists that her complaint is one for damages under Article 19 of the
Civil Code for the wanton refusal to honor and pay the value of five checks issued by the
Thomson amounting to HK$3,200,000.00. She argues that the issue of jurisdiction has been
rendered moot by petitioners’ participation in the proceedings before the RTC.

Succinctly, the issues boil down to the following:

1) Does the complaint state a cause of action?

2) Did Catalan engage in forum-shopping by filing the complaint for damages when she
also filed a petition for probate of the alleged last will of Thomson with another branch of
the RTC? and,

3) Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE? Corollary
thereto, did the filing of the answer before the RTC render the issue of lack of jurisdiction
moot and academic?

We shall resolve the issue in seriatim.

Does the complaint state a cause of action against HSBANK and HSBC TRUSTEE?

The elementary test for failure to state a cause of action is whether the complaint alleges facts
which if true would justify the relief demanded. Stated otherwise, may the court render a valid
judgment upon the facts alleged therein?23 The inquiry is into the sufficiency, not the veracity of
the material allegations.24 If the allegations in the complaint furnish sufficient basis on which it
can be maintained, it should not be dismissed regardless of the defense that may be presented
by the defendants.25
Catalan anchors her complaint for damages on Article 19 of the Civil Code. It speaks of the
fundamental principle of law and human conduct that a person "must, in the exercise of his
rights and in the performance of his duties, act with justice, give every one his due, and observe
honesty and good faith." It sets the standards which may be observed not only in the exercise of
one’s rights but also in the performance of one’s duties. When a right is exercised in a manner
which does not conform with the norms enshrined in Article 19 and results in damage to
another, a legal wrong is thereby committed for which the wrongdoer must be held
responsible.26 But a right, though by itself legal because recognized or granted by law as such,
may nevertheless become the source of some illegality. A person should be protected only
when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in
good faith; but not when he acts with negligence or abuse. 27 There is an abuse of right when it is
exercised for the only purpose of prejudicing or injuring another. The exercise of a right must be
in accordance with the purpose for which it was established, and must not be excessive or
unduly harsh; there must be no intention to injure another.28

Thus, in order to be liable under the abuse of rights principle, three elements must concur, to
wit: (a) that there is a legal right or duty; (b) which is exercised in bad faith; and (c) for the sole
intent of prejudicing or injuring another.29

In this instance, after carefully examining the amended complaint, we are convinced that the
allegations therein are in the nature of an action based on tort under Article 19 of the Civil Code.
It is evident that Catalan is suing HSBANK and HSBC TRUSTEE for unjustified and willful
refusal to pay the value of the checks.

HSBANK is being sued for unwarranted failure to pay the checks notwithstanding the repeated
assurance of the drawer Thomson as to the authenticity of the checks and frequent directives to
pay the value thereof to Catalan. Her allegations in the complaint that the gross inaction of
HSBANK on Thomson’s instructions, as well as its evident failure to inform Catalan of the
reason for its continued inaction and non-payment of the checks, smack of insouciance on its
part, are sufficient statements of clear abuse of right for which it may be held liable to Catalan
for any damages she incurred resulting therefrom. HSBANK’s actions, or lack thereof,
prevented Catalan from seeking further redress with Thomson for the recovery of her claim
while the latter was alive.

HSBANK claims that Catalan has no cause of action because under Section 189 of the
Negotiable Instruments Law, "a check of itself does not operate as an assignment of any part of
the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless
and until it accepts or certifies it." However, HSBANK is not being sued on the value of the
check itself but for how it acted in relation to Catalan’s claim for payment despite the repeated
directives of the drawer Thomson to recognize the check the latter issued. Catalan may have
prayed that she be paid the value of the checks but it is axiomatic that what determines the
nature of an action, as well as which court has jurisdiction over it, are the allegations of the
complaint, irrespective of whether or not the plaintiff is entitled to recover upon all or some of the
claims asserted therein.30

Anent HSBC TRUSTEE, it is being sued for the baseless rejection of Catalan’s claim. When
Catalan parted with the checks as a requirement for the processing of her claim, even going to
the extent of traveling to Hongkong to deliver personally the checks, HSBC TRUSTEE
summarily disapproved her claim with nary a reason. HSBC TRUSTEE gave no heed to
Catalan’s incessant appeals for an explanation. Her pleas fell on deaf and uncaring corporate
ears. Clearly, HSBC TRUSTEE’s acts are anathema to the prescription for human conduct
enshrined in Article 19 of the Civil Code.

Did Catalan engage in forum-shopping?

It has been held that forum-shopping exists where a litigant sues the same party against whom
another action or actions for the alleged violation of the same right and the enforcement of the
same relief is/are still pending, the defense of litis pendentia in one case is a bar to the others;
and, a final judgment in one would constitute res judicata and thus would cause the dismissal of
the rest.31

Thus, there is forum-shopping when there exist: a) identity of parties, or at least such parties as
represent the same interests in both actions, b) identity of rights asserted and relief prayed for,
the relief being founded on the same facts, and c) the identity of the two preceding particulars is
such that any judgment rendered in the pending case, regardless of which party is successful
would amount to res judicata in the other.32

Applying the foregoing requisites to the case before us in relation to Spec. Proc No. 00-892, the
probate proceeding brought by Catalan before RTC, Branch 48, Bacolod City, it is obvious that
forum-shopping does not exist.

There is no identity of parties. HSBANK is not a party in the probate proceeding. HSBC
TRUSTEE is only a party in the probate proceeding because it is the executor and trustee
named in the Hongkong will of Thomson. HSBC TRUSTEE is representing the interest of the
estate of Thomson and not its own corporate interest.

With respect to the second and third requisites, a scrutiny of the entirety of the allegations of the
amended complaint in this case reveals that the rights asserted and reliefs prayed for therein
are different from those pleaded in the probate proceeding, such that a judgment in one case
would not bar the prosecution of the other case. Verily, there can be no forum-shopping where
in one proceeding a party raises a claim for damages based on tort and, in another proceeding
a party seeks the allowance of an alleged last will based on one’s claim as an heir. After all, the
merits of the action for damages is not to be determined in the probate proceeding and vice
versa. Undeniably, the facts or evidence as would support and establish the two causes of
action are not the same.33 Consequently, HSBANK’s reliance on the principle of forum-shopping
is clearly misplaced.

Did the RTC acquire jurisdiction over HSBANK and HSBC TRUSTEE?

The Rules of Court provides that a court generally acquires jurisdiction over a person through
either a valid service of summons in the manner required by law or the person’s voluntary
appearance in court.34

In holding that it acquired jurisdiction over HSBANK and HSBC TRUSTEE, the RTC held that
both voluntarily submitted to the jurisdiction of the court by setting up in their Motions to Dismiss
other grounds aside from lack of jurisdiction. On the other hand, the CA ruled that HSBANK and
HSBC TRUSTEE are estopped from challenging the jurisdiction of the RTC because they filed
their respective answers before the RTC.
We find that both lower courts overlooked Section 20 of Rule 14 of the 1997 Rules of Civil
Procedure which provides that "the inclusion in a motion to dismiss of other grounds aside from
lack of jurisdiction over the person of the defendant shall not be deemed a voluntary
appearance." Nonetheless, such omission does not aid HSBANK’s case.

It must be noted that HSBANK initially filed a Motion for Extension of Time to File Answer or
Motion to Dismiss.35 HSBANK already invoked the RTC’s jurisdiction over it by praying that its
motion for extension of time to file answer or a motion to dismiss be granted. The Court has
held that the filing of motions seeking affirmative relief, such as, to admit answer, for additional
time to file answer, for reconsideration of a default judgment, and to lift order of default with
motion for reconsideration, are considered voluntary submission to the jurisdiction of the
court.36 Consequently, HSBANK’s expressed reservation in its Answer ad cautelam that it filed
the same "as a mere precaution against being declared in default, and without prejudice to the
Petition for Certiorari and/or Prohibition xxx now pending before the Court of Appeals" 37 to assail
the jurisdiction of the RTC over it is of no moment. Having earlier invoked the jurisdiction of the
RTC to secure affirmative relief in its motion for additional time to file answer or motion to
dismiss, HSBANK, effectively submitted voluntarily to the jurisdiction of the RTC and is thereby
estopped from asserting otherwise, even before this Court.

In contrast, the filing by HSBC TRUSTEE of a motion to dismiss cannot be considered a

voluntary submission to the jurisdiction of the RTC. It was a conditional appearance, entered
precisely to question the regularity of the service of summons. It is settled that a party who
makes a special appearance in court challenging the jurisdiction of said court, e.g., invalidity of
the service of summons, cannot be considered to have submitted himself to the jurisdiction of
the court.38 HSBC TRUSTEE has been consistent in all its pleadings in assailing the service of
summons and the jurisdiction of the RTC over it. Thus, HSBC TRUSTEE cannot be declared in
estoppel when it filed an Answer ad cautelam before the RTC while its petition for certiorari was
pending before the CA. Such answer did not render the petition for certiorari before the CA moot
and academic. The Answer of HSBC TRUSTEE was only filed to prevent any declaration that it
had by its inaction waived the right to file responsive pleadings.

Admittedly, HSBC TRUSTEE is a foreign corporation, organized and existing under the laws of
the British Virgin Islands. For proper service of summons on foreign corporations, Section 12 of
Rule 14 of the Revised Rules of Court provides:

SEC. 12. Service upon foreign private juridical entity. – When the defendant is a foreign
private juridical entity which has transacted business in the Philippines, service may be
made on its resident agent designated in accordance with law for that purpose, or if
there be no such agent, on the government official designated by law to that effect, or on
any of its officers or agents within the Philippines.

In French Oil Mill Machinery Co., Inc. vs. Court of Appeals, 39 we had occasion to rule that it is
not enough to merely allege in the complaint that a defendant foreign corporation is doing
business. For purposes of the rule on summons, the fact of doing business must first be
"established by appropriate allegations in the complaint" and the court in determining such fact
need not go beyond the allegations therein.40

The allegations in the amended complaint subject of the present cases did not sufficiently show
the fact of HSBC TRUSTEE’s doing business in the Philippines. It does not appear at all that
HSBC TRUSTEE had performed any act which would give the general public the impression
that it had been engaging, or intends to engage in its ordinary and usual business undertakings
in the country. Absent from the amended complaint is an allegation that HSBC TRUSTEE had
performed any act in the country that would place it within the sphere of the court’s jurisdiction.

We have held that a general allegation, standing alone, that a party is doing business in the
Philippines does not make it so; a conclusion of fact or law cannot be derived from the
unsubstantiated assertions of parties notwithstanding the demands of convenience or dispatch
in legal actions, otherwise, the Court would be guilty of sorcery; extracting substance out of
nothingness.41

Besides, there is no allegation in the amended complaint that HSBANK is the domestic agent of
HSBC TRUSTEE to warrant service of summons upon it. Thus, the summons tendered to the In
House Counsel of HSBANK (Makati Branch) for HSBC TRUSTEE was clearly improper.

There being no proper service of summons, the RTC cannot take cognizance of the case
against HSBC TRUSTEE for lack of jurisdiction over it. Any proceeding undertaken by the RTC
is therefore null and void.42 Accordingly, the complaint against HSBC TRUSTEE should have
been dismissed for lack of jurisdiction over it.

WHEREFORE, the petition in G.R. No. 159590 is DENIED. The Decision of the Court of

Appeals, dated August 14, 2003, in CA-G.R. SP No. 75757 dismissing the petition for certiorari
of the Hongkong and Shanghai Banking Corporation Limited is AFFIRMED.

The petition in G.R. No. 159591 is GRANTED. The Decision of the Court of Appeals, dated
August 14, 2003, in CA-G.R. SP No. 75756 dismissing the petition for certiorari of the HSBC
International Trustee Limited is REVERSED and SET ASIDE. The Regional Trial Court, Branch
44, Bacolod City is declared without jurisdiction to take cognizance of Civil Case No. 01-11372
against the HSBC International Trustee Limited, and all its orders and issuances with respect to
the latter are hereby ANNULLED and SET ASIDE. The said Regional Trial Court is
hereby ORDERED to DESIST from maintaining further proceedings against the HSBC
International Trustee Limited in the case aforestated.

SO ORDERED.
G.R. No. 146322             December 6, 2006

ERNESTO RAMAS UYPITCHING and RAMAS UYPITCHING SONS, INC., petitioners,

vs.
ERNESTO QUIAMCO, respondent.

CORONA, J.:

Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not to injure
others and to give everyone his due. These supreme norms of justice are the underlying
principles of law and order in society. We reaffirm them in this petition for review on certiorari
assailing the July 26, 2000 decision1 and October 18, 2000 resolution of the Court of Appeals
(CA) in CA-G.R. CV No. 47571.

In 1982, respondent Ernesto C. Quiamco was approached by Juan Davalan, 2 Josefino

Gabutero and Raul Generoso to amicably settle the civil aspect of a criminal case for
robbery3 filed by Quiamco against them. They surrendered to him a red Honda XL-100
motorcycle and a photocopy of its certificate of registration. Respondent asked for the original
certificate of registration but the three accused never came to see him again. Meanwhile, the
motorcycle was parked in an open space inside respondent’s business establishment, Avesco-
AVNE Enterprises, where it was visible and accessible to the public.

It turned out that, in October 1981, the motorcycle had been sold on installment basis to
Gabutero by petitioner Ramas Uypitching Sons, Inc., a family-owned corporation managed by
petitioner Atty. Ernesto Ramas Uypitching. To secure its payment, the motorcycle was
mortgaged to petitioner corporation.4
When Gabutero could no longer pay the installments, Davalan assumed the obligation and
continued the payments. In September 1982, however, Davalan stopped paying the remaining
installments and told petitioner corporation’s collector, Wilfredo Veraño, that the motorcycle had
allegedly been "taken by respondent’s men."

Nine years later, on January 26, 1991, petitioner Uypitching, accompanied by policemen, 5 went
to Avesco-AVNE Enterprises to recover the motorcycle. The leader of the police team, P/Lt.
Arturo Vendiola, talked to the clerk in charge and asked for respondent. While P/Lt. Vendiola
and the clerk were talking, petitioner Uypitching paced back and forth inside the establishment
uttering "Quiamco is a thief of a motorcycle."

On learning that respondent was not in Avesco-AVNE Enterprises, the policemen left to look for
respondent in his residence while petitioner Uypitching stayed in the establishment to take
photographs of the motorcycle. Unable to find respondent, the policemen went back to Avesco-
AVNE Enterprises and, on petitioner Uypitching’s instruction and over the clerk’s objection, took
the motorcycle.

On February 18, 1991, petitioner Uypitching filed a criminal complaint for qualified theft and/or
violation of the Anti-Fencing Law6 against respondent in the Office of the City Prosecutor of
Dumaguete City.7 Respondent moved for dismissal because the complaint did not charge an
offense as he had neither stolen nor bought the motorcycle. The Office of the City Prosecutor
dismissed the complaint8 and denied petitioner Uypitching’s subsequent motion for
reconsideration.

Respondent filed an action for damages against petitioners in the RTC of Dumaguete City,
Negros Oriental, Branch 37.9 He sought to hold the petitioners liable for the following: (1)
unlawful taking of the motorcycle; (2) utterance of a defamatory remark (that respondent was a
thief) and (3) precipitate filing of a baseless and malicious complaint. These acts humiliated and
embarrassed the respondent and injured his reputation and integrity.

On July 30, 1994, the trial court rendered a decision 10 finding that petitioner Uypitching was
motivated with malice and ill will when he called respondent a thief, took the motorcycle in an
abusive manner and filed a baseless complaint for qualified theft and/or violation of the Anti-
Fencing Law. Petitioners’ acts were found to be contrary to Articles 19 11 and 2012 of the Civil
Code. Hence, the trial court held petitioners liable to respondent for P500,000 moral
damages, P200,000 exemplary damages and P50,000 attorney’s fees plus costs.

Petitioners appealed the RTC decision but the CA affirmed the trial court’s decision with
modification, reducing the award of moral and exemplary damages to P300,000 and P100,000,
respectively.13 Petitioners sought reconsideration but it was denied. Thus, this petition.

In their petition and memorandum, petitioners submit that the sole (allegedly) issue to be
resolved here is whether the filing of a complaint for qualified theft and/or violation of the Anti-
Fencing Law in the Office of the City Prosecutor warranted the award of moral damages,
exemplary damages, attorney’s fees and costs in favor of respondent.

Petitioners’ suggestion is misleading. They were held liable for damages not only for instituting a
groundless complaint against respondent but also for making a slanderous remark and for
taking the motorcycle from respondent’s establishment in an abusive manner.
Correctness of the Findings of the RTC and CA

As they never questioned the findings of the RTC and CA that malice and ill will attended not
only the public imputation of a crime to respondent14 but also the taking of the motorcycle,
petitioners were deemed to have accepted the correctness of such findings. This alone was
sufficient to hold petitioners liable for damages to respondent.

Nevertheless, to address petitioners’ concern, we also find that the trial and appellate courts
correctly ruled that the filing of the complaint was tainted with malice and bad faith. Petitioners
themselves in fact described their action as a "precipitate act." 15 Petitioners were bent on
portraying respondent as a thief. In this connection, we quote with approval the following
findings of the RTC, as adopted by the CA:

x x x There was malice or ill-will [in filing the complaint before the City Prosecutor’s
Office] because Atty. Ernesto Ramas Uypitching knew or ought to have known as he is a
lawyer, that there was no probable cause at all for filing a criminal complaint for qualified
theft and fencing activity against [respondent]. Atty. Uypitching had no personal
knowledge that [respondent] stole the motorcycle in question. He was merely told by his
bill collector ([i.e.] the bill collector of Ramas Uypitching Sons, Inc.)[,] Wilfredo Veraño[,]
that Juan Dabalan will [no longer] pay the remaining installment(s) for the motorcycle
because the motorcycle was taken by the men of [respondent]. It must be noted that the
term used by Wilfredo Veraño in informing Atty. Ernesto Ramas Uypitching of the refusal
of Juan Dabalan to pay for the remaining installment was [‘]taken[’], not [‘]unlawfully
taken[’] or ‘stolen.’ Yet, despite the double hearsay, Atty. Ernesto Ramas Uypitching not
only executed the [complaint-affidavit] wherein he named [respondent] as ‘the suspect’
of the stolen motorcycle but also charged [respondent] of ‘qualified theft and fencing
activity’ before the City [Prosecutor’s] Office of Dumaguete. The absence of probable
cause necessarily signifies the presence of malice. What is deplorable in all these is that
Juan Dabalan, the owner of the motorcycle, did not accuse [respondent] or the latter’s
men of stealing the motorcycle[,] much less bother[ed] to file a case for qualified theft
before the authorities. That Atty. Uypitching’s act in charging [respondent] with qualified
theft and fencing activity is tainted with malice is also shown by his answer to the
question of Cupid Gonzaga16 [during one of their conversations] - "why should you still
file a complaint? You have already recovered the motorcycle…"[:] "Aron motagam ang
kawatan ug motor." ("To teach a lesson to the thief of motorcycle.")17

Moreover, the existence of malice, ill will or bad faith is a factual matter. As a rule, findings of
fact of the trial court, when affirmed by the appellate court, are conclusive on this Court. We see
no compelling reason to reverse the findings of the RTC and the CA.

Petitioners Abused Their Right of Recovery as Mortgagee(s)

Petitioners claim that they should not be held liable for petitioner corporation’s exercise of its
right as seller-mortgagee to recover the mortgaged vehicle preliminary to the enforcement of its
right to foreclose on the mortgage in case of default. They are clearly mistaken.

True, a mortgagee may take steps to recover the mortgaged property to enable it to enforce or
protect its foreclosure right thereon. There is, however, a well-defined procedure for the
recovery of possession of mortgaged property: if a mortgagee is unable to obtain possession of
a mortgaged property for its sale on foreclosure, he must bring a civil action either to recover
such possession as a preliminary step to the sale, or to obtain judicial foreclosure.18

Petitioner corporation failed to bring the proper civil action necessary to acquire legal
possession of the motorcycle. Instead, petitioner Uypitching descended on respondent’s
establishment with his policemen and ordered the seizure of the motorcycle without a search
warrant or court order. Worse, in the course of the illegal seizure of the motorcycle, petitioner
Uypitching even mouthed a slanderous statement.

No doubt, petitioner corporation, acting through its co-petitioner Uypitching, blatantly

disregarded the lawful procedure for the enforcement of its right, to the prejudice of respondent.
Petitioners’ acts violated the law as well as public morals, and transgressed the proper norms of
human relations.

The basic principle of human relations, embodied in Article 19 of the Civil Code, provides:

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

Article 19, also known as the "principle of abuse of right," prescribes that a person should not
use his right unjustly or contrary to honesty and good faith, otherwise he opens himself to
liability.19 It seeks to preclude the use of, or the tendency to use, a legal right (or duty) as a
means to unjust ends.

There is an abuse of right when it is exercised solely to prejudice or injure another. 20 The
exercise of a right must be in accordance with the purpose for which it was established and
must not be excessive or unduly harsh; there must be no intention to harm another. 21 Otherwise,
liability for damages to the injured party will attach.

In this case, the manner by which the motorcycle was taken at petitioners’ instance was not only
attended by bad faith but also contrary to the procedure laid down by law. Considered in
conjunction with the defamatory statement, petitioners’ exercise of the right to recover the
mortgaged vehicle was utterly prejudicial and injurious to respondent. On the other hand, the
precipitate act of filing an unfounded complaint could not in any way be considered to be in
accordance with the purpose for which the right to prosecute a crime was established. Thus, the
totality of petitioners’ actions showed a calculated design to embarrass, humiliate and publicly
ridicule respondent. Petitioners acted in an excessively harsh fashion to the prejudice of
respondent. Contrary to law, petitioners willfully caused damage to respondent. Hence, they
should indemnify him.22

WHEREFORE, the petition is hereby DENIED. The July 26, 2000 decision and October 18,
2000 resolution of the Court of Appeals in CA-G.R. CV No. 47571 are AFFIRMED.

Triple costs against petitioners, considering that petitioner Ernesto Ramas Uypitching is a
lawyer and an officer of the court, for his improper behavior.

SO ORDERED.
CONTRARY TO LAW AND MORALS

G.R. No. L-14628             September 30, 1960

FRANCISCO HERMOSISIMA, petitioner,
vs.
THE HON. COURT OF APPEALS, ET AL., respondents.

Regino Hermosisima for petitioner.

F.P. Gabriel, Jr. for respondents.

CONCEPCION, J.:

An appeal by certiorari, taken by petitioner Francisco Hermosisima, from a decision of Court of

Appeals modifying that of the Court of First Instance of Cebu.

On October 4, 1954, Soledad Cagigas, hereinafter referred to as complaint, filed with said of her
child, Chris Hermosisima, as natural child and moral damages for alleged breach of promise.
Petitioner admitted the paternity of child and expressed willingness to support the latter, but
denied having ever promised to marry the complainant. Upon her motion, said court ordered
petitioner, on October 27, 1954, to pay, by way of alimony pendente lite, P50.00 a month, which
was, on February 16, 1955, reduced to P30.00 a month. In due course, later on, said court
rendered a decision the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered, declaring the child, Chris Hermosisima, as

the natural daughter of defendant, and confirming the order pendente lite, ordering
defendant to pay to the said child, through plaintiff, the sum of thirty pesos (P30.00),
payable on or before the fifth day of every month sentencing defendant to pay to plaintiff
the sum of FOUR THOUSAND FIVE HUNDRED PESOS (P4,500.00) for actual and
 compensatory damages; the sum of FIVE THOUSAND PESOS (P5,000.00) as moral
damages; and the further sum of FIVE HUNDRED PESOS (P500.00) as attorney's fees
for plaintiff, with costs against defendant.

On appeal taken by petitioner, the Court of Appeals affirmed this decision, except as to the
actual and compensatory damages and the moral damages, which were increased to P5,614.25
and P7,000.00, respectively.

The main issue before us is whether moral damages are recoverable, under our laws, for
breach of promise to marry. The pertinent facts are:

Complainant Soledad Cagigas, was born in July 1917. Since 1950, Soledad then a teacher in
the Sibonga Provincial High School in Cebu, and petitioner, who was almost ten (10) years
younger than she, used to go around together and were regarded as engaged, although he had
made no promise of marriage prior thereto. In 1951, she gave up teaching and became a life
insurance underwriter in the City of Cebu, where intimacy developed among her and the
petitioner, since one evening in 1953, when after coming from the movies, they had sexual
intercourse in his cabin on board M/V "Escaño," to which he was then attached as apprentice
pilot. In February 1954, Soledad advised petitioner that she was in the family way, whereupon
he promised to marry her. Their child, Chris Hermosisima, was born on June 17, 1954, in a
private maternity and clinic. However, subsequently, or on July 24, 1954, defendant married one
Romanita Perez. Hence, the present action, which was commenced on or about October 4,
1954.

Referring now to the issue above referred to, it will be noted that the Civil Code of Spain
permitted the recovery of damages for breach to marry. Article 43 and 44 of said Code provides:

ART. 43. A mutual promise of marriage shall not give rise to an obligation to contract
marriage. No court shall entertain any complaint by which the enforcement of such
promise is sought.

ART. 44. If the promise has been in a public or private instrument by an adult, or by a
minor with the concurrence of the person whose consent is necessary for the celebration
of the marriage, or if the banns have been published, the one who without just cause
refuses to marry shall be obliged to reimburse the other for the expenses which he or
she may have incurred by reason of the promised marriage.

The action for reimbursement of expenses to which the foregoing article refers must be
brought within one year, computed from the day of the refusal to celebrate the marriage.

Inasmuch as these articles were never in force in the Philippines, this Court ruled in  De Jesus
vs. Syquia (58 Phil., 866), that "the action for breach of promises to marry has no standing in
the civil law, apart from the right to recover money or property advanced . . . upon the faith of
such promise". The Code Commission charged with the drafting of the Proposed Civil Code of
the Philippines deem it best, however, to change the law thereon. We quote from the report of
the Code Commission on said Proposed Civil Code:

Articles 43 and 44 the Civil Code of 1889 refer to the promise of marriage. But these
articles are not enforced in the Philippines. The subject is regulated in the Proposed Civil
Code not only as to the aspect treated of in said articles but also in other particulars. It is
 advisable to furnish legislative solutions to some questions that might arise relative to
betrothal. Among the provisions proposed are: That authorizing the adjudication of moral
damages, in case of breach of promise of marriage, and that creating liability for causing
a marriage engagement to be broken.1awphîl.nèt

Accordingly, the following provisions were inserted in said Proposed Civil Code, under Chapter
I, Title III, Book I thereof:

Art. 56. A mutual promise to marry may be made expressly or impliedly.

Art. 57. An engagement to be married must be agreed directly by the future spouses.

Art. 58. A contract for a future marriage cannot, without the consent of the parent or
guardian, be entered into by a male between the ages of sixteen and twenty years or by
a female between the ages of sixteen and eighteen years. Without such consent of the
parents or guardian, the engagement to marry cannot be the basis of a civil action for
damages in case of breach of the promise.

Art. 59. A promise to marry when made by a female under the age of fourteen years is
not civilly actionable, even though approved by the parent or guardian.

Art. 60. In cases referred to in the proceeding articles, the criminal and civil responsibility
of a male for seduction shall not be affected.

Art. 61. No action for specific performance of a mutual promise to marry may be brought.

Art. 62. An action for breach of promise to marry may be brought by the aggrieved party
even though a minor without the assistance of his parent or guardian. Should the minor
refuse to bring suit, the parent or guardian may institute the action.

Art. 63. Damages for breach of promise to marry shall include not only material and
pecuniary losses but also compensation for mental and moral suffering.

Art. 64. Any person, other than a rival, the parents, guardians and grandparents, of the
affianced parties, who cause a marriage engagement to be broken shall be liable for
damages, both material and moral, to the engaged person who is rejected.

Art. 65. In case of breach of promise to marry, the party breaking the engagement shall
be obliged to return what he or she has received from the other as gift on account of the
promise of the marriage.

These article were, however, eliminated in Congress. The reason therefor are set forth in the
report of the corresponding Senate Committee, from which we quote:

The elimination of this Chapter is proposed. That breach of promise to marry is not actionable
has been definitely decide in the case of De Jesus vs. Syquia, 58 Phil., 866. The history of
breach of promise suit in the United States and in England has shown that no other action lends
itself more readily to abuse by designing women and unscrupulous men. It is this experience
which has led to the abolition of the rights of action in the so-called Balm suit in many of the
American States.

See statutes of:

Florida 1945 — pp. 1342 — 1344

Maryland 1945 — pp. 1759 — 1762
Nevada 1943 — p. 75
Maine 1941 — pp. 140 — 141
New Hampshire 1941 — p. 223
California 1939 — p. 1245
Massachusetts 1938 — p. 326
Indiana 1936 — p. 1009
Michigan 1935 — p. 201
New York 1935
Pennsylvania p. 450

The Commission perhaps though that it has followed the more progression trend in
legislation when it provided for breach of promise to marry suits. But it is clear that the
creation of such causes of action at a time when so many States, in consequence of
years of experience are doing away with them, may well prove to be a step in the wrong
direction. (Congressional Record, Vol. IV, No. 79, Thursday, May 19, 1949, p. 2352.)

The views thus expressed were accepted by both houses of Congress. In the light of the clear
and manifest intent of our law making body not to sanction actions for breach of promise to
marry, the award of moral damages made by the lower courts is, accordingly, untenable. The
Court of Appeals said award:

Moreover, it appearing that because of defendant-appellant's seduction power, plaintiff-

appellee, overwhelmed by her love for him finally yielded to his sexual desires in spite of
her age and self-control, she being a woman after all, we hold that said defendant-
appellant is liable for seduction and, therefore, moral damages may be recovered from
him under the provision of Article 2219, paragraph 3, of the new Civil Code.

Apart from the fact that the general tenor of said Article 2219, particularly the paragraphs
preceding and those following the one cited by the Court of Appeals, and the language used in
said paragraph strongly indicates that the "seduction" therein contemplated is
the crime punished as such in Article as such in Article 337 and 338 of the Revised Penal Code,
which admittedly does not exist in the present case, we find ourselves unable to say that
petitioner is morally guilty of seduction, not only because he is approximately ten (10) years
younger than the complainant — who around thirty-six (36) years of age, and as highly
enlightened as a former high school teacher and a life insurance agent are supposed to be —
when she became intimate with petitioner, then a mere apprentice pilot, but, also, because, the
court of first instance found that, complainant "surrendered herself" to petitioner because,
"overwhelmed by her love" for him, she "wanted to bind" "by having a fruit of their engagement
even before they had the benefit of clergy."

The court of first instance sentenced petitioner to pay the following: (1) a monthly pension of
P30.00 for the support of the child: (2) P4,500, representing the income that complainant had
allegedly failed to earn during her pregnancy and shortly after the birth of the child, as actual
and compensation damages; (3) P5,000, as moral damages; and (4) P500.00, as attorney's
fees. The Court of Appeals added to the second item the sum of P1,114.25 — consisting of
P144.20, for hospitalization and medical attendance, in connection with the parturiation, and the
balance representing expenses incurred to support the child — and increased the moral
damages to P7,000.00.

With the elimination of this award for damages, the decision of the Court of Appeals is hereby
affirmed, therefore, in all other respects, without special pronouncement as to cost in this
instance. It is so ordered.

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES,
JR. doing lending business under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.

PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised
Rules of Court, seeking to set aside the decision of the Court of Appeals, 1 and its resolution
denying reconsideration, 2 the dispositive portion of which decision reads as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby-ordered to pay the plaintiff: the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 23, 1986, until the entire amount is
fully paid.
 The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And
so is the imposition of costs against the defendants.

SO ORDERED. 3

The Court required the respondents to comment on the petition, 4 which was filed on April
3, 1998,5 and the petitioners to reply thereto, which was filed on May 29, 1998. 6 We now
resolve to give due course to the petition and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are
considered binding and conclusive on the parties herein, as the appeal is limited to
questions of law, are as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name "Gonzales Credit Enterprises",
in the amount of P50,000.00, payable in two months. Veronica gave only the amount of
P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one
month at 6% per month. Servando and Leticia executed a promissory note for
P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amout of P300,000.00, maturing in one month, secured by a real estate mortgage over a
property belonging to Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and
Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00,
after a month, or on July 11, 1986. However, only the sum of P275.000.00, was given to
them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading
as follows:

Baliwag, Bulacan July 23, 1986

Maturity Date Augsut 23, 1986

P500,000.00
 FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo
G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE
HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest
thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization
schedule contained herein. (Emphasis supplied)

Payment will be made in full at the maturity date.

Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be
due and payable and I/WE hereby agree to pay an additional amount
equivalent to one per cent (1%) per month of the amount due and
demandable as penalty charges in the form of liquidated damages until
fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof in
full, without deductions as Attorney's Fee whether actually incurred or not,
of the total amount due and demandable, exclusive of costs and judicial or
extra judicial expenses. (Emphasis supplied).

I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall
have the option to apply and collect the increased interest charges without
notice although the original interest have already been collected wholly or
partially unless the contrary is required by law.

It is also a special condition of this contract that the parties herein agree
that the amount of peso-obligation under this agreement is based on the
present value of the peso, and if there be any change in the value thereof,
due to extraordinary inflation or deflation, or any other cause or reason,
then the peso-obligation herein contracted shall be adjusted in accordance
with the value of the peso then prevailing at the time of the complete
fulfillment of the obligation.

Demand and notice of dishonor waived. Holder may accept partial

payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the

debtors waive all his/their rights under the provisions of Section 12, Rule
39, of the Revised Rules of Court.

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00,
plus interests and penalties, evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan including interests and other
charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of
P500,000.00, and actually received the amount and benefited therefrom; that the loan was
secured by a real estate mortgage executed in favor of the plaintiffs, and that he
(Servando Franco) signed the promissory note only as a witness.

In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage
in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that
the interest rate is excessive at 5.5% per month with additional service charge of 2% per
annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of
25% of the amount due is unconscionable, illegal and excessive, and that substantial
payments made were applied to interest, penalties and other charges.

After due trial, the lower court declared that the due execution and genuineness of the
four promissory notes had been duly proved, and ruled that although the Usury Law had
been repealed, the interest charged by the plaintiffs on the loans was unconscionable
and "revolting to the conscience". Hence, the trial court applied "the provision of the
New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods
or credit is 12% per annum."7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive
portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered, as

follows:

1. Ordering the defendants Servando Franco and Leticia Medel, jointly and
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per
annum from November 7, 1985 and 1% per month as penalty, until the
entire amount is paid in full.

2. Ordering the defendants Servando Franco and Leticia Y. Medel to

plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest
per annum and 1% per cent per month as penalty from November 19, 1985
until the whole amount is fully paid;

3. Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month as
penalty from July 11, 1986, until the whole amount is fully paid;

4. Ordering the defendants to pay plaintiffs, jointly and severally, the

amount of P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.

With costs against the defendants.8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated
all the unpaid loans of the defendants, is the law that governs the parties. They further
argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans
or forbearance of money, goods or credit at 12% per annum, applies only in the absence
of a stipulation on interest rate, but not when the parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the
Usury Law having become 'legally inexistent' with the promulgation by the Central Bank
in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may
be charged on the loan".9 The Court of Appeals further held that "the imposition of 'an
additional amount equivalent to 1% per month of the amount due and demandable as
penalty charges in the form of liquidated damages until fully paid' was allowed by
law". 10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing
that of the Regional Trial Court, disposing as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 24, 1986, until the entire amount is
fully paid.

The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And

so is the imposition of costs against the defendants.

SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the
motion. 12

Hence, defendants interposed the present recourse via petition for review

on certiorari. 13

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on
the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious.
In other words, is the Usury Law still effective, or has it been repealed by Central Bank
Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No.
116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we
can not consider the rate "usurious" because this Court has consistently held that
Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is
now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law
but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank
Circular can not repeal a law. Only a law can repeal another law." 17 In the recent case
of Florendo vs. Court of Appeals 18, the Court reiterated the ruling that "by virtue of CB
Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon
by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary
to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The
courts shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties.
Rather, we agree with the trial court that, under the circumstances, interest at 12% per
annum, and an additional 1% a month penalty charge as liquidated damages may be
more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997.
Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9,
1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case
No. 134-M-90, involving the same parties.

G.R. No. 125944      June 29, 2001

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners,

vs.
JOSE AVELINO SALAZAR, respondents.

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, of the decision of the Court of Appeals in CA-G.R. CV No. 37899, affirming the
decision of the Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-91,
"Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar" for annulment of mortgage.
The dispositive portion of the RTC decision reads:

"WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the

defendant Salazar, as follows:

1. Ordering the dismissal of the complaint;

2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;

 3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of
attorney’s fees; and

4. To pay the costs.

SO ORDERED."1

The facts as summarized by the Court of Appeals in its decision being challenged are:

"On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage
in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the
defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period
of four (4) months, with interest thereon at the rate of 6% per month (Exh. "B").

On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in
which they mortgaged the same parcel of land to the defendant-appellee, to secure
payment of a loan of P136,512.00, payable within a period of one (1) year, with interest
thereon at the legal rate (Exh. "1").

On December 29, 1990, the plaintiffs-appellants executed a deed of real estate

mortgage in which they mortgaged the same parcel of land in favor of defendant-
appellee, to secure payment of a loan in the amount of P230,000.00 payable within a
period of four (4) months, with interest thereon at the legal rate (Exh. "2", Exh. "C").

This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the
mortgaged property. They alleged that they obtained only one loan form the defendant-
appellee, and that was for the amount of P60,000.00, the payment of which was secured
by the first of the above-mentioned mortgages. The subsequent mortgages were merely
continuations of the first one, which is null and void because it provided for
unconscionable rate of interest. Moreover, the defendant-appellee assured them that he
will not foreclose the mortgage as long as they pay the stipulated interest upon maturity
or within a reasonable time thereafter. They have already paid the defendant-appellee
P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure
proceedings for their alleged failure to pay the loan P230,000.00 plus
interest.1âwphi1.nêt

On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-
described mortgages were executed to secure three separate loans of P60,000.00
P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one
was not. He denied having represented that he will not foreclose the mortgage as long
as the plaintiffs-appellants pay interest."

In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the
following errors:

1. The Court of Appeals erred in holding that three (3) mortgage contracts were
executed by the parties instead of one (1);
 2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate
mortgage with an interest of 72% per cent per annum or 6% per month is not
unconscionable;

4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN
PAID when the mortgagee himself states in his ANSWER that the same was already
paid; and

5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the
appellants.

In his comment, respondent Jose Avelino Salazar avers that the petition should not be given
due course as it raises questions of facts which are not allowed in a petition for review on
certiorari.

We find no merit in the instant petition.

The core of the present controversy is the validity of the third contract of mortgage which was
foreclosed.

Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the
amount of P60,000.00 secured by the first mortgage of August 1986. According to them, they
signed the third mortgage contract in view of respondent’s assurance that the same will not be
foreclosed. The trial court, which is in the best position to evaluate the evidence presented
before it, did not give credence to petitioners’ corroborated testimony and ruled:

"The testimony is improbable. The real estate mortgage was signed not only by Ursula
Solangon but also by her husband including the Promissory Note appended to it. Signing
a document without knowing its contents is contrary to common experience. The
uncorroborated testimony of Ursula Solangon cannot be given weight."2

Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the
amount of P136,512.00, or the second loan. In fact, such payment was confirmed by
respondent Salazar in his answer to their complaint.

It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for
review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of law
may be raised and they must be distinctly set forth. The settled rule is that findings of fact of the
lower courts (including the Court of Appeals) are final and conclusive and will not be reviewed
on appeal except: (1) when the conclusion is a finding grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and such findings are
contrary to the admission of both appellant and appellee; (6) when the findings of the Court of
Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions
without citation of specific evidence on which they are based.3

None of these instances are extant in the present case.

Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that
the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6%
per month is not unconscionable.

The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury
Law had been repealed by Central Bank Circular No. 905 there is no more maximum rate of
interest and the rate will just depend on the mutual agreement of the parties. Obviously, this
was in consonance with our ruling in Liam Law v. Olympic Sawmill Co.4

The factual circumstances of the present case require the application of a different
jurisprudential instruction. While the Usury Law ceiling on interest rates was lifted by C.B.
Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of
their assets.5 In Medel v. Court of Appeals,6 this court had the occasion to rule on this question -
whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to
P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious,
this Court held that the same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:

"We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. However, we can not consider the rate ‘usurious’ because this Court has
consistently held that Circular No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law and that
the Usury Law is now ‘legally inexistent.’

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the
Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law
but simply suspended the latter’s effectivity. Indeed, we have held that ‘a Central Bank
Circular can not repeal a law. Only a law can repeal another law. In the recent case of
Florendo v. Court of Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular
905, the Usury Law has been rendered ineffective.’ ‘Usury Law has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon.’

Nevertheless, we find the interest at 5.5 % per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and hence, contrary to morals (‘contra bonos mores’), if not
against the law. The stipulation is void. The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable." (Emphasis supplied)

In the case at bench, petitioners stand on a worse situation. They are required to pay the
stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and
inordinate. Surely, it is more consonant with justice that the said interest rate be reduced
equitably. An interest of 12% per annum is deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to

the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per
annum.
SO ORDERED.

G.R. No. 144712               July 4, 2002

SPOUSES SILVESTRE and CELIA PASCUAL, petitioners,

vs.
RODRIGO V. RAMOS, respondent.

DECISION

DAVIDE, JR., C.J.:

Before us is a petition for review on certiorari assailing the 5 November 1999 Decision1 and the
18 August 2000 Resolution2 of the Court of Appeals in CA G.R. CV No. 52848. The former
affirmed the 5 June 1995 and 7 September 1995 Orders of the Regional Trial Court, Malolos,
Bulacan, Branch 21, in Civil Case No. 526-M-93, and the latter denied petitioner’s motion for
reconsideration.
The case at bar stemmed from the petition3 for consolidation of title or ownership filed on 5 July
1993 with the trial court by herein respondent Rodrigo V. Ramos (hereafter RAMOS) against
herein petitioners, Spouses Silvestre and Celia Pascual (hereafter the PASCUALs). In his
petition, RAMOS alleged that on 3 June 1987, for and in consideration of ₱150,000, the
PASCUALs executed in his favor a Deed of Absolute Sale with Right to Repurchase over two
parcels of land and the improvements thereon located in Bambang, Bulacan, Bulacan, covered
by Transfer Certificate of Title (TCT) No. 305626 of the Registry of Deeds of Bulacan. This
document was annotated at the back of the title. The PASCUALs did not exercise their right to
repurchase the property within the stipulated one-year period; hence, RAMOS prayed that the
title or ownership over the subject parcels of land and improvements thereon be consolidated in
his favor.

In their Answer,4 the PASCUALs admitted having signed the Deed of Absolute Sale with Right to
Repurchase for a consideration of ₱150,000 but averred that what the parties had actually
agreed upon and entered into was a real estate mortgage. They further alleged that there was
no agreement limiting the period within which to exercise the right to repurchase and that they
had even overpaid RAMOS. Furthermore, they interposed the following defenses: (a) the trial
court had no jurisdiction over the subject or nature of the petition; (b) RAMOS had no legal
capacity to sue; (c) the cause of action, if any, was barred by the statute of limitations; (d) the
petition stated no cause of action; (e) the claim or demand set forth in RAMOS’s pleading had
been paid, waived, abandoned, or otherwise extinguished; and (f) RAMOS has not complied
with the required confrontation and conciliation before the barangay.

By way of counterclaim, the PASCUALs prayed that RAMOS be ordered to execute a Deed of
Cancellation, Release or Discharge of the Deed of Absolute Sale with Right to Repurchase or a
Deed of Real Estate Mortgage; deliver to them the owner’s duplicate of TCT No. T-305626;
return the amount they had overpaid; and pay each of them moral damages and exemplary
damages in the amounts of ₱200,000 and ₱50,000, respectively, plus attorney’s fees of
₱100,000; appearance fee of ₱1,500 per hearing; litigation expenses; and costs of suit.

After the pre-trial, the trial court issued an order 5 wherein it identified the following issues: (1)
whether the Deed of Absolute Sale with Right to Repurchase is an absolute sale or a mere
mortgage; (2) whether the PASCUALs have paid or overpaid the principal obligation; (3)
whether the ownership over the parcel of land may be consolidated in favor of RAMOS; and (4)
whether damages may be awarded.

Among the documents offered in evidence by RAMOS during the trial on the merits was a
document denominated as Sinumpaang Salaysay6 signed by RAMOS and Silvestre Pascual,
but not notarized. The contents of the document read:

Ako, si SILVESTRE PASCUAL, Filipino, nasa hustong gulang, may asawa at kasalukuyang
naninirahan sa Bambang, Bulacan, Bulacan, ay nagsasabing buong katotohanan at
sumusumpa sa aking mga salaysay sa kasulatang ito:

1. Na ngayong June 3, 1987 dahil sa aking matinding pangangailangan

ng puhunan ay lumapit ako at nakiusap kay Rodrigo Ramos ng Taal, Pulilan,
Bulacan na pautangin ako ng halagang ₱150,000.00.

2. Na aming napagkasunduan na ang nasabing utang ay babayaran ko ng tubo

ng seven percent (7%) o ₱10,500.00 isang buwan (7% per month).
 3. Na bilang sangla (collateral security) sa aking utang, kami ay nagkasundo na
mag-execute ng Deed of Sale with Right to Repurchase para sa aking bahay at
lupa (TCT No. 305626) sa Bo. Taliptip, Bambang, Bulacan, Bulacan ngayong
June 3, 1987 at binigyan ako ni Mr. Ramos ng isang taon hanggang June 3,
1988 upang mabiling muli ang aking isinanla sa kaniya sa kasunduang
babayaran kong lahat ang capital na ₱150,000.00 pati na ang ₱10,500.00 na
tubo buwan buwan.

4. Na bilang karagdagang condition, si RODRIGO RAMOS ay pumayag sa aking

kahilingan na kung sakali na hindi ko mabayaran ng buo ang aking
pagkakautang (Principal plus interest) sa loob ng isang taon mula ngayon, ang
nakasanglang bahay at lupa ay hindi muna niya iilitin (foreclose) o ipalilipat sa
pangalan niya at hindi muna kami paaalisin sa tinitirhan naming bahay hanggat
ang tubo (interest) na ₱10,500.00 ay nababayaran ko buwan buwan.

5. Na ako ay sumasang-ayon sa kundisyon ni Rodrigo Ramos na pagkatapos ng

isang taon mula ngayon hanggang June 3, 1988 at puro interest lamang ang
aking naibabayad buwan-buwan, kung sakaling hindi ako makabayad ng tubo for
six (6) consecutive months (1/2 year after June 3, 1988 (6 na buwang hindi
bayad ang interest ang utang ko) si Rodrigo Ramos ay binibigyan ko ng
karapatan at kapangyarihan na mag-mayari ng aming bahay at lupa at kami ng
aking pamilya ay kusang loob na aalis sa nasabing bahay at lupa na lumalabas
na ibinenta ko sa kaniya dahil hindi ako nakasunod sa aming mga
pinagkasunduang usapan.

6. At bilang finale ng aming kasunduan, ako ay nangangako na hindi

maghahabol ng ano mang sukli sa pagkakailit ng aming bahay at lupa kung
sakali mang dumating sa ganuong pagkakataon o sitwasyon o di kaya’y
magsasampa ng reklamo kanino man.

Bilang pagsang-ayon sa mga nasabing kasunduan, kami ay lumagda sa ibaba nito kalakip ng
aming mga pangalan ngayong ika-3 ng Hunyo, 1987.

(Sgd.)Rodrigo Ramos (Sgd.) Silvestre Pascual

Nagpautang Umutang

For their part, the PASCUALs presented documentary evidence consisting of acknowledgment
receipts7  to prove the payments they had made.

The trial court found that the transaction between the parties was actually a loan in the amount
of ₱150,000, the payment of which was secured by a mortgage of the property covered by TCT
No. 305626. It also found that the PASCUALs had made payments in the total sum of
₱344,000, and that with interest at 7% per annum, the PASCUALs had overpaid the loan by
₱141,500. Accordingly, in its Decision8  of 15 March 1995 the trial court decreed as follows:

WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiff
in the following manner:

1. Dismissing the plaintiff’s petition;

 2. Directing the Register of Deeds to cancel the annotation of the Deed of Sale with
Right to Repurchase on the dorsal side of TCT No. 305626;

3. Awarding the defendants the sum of ₱141,500.00 as overpayment on the loan and
interests;

4. Granting the defendants attorney’s fee in the sum of ₱15,000.00 and ₱3,000.00 for
litigation expenses.

With costs against the plaintiff.

RAMOS moved for the reconsideration of the decision, alleging that the trial court erred in using
an interest rate of 7% per annum in the computation of the total amount of obligation because
what was expressly stipulated in the Sinumpaang Salaysay was 7% per month. The total
interest due from 3 June 1987 to 3 April 1995 was ₱987,000. Deducting therefrom the interest
payments made in the sum of ₱344,000, the amount of ₱643,000 was still due as interest.
Adding the latter to the principal sum of ₱150,000, the total amount due from the PASCUALs as
of 3 April 1995 was ₱793,000.

Finding merit in the motion for reconsideration, which was not opposed by the PASCUALs, the
trial court issued on 5 June 1995 an Order9  modifying its decision by deleting the award of
₱141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay
RAMOS ₱511,000 representing the principal loan plus interest. The trial court acknowledged
that it had inadvertently declared the interest rate to be 7% per annum when, in fact,
the Sinumpaang Salaysay stipulated 7% per month. It noted that during trial, the PASCUALs
never disputed the stipulated interest rate. However, the court declared that the 7% per month
interest is too burdensome and onerous. Invoking the protective mantle of Article 24 of the Civil
Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage
due to his moral dependence, ignorance, indigence, mental weakness, tender age or other
handicap, the trial court unilaterally reduced the interest rate from 7% per month to 5% per
month. Thus, the interest due from 3 June 1987 to 3 April 1995 was ₱705,000. Deducting
therefrom the payments made by the PASCUALs in the amount of ₱344,000, the net interest
due was ₱361,000. Adding thereto the loan principal of ₱150,000, the total amount due from
the PASCUALs was ₱511,000.

Aggrieved by the modification of the decision, the PASCUALs filed a motion to reconsider the
Order of 5 June 1995. They alleged that the motion for reconsideration filed by RAMOS was a
mere scrap of paper because they received a copy of said motion only a day before the
hearing, in violation of the 3-day-notice rule. Moreover, they had already paid the interests and
had in fact overpaid the principal sum of ₱150,000. Besides, RAMOS, being an individual, could
not charge more than 1% interest per month or 12% per annum; and, the interest of either 5%
or 7% a month is exorbitant, unconscionable, unreasonable, usurious and inequitable.

RAMOS opposed the motion of the PASCUALs. He contended that the non-compliance with the
3-day-notice rule was cured when the trial court gave them an opportunity to file their
opposition, but despite the lapse of the period given them, no opposition was filed. It is not
correct to say that he was not allowed to collect more than 1% per month interest considering
that with the moratorium on the Usury Law, the allowable interest is that agreed upon by the
parties. In the absence of any evidence that there was fraud, force or undue influence exerted
upon the PASCUALs when they entered into the transaction in question, their agreement
embodied in the Sinumpaang Salaysay should be respected. Furthermore, the trial court had
already reduced the interest rate to 5% per month, a rate which is not exorbitant,
unconscionable, unreasonable and inequitable.

Their motion for reconsideration having been denied in the Order 10  of 7 September 1995, the
PASCUALs seasonably appealed to the Court of Appeals. They pointed out that since the only
prayer of RAMOS in his petition was to have the title or ownership over the subject land and the
improvements thereon consolidated in his favor and he did not have any prayer for general
relief, the trial court had no basis in ordering them to pay him the sum of ₱511,000.

In its Decision11  of 5 November 1999, the Court of Appeals affirmed in toto the trial court’s
Orders of 5 June 1995 and 7 September 1995. It ruled that while RAMOS’s petition for
consolidation of title or ownership did not include a prayer for the payment of the balance of the
petitioners’ obligation and a prayer for general relief, the issue of whether there was still a
balance from the amount loaned was deemed to have been raised in the pleadings by virtue of
Section 5, Rule 10 of the Rules of Court, which provides that "[w]hen issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings." In the course of the trial, receipts were
presented by the PASCUALs evidencing the payments they had made. Taken in conjunction
with the Sinumpaang Salaysay which specified the interest rate at 7% per month, a
mathematical computation readily leads to the conclusion that there is still a balance due from
the PASCUALs, even at a reduced interest rate of 5% interest per month.

With the denial of their motion for reconsideration of the decision by the Court of Appeals, the
PASCUALs filed before us the instant petition raising the sole issue of whether they are liable
for 5% interest per month from 3 June 1987 to 3 April 1995. Invoking this Court’s ruling
in Medel v. Court of Appeals, 12  they argue that the 5% per month interest is excessive,
iniquitous, unconscionable and exorbitant. Moreover, respondent should not be allowed to
collect interest of more than 1% per month because he tried to hide the real transaction
between the parties by imposing upon them to sign a Deed of Absolute Sale with Right to
Repurchase.

For his part, RAMOS contends that the issue raised by petitioners cannot be entertained
anymore because it was neither raised in the complaint nor ventilated during the trial. In any
case, there was nothing illegal on the rate of interest agreed upon by the parties, since the
ceilings on interest rates prescribed under the Usury Law had expressly been removed, and
hence parties are left freely at their discretion to agree on any rate of interest. Moreover, there
was no scheme to hide a usurious transaction. RAMOS then prays that the challenged decision
and resolution be affirmed and that petitioners be further ordered to pay legal interest on the
interest due from the time it was demanded.

We see at once the proclivity of the PASCUALs to change theory almost every step of the case.

By invoking the decision in Medel v. Court of Appeals, the PASCUALs are actually raising as
issue the validity of the stipulated interest rate. It must be stressed that they never raised as a
defense or as basis for their counterclaim the nullity of the stipulated interest. While
overpayment was alleged in the Answer, no ultimate facts which constituted the basis of the
overpayment was alleged. In their pre-trial brief, the PASCUALs made a long list of issues, but
not one of them touched on the validity of the stipulated interest rate. Their own evidence
clearly shows that they have agreed on, and have in fact paid interest at, the rate of 7% per
month. Exhibits "1" to "8" specifically mentioned that the payments made were for the interest
due on the ₱150,000 loan of the PASCUALs. In the course of the trial, the PASCUALs never
put in issue the validity of the stipulated interest rate.

After the trial court sustained petitioners’ claim that their agreement with RAMOS was actually a
loan with real estate mortgage, the PASCUALs should not be allowed to turn their back on the
stipulation in that agreement to pay interest at the rate of 7% per month. The PASCUALs
should accept not only the favorable aspect of the court’s declaration that the document is
actually an equitable mortgage but also the necessary consequence of such declaration, that is,
that interest on the loan as stipulated by the parties in that same document should be paid.
Besides, when RAMOS moved for a reconsideration of the 15 March 1995 Decision of the trial
court pointing out that the interest rate to be used should be 7% per month, the PASCUALs
never lifted a finger to oppose the claim. Admittedly, in their Motion for Reconsideration of the
Order of 5 June 1995, the PASCUALs argued that the interest rate, whether it be 5% or 7%, is
exorbitant, unconscionable, unreasonable, usurious and inequitable. However, in their
Appellants’ Brief, the only argument raised by the PASCUALs was that RAMOS’s petition did
not contain a prayer for general relief and, hence, the trial court had no basis for ordering them
to pay RAMOS ₱511,000 representing the principal and unpaid interest. It was only in their
motion for the reconsideration of the decision of the Court of Appeals that the PASCUALs made
an issue of the interest rate and prayed for its reduction to 12% per annum.

In Manila Bay Club Corp. v. Court of Appeals, 13  this Court ruled that if an issue is raised only in
the motion for reconsideration of the decision of the Court of Appeals, the effect is that it is as if
it was never duly raised in that court at all.

Our ruling in Medel v. Court of Appeals14  is not applicable to the present case. In that case, the
excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue by the
defendants in the Answer. Moreover, in addition to the interest, the debtors were also required,
as per stipulation in the promissory note, to pay service charge of 2% per annum and a penalty
charge of 1% per month plus attorney’s fee of equivalent to 25% of the amount due. In the case
at bar, there is no other stipulation for the payment of an extra amount except interest on the
principal loan. Thus, taken in conjunction with the stipulated service charge and penalty, the
interest rate of 5.5% in the Medel case was found to be excessive, iniquitous, unconscionable,
exorbitant and hence, contrary to morals, thereby making such stipulation null and void.

Considering the variance in the factual circumstances of the Medel case and the instant case,
we are not prepared to apply the former lest it be construed that we can strike down anytime
interest rates agreed upon by parties in a loan transaction.

It is a basic principle in civil law that parties are bound by the stipulations in the contracts
voluntarily entered into by them. Parties are free to stipulate terms and conditions which they
deem convenient provided they are not contrary to law, morals, good customs, public order, or
public policy.15

The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the
PASCUALs.1âwphi1 There is nothing from the records and, in fact, there is no allegation
showing that petitioners were victims of fraud when they entered into the agreement with
RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the
PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would entitle them to the vigilant protection of
the courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in Vales vs. Villa:

All men are presumed to be sane and normal and subject to be moved by substantially the
same motives. When of age and sane, they must take care of themselves. In their relations with
others in the business of life, wits, sense, intelligence, training, ability and judgment meet and
clash and contest, sometimes with gain and advantage to all, sometimes to a few only, with loss
and injury to others. In these contests men must depend upon themselves – upon their own
abilities, talents, training, sense, acumen, judgment. The fact that one may be worsted by
another, of itself, furnishes no cause of complaint. One man cannot complain because another
is more able, or better trained, or has better sense or judgment than he has; and when the two
meet on a fair field the inferior cannot murmur if the battle goes against him. The law furnishes
no protection to the inferior simply because he is inferior, any more than it protects the strong
because he is strong. The law furnishes protection to both alike – to one no more or less than to
the other. It makes no distinction between the wise and the foolish, the great and the small, the
strong and the weak. The foolish may lose all they have to the wise; but that does not mean that
the law will give it back to them again. Courts cannot follow one every step of his life and
extricate him from bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves
guardians of persons who are not legally incompetent. Courts operate not because one person
has been defeated or overcome by another, but because he has been defeated or
overcome illegally. Men may do foolish things, make ridiculous contracts, use miserable
judgment, and lose money by then – indeed, all they have in the world; but not for that alone
can the law intervene and restore. There must be, in addition, a violation of law, the
commission of what the law knows as an actionable wrong, before the courts are authorized to
lay hold of the situation and remedy it.16

With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to
stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or
any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is
binding upon them. This Court is not in a position to impose upon parties contractual
stipulations different from what they have agreed upon. As declared in the decision of Cuizon v.
Court of Appeals,17

It is not the province of the court to alter a contract by construction or to make a new contract
for the parties; its duty is confined to the interpretation of the one which they have made for
themselves without regard to its wisdom or folly as the court cannot supply material stipulations
or read into the contract words which it does not contain.

Thus, we cannot supplant the interest rate, which was reduced to 5% per month without
opposition on the part of RAMOS.

We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the
real transaction by imposing upon them the execution of a Deed of Absolute Sale with Right to
Repurchase, he should not be allowed to collect more than 1% per month interest. It is
undisputed that simultaneous with the execution of the said deed was the execution of
the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs
cannot then claim that they did not know the real transaction.
RAMOS’s claim that the interest due should earn legal interest cannot be acted upon favorably
because he did not appeal from the Order of the trial court of 5 June 1995, which simply
ordered the payment by the PASCUALs of the amount of P511,000 without interest thereon. No
relief can be granted a party who does not appeal.18  Therefore, the order of the trial court should
stand.

Incidentally, we noticed that in the Memorandum filed by RAMOS, the ruling in Vales v.
Valle was reproduced by his counsel without the proper citation. Such act constitutes
plagiarism. Atty. Felimon B. Mangahas is hereby warned that a repetition of such act shall be
dealt with accordingly.

WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals in CA-G.R. CV No. 52848 is AFFIRMED in toto.

Costs against petitioners.

SO ORDERED.

G.R. No. L-17396             May 30, 1962

CECILIO PE, ET AL., plaintiffs-appellants,

vs.
ALFONSO PE, defendant-appellee.

Cecilio L. Pe for and in his own behalf as plaintiff-appellant.

Leodegario L. Mogol for defendant-appellee.

BAUTISTA ANGELO, J.:
Plaintiffs brought this action before the Court of First Instance of Manila to recover moral,
compensatory, exemplary and corrective damages in the amount of P94,000.00 exclusive of
attorney's fees and expenses of litigation.

Defendant, after denying some allegations contained in the complaint, set up as a defense that
the facts alleged therein, even if true, do not constitute a valid cause of action.

After trial, the lower court, after finding that defendant had carried on a love affair with one Lolita
Pe, an unmarried woman, being a married man himself, declared that defendant cannot be held
liable for moral damages it appearing that plaintiffs failed to prove that defendant, being aware
of his marital status, deliberately and in bad faith tried to win Lolita's affection. So it rendered
decision dismissing the complaint.1äwphï1.ñët

Plaintiffs brought this case on appeal before this Court on the ground that the issues involved
are purely of law.

The facts as found by the trial court are: Plaintiffs are the parents, brothers and sisters of one
Lolita Pe. At the time of her disappearance on April 14, 1957, Lolita was 24 years old and
unmarried. Defendant is a married man and works as agent of the La Perla Cigar and Cigarette
Factory. He used to stay in the town of Gasan, Marinduque, in connection with his aforesaid
occupation. Lolita was staying with her parents in the same town. Defendant was an adopted
son of a Chinaman named Pe Beco, a collateral relative of Lolita's father. Because of such fact
and the similarity in their family name, defendant became close to the plaintiffs who regarded
him as a member of their family. Sometime in 1952, defendant frequented the house of Lolita on
the pretext that he wanted her to teach him how to pray the rosary. The two eventually fell in
love with each other and conducted clandestine trysts not only in the town of Gasan but also in
Boac where Lolita used to teach in a barrio school. They exchanged love notes with each other
the contents of which reveal not only their infatuation for each other but also the extent to which
they had carried their relationship. The rumors about their love affairs reached the ears of
Lolita's parents sometime, in 1955, and since then defendant was forbidden from going to their
house and from further seeing Lolita. The plaintiffs even filed deportation proceedings against
defendant who is a Chinese national. The affair between defendant and Lolita continued
nonetheless.

Sometime in April, 1957, Lolita was staying with her brothers and sisters at their residence at
54-B España Extension, Quezon City. On April 14, 1957, Lolita disappeared from said house.
After she left, her brothers and sisters checked up her thing and found that Lolita's clothes were
gone. However, plaintiffs found a note on a crumpled piece of paper inside Lolita's aparador.
Said note, written on a small slip of paper approximately 4" by 3" in size, was in a handwriting
recognized to be that of defendant's. In English it reads:

Honey, suppose I leave here on Sunday night, and that's 13th of this month and we will
have a date on the 14th, that's Monday morning at 10 a.m.

Reply

Love

The disappearance of Lolita was reported to the police authorities and the NBI but up to the
present there is no news or trace of her whereabouts.
The present action is based on Article 21 of the New Civil Code which provides:

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

There is no doubt that the claim of plaintiffs for damages is based on the fact that defendant,
being a married man, carried on a love affair with Lolita Pe thereby causing plaintiffs injury in a
manner contrary to morals, good customs and public policy. But in spite of the fact that plaintiffs
have clearly established that in illicit affair was carried on between defendant and Lolita which
caused great damage to the name and reputation of plaintiffs who are her parents, brothers and
sisters, the trial court considered their complaint not actionable for the reason that they failed to
prove that defendant deliberately and in bad faith tried to win Lolita's affection Thus, the trial
court said: "In the absence of proof on this point, the court may not presume that it was the
defendant who deliberately induced such relationship. We cannot be unmindful of the
uncertainties and sometimes inexplicable mysteries of the human emotions. It is a possibility
that the defendant and Lolita simply fell in love with each other, not only without any desire on
their part, but also against their better judgment and in full consciousness of what it will bring to
both of them. This is specially so with respect to Lolita, being an unmarried woman, falling in
love with defendant who is a married man."

We disagree with this view. The circumstances under which defendant tried to win Lolita's
affection cannot lead, to any other conclusion than that it was he who, thru an ingenious
scheme or trickery, seduced the latter to the extent of making her fall in love with him. This is
shown by the fact that defendant frequented the house of Lolita on the pretext that he wanted
her to teach him how to pray the rosary. Because of the frequency of his visits to the latter's
family who was allowed free access because he was a collateral relative and was considered as
a member of her family, the two eventually fell in love with each other and conducted
clandestine love affairs not only in Gasan but also in Boac where Lolita used to teach in a barrio
school. When the rumors about their illicit affairs reached the knowledge of her parents,
defendant was forbidden from going to their house and even from seeing Lolita. Plaintiffs even
filed deportation proceedings against defendant who is a Chinese national. Nevertheless,
defendant continued his love affairs with Lolita until she disappeared from the parental home.
Indeed, no other conclusion can be drawn from this chain of events than that defendant not only
deliberately, but through a clever strategy, succeeded in winning the affection and love of Lolita
to the extent of having illicit relations with her. The wrong he has caused her and her family is
indeed immeasurable considering the fact that he is a married man. Verily, he has committed an
injury to Lolita's family in a manner contrary to morals, good customs and public policy as
contemplated in Article 21 of the new Civil Code.

WHEREFORE, the decision appealed from is reversed. Defendant is hereby sentenced to pay
the plaintiffs the sum of P5,000.00 as damages and P2,000.00 as attorney's fees and expenses
of litigations. Costs against appellee.
UNJUST ENRICHMENT

G.R. No. 115814 May 26, 1995

PEDRO P. PECSON, petitioner,
vs.
COURT OF APPEALS, SPOUSES JUAN NUGUID and ERLINDA NUGUID, respondents.

DAVIDE, JR., J.:
This petition for review on certiorari seeks to set aside the decision 1 of the Court of Appeals in
CA-G.R. SP No. 32679 affirming in part the order 2 of the Regional Trial Court (RTC) of Quezon
City, Branch 101, in Civil Case No. Q-41470.

The factual and procedural antecedents of this case as gathered from the record are as follows:

Petitioner Pedro P. Pecson was the owner of a commercial lot located in Kamias Street,
Quezon City, on which he built a four-door two-storey apartment building. For his failure to pay
realty taxes amounting to twelve thousand pesos (P12,000.00), the lot was sold at public
auction by the city Treasurer of Quezon City to Mamerto Nepomuceno who in turn sold it on 12
October 1983 to the private respondents, the spouses Juan Nuguid and Erlinda Tan-Nuguid, for
one hundred three thousand pesos (P103,000.00).

The petitioner challenged the validity of the auction sale in Civil Case No. Q-41470 before the
RTC of Quezon City. In its decision of 8 February 1989, the RTC dismissed the complaint, but
as to the private respondents' claim that the sale included the apartment building, it held that the
issue concerning it was "not a subject of the . . . litigation." In resolving the private respondents'
motion to reconsider this issue, the trial court held that there was no legal basis for the
contention that the apartment building was included in the sale.3

Both parties then appealed the decision to the Court of Appeals. The case was docketed as CA-
G.R. CV No. 2931. In its decision of 30 April 1992, 4 the Court of Appeals affirmed in toto the
assailed decision. It also agreed with the trial court that the apartment building was not included
in the auction sale of the commercial lot. Thus:

Indeed, examining the record we are fully convinced that it was only the land —
without the apartment building — which was sold at the auction sale, for plaintiff's
failure to pay the taxes due thereon. Thus, in the Certificate of Sale of Delinquent
Property To Purchaser (Exh. K, p. 352, Record) the property subject of the
auction sale at which Mamerto Nepomuceno was the purchaser is referred to as
Lot No. 21-A, Block No. K-34, at Kamias, Barangay Piñahan, with an area of
256.3 sq. m., with no mention whatsoever, of the building thereon. The same
description of the subject property appears in the Final Notice To Exercise The
Right of Redemption (over subject property) dated September 14, 1981 (Exh. L,
p. 353, Record) and in the Final Bill of Sale over the same property dated April
19, 1982 (Exh. P, p. 357, Record). Needless to say, as it was only the land
without any building which Nepomuceno had acquired at the auction sale, it was
also only that land without any building which he could have legally sold to the
Nuguids. Verily, in the Deed of Absolute Sale of Registered Land executed by
Mamerto Nepomuceno in favor of the Nuguids on October 25, 1983 (Exh. U, p.
366, Record) it clearly appears that the property subject of the sale for
P103,000.00 was only the parcel of land, Lot 21-A, Blk. K-34 containing an area
of 256.3 sq. meters, without any mention of any improvement, much less any
building thereon. (emphases supplied)

The petition to review the said decision was subsequently denied by this Court. 5 Entry of
judgment was made on 23 June 1993.6

On November 1993, the private respondents filed with the trial court a motion for delivery of
possession of the lot and the apartment building, citing article 546 of the Civil Code. 7 Acting
thereon, the trial court issued on 15 November 1993 the challenged order 8 which reads as
follows:

Submitted for resolution before this Court is an uncontroverted [sic] for the
Delivery of Possession filed by defendants Erlinda Tan, Juan Nuguid, et al.
considering that despite personal service of the Order for plaintiff to file within five
(5) days his opposition to said motion, he did not file any.

In support of defendant's motion, movant cites the law in point as Article 546 of
the Civil Code . . .

Movant agrees to comply with the provisions of the law considering that plaintiff
is a builder in good faith and he has in fact, opted to pay the cost of the
construction spent by plaintiff. From the complaint itself the plaintiff stated that
the construction cost of the apartment is much more than the lot, which
apartment he constructed at a cost of P53,000.00 in 1965 (par. 8 complaint). This
amount of P53,000.00 is what the movant is supposed to pay under the law
before a writ of possession placing him in possession of both the lot and
apartment would be issued.

However, the complaint alleges in paragraph 9 that three doors of the apartment
are being leased. This is further confirmed by the affidavit of the movant
presented in support of the motion that said three doors are being leased at a
rental of P7,000.00 a month each. The movant further alleges in his said affidavit
that the present commercial value of the lot is P10,000.00 per square meter or
P2,500,000.00 and the reasonable rental value of said lot is no less than
P21,000.00 per month.

The decision having become final as per Entry of Judgment dated June 23, 1993
and from this date on, being the uncontested owner of the property, the rents
should be paid to him instead of the plaintiff collecting them. From June 23, 1993,
the rents collected by plaintiff amounting to more than P53,000.00 from tenants
should be offset from the rents due to the lot which according to movant's
affidavit is more than P21,000.00 a month.

WHEREFORE, finding merit in the Motion, the Court hereby grants the following
prayer that:

1. The movant shall reimburse plaintiff the construction cost of

P53,000.00.

2. The payment of P53,000.00 as reimbursement for the

construction cost, movant Juan Nuguid is hereby entitled to
immediate issuance of a writ of possession over the Lot and
improvements thereon.

3. The movant having been declared as the uncontested owner of

the Lot in question as per Entry of Judgment of the Supreme
Court dated June 23, 1993, the plaintiff should pay rent to the
movant of no less than P21,000.00 per month from said date as
 this is the very same amount paid monthly by the tenants
occupying the lot.

4. The amount of P53,000.00 due from the movant is hereby

offset against the amount of rents collected by the plaintiff from
June 23, 1993, to September 23, 1993.

SO ORDERED.

The petitioner moved for the reconsideration of the order but it was not acted upon by the trial
court. Instead, on 18 November 1993, it issued a writ of possession directing the deputy sheriff
"to place said movant Juan Nuguid in possession of subject property located at No. 79 Kamias
Road, Quezon City, with all the improvements thereon and to eject therefrom all occupants
therein, their agents, assignees, heirs and representatives."9

The petitioner then filed with the Court of Appeals a special civil action for certiorari and
prohibition assailing the order of 15 November 1993, which was docketed as CA-G.R. SP No.
32679. 10 In its decision of 7 June 1994, the Court of Appeals affirmed in part the order of the
trial court citing Article 448 of the Civil Code. In disposing of the issues, it stated:

As earlier pointed out, private respondent opted to appropriate the improvement

introduced by petitioner on the subject lot, giving rise to the right of petitioner to
be reimbursed of the cost of constructing said apartment building, in accordance
with Article 546 of the . . . Civil Code, and of the right to retain the improvements
until he is reimbursed of the cost of the improvements, because, basically, the
right to retain the improvement while the corresponding indemnity is not paid
implies the tenancy or possession in fact of the land on which they are built . . . [2
TOLENTINO, CIVIL CODE OF THE PHILIPPINES (1992) p. 112]. With the facts
extant and the settled principle as guides, we agree with petitioner that
respondent judge erred in ordering that "the movant having been declared as the
uncontested owner of the lot in question as per Entry of Judgment of the
Supreme Court dated June 23, 1993, the plaintiff should pay rent to the movant
of no less than P21,000 per month from said date as this is the very same
amount paid monthly by the tenants occupying the lot.

We, however, agree with the finding of respondent judge that the amount of
P53,000.00 earlier admitted as the cost of constructing the apartment building
can be offset from the amount of rents collected by petitioner from June 23, 1993
up to September 23, 1993 which was fixed at P7,000.00 per month for each of
the three doors. Our underlying reason is that during the period of retention,
petitioner as such possessor and receiving the fruits from the property, is obliged
to account for such fruits, so that the amount thereof may be deducted from the
amount of indemnity to be paid to him by the owner of the land, in line with
Mendoza vs. De Guzman, 52 Phil. 164 . . . .

The Court of Appeals then ruled as follows:

WHEREFORE, while it appears that private respondents have not yet

indemnified petitioner with the cost of the improvements, since Annex I shows
that the Deputy Sheriff has enforced the Writ of Possession and the premises
 have been turned over to the possession of private respondents, the quest of
petitioner that he be restored in possession of the premises is rendered moot and
academic, although it is but fair and just that private respondents pay petitioner
the construction cost of P53,000.00; and that petitioner be ordered to account for
any and all fruits of the improvements received by him starting on June 23, 1993,
with the amount of P53,000.00 to be offset therefrom.

IT IS SO ORDERED.11

Aggrieved by the Court of Appeals' decision, the petitioner filed the instant petition.

The parties agree that the petitioner was a builder in good faith of the apartment building on the
theory that he constructed it at the time when he was still the owner of the lot, and that the key
issue in this case is the application of Articles 448 and 456 of the Civil Code.

The trial court and the Court of Appeals, as well as the parties, concerned themselves with the
application of Articles 448 and 546 of the Civil Code. These articles read as follows:

Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in articles 546
and 548, or to oblige the one who built or planted to pay the price of the land, and
the one who sowed, the proper rent. However, the builder or planter cannot be
obliged to buy the land if its value is considerably more than that of the building
or trees. In such case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the building or trees after proper indemnity. The parties
shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof. (361a)

xxx xxx xxx

Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed
therefor.

Useful expenses shall be refunded only to the possessor in good faith with the
same right of retention, the person who has defeated him in the possession
having the option of refunding the amount of the expenses or of paying the
increase in value which the thing may have acquired by reason thereof. (453a)

By its clear language, Article 448 refers to a land whose ownership is claimed by two or more
parties, one of whom has built some works, or sown or planted something. The building, sowing
or planting may have been made in good faith or in bad faith. The rule on good faith laid down in
Article 526 of the Civil Code shall be applied in determining whether a builder, sower or planter
had acted in good faith. 12

Article 448 does not apply to a case where the owner of the land is the builder, sower, or planter
who then later loses ownership of the land by sale or donation. This Court said so in Coleongco
vs. Regalado: 13
 Article 361 of the old Civil Code is not applicable in this case, for Regalado
constructed the house on his own land before he sold said land to Coleongco.
Article 361 applies only in cases where a person constructs a building on the
land of another in good or in bad faith, as the case may be. It does not apply to a
case where a person constructs a building on his own land, for then there can be
no question as to good or bad faith on the part of the builder.

Elsewise stated, where the true owner himself is the builder of works on his own land, the issue
of good faith or bad faith is entirely irrelevant.

Thus in strict point of law, Article 448 is not apposite to the case at bar. Nevertheless, we
believe that the provision therein on indemnity may be applied by analogy considering that the
primary intent of Article 448 is to avoid a state of forced co-ownership and that the parties,
including the two courts below, in the main agree that Articles 448 and 546 of the Civil Code are
applicable and indemnity for the improvements may be paid although they differ as to the basis
of the indemnity.

Article 546 does not specifically state how the value of the useful improvements should be
determined. The respondent court and the private respondents espouse the belief that the cost
of construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases. In Javier
vs. Concepcion, Jr., 14 this Court pegged the value of the useful improvements consisting of
various fruits, bamboos, a house and camarin made of strong material based on the market
value of the said improvements. In Sarmiento vs. Agana, 15 despite the finding that the useful
improvement, a residential house, was built in 1967 at a cost of between eight thousand pesos
(P8,000.00) to ten thousand pesos(P10,000.00), the landowner was ordered to reimburse the
builder in the amount of forty thousand pesos (P40,000.00), the value of the house at the time of
the trial. In the same way, the landowner was required to pay the "present value" of the house, a
useful improvement, in the case of De Guzman vs. De la Fuente, 16 cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the parties
involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop
of Manila 17 that the said provision was formulated in trying to adjust the rights of the owner and
possessor in good faith of a piece of land, to administer complete justice to both of them in such
a way as neither one nor the other may enrich himself of that which does not belong to him.
Guided by this precept, it is therefore the current market value of the improvements which
should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private
respondents who would otherwise be allowed to acquire a highly valued income-yielding four-
unit apartment building for a measly amount. Consequently, the parties should therefore be
allowed to adduce evidence on the present market value of the apartment building upon which
the trial court should base its finding as to the amount of reimbursement to be paid by the
landowner.

The trial court also erred in ordering the petitioner to pay monthly rentals equal to the aggregate
rentals paid by the lessees of the apartment building. Since the private respondents have opted
to appropriate the apartment building, the petitioner is thus entitled to the possession and
enjoyment of the apartment building, until he is paid the proper indemnity, as well as of the
portion of the lot where the building has been constructed. This is so because the right to retain
the improvements while the corresponding indemnity is not paid implies the tenancy or
possession in fact of the land on which it is built, planted or sown. 18 The petitioner not having
been so paid, he was entitled to retain ownership of the building and, necessarily, the income
therefrom.

It follows, too, that the Court of Appeals erred not only in upholding the trial court's
determination of the indemnity, but also in ordering the petitioner to account for the rentals of
the apartment building from 23 June 1993 to 23 September 1993.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 32679 and the Order of
15 November 1993 of the Regional Trial Court, Branch 101, Quezon City in Civil Case No. Q-
41470 are hereby SET ASIDE.

The case is hereby remanded to the trial court for it to determine the current market value of the
apartment building on the lot. For this purpose, the parties shall be allowed to adduce evidence
on the current market value of the apartment building. The value so determined shall be
forthwith paid by the private respondents to the petitioner otherwise the petitioner shall be
restored to the possession of the apartment building until payment of the required indemnity.

No costs.

SO ORDERED.

G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners,

vs.
COURT OF APPEALS and YSMAEL C. FERRER, respondents.
PADILLA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and
reversal of the decision * of respondent Court of Appeals in CA-G.R. CV No. 40450, entitled
"Ysmael C. Ferrer v. Security Bank and Trust Company, et. al." dated 31 August 1994, which
affirmed the decision ** of the Regional Trial Court, Branch 63, Makati in Civil Case No. 42712,
a complaint for breach of contract with damages.

Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and
Trust Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City
for the price of P1,760,000.00. The contract dated 4 February 1980 provided that Ferrer would
finish the construction in two hundred (200) working days. Respondent Ferrer was able to
complete the construction of the building on 15 August 1980 (within the contracted period) but
he was compelled by a drastic increase in the cost of construction materials to incur expenses
of about P300,000.00 on top of the original cost. The additional expenses were made known to
petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la
Rama as early as March 1980. Respondent Ferrer made timely demands for payment of the
increased cost. Said demands were supported by receipts, invoices, payrolls and other
documents proving the additional expenses.

In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an
architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A
recommendation was then made to settle Ferrer's claim but only for P200,000.00. SBTC,
instead of paying the recommended additional amount, denied ever authorizing payment of any
amount beyond the original contract price. SBTC likewise denied any liability for the additional
cost based on Article IX of the building contract which states:

If at any time prior to the completion of the work to be performed hereunder,

increase in prices of construction materials and/or labor shall supervene through
no fault on the part of the contractor whatsoever or any act of the government
and its instrumentalities which directly or indirectly affects the increase of the cost
of the project, OWNER shall equitably make the appropriate adjustment on
mutual agreement of both parties.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court
ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:

a) P259,417.23 for the increase in price of labor and materials plus 12% interest
thereon per annum from 15 August 1980 until fully paid;

b) P24,000.00 as actual damages;

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;

e) attorney's fees equivalent to 25% of the principal amount due; and

 f) costs of suit.

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

In the present petition for review, petitioners assign the following errors to the appellate court:

. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE

OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE
DEFENDANTS-APPELLANTS.

. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS

PROVISION OF THE CONSTRUCTION CONTRACT.

. . . IN DISREGARDING THE EXPRESS PROVISION OF THE

CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED
DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON
IMPAIRMENT OF THE OBLIGATION OF CONTRACT.1

Petitioners argue that under the aforequoted Article IX of the building contract, any increase in
the price of labor and/or materials resulting in an increase in construction cost above the
stipulated contract price will not automatically make petitioners liable to pay for such increased
cost, as any payment above the stipulated contract price has been made subject to the
condition that the "appropriate adjustment" will be made "upon mutual agreement of both
parties". It is contended that since there was no mutual agreement between the parties,
petitioners' obligation to pay amounts above the original contract price never materialized.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments
raised by petitioners. It is of note however that the pleadings filed with this Court by counsel for
Ferrer hardly refute the arguments raised by petitioners, as the contents of said pleadings are
mostly quoted portions of the decision of the Court of Appeals, devoid of adequate discussion of
the merits of respondent's case. The Court, to be sure, expects more diligence and legal know-
how from lawyers than what has been exhibited by counsel for respondent in the present case.
Under these circumstances, the Court had to review the entire records of this case to evaluate
the merits of the issues raised by the contending parties.

Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet
lecupletari (no man ought to be made rich out of another's injury) states:

Art. 22. Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as "basic principles to be observed for the rightful
relationship between human beings and for the stability of the social order, . . . designed to
indicate certain norms that spring from the fountain of good conscience, . . . guides for human
conduct [that] should run as golden threads through society to the end that law may approach
its supreme ideal which is the sway and dominance of justice." 2
In the present case, petitioners' arguments to support absence of liability for the cost of
construction beyond the original contract price are not persuasive.

Under the previously quoted Article IX of the construction contract, petitioners would make the
appropriate adjustment to the contract price in case the cost of the project increases through no
fault of the contractor (private respondent). Private respondent informed petitioners of the
drastic increase in construction cost as early as March 1980.

Petitioners in turn had the increased cost evaluated and audited. When private respondent
demanded payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the
bank's architectural consultant were directed by the bank to verify and compute private
respondent's claims of increased cost. A recommendation was then made to settle private
respondent's claim for P200,000.00. Despite this recommendation and several demands from
private respondent, SBTC failed to make payment. It denied authorizing anyone to make a
settlement of private respondent's claim and likewise denied any liability, contending that the
absence of a mutual agreement made private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in constructing petitioner
bank's building due to a drastic and unexpected increase in construction cost. In fact, petitioner
bank admitted liability for increased cost when a recommendation was made to settle private
respondent's claim for P200,000.00. Private respondent's claim for the increased amount was
adequately proven during the trial by receipts, invoices and other supporting documents.

Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment
depends upon the sole will of the debtor. In the present case, the mutual agreement, the
absence of which petitioner bank relies upon to support its non-liability for the increased
construction cost, is in effect a condition dependent on petitioner bank's sole will, since private
respondent would naturally and logically give consent to such an agreement which would allow
him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent
completed the construction even at an increased cost.

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual
construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice
of private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

Finally, with respect to the award of attorney's fees to respondent, the Court has previously held
that, "even with the presence of an agreement between the parties, the court may nevertheless
reduce attorney's fees though fixed in the contract when the amount thereof appears to be
unconscionable or unreasonable."3 As previously noted, the diligence and legal know-how
exhibited by counsel for private respondent hardly justify an award of 25% of the principal
amount due, which would be at least P60,000.00. Besides, the issues in this case are far from
complex and intricate. The award of attorney's fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the
appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.
SO ORDERED.

G.R. No. 146807      May 9, 2002

PADCOM CONDOMINIUM CORPORATION, petitioner,

vs.
ORTIGAS CENTER ASSOCIATION, INC., respondent.

DAVIDE, JR., C.J.:
Challenged in this case is the 30 June 2000 decision 1 of the Court of Appeals in CA-G.R. CV
No. 60099, reversing and setting aside the 1 September 1997 decision 2 of the Regional Trial
Court of Pasig City, Branch 264, in Civil Case No. 63801.3

Petitioner Padcom Condominium Corporation (hereafter PADCOM) owns and manages the
Padilla Office Condominium Building (PADCOM Building) located at Emerald Avenue, Ortigas
Center, Pasig City. The land on which the building stands was originally acquired from the
Ortigas & Company, Limited Partnership (OCLP), by Tierra Development Corporation (TDC)
under a Deed of Sale dated 4 September 1974. Among the terms and conditions in the deed of
sale was the requirement that the transferee and its successor-in-interest must become
members of an association for realty owners and long-term lessees in the area later known as
the Ortigas Center. Subsequently, the said lot, together with improvements thereon, was
conveyed by TDC in favor of PADCOM in a Deed of Transfer dated 25 February 1975.4

In 1982, respondent Ortigas Center Association, Inc. (hereafter the Association) was organized
to advance the interests and promote the general welfare of the real estate owners and long-
term lessees of lots in the Ortigas Center. It sought the collection of membership dues in the
amount of two thousand seven hundred twenty-four pesos and forty centavos (P2,724.40) per
month from PADCOM. The corporate books showed that PADCOM owed the
Association P639,961.47, representing membership dues, interests and penalty charges from
April 1983 to June 1993.5 The letters exchanged between the parties through the years showed
repeated demands for payment, requests for extensions of payment, and even a settlement
scheme proposed by PADCOM in September 1990.

In view of PADCOM’s failure and refusal to pay its arrears in monthly dues, including interests
and penalties thereon, the Association filed a complaint for collection of sum of money before
the trial court below, which was docketed as Civil Case No. 63801. The Association averred that
purchasers of lands within the Ortigas Center complex from OCLP are obligated under their
contracts of sale to become members of the Association. This obligation was allegedly passed
on to PADCOM when it bought the lot from TDC, its predecessor-in-interest.6

In its answer, PADCOM contended that it is a non-stock, non-profit association, and for it to
become a special member of the Association, it should first apply for and be accepted for
membership by the latter’s Board of Directors. No automatic membership was apparently
contemplated in the Association’s By-laws. PADCOM added that it could not be compelled to
become a member without violating its right to freedom of association. And since it was not a
member of the Association, it was not liable for membership dues, interests and penalties.7

During the trial, the Association presented its accountant as lone witness to prove that
PADCOM was, indeed, one of its members and, as such, did not pay its membership
dues.1âwphi1.nêt

PADCOM, on the other hand, did not present its evidence; instead it filed a motion to dismiss by
way of demurrer to evidence. It alleged that the facts established by the Association showed no
right to the relief prayed for. It claimed that the provisions of the Association’s By-laws and the
Deed of Transfer did not contemplate automatic membership. Rather, the owner or long-term
lessee becomes a member of the Association only after applying with and being accepted by its
Board of Directors. Assuming further that PADCOM was a member of the Association, the latter
failed to show that the collection of monthly dues was a valid corporate act duly authorized by a
proper resolution of the Association’s Board of Directors.8
After due consideration of the issues raised in the motion to dismiss, the trial court rendered a
decision dismissing the complaint.9

The Association appealed the case to the Court of Appeals, which docketed the appeal as CA-
G.R. CV No. 60099. In its decision 10 of 30 June 2000, the Court of Appeals reversed and set
aside the trial court’s dismissal of Civil Case No. 63801, and decreed as follows:

WHEREFORE, the appealed decision dated September 1, 1997

is REVERSED and SET ASIDE and, in lieu thereof, a new one is entered ordering the
appellee (PADCOM) to pay the appellant (the Association) the following:

1) P639,961.47 as and for membership dues in arrears inclusive of earned interests and
penalties; and

2) P25,000.00 as and for attorney’s fees.

Costs against the appellees.

SO ORDERED.

The Court of Appeals justified its ruling by declaring that PADCOM automatically became a
member of the Association when the land was sold to TDC. The intent to pass the obligation to
prospective transferees was evident from the annotation of the same clause at the back of the
Transfer Certificate of Title covering the lot. Despite disavowal of membership, PADCOM’s
membership in the Association was evident from these facts: (1) PADCOM was included in the
Association’s list of bona fide members as of 30 March 1995; (2) Narciso Padilla, PADCOM’s
President, was one of the Association’s incorporators; and (3) having received the demands for
payment, PADCOM not only acknowledged them, but asked for and was granted repeated
extensions, and even proposed a scheme for the settlement of its obligation. The Court of
Appeals also ruled that PADCOM cannot evade payment of its obligation to the Association
without violating equitable principles underlying quasi-contracts. Being covered by the
Association’s avowed purpose to promote the interests and welfare of its members, PADCOM
cannot be allowed to expediently deny and avoid the obligation arising from such membership.

Dissatisfied with the adverse judgment of the Court of Appeals, PADCOM filed the petition for
review in this case. It raises the sole issue of whether it can be compelled to join the association
pursuant to the provision on automatic membership appearing as a condition in the Deed of
Sale of 04 September 1974 and the annotation thereof on Transfer Certificate of Title No.
457308.

PADCOM contends that it cannot be compelled to be a member of the Association solely by

virtue of the "automatic membership" clause that appears on the title of the property and the
Deed of Transfer. In 1975, when it bought the land, the Association was still inexistent.
Therefore, the provision on automatic membership was anticipatory in nature, subject to the
actual formation of the Association and the subsequent formulation of its implementing rules.

PADCOM likewise maintains that the Association’s By-laws requires an application for
membership. Since it never sought membership, the Court of Appeals erred in concluding that it
was a member of the Association by implication. Aside from the lack of evidence proving such
membership, the Association has no basis to collect monthly dues since there is no board
resolution defining and prescribing how much should be paid.

For its part, the Association claims that the Deed of Sale between OCLP and TDC clearly
stipulates automatic membership for the owners of lots in the Ortigas Center, including their
successors-in-interest. The filing of applications and acceptance thereof by the Board of
Directors of the Association are, therefore, mere formalities that can be dispensed with or
waived. The provisions of the Association’s By-laws cannot in any manner alter or modify the
automatic membership clause imposed on a property owner by virtue of an annotation of
encumbrance on his title.

The Association likewise asserts that membership therein requires the payment of certain
amounts for its operations and activities, as may be authorized by its Board of Directors. The
membership dues are for the common expenses of the homeowners for necessary services.

After a careful examination of the records of this case, the Court sees no reason to disturb the
assailed decision. The petition should be denied.

Section 44 of Presidential Decree No. 152911 mandates that:

SEC. 44. Statutory liens affecting title. – Every registered owner receiving a certificate of
title in pursuance of a decree of registration, and every subsequent purchaser of
registered land taking a certificate of title for value and in good faith, shall hold the same
free from all encumbrances except those noted on said certificate and any of the
following encumbrances which may be subsisting, namely: xxx

Under the Torrens system of registration, claims and liens of whatever character, except those
mentioned by law, existing against the land binds the holder of the title and the whole world.12

It is undisputed that when the land in question was bought by PADCOM’s predecessor-in-
interest, TDC, from OCLP, the sale bound TDC to comply with paragraph (G) of the covenants,
conditions and restrictions of the Deed of Sale, which reads as follows:13

G. AUTOMATIC MEMBERSHIP WITH THE ASSOCIATION:

The owner of this lot, its successor-in-interest hereby binds himself to become a member
of the ASSOCIATION which will be formed by and among purchasers, fully paid up Lot
BUYERS, Building Owners and the COMPANY in respect to COMPANY OWNED LOTS.

The OWNER of this lot shall abide by such rules and regulations that shall be laid down
by the ASSOCIATION in the interest of security, maintenance, beautification and general
welfare of the OFFICE BUILDING zone. The ASSOCIATION when organized shall also,
among others, provide for and collect assessments which shall constitute a lien on the
property, junior only to liens of the Government for taxes.

Evidently, it was agreed by the parties that dues shall be collected from an automatic member
and such fees or assessments shall be a lien on the property.
This stipulation was likewise annotated at the back of Transfer Certificate of Title No. 457308
issued to TDC.14 And when the latter sold the lot to PADCOM on 25 February 1975, the Deed of
Transfer expressly stated:15

NOW, THEREFORE, for and in consideration of the foregoing premises, the

DEVELOPER, by these presents, cedes, transfers and conveys unto the
CORPORATION the above-described parcel of land evidenced by Transfer Certificate of
Title No. 457308, as well as the Common and Limited Common Areas of the
Condominium project mentioned and described in the Master Deed with Declaration of
Restrictions (Annex "A" hereof), free from all liens and encumbrances, except those
already annotated at the back of said Transfer Certificate of Title No. 457308, xxx

This is so because any lien annotated on previous certificates of title should be incorporated in
or carried over to the new transfer certificates of title. Such lien is inseparable from the property
as it is a right in rem, a burden on the property whoever its owner may be. It subsists
notwithstanding a change in ownership; in short, the personality of the owner is
disregarded.16 As emphasized earlier, the provision on automatic membership was annotated in
the Certificate of Title and made a condition in the Deed of Transfer in favor of PADCOM.
Consequently, it is bound by and must comply with the covenant.1âwphi1.nêt

Moreover, Article 1311 of the Civil Code provides that contracts take effect between the parties,
their assigns and heirs. Since PADCOM is the successor-in-interest of TDC, it follows that the
stipulation on automatic membership with the Association is also binding on the former.

We are not persuaded by PADCOM’s contention that the By-laws of the Association requires
application for membership and acceptance thereof by the Board of Directors. Section 2 of the
By-laws17 reads:

Section 2. Regular Members. – Upon acceptance by the Board of Directors of Ortigas

Center Association, Inc., all real estate owners, or long-term lessees of lots within the
boundaries of the Association as defined in the Articles of Incorporation become regular
members, provided, however that the long-term lessees of a lot or lots in said area shall
be considered as the regular members in lieu of the owners of the same. Likewise,
regular membership in the Association automatically ceases upon the cessation of a
member to be an owner or long-term lessee of real estate in the area.

A lessee shall be considered a long-term lessee if his lease is in writing and for a period
of two (2) years or more. Membership of a long-term lessee in the Association shall be
co-terminus with his legal possession (or his lease) of the lot/s in the area. Upon the
lessee’s cessation of membership in the Association, the owner shall automatically
succeed the lessee as member thereat.

As lot owner, PADCOM is a regular member of the Association. No application for membership
is necessary. If at all, acceptance by the Board of Directors is a ministerial function considering
that PADCOM is deemed to be a regular member upon the acquisition of the lot pursuant to the
automatic membership clause annotated in the Certificate of Title of the property and the Deed
of Transfer.

Neither are we convinced by PADCOM’s contention that the automatic membership clause is a
violation of its freedom of association. PADCOM was never forced to join the association. It
could have avoided such membership by not buying the land from TDC. Nobody forced it to buy
the land when it bought the building with the annotation of the condition or lien on the Certificate
of Title thereof and accepted the Deed. PADCOM voluntarily agreed to be bound by and respect
the condition, and thus to join the Association.

In addition, under the principle of estoppel, PADCOM is barred from disclaiming membership in
the Association. In estoppel, a person, who by his act or conduct has induced another to act in a
particular manner, is barred from adopting an inconsistent position, attitude or course of conduct
that thereby causes loss or injury to another.18

We agree with the Court of Appeals’ conclusion from the facts or circumstances it enumerated
in its decision and enumerated above that PADCOM is, indeed, a regular member of the
Association. These facts and circumstances are sufficient grounds to apply the doctrine of
estoppel against PADCOM.

Having ruled that PADCOM is a member of the Association, it is obligated to pay its dues
incidental thereto. Article 1159 of the Civil Code mandates:

Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

Assuming in gratis argumenti that PADCOM is not a member of the Association, it cannot evade
payment without violating the equitable principles underlying quasi-contracts. Article 2142 of the
Civil Code provides:

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

Generally, it may be said that a quasi-contract is based on the presumed will or intent of the
obligor dictated by equity and by the principles of absolute justice. Examples of these principles
are: (1) it is presumed that a person agrees to that which will benefit him; (2) nobody wants to
enrich himself unjustly at the expense of another; or (3) one must do unto others what he would
want others to do unto him under the same circumstances.19

As resident and lot owner in the Ortigas area, PADCOM was definitely benefited by the
Association’s acts and activities to promote the interests and welfare of those who acquire
property therein or benefit from the acts or activities of the Association.1âwphi1.nêt

Finally, PADCOM’s argument that the collection of monthly dues has no basis since there was
no board resolution defining how much fees are to be imposed deserves scant consideration.
Suffice it is to say that PADCOM never protested upon receipt of the earlier demands for
payment of membership dues. In fact, by proposing a scheme to pay its obligation, PADCOM
cannot belatedly question the Association’s authority to assess and collect the fees in
accordance with the total land area owned or occupied by the members, which finds support in
a resolution dated 6 November 1982 of the Association’s incorporating directors20 and Section 2
of its By-laws.21

WHEREFORE, the petition is hereby DENIED for lack of merit.

Costs against petitioner.

SO ORDERED.
G.R. No. L-68282 November 8, 1990

RAQUEL CHAVEZ, GERARDO GIMENEZ and MANUELA BUENAVISTA VDA. DE

CHAVEZ, petitioners,
vs.
HON. INTERMEDIATE APPELLATE COURT (4th Civil Cases Division), ANTONIO CHAVEZ,
ROSARIO CHAVEZ and CONCEPCION CHAVEZ, respondents.

Edmundo A. Narra for petitioners.

Jose L. Lapak for respondents.

GRIÑO-AQUINO, J.:

This is a petition for review on certiorari of the decision dated March 26, 1984 of the
Intermediate Appellate Court in AC-G.R. No. CV-64708 which (1) annulled the sale made by
Manuela Buenavista of her property in favor of the spouses Raquel Chavez and Gerardo
Gimenez (Exh. 2) and the subsequent sale by said spouses of the same property to Pepito
Ferrer, and (2) declared that the earlier deeds of sale (Exhs. A, B, C and D) signed by Manuela
and her children constituted a valid partition of the land, subject to her lifetime usufruct. The
Court of Appeals thereby reversed the decision dated December 21, 1971 of the Court of First
Instance of Camarines Norte, Branch 1.

The land in question is the paraphernal property of petitioner Manuel Buenavista (defendant in
Civil Case No. 1934 of the Court of First Instance of Camarines Norte) who had six (6) children,
named Antonio, Rosario, Concepcion, Raquel, Presentacion and Floserpina. The first three
were the plaintiffs and the last three, with their mother, were the defendants in Civil Case No.
1934.

On July 11, 1958, Presentacion Chavez, with the conformity of her mother, Manuela
Buenavista, executed a deed of sale whereby she sold her 1/6 undivided share of the land in
question to her sister, Concepcion Chavez, for P 450.

Two years later, on May 2, 1960, Floserpina Chavez, with the conformity of her mother, also
sold her 1/6 undivided share of the same land to her sister, Concepcion, for the same price of
P450. On May 19, 1960, Raquel, with the conformity of her mother, likewise sold her undivided
1/6 share of the same property to Concepcion Chavez for P600. Having acquired the shares of
Presentacion, Floserpina and Raquel, Concepcion thereby became the owner of a total
undivided 4/6 share of the land in question with Antonio and Rosario as owners of the remaining
2/6 shares.

In all the documents, the following stipulation appears:

Na ang nasabing lupa o pag-aari ay ipinamana na sa amin ng aming ina, ang

nasabing Manuela Buenavista, kung kaya ito ay hatiin naming anim (6) na mga
magkakapatid, bagama't hindi pa namin naisasagawa ang paghihiwatig o
partition; ako bilang isa sa anim na magkakapatid ay may karapatan sa isang
ikaanim (1/6) na bahagi ng nasabing lupa, gayon pa man ang kasunduan sa
nasabing pagkamana namin ay samantalang nabubuhay pa ang aming ina, siya
ang magkakandili at makikinabang sa nasabing pag-aari. (p. 14, Rollo.)
meaning that the owner, Manuela Buenavista, had assigned or distributed to her children, in
equal pro-indiviso shares, her paraphernal property situated at Sitio Langas, Barrio
Calangcawan Norte, Vinzons, Camarines Norte, with an area of 4.1163 hectares more or less
under Tax Declaration No. 9303 and assessed at P1,630.00. The owner, however, reserved for
herself the possession of the land and the enjoyment of the fruits during her lifetime.

Despite the transfers or assignments her children had executed with her conformity ten years
earlier, Manuela Buenavista, on August 27, 1968, signed a "Bilihang Patuluyan ng Lupa" of the
entire property in favor of her daughter, Raquel Chavez, and her husband, Gerardo Jimenez.
On October 7, 1968, Antonio, Rosario and Concepcion filed Civil Case No. 1934 against their
mother Manuela and their sister Raquel. Thereupon, Manuela sold the entire property to Pepito
Ferrer, on February 4, 1969 (Exh. F) with right to repurchase. Ferrer was later sued as an
additional defendant in Civil Case No. 1934.

After the trial, judgment was rendered by the trial court dismissing the complaint, dissolving the
preliminary injunction it had previously issued, and ordering the plaintiffs to pay the costs. The
court did not award damages.

The plaintiffs, Antonio, Rosario and Concepcion, appealed to the Court of Appeals (CA-G.R. No.
64708-R).

On March 26, 1984, the Court of Appeals reversed the trial court. The dispositive portion of its
decision reads:

WHEREFORE, we reverse and set aside the appealed decision and render
another one declaring the deeds of sale in favor of Raquel Chavez and Gerardo
Jimenez (Exh. 2) and the sale in favor of defendant-appellee Pepito Ferrer as
null and void ab initio, and declaring further that the documents (Exhs. A, B, C
and D) are evidence of a valid partition of the land in question by and between
Manuela Buenavista and her children, subject to her right of usufruct during her
lifetime, without pronouncement as to damages and costs. (p. 17, Rollo.)

On April 5, 1984, the petitioners filed a motion for reconsideration alleging among others:

3. That the late Manuela Buenavista Vda. de Chavez, one of the defendants-
appellees, was found lately to have executed during her lifetime a LAST WILL
AND TESTAMENT ... and there is now a pending petition for probate of said last
will and testament before the Municipal Trial Court of Vinzons, Camarines Norte;

x x x           x x x          x x x

6. In the case at bar, even granting that the late Manuela Buenavista's execution
of the documents referred to as Exhibits A, B, C and D are valid, nevertheless its
validity ceases from the time that she executed the Last Will and Testament . . .
because the execution of the Last Will invalidates the former act of the said
Manuela Buenavista;

7. That the Last will and Testament . . . which his now pending probate in the
Municipal Trial Court of Vinzons, Camarines Norte, will finally affect the property
— hence, there is a ground for this motion for reconsideration and/or to suspend
 the decision-pending final outcome of the probate of the last will and testament of
the late Manuela Buenavista. (pp. 88-89, Rollo.)

Private respondents opposed the Motion for Reconsideration asserting that the partition inter
vivos which had been implemented long before the execution of the said Last Will and
Testament could not be revoked by the later instrument; that the supposed Last Will and
Testament was executed on December 11, 1969, more than one year after the filing of the
complaint for annulment on October 9, 1968, when said Manuela Buenavista was already senile
and not of disposing mind; that while Manuela Buenavista was able to sign with her own hand
the several Deeds of Sale, the supposed Last Will and Testament bears her thumbmark only;
that Manuela Buenavista had no more property to dispose of by will on December 11, 1969,
when she supposedly executed her Last Will and Testament.

On June 28, 1984, the Appellate Court denied the Motion for Reconsideration.

In their petition for review of the decision of the Court of Appeals, the petitioners allege:

(l) That the Intermediate Appellate Court (now Court of Appeals) erred in
declaring valid the deeds of sale (Exhs. A, B, C and D) as a partition by an
act inter vivos considering that examining the said exhibits will reveal that it is not
a testament amounting to a will of Manuela Buenavista;

(2) That the Intermediate Appellate Court erred in ruling against Article 1347 of
the New Civil Code. (p. 126, Rollo.)

We find those contentions not well-taken.

Article 1080 of the New Civil Code allows a person to make a partition of his estate either by an
act inter vivos or by will and such partition shall be respected insofar as it does not prejudice the
legitimate of the compulsory heirs. While the law prohibits contracts upon future inheritance, the
partition by the parent, as provided in Art. 1080, is a case expressly authorized by law (Art.
1347, par. 2, Civil Code of the Phil. by Padilla, 1987 Edition, p. 744.) Art. 1080 of the Civil Code
clearly gives a person two options in making a partition of his estate; either by an act inter
vivos or by WILL. When a person makes a partition by will, it is imperative that such partition
must be executed in accordance with the provisions of the law on wills; however, when a person
makes the partition of his estate by an act inter vivos, such partition may even be oral or written,
and need not be in the form of a will, provided that the partition does not prejudice the legitime
of compulsory heirs.

In numerous cases it has been held or stated that parol partitions may be
sustained on the ground of estoppel of the parties to assert the rights of a tenant
in common as to parts of land divided by parol partition as to which possession in
severalty was taken and acts of individual ownership were exercised. And a court
of equity will recognize the agreement and decree it to be valid and effectual for
the purpose of concluding the right of the parties as between each other to hold
their respective parts in severalty.

A parol partition may also be sustained on the ground that the parties thereto
have acquiesced in and ratified the partition by taking possession in severalty,
 exercising acts of ownership with respect thereto, or otherwise recognizing the
existence of the partition. (Hernandez vs. Andal, et al., 78 Phil. 196, 203.)

In the instant case, the respondent appellate court declared the Deeds of Sale executed by
Presentacion, Floserfina and Raquel, all surnamed Chavez (Exhs. A, B, and C) in favor of
Concepcion Chavez as evidence of a valid partition of the land in question by and between
Manuela Buenavista and her children as she not only gave her authority thereto but also signed
the sales. The Deeds of Sale (Exhs. A, B, and C) are not contracts entered into with respect to
feature inheritance but a contract perfected and consummated during the lifetime of Manuela
Buenavista who signed the same and gave her consent thereto. Such partition inter vivos,
executed by the property owner herself, is valid.

.... As the defendants freely participated in the partition, they are now estopped
from denying and repudiating the consequences of their own voluntary acts. It is
a general principle of law that no one may be permitted to disavow and go back
upon his own acts, or to proceed contrary thereto. (Joaquin vs. Mitsumine 34
Phil. 858.)

Where a piece of land has been included in a partition, and there is no allegation
that the inclusion was effected through improper means or without the petitioner's
knowledge, the partition barred any further litigation on said title and operated to
bring the property under the control and jurisdiction of the court for proper
disposition according to the tenor of the partition... They cannot attack the
partition collaterally ... (Ralla vs. Judge Untalan, 172 SCRA 858, 865, citing the
case of Torres vs. Encarnacion and De Borja, No. L-4681, July 31, 1951, 89 Phil.
678.)

As well argued by counsel for the respondents in their memorandum, it would be unjust and
inequitable to allow Manuela Buenavista Vda. de Chavez to revoke the sales she herself
authorized as well as the sale she herself executed in favor of her son only to execute a
simulated sale in favor of her daughter Raquel who had already profited from the sale she made
of the property she had received in the partition inter vivos; it would run counter to the doctrine
that "no person should be allowed to unjustly enrich herself at the expense of another."

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in AC-G.R. No.
CV-64708, the same is affirmed in toto. The petition for review is dismissed for lack of merit,
with costs against the petitioners.

SO ORDERED.
G.R. No. 126812 November 24, 1998

GOLDENROD, INC., petitioner,
vs.
COURT OF APPEALS, PIO BARRETO & SONS, INC., PIO BARRETO REALTY
DEVELOPMENT, INC. and ANTHONY QUE, respondents.

BELLOSILLO, J.:

In the absence of a specific stipulation, may the seller of real estate keep the earnest money to
answer for damages in the event the sale fails due to the fault of the prospective buyer?

Pio Barreto and Sons, Inc. (BARRETO & SONS) owned forty-three (43) parcels of registered
land with a total area of 18,500 square meters located at Carlos Palanca St., Quiapo, Manila,
which were mortgaged with United Coconut Planters Bank (UCPB). In 1988, the obligation of
the corporation with UCPB remained unpaid making foreclosure of the mortgage imminent.

Goldenrod, Inc. (GOLDENROD), offered to buy the property from BARRETO & SONS. On 25
May 1988, through its president Sonya G. Mathay, petitioner wrote respondent Anthony Que,
President of respondent BARRETO & SONS, as follows:

Thank you for your reply to our letter offering to buy your property in Echague (C.
Palanca) Quiapo.

We are happy that you accepted our offer except the two amendments
concerning the payment of interest which should be monthly instead of semi-
annually and the period to remove the trusses, steel frames etc. which shall be
180 days instead of 90 days only. Please be advised that we agree to your
amendments.

As to your other query, we prefer that the lots be reconsolidated back to its (sic)
mother titles.

Enclosed is the earnest money of P1 million which shall form part of the
purchase price.

Payment of the agreed total consideration shall be effected in accordance with

our offer as you have accepted and upon execution of the necessary documents
of sale to be implemented after the said reconsolidation of the lots.

Kindly acknowlege receipt of the earnest money.

When the term of existence of BARRETO & SONS expired, all its assets and liabilities including
the property located in Quiapo were transferred to respondent Pio Barreto Realty Development,
Inc. (BARRETO REALTY). Petitioner's offer to buy the property resulted in its agreement with
respondent BARRETO REALTY that petitioner would pay the following amounts: (a) P24.5
million representing the outstanding obligations of BARRETO REALTY with UCPB on 30 June
1988, the deadline set by the bank for payment; and, (b) P20 million which was the balance of
the purchase price of the property to be paid in installments within a 3-year period with interes at
18% per annum.

Petitioner did not pay UCPB the P24.5 million loan obligation of BARRETO REALTY on the
deadline set for payment; instead, it asked for an extension of one (1) month or up to 31 July
1988 to settle the obligation, which the bank granted. On 31 July 1988, petitioner requested
another extension of sixty (60) days to pay the loan. This time bank demurred.

In the meantime BARRETO REALTY was able to cause the reconsolidation of the forty-three
(43) titles covering the property subject of the purchase into two (2) titles covering Lots 1 and 2,
which were issued on 4 August 1988. The reconsolidation of the titles was made pursuant to the
request of petitioner in its letter to private respondents on 25 May 1988. Respondent BARRETO
REALTY allegedly incurred expenses for the reconsolidation amounting to P250,000.00.

On 25 August 1988 petitioner sought reconsideration of the denial by the bank of its request for
extension of sixty (60) days by asking for a shorter period of thirty (30) days. This was again
denied by UCPB.

On 30 August 1988 Alicia P. Logarta, President of Logarta Realty and Development Corporation
(LOGARTA REALTY), which acted as agent and broker of petitioner, wrote private respondent
Anthony Que informing him on behalf of petitioner that it could not go through with the purchase
of the property due to circumstances beyond its fault, i.e., the denial by UCPB of its request for
extension of time to pay the obligation. In the same letter, Logarta also demanded the refund of
the earnest money of P1 million which petitioner gave to respondent BARRETO REALTY.

On 31 August 1988 respondent BARRETTO REALTY sold to Asiaworld Trade Center Phils.,
Inc. (ASIAWORLD), Lot 2, one of the two (2) consolidated lots, for the price of P23 million. On
13 October 1988 respondent BARRETTO REALTY executed a deed transferring by way of
"dacion" the property reconsolidated as Lot 1 in favor of UCPB, which in turn sold the property
to ASIAWORLD for P24 million.

On 12 December 1988 Logarta again wrote respondent Que demanding the return of the
earnest money to GOLDENROD. On 7 February 1989 petitioner through its lawyer reiterated its
demand, but the same remained unheeded by private respondents. This prompted petitioner to
file a complaint with the Regional Trial Court of Manila against private respondents for the return
of the amount of P1 million and the payment of damages including lost interests or profits. In
their answer, private respondents contended that it was the agreement of the parties that the
earnest money of P1 million would be forfeited to answer for losses and damages that might be
suffered by private respondents in case of failure by petitioner to comply with the terms of their
purchase agreement.

On 15 March 1991 the trial court rendered a decision 1 ordering private respondents jointly
and severally to pay petitioner P1,000.000.00 with legal interest from 9 February 1989
until fully paid, P50,000.00 representing unrealized profits and P10,000.00 as attorney's
fees. The trial court found that there was no written agreement between the parties
concerning forfeiture of the earnest money if the sale did not push through. It further
declared that the earnest money given by petitioner to respondent BARRETO REALTY
was intended to form part of the purchase price; thus, the refusal of the latter to return
the money when the sale was not consummated violated Arts. 22 and 23 of the Civil Code
against unjust enrichment.

Obviously dissatisfied with the decision of the trial court, private respondents appealed
to the Court of Appeals which reversed the trial court and ordered the dismissal of the
complaint; hence, this petition.

Petitioner alleges that the Court of Appeals erred in disregarding the finding of the trial
court that the earnest money given by petitioner to respondent BARRETTO REALTY
should be returned to the former. The absence of an express stipulation that the same
shall be forfeited in favor of the seller in case the buyer fails to comply with his
obligation is compelling. It argues that the forfeiture of the money in favor of respondent
BARRETTO REALTY would amount to unjust enrichment at the expense of petitioner.

We sustain petitioner. Under Art. 1482 of the Civil Code, whenever earnest money is
given in a contract of sale, it shall be considered as part of the purchase price and as
proof of the perfection of the contract. Petitioner clearly stated without any objection
from private respondents that the earnest money was intended to form part of the
purchase price. It was an advance payment which must be deducted from the total price.
Hence, the parties could not have intended that the earnest money or advance payment
would be forfeited when the buyer should fail to pay the balance of the price, especially
in the absence of a clear and express agreement thereon. By reason oi its failure to make
payment petitioner, through its agent, informed private respondents that it would no
longer push through with the sale. In other words, petitioner resorted to extrajudicial
rescission of its agreement with private respondents.

In University of the Philippines v. de los Angeles, 2 the right to rescind contracts is not

absolute and is subject to scrutiny and review by the proper court. We held further, in the
more recent case of Adelfa Properties, Inc. v. Court of Appeals, 3 that rescission of
reciprocal contracts may be extrajudicially rescinded unless successfully impugned in
court. If the party does not oppose the declaration of rescission of the other party,
specifying the grounds therefor, and it fails to reply or protest against it, its silence
thereon suggests an admission of the veracity and validity of the rescinding party's
claim.

Private respondents did not interpose any objection to the rescission by petitioner of the
agreement. As found by the Court of Appeals, private respondent BARRETTO REALTY
even sold Lot 2 of the subject consolidated lots to another buyer, ASIAWORLD, one day
after its President Anthony Que received the broker's letter rescinding tne sale.
Subsequently, on 13 October 1988 respondent BARRETO REALTY also conveyed
ownership over Lot 1 to UCPB which, in turn, sold the same to ASIAWORLD.

Art. 1385 of the Civil Code provides that rescission creates the obligation to return the
things which were the object of the contract together with their fruits and interest. The
vendor is therefore obliged to return the purchase price paid to him by the buyer if the
latter rescinds the sale, 4 or when the transaction was called off and the subject property
had already been sold to a third person, as what obtained in this case. 5 Therefore, by
virtue of the extrajudicial rescission of the contract to sell by petitioner without
opposition from private respondents who, in turn, sold the property to other persons,
private respondent BARRETTO REALTY, as the vendor, had the obligation to return the
earnest money of P1000,000.00 plus legal interest from the date it received notice of
rescission from petitioner, i.e., 30 August 1988, up to the date of the return or payment. It
would be most inequitable if resondent BARRETTO REALTY would be allowed to retain
petitioner's payment of P1,000,000.00 and at the same time appropriate the proceeds of
the second sale made to another. 6

WHEREFORE, the Petition is GRANTED. The decision of the Court of Appeals is

REVERSED and SET ASIDE. Private respondent Pio Barretto Realty Development, Inc.
(BARRETTO REALTY), its successors and assigns are ordered to return to petitioner
Goldenrod, Inc. (GOLDENROD), the amount of P1,000,000.00 with legal interest thereon
from 30 August 1988, the date of notice of extrajudicial rescission, until the amount is
fully paid, with costs against private respondents.

SO ORDERED.
JUDICIAL VIGILANTE

G.R. No. 98273 October 28, 1991

CLARITA V. CRUZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PHILIPPINE OVERSEAS
EMPLOYMENT ADMINISTRATION (POEA), EMS MANPOWER & PLACEMENT SERVICE
(PHIL.), ABDUL KARIM AL YAHYA, and TRAVELLERS INSURANCE, respondents.

Public Attorney's Office for petitioner.

Manuel T. Collado for private respondent.

CRUZ, J.:

Clarita V. Cruz** went abroad pursuant to an employment contract that she hoped would
improve her future. Although a high school graduate, she agreed to work as a domestic helper
in Kuwait in consideration of an attractive salary and vacation leave benefits she could not
expect to earn in this country. But her foreign adventure proved to be a bitter disappointment.
On March 18,1988, after completing her two-year engagement, she was back home in the
Philippines with her dead dreams and an angry grievance.

On March 23,1988, she filed a complaint against EMS Manpower and Placement Services
(Phil.) and its foreign principal, Abdul Karim Al Yahya, for underpayment of her salary and non-
payment of her vacation leave. She also claimed that she was charged a placement fee of
P7,000.00 instead of the legal maximum of only P5,000.00. She alleged that her foreign
employer treated her as a slave and required her to work 18 hours a day. She was beaten up
and suffered facial deformity, head trauma and decreased sensation in the right portion of her
body. On top of all this, she was paid only $120 per month and her total salaries were given to
her only three hours before her flight back to Manila. This was after the plane she was
supposed to take had left and she had to stay in the airport for 24 hours before her employer
finally heard her pleas and delivered her passport and ticket to her.

In its answer and position paper, the private respondent raised the principal defense of
settlement as evidenced by the Affidavit of Desistance executed by the complainant on June 21,
1988. In this document, she declared inter alia that —

x x x           x x x          x x x
 2. Thereafter going thoroughly over the facts of the case by reconciling our records, we
came to discover that it was only a plain case of misunderstanding on our part, and that
we have already settled our differences;

3. That I am no longer interested in further continuance of the above case against EMS
Manpower & Placement Services either criminal, civil or administrative or whatever
nature as I hereby desist now and hereafter;

4. That I am executing this affidavit of desistance to attest to the truth of the foregoing
facts and circumstances and for the purpose of asking the dismissal of my said
complaint against EMS Manpower & Placement Services.

On the basis of this affidavit, the Philippine Overseas Employment Administration (POEA)
dismissed her complaint in a decision dated May 16, 1989. This was affirmed by the National
Labor Relations Commission (NLRC) in its resolution dated December 28, 1990,
reconsideration of which was denied on February 21, 1991.

The petition now before us faults the POEA and the NLRC with grave abuse of discretion for
having upheld the Affidavit of Desistance. Cruz rejects the settlement as having been obtained
from her under duress and false pretenses and insists on her original claim for the balance of
her salaries and vacation- leave pay at the agreed rate of P250.00 per month.

Her contention is that she was inveigled into signing the Affidavit of Desistance without the
assistance of counsel. The "Attorney" Alvarado who assisted her was not really a lawyer but
only a helper in the Overseas Workers Welfare Administration. Atty. Biolena, on the other hand,
merely acknowledged the document. Moreover, when she signed the affidavit, she was under
the impression when she was agreeing to settle only her claim for one month unpaid vacation
leave, as the wording of the receipt she issued on the same date showed, to wit:

June 21, 1988

Receipt

This is to certify that I received the amount of P2,400.00 from EMS Manpower & Placement
Services in settlement of 1 month unpaid vacation leave.

(Sgd.) CLARITA V. CRUZ

IN THE PRESENCE OF:

(Sgd.) O.G. ALVARADO

OWWA Legal Dept.

For its part, the private respondent argues that the petitioner is bound by her Affidavit of
Desistance, which she freely and knowingly executed. After all, she was not an ignorant and
illiterate person but a high school graduate who understood what she was signing. The due
execution of the instrument must also be sustained on the basis of the presumptions of
regularity of official functions and of good faith.
Significantly, neither the private respondent nor the Solicitor General refuted the petitioner's
submission that the person who allegedly assisted her in the execution of the Affidavit of
Desistance and explained to her its content and meaning was not a lawyer but a mere
employee in the OWWA. His status was merely assumed but not established by the
respondents although it was directly questioned. The comments of the public and private
respondents did not meet this challenge squarely.

It is no less noteworthy that the receipt the petitioner issued on the same day was only for
"P2,400.00 . . . in settlement of 1 month unpaid vacation." This clearly shows that she was not
waiving the rest of her demands in exchange for that measly amount (which did not even really
represent the commutable value of the 1 month vacation leave at the rate of $250.00). In fact,
the total claim of the petitioner is for P88,840.00, itemized as follows:

a) P84,240.00, representing the salary differentials of $130 for 24 months (US $3,120.00
x P27.00).

b) P2,600.00, representing the balance of her vacation leave pay.

c) P2,000.00, representing her excess placement fee.

In Principe v. Philippine-Singapore Transport Service, Inc., 1 this Court held:

Even assuming for the sake of argument that the quitclaim had foreclosed petitioner's right over the death benefits of her husband,  the fact that the
consideration given in exchange thereof was very much less than the amount petitioner is claiming renders the quitclaim null and void for being contrary
to public policy. The State must be firm in affording protection to labor. The quitclaim wherein the consideration is scandalously low and inequitable
cannot be an obstacle to petitioner's pursuing her legitimate claim. Equity dictates that the compromise agreement should be voided in this instance.
(Emphasis supplied.)

The following guidelines were likewise set in Periquet v. NLRC: 2

Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it
is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was
wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the
questionable transaction. (Emphasis supplied.)

The Court is convinced that the petitioner was not fully aware of the import and consequences of the Affidavit of Desistance when she executed it, allegedly with the
assistance of counsel. Except for the disputable presumptions invoked by the private respondent, such assistance has not been established against the petitioner's
allegation that the "Attorney" Alvarado who supposedly counseled her was not even a lawyer. Indeed, even assuming that such assistance had been duly given, there
is still the question of the intrinsic validity of the quitclaim in view of the gross disparity between the amount of the settlement and the petitioner's original claim. It is
difficult to believe that the petitioner would agree to waive her total claim of P88,840.00 for the unseemly settlement of only P2,400.00. And even if she did, the waiver
would still be null and void as violative of public policy.
It remains to state that, contrary to the contention of the private respondent in the proceedings below that it has no privity of contract with the petitioner, we have held
in a long line of cases that the local recruiter is solidarily liable with the foreign principal for all damages sustained by the overseas worker in connection with his
contract of employment. Such liability is provided for in Section 1, Rule II, Book II, of the POEA Rules and Regulations, which we have consistently sustained.

This decision demonstrates once again the tenderness of the Court toward the worker subjected to the lawless exploitation and impositions of his employer. The
protection of our overseas workers is especially necessary because of the inconveniences and even risks they have to undergo in their quest for a better life in a
foreign land away from their loved ones and their own government.

The domestic helper is particularly susceptible to abuse because she usually works only by herself in a private household unlike other workers employed in an open
business concern who are able to share and discuss their problems and bear or solve them together. The domestic helper is denied that comfort. She has no
companions in her misery. She usually broods alone. There is no one to turn to for help. That is why we must carefully listen to her when she is finally able to complain
against those who would rob her of her just rewards and even of her dignity as a human being.

WHEREFORE, the resolutions of the NLRC dated December 28, 1990, and February 21, 1991, are SET ASIDE, and the Affidavit of Desistance is DECLARED null
and void. POEA Case No. 88-03-255 is REMANDED to the POEA for further proceedings and expeditious resolution.

SO ORDERED.
DISRESPECT FOR PERSON

G.R. No. 124245           February 15, 2000

ANTONIO F. NAVARRETE, petitioner,
vs.
COURT OF APPEALS, and LEONILA E. GENEROSO, respondents.

GONZAGA-REYES, J.:

Before us is a petition for review seeking the reversal of the Decision 1 of the respondent Court
of Appeals dated March 14, 1996 in CA-G.R. CV No. 33838 insofar as it deleted the award of
moral damages and attorney's fees granted to him by the Regional Trial Court of Manila in its
Decision2 dated September 27, 1990 in Civil Case No. 87-41856.

Petitioner is a lawyer and is one of the defendants in Civil Case No. 87-41856 for annulment of
"Deed of Sale with Right to Repurchase and Damages", filed with the Regional Trial Court of
Manila entitled "Leonila E. Generoso, et, al. vs. Frederick S. Pumaren, et. al.". Private
respondent filed the civil case on September 2, 1987 originally against Mr. Frederick S.
Pumaren, Mr. Avelino Profeta and the Register of Deeds of Metro Manila seeking to annul a
deed of sale executed over her property on the ground that her purported signature therein was
forged. On December 21, 1987, the complaint was amended to include petitioner and Atty.
Rafael C. Dinglasan.

The Deed of Sale with Right of Repurchase involved in the civil case was prepared and
notarized by petitioner. Petitioner claims that the statements made by private respondent in her
Amended Complaint and her testimonies in the course of the trial falsely and maliciously
slandered him. Hence, petitioner now assails the denial of his right to recover moral damages
and attorney's fees from private respondent.

The alleged malicious and false statements made by private respondent against petitioner were
uttered on December 14 and 21, 1987. On these dates, the lower court conducted the hearings
for the issuance of a writ of preliminary injunction in Civil Case No. 87-41856. Petitioner claims
that private respondent alluded to him when she said the words "stupid", "bastards", "swindlers",
and "plunderers" while testifying on the Deed of Sale with Right of Repurchase. Quoted below
are the pertinent portions of private respondent's testimonies:

Q.           Now, there are signatures here as witnesses appearing on page 2 of the

document, can you tell us, Ms. Witness, if you can recognize those signatures?

A.           I do not know any of those bastards, none of them.3

xxx     xxx     xxx

Q.           One of the defendants in this case is a certain Avelino Profeta, have you met
him before?
 A           I never met this swindler before. I never seen him. Never heard of him.4

xxx     xxx     xxx

Q.           Before this proceedings commence as it appears that it was so confirmed thru

a petition be defendant Frederick S. Pumaren on October 13, 1986, did you receive from
the Court or from the defendants that there was such proceedings?

A.           No, sir. I did not receive any notice from the court or from these stupid people.5

xxx     xxx     xxx

A.           I do not know this document. I do not know about the selling. Those people are
really swindlers.6

xxx     xxx     xxx

A.           I still could not understand how this certificate of title could be recopied. There
must be somebody who is responsible for it. How was it possible that this was copied
by these swindlers.7

xxx     xxx     xxx

A.           We came here precisely for this because I can not let these things go ahead.
My property is being stolen behind my back. I have to come here 10,000 miles away to
defend my property so that justice may be given to punish those plunderers.8

xxx     xxx     xxx

DRA. GENEROSO: Before we have the break, can I make a statement to Atty.
Villanueva? Are you defending Avelino Profeta, one of the swindlers in this case? How
can you, after examining all those papers, protect and defend him after they plundered
my property?9 (Emphasis supplied)

Petitioner is also convinced that the following allegations of private respondent in her Amended
Complaint are actionable:

(a) Accused "private defendants" of "forging" Leonila Generoso's signature in the Deed
of Absolute Sale with Right of Repurchase" (par. 51);

(b) Claimed that "the same conspiring defendants falsified the signatures of Leonila E.

Generoso" (par. 61);

(c) Pointed to private defendants' wanton and malevolent acts to deceive and defraud
plaintiffs" (par. 91); and

(d) Charged the defendants of "blatant, malicious and fraudulent acts as aforestated"

(par. 10)10 (Emphasis supplied)
On September 27, 1990, the Regional Trial Court of Manila rendered its Decision in Civil Case
No. 87-41856, the dispositive portion of which reads:

WHEREFORE, and in view of the foregoing considerations, judgment is hereby

rendered:

(a) Declaring plaintiff Leonila E. Generoso as the absolute, exclusive and

paraphernal owner of the subject property covered by her already deemed
cancelled Transfer Certificate of Title No. 143351, now Transfer Certificate of
Title No. 154609, of the Register of Deeds of Manila;

(b) Declaring the Deed of Absolute Sale with Right of Repurchase, Exhibit A, and
Transfer Certificate of Title Nos. 143551 and 175354 issued to Frederick S.
Pumaren as null and void, concelled (sic) without force and effect;

(c) Declaring Transfer Certificate of Title No. 154609 issued to plaintiff Leonila E.
Generoso as the lawful and valid title to the land in question;

(d) Dismissing the complaint with respect to defendant Antonio Navarrete and,

on his counterclaim, ordering plaintiffs to pay him the amount of P100,000.00 as
moral damages and P 20,000.00 as attorney's fees.

No pronouncement as to costs.11

Both parties appealed, including petitioner who protested the minimal amount of damages
awarded to him.

On March 14, 1996, the Court of Appeals upheld the finding that the Deed of Sale with Right of
Repurchase and the Transfer of Certificate of Title issued to Pumaren were null and void, but
deleted the award of damages in favor of petitioner. It held:

IN THE LIGHT OF ALL THE FOREGOING, the assailed Decision is hereby AFFIRMED
with the modifications that: (a) the award of moral damages and attorney's fees in favor
of Navarrete are hereby deleted; (b) Appellant Pumaren and Dinglasan are hereby
ordered to pay to Appellant Generoso and Elshawi jointly and severally, the amount of
US $2,650.00 or its peso equivalent by way of actual damages; to Appellant Generoso,
the amount of P50,00.00 by way of exemplary damages; and to Appellants Generoso
and Elshawi, the amount of P 20,000.00 as attorney's fees; and the costs of suit.12

Petitioner believes that this Court should overturn the decision of the Court of Appeals on the
ground that:

IN HOLDING THAT A PARTY TO A CASE HAS THE ABSOLUTE PRIVILEGE OF

FALSELY AND MALICIOUSLY MALIGNING A LAWYER, EVEN WHILE THE LATTER
IS NOT YET A PARTY TO THAT CASE, THE RESPONDENT COURT OF APPEALS
HAS DECIDED A QUESTION OF SUBSTANCE, NOT HERETOFORE DETERMINED
BY THIS HONORABLE COURT, OR HAS DECIDED IT IN A WAY CLEARLY NOT IN
ACCORD WITH LAW, WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT OR, AT THE VERY LEAST, WITH FAIRNESS AND EQUITY.13
In questioning the conclusion of the Court of Appeals that the statements made by private
respondent in the pleadings and in her testimony are considered absolutely privileged, petitioner
deplores the fact that only American cases were cited by the Court to justify its conclusion. He
insists that under Philippine law and jurisprudence, the statements made by private respondent
are not absolutely privileged. The petition underscores the fact that petitioner is a lawyer whose
reputation has been allegedly besmirched by a "brown American". 14 Petitioner now turns to this
Court to vindicate his honor.

In her Answer, private respondent cited decisions 15 of the Supreme Court to the effect that no
action for libel or for damages may be founded on utterances made in the course of judicial
proceedings.16

This Court finds that the Court of Appeals did not commit any reversible error in revoking the
award of moral damages and attorney's fees to petitioner.

It is a settled principle in this jurisdiction that statements made in the course of judicial
proceedings are absolutely privileged.17 This absolute privilege remains regardless of the
defamatory tenor and the presence of malice if the same are relevant, pertinent or material to
the cause in hand or subject of the inquiry.18 Thus, the person making these statements such as
a judge, lawyer or witness does not thereby incur the risk of being found liable thereon in a
criminal prosecution or an action for the recovery of damages.19

The doctrine that statements made during the course of judicial proceedings enjoy the shield of
absolute privilege was first categorically established20 in the case of Sison vs. David.21 In said
case, the petition allegedly contained libelous allegations, implying that the complainant was
incompetent to manage the affairs of a corporation and that he was converting his wife's
paraphernal properties into conjugal properties.22 This Court ruled in that case that the
allegations in the pleadings were absolutely privileged and went further by saying that:

Also, sarcastic, pungent and harsh allegations in a pleading although tending to detract
from the dignity that should characterize proceedings in courts of justice, are absolutely
privileged, if relevant to the issues.23

We have adopted the same ruling in several cases 24 wherein statements made during judicial
proceedings were sued upon for libel or damages. The lone requirement imposed to maintain
the cloak of absolute privilege is the test of relevancy.25

The doctrine of privileged communication has a practical purpose. As enunciated in the case
of Deles vs. Aragona, Jr.26:

The privilege is not intended so much for the protection of those engaged in the public
service and in the enactment and administration of law, as for the promotion of public
welfare, the purpose being that members of the legislature, judges of courts, jurors,
lawyers and witnesses may speak their minds freely and exercise their respective
functions without incurring the risk of a criminal prosecution or an action for damages.27

In determining the issue of relevancy of statements made in judicial proceedings, courts have
adopted a liberal attitude by resolving all doubts in favor of relevancy. 28 In People vs. Aquino29,
we emphasized that "it is the rule that what is relevant or pertinent should be liberally
considered to favor the writer, and the words are not to be scrutinized with microscopic
intensity".30

In this case, the allegations made by private respondent in her Amended Complaint stand the
test of relevancy. The words "forging", "malicious and fraudulent" and "falsified" are clearly
pertinent to the cause of action of private respondent, which is to annul the Deed of Sale with
Right of Repurchase wherein private respondent's signature was forged by an impostor, and to
recover damages resulting from such forgery.

With respect to the words "swindlers", "plunderers" "stupid" and "bastards" uttered by private
respondent in the course of her testimony, we are inclined to agree that such language is too
ignominious and degrading and is out of place in a courtroom. Understandably, private
respondent has no love lost for the people she accused of illegally depriving her of her property,
but her indignation does not give her the right to use contumacious language with impunity in a
courtroom. The judge31 and commissioner32 then presiding at the time private respondent
uttered the contemptuous words should have restrained the latter because order and proper
decorum should always be maintained in the courtroom.33 Without question, the use of blatantly
defamatory language like "stupid", "bastards", "swindlers", and "plunderers" in describing the
adverse parties detract from the honor and dignity that befits a court proceeding and should
have been stricken out of the records.

The foregoing notwithstanding, the Court finds that the terms used by the private respondent in
her pleading and in her testimony cannot be the basis for an award of moral damages and
attorney's fees in favor of petitioner. As stated earlier, the words "forging", "falsified", "malicious"
and "fraudulent" in the Amended Complaint are unmistakably relevant to private respondent's
cause of action which is to annul the Deed of Sale where her signature was forged. The words
"stupid", "bastards", "swindlers", and "plunderers" uttered by private respondent did not
specifically pertain to petitioner to sufficiently identify him as the object of defamation, such
identifiability being an element of a libelous imputation. 34 We believe that neither petitioner's
good name and reputation nor his high standing in the profession have been damaged by these
utterances.

An examination of the transcript earlier quoted will show that private respondent did not allude
to petitioner in particular when she used the words "stupid" and "bastards". The word "bastards"
was in response to this question: "Now, there are signatures here as witnesses appearing on
page 2 of the document, can you tell us, Ms. Witness, if you can recognize those
signatures?"35 Clearly, private respondent was alluding to the witnesses to the deed in question,
who are not parties in the present action. Petitioner was not a witness to the deed, he prepared
and notarized it. Also, the word "swindler" was used with particular reference to defendant
Avelino Profeta who also is not a party to the instant case. Used in the plural form in the other
parts of her testimony, the words "those swindlers", "those plunderers" and "those stupid
people" referred to none of the defendants in particular.

As regards the testimony of private respondent on December 14, 1987, the words complained
of were uttered before the complaint was amended to include petitioner. It was on December
21, 1987 when private respondent amended her complaint to include petitioner and Atty. Rafael
Dinglasan as defendants. The petitioner was well aware that the malicious imputations were
made "while (he) is not yet a party to the case" and could not have been the object
thereof.1âwphi1.nêt
We accordingly affirm the ruling of the respondent court deleting the award of attorney's fees in
favor of petitioner.

WHEREFORE, this petition is hereby DENIED.

SO ORDERED.
G.R. No. 135882            June 27, 2001

LOURDES T. MARQUEZ, in her capacity as Branch Manager, UNION BANK OF THE

PHILIPPINES, petitioner,
vs.
HONORABLE ANIANO A. DESIERTO, in his capacity as OMBUDSMAN, ANGEL C. MAYOR-
ALGO, JR., MARY ANN CORPUZ-MANALAC AND JOSE T. DE JESUS, JR., in their capacity
as Chairman and Members of the Panel, respectively, respondents.

PARDO, J.:

In the petition at bar, petitioner seeks to --

a. Annul and set aside, for having been issued without or in excess of jurisdiction or with
grave abuse of discretion amounting to lack of jurisdiction, respondents' order dated
September 7, 1998 in OMB-0-97-0411, In Re: Motion to Cite Lourdes T. Marquez for
indirect contempt, received by counsel of September 9,1998, and their order dated
October 14,1998, denying Marquez's motion for reconsideration dated September 10,
1998, received by counsel on October 20, 1998.

b. Prohibit respondents from implementing their order dated October 14, 1998, in
proceeding with the hearing of the motion to cite Marquez for indirect contempt, through
the issuance by this Court of a temporary restraining order and/or preliminary injunction. 1

The antecedent facts are as follows:

Sometime in May 1998, petitioner Marquez received an Order from the Ombudsman Aniano A.
Desierto dated April 29, 1998, to produce several bank documents for purposes of inspection in
camera relative to various accounts maintained at Union Bank of the Philippines, Julia Vargas
Branch, where petitioner is the branch manager. The accounts to be inspected are Account
Nos. 011-37270, 240-020718, 245-30317-3 and 245-30318-1, involved in a case pending with
the Ombudsman entitled, Fact-Finding and Intelligence Bureau (FFIB) v. Amado Lagdameo, et
al. The order further states:

"It is worth mentioning that the power of the Ombudsman to investigate and to require
the production and inspection of records and documents is sanctioned by the 1987
Philippine Constitution, Republic Act No. 6770, otherwise known as Ombudsman Act of
1989 and under existing jurisprudence on the matter. It must be noted that R.A. 6770
especially Section 15 thereof provides, among others, the following powers, functions
and duties of the Ombudsman, to wit:

xxx
 (8) Administer oaths, issue subpoena duces tecum and take testimony in any
investigation or inquiry, including the power to examine and have access to banks
accounts and records;

(9) Punish for contempt in accordance with the Rules of Court and under the same
procedure and with the same penalties provided therein.

Clearly, the specific provision of R.A. 6770, a later legislation, modifies the law on the
Secrecy of Bank Deposits (R.A.1405) and places the office of the Ombudsman in the
same footing as the courts of law in this regard."2

The basis of the Ombudsman in ordering an in camera inspection of the accounts is a trail
managers checks purchased by one George Trivinio, a respondent in OMB-097-0411, pending
with the office of the Ombudsman.

It would appear that Mr. George Trivinio, purchased fifty one (51) Managers Checks (MCs) for a
total amount of P272.1 Million at Traders Royal Bank, United Nations Avenue branch, on May 2
and 3, 1995. Out of the 51 MCs, eleven (11) MCs in the amount of P70.6 million, were
deposited and credited to an account maintained at the Union Bank, Julia Vargas Branch.3

On May 26, 1998, the FFIB panel met in conference with petitioner Lourdes T. Marquez and
Atty. Fe B. Macalino at the bank's main office, Ayala Avenue, Makati City. The meeting was for
the purpose of allowing petitioner and Atty. Macalino to view the checks furnished by Traders
Royal Bank. After convincing themselves of the veracity of the checks, Atty. Macalino advised
Ms. Marquez to comply with the order of the Ombudsman. Petitioner agreed to an in
camera inspection set on June 3, 1998.4

However, on June 4,1998, petitioner wrote the Ombudsman explaining to him that the accounts
in question cannot readily be identified and asked for time to respond to the order. The reason
forwarded by the petitioner was that "despite diligent efforts and from the accounts numbers
presented, we can not identify these accounts since the checks are issued in cash or bearer.
We surmised that these accounts have long been dormant, hence are not covered by the new
account number generated by the Union Bank system. We therefore have to verify from the
Interbank records archives for the whereabouts of these accounts.5

The Ombudsman, responding to the request of the petitioner for time to comply with the order,
stated: "firstly, it must be emphasized that Union Bank, Julia Vargas Branch was depositary
bank of the subject Traders Royal Bank Manager's Check (MCs), as shown at its dorsal portion
and as cleared by the Philippines Clearing House, not the International Corporate Bank.

Notwithstanding the facts that the checks were payable to cash or bearer, nonetheless, the
name of the depositor(s) could easily be identified since the account numbers x x x where said
checks were deposited are identified in the order.

Even assuming that the accounts xxx were already classified as "dormant accounts," the bank
is still required to preserve the records pertaining to the accounts within a certain period of time
as required by existing banking rules and regulations.

And finally, the in camera inspection was already extended twice from May 13, 1998 to June
3,1998 thereby giving the bank enough time within which to sufficiently comply with the order."6
Thus, on June 16, 1998, the Ombudsman issued an order directing petitioner to produce the
bank documents relative to accounts in issue. The order states:

Viewed from the foregoing, your persistent refusal to comply with Ombudsman's order in
unjustified, and is merely intended to delay the investigation of the case. Your act
constitutes disobedience of or resistance to a lawful order issued by this office and is
punishable as Indirect Contempt under Section 3(b) of R.A. 6770. The same may also
constitute obstruction in the lawful exercise of the functions of the Ombudsman which is
punishable under Section 36 of R.A. 6770.7

On July 10,1998, petitioner together with Union Bank of the Philippines, filed a petition for
declaratory relief, prohibition and injunctions 8 with the Regional Trial Court, Makati City, against
the Ombudsman.

The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a
declaration of her rights from the court due to the clear conflict between RA No.6770, Section 15
and R.A. No. 1405, Sections 2 and 3.

Petitioner prayed for a temporary restraining order (TRO) because the Ombudsman and the
other persons acting under his authority were continuously harassing her to produce the bank
documents relatives to the accounts in question. Moreover, on June 16, 1998, the Ombudsman
issued another order stating that unless petitioner appeared before the FFIB with the documents
requested, petitioner manager would be charged with indirect contempt and obstruction of
justice.

In the meantime,9 on July 14, 1998, the lower court denied petitioner's prayer for a temporary
restraining order and stated us:

"After hearing the arguments of the parties, the court finds the application for a
Temporary Restraining Order to be without merit.

"Since the application prays for restraint of the respondent, in the exercise of his
contempt powers under Section 15(9) in relation to paragraph (8) of RA. 6770, known as
" The Ombudsman Act of 1989", there is no great or irreparable injury from which
petitioners may suffer, if respondent is not so restrained. Respondent should he decide
to exercise his contempt powers would still have to apply with the court. x x x Anyone
who, without lawful excuse x x x refuses to produce documents for inspection, when
thereunto lawfully required shall be subject to discipline as in case of contempt of Court
and upon application of the individual or body exercising the power in question shall be
dealt with by the Judge of the First Instance (now RTC) having jurisdiction of the case in
a manner provided by the law (section 580 of the Revised Administrative Code). Under
the present Constitution only judges may issue warrants, hence, respondent should
apply with the Court for the issuance of the warrant needed for the enforcement of his
contempt orders. It is in these proceedings where petitioner may question the propriety
of respondent's exercise of his contempt powers. Petitioners are not therefore left
without any adequate remedy.

"The questioned orders were issued with the investigation of the case of Fact-Finding
and Intelligence Bureau vs. Amado Lagdameo, et. al., OMB-0-97-0411, for violation of
RA. 3019. Since petitioner failed to show prima facie evidence that the subject matter of
 the investigation is outside the jurisdiction of the Office of the Ombudsman, no writ of
injunction may be issued by this Court to delay this investigation pursuant to section 14
of Ombudsman Act of 1989."10

On July 20,1998, petitioner filed a motion for reconsideration based on the following grounds:

a. Petitioners' application for filed Temporary Restraining Order is not only to restrain the
Ombudsman from exercising his contempt powers, but to stop him from implementing
his Orders dated April 29, 1998 and June 16, 1998: and

b. The subject matter of the investigation being conducted by the Ombudsman at

petitioners' premises is outside his jurisdiction.11

On July 23, 1998, the Ombudsman filed a motion to dismiss the petition for declaratory
relief12 on the ground that the Regional Trial Court has no jurisdiction to hear a petition for relief
from the findings and orders of the Ombudsman, citing R.A. No. 6770, Sections 14 and 27. On
August 7, 1998, the Ombudsman filed an opposition to petitioner's motion for reconsideration
dated July 20, 1998.13

On August 19,1998, the lower court denied petitioner's motion for reconsideration, 14 and also
the Ombudsman's motion to dismiss. 15

On August 21, 1998, petitioner received a copy of the motion to cite her for contempt, filed with
the Office of the Ombudsman by Agapito B. Rosales, Director, Fact Finding and Intelligence
Bureau (FFIB).16

On August 31, 1998, petitioner filed with the Ombudsman an opposition to the motion to cite her
in contempt on the ground that the filing thereof was premature due to the petition pending in
the lower court.17 Petitioner likewise reiterated that she had no intention to disobey the orders of
the Ombudsman. However, she wanted to be clarified as to how she would comply with the
orders without her breaking any law, particularly RA. No. 1405.18

Respondent Ombudsman panel set the incident for hearing on September 7, 1998. 19 After
hearing, the panel issued an order dated September 7, 1998, ordering petitioner and counsel to
appear for a continuation of the hearing of the contempt charges against her.20

On September 10, 1998, petitioner filed with the Ombudsman a motion for reconsideration of
the above order.21 Her motion was premised on the fact that there was a pending case with the
Regional Trial Court, Makati City,22 which would determine whether obeying the orders of the
Ombudsman to produce bank documents would not violate any law.

The FFIB opposed the motion, 23 and on October 14, 1998, the Ombudsman denied the motion
by order the dispositive portion of which reads:

"Wherefore, respondent Lourdes T. Marquez's motion for reconsideration is hereby

DENIED, for lack of merit. Let the hearing of the motion of the Fact Finding Intelligence
Bureau (FFIB) to cite her for indirect contempt to be intransferrably set to 29 October
1998 at 2:00 o'clock p.m. at which date and time she should appear personally to submit
her additional evidence. Failure to do so shall be deemed a waiver thereof."24
Hence, the present petition.25

The issue is whether petitioner may be cited for indirect contempt for her failure to produce the
documents requested by the Ombudsman. And whether the order of the Ombudsman to have
an in camera inspection of the questioned account is allowed as an exception to the law on
secrecy of bank deposits (R.A. No.1405).

An examination of the secrecy of bank deposits law (R.A. No.1405) would reveal the following
exceptions:

1. Where the depositor consents in writing;

2. Impeachment case;

3. By court order in bribery or dereliction of duty cases against public officials;

4. Deposit is subject of litigation;

5. Sec. 8, R.A. No.3019, in cases of unexplained wealth as held in the case of PNB vs.
Gancayco.26

The order of the Ombudsman to produce for in camera inspection the subject accounts with the
Union Bank of the Philippines, Julia Vargas Branch, is based on a pending investigation at the
Office of the Ombudsman against Amado Lagdameo, et. al. for violation of R.A. No. 3019, Sec.
3 (e) and (g) relative to the Joint Venture Agreement between the Public Estates Authority and
AMARI.

We rule that before an in camera inspection may be allowed, there must be a pending case
before a court of competent jurisdiction. Further, the account must be clearly identified, the
inspection limited to the subject matter of the pending case before the court of competent
jurisdiction. The bank personnel and the account holder must be notified to be present during
the inspection, and such inspection may cover only the account identified in the pending case.

In Union Bank of the Philippines v. Court of Appeals, we held that "Section 2 of the Law on
Secrecy of Bank Deposits, as amended, declares bank deposits to be "absolutely confidential"
except:

(1) In an examination made in the course of a special or general examination of a bank

that is specifically authorized by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious irregularity has been or is
being committed and that it is necessary to look into the deposit to establish such fraud
or irregularity,

(2) In an examination made by an independent auditor hired by the bank to conduct its
regular audit provided that the examination is for audit purposes only and the results
thereof shall be for the exclusive use of the bank,

(3) Upon written permission of the depositor,

 (4) In cases of impeachment,

(5) Upon order of a competent court in cases of bribery or dereliction of duty of public
officials, or

(6) In cases where the money deposited or invested is the subject matter of the
litigation".27

In the case at bar, there is yet no pending litigation before any court of competent authority.
What is existing is an investigation by the Office of the Ombudsman. In short, what the office of
the ombudsman would wish to do is to fish for additional evidence to formally charge Amado
Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which
would warrant the opening of the bank account for inspection.

Zone of privacy are recognized and protected in our laws. The Civil Code provides that" [e]very
person shall respect the dignity, personality, privacy and peace of mind of his neighbors and
other persons" and punishes as actionable torts several acts for meddling and prying into the
privacy of another. It also holds public officer or employee or any private individual liable for
damages for any violation of the rights and liberties of another person, and recognizes the
privacy of letters and other private communications. The Revised Penal Code makes a crime of
the violation of secrets by an officer, revelation of trade and industrial secrets, and trespass to
dwelling. Invasion of privacy is an offense in special laws like the Anti-Wiretapping Law, the
Secrecy of Bank Deposits Act, and the Intellectual Property Code.28

IN VIEW WHEREOF, we GRANT the petition. We order the Ombudsman to cease and desist
from requiring Union Bank Manager Lourdes T. Marquez, or anyone in her place to comply with
the order dated October 14,1998, and similar orders. No costs.

SO ORDERED . 1âwphi1.nêt
DERILICTION OF DUTY

G.R. No. L-18919           December 29, 1962

ABELARDO JAVELLANA, TOMAS JONCO, RUDICO HABANA, EXEQUIEL GOLEZ,

ALFREDO ANG, and FILIPINAS SOLEDAD, in their capacities as Councilors of the
Municipal Municipality of Buenavista, Province of Iloilo, petitioners appellees,
vs.
SUSANO TAYO, as Mayor of the Municipal Municipality of Buenavista, Iloilo, respondent-
appellant.

Ramon A. Gonzales for petitioners-appellees.

Rico & Tiña for respondent-appellant.

BARRERA, J.:

This is a direct appeal taken by respondent Susano Tayo (Mayor of the Municipality of
Buenavista, Iloilo) from the decision of the Court of First Instance of Iloilo (in Civil Case No.
5558, for mandamus) declaring legal and validity the regular session held by petitioners
Abelardo Javellano Tomas Jonco, Rudico Habana, Exequiel Golez, Alfredo Ang, and Filipinas
Soledad, constituting a majority of the elected councilors of said municipality, and ordering
respondent to give due course to the resolutions and or ordinances passed thereat, and to sign
the payrolls corresponding to the session days of June 1, June 15, July 6, July 20, August 3,
August 17, September 7, and September 21, 1960 for payment of the per diems of petitioner as
councilors; to pay said Councilor Golez the sum of P100.00 as moral damages; and to pay
P100.00 as attorney' fees plus costs.

The case was submitted on the following Stipulation of Facts:

That the petitioners are duly elected and qualified a members of the Municipal Council of
the Municipality of Buenavista, Province of Iloilo, Philippines; and that the respondent at
the time the acts hereinbelow complained of took place, was and still is the duly-elected
and qualified Mayor of the Municipality of Buenavista, Province of Iloilo Philippines
where he resides and may be served with summons.

II

On February 8, 1960. the Municipal Council of the Municipality of Buenavista, Iloilo,

unanimously approved Resolution No. 5, Series of 1960, dated February 8, 1960, a copy
of which is hereto attached to form an integral part hereon as Annex 'A', which set the
regular sessions of the Municipality Council of Buenavista on every first and third
Wednesday of every month, and which resolution was duly approved by the respondent,
in his capacity as Mayor of the Municipality of Buenavista.

III

That on June 1, 1960, at the time and place set for the regular session of the Municipal
Council, the Mayor, Vice-Mayor, No. 1 and No. 2 Councilors, and the Secretary were
absent.

IV

That the six councilors, who are the petitioners in this case, were present and they
proceeded to elect among themselves a temporary presiding officer and Acting
Secretary to take notes of the proceedings. Having thus elected a temporary presiding
officer and a secretary of the Council, they proceeded to do business.

That on June 15. 1960, at the time and place designated in Resolution No. 5, series of
1960, dated February 8, 1960 above referred to, the petitioners acting as duly elected
and qualified councilors were present and again, in view of the absence of the Mayor,
Vice-Mayor said to councilor and the Secretary proceeded to elect a temporary presiding
officer and temporary secretary from among them, and did business as a Municipal
Council of Buenavista.

VI

That again on July 6, and July 21, 1960, on August 3, and August 17, September 7, and
on September 21, 1960, the petitioners met at the place and time designated in
Resolution No. 5, series of 1960, and proceeded to elect a temporary Secretary among
themselves, and did business as the Municipal Council of Buenavista, in view again of
the absence of the Mayor Vice-Mayor, 2 councilors, and the Secretary.

VII

That when the minutes of the proceedings of June 1, June 15. July 6, July 20, August
17, September 7, and September 21, 1960 of the Municipal Council were presented to
the respondent for action, the respondent Mayor refused to act upon said minutes, or
particularly to approve or disapprove the resolution as approved by the municipal
Council, the Mayor declaring the sessions above referred to as null and void and not in
accordance with.

VIII

That the petitioners made repeated demands for payment of their per diems for the of
June 1, June 15, July 6, July 20, August 3, August 17, September 7, 1960, by
representing the payrolls; Provincial Forms No. 38(A) to the respondent Mayor for the
 latter signature, but that the respondent refused to affix his signature to the payrolls thus
presented, covering the per diems of the petitioner alleging that the proceedings were
illegal due to his absence.

IX

That the petitioners, acting through Atty. Bartolome T. Tina, addressed a letter dated
August 8, 1960 to the Honorable Provincial Fiscal of the Province of Iloilo, asking of the
latter's opinion on the validity of the acts of the herein petitioners, acting as the Municipal
Council in the absence of the Mayor, Vice-Mayor, said two councilors and the secretary,
a copy which letter is herewith attached as Annex 'B' and made an integral part of this
petition.

That on August 9, 1960, the Honorable Provincial Fiscal of the Province of Iloilo in his
indorsement, rendered an opinion upholding the validity of the controverted sessions of
the Municipal Council, a copy, of which communication is, likewise attached herein is
Annex 'C' and made an integral part of this petition.

XI

That despite the opinion of the Provincial Fiscal, the respondent Mayor refused and still
refuses to act upon the resolution petitions presented to him and to sign the payrolls
covering the per diems of the herein petitioners.

XII

That the respondent brought the matter to the attention of the Provincial Board, of the
Province of Iloilo, by means of a letter questioning the legality of the minutes of the
regular possession of the Municipal Council without his presence individual that the
Provincial Board resolved on September 23, 1960 to return the minutes of the regular
session of the Municipal Council of Buenavista, Iloilo, informing the Mayor that per the
opinion of the Legal Assistant, said minutes is legal.

XIII

That despite the resolution of the Provincial Board, the Mayor refused and still refuses to
recognize the validity of the acts of the Municipal Council and the legality of its regular
session held in his absence.

On the basis of the foregoing Stipulation of Facts (plus the testimony of Councilor Exequiel
Golez), the trial court (on July 26, 1961) rendered the decision above adverted to, partly stating:

This Court, after perusal of all the records of this case has reached the conclusion that
the sessions held by the petitioner during the absence of the respondent Mayor were
perfectly valid and legal. The attendance of the Mayor is not essential to the validity of
the session as long as there is quorum constituted in accordance with law. To declare
that the proceedings of the petitioners were null and void, is to encourage recalcitrant
public officials who would frustrate valid session for political end or consideration. Public
interest will immensely suffer, if a mayor who belongs to one political group refuses to
call or attend a session, because the Council is controlled by another political group. In a
democrats the minority should respect the majority and inasmuch as the petitioners
constitute the majority political group, it is but natural that they could validly hold a valid
session, in order to devise means for public interest.

The respondent here as Municipal Mayor should have given good example, by calling
and attending regular session on the dates fixed by the Council. In the discharge of his
of official duty, he should consider the Session Hall of the Municipal Council as the
sanctuary and depository of public interest and public welfare. Any member of the
Council should enter the Session Hall, not as a representative of any political part or
group, but as a representative of the people of the municipality whose interest and
welfare should be safeguarded by the Council. In entering this Hall, he must lay aside
his political affiliation, interest, and consideration, because it is the sworn duty of every
councilor to perform his duty with justice and impartiality. Not to attend a meeting,
constitutes an abandonment of the people's welfare. One may be in the minority group,
but he can discharge his duty with honor and prestige as a fiscalizer, to fiscalize the
doings and actuations of the majority. He may be overwhelmed in his plan or project by
superior numerical majority but if he could adduce good reasons and arguments in favor
of the welfare of the people, his task as a fiscalizer is thereby attained. There is no fear
on attending any session because if your project is not carried out, you may have the
remedy, either by administrative or judicial relief, by questioning and ordinance or
resolution passed by the majority, which may be null and void because they are
excessive and unreasonable. So, there is no reason why the respondent in this case had
refused to attend the session of the Council.

Petitioners here claim moral damages pursuant to the provisions of Article 2219, in
connection with Article 21 and Article 27 of the new Civil Code. Said Article 27 provides
as follows:

'Any person suffering material or moral loss because a public servant or

employee refuses or neglects, without just cause, to perform his official duty may
file an action for damages and other relief against the latter, without prejudice to
any disciplinary administrative action that my be taken.'lawphil.net

But in support of the allegations in the petition, only petitioner Exequiel Golez was
presented as a witness who prove moral damages he suffered as a consequence of the
refusal the respondent Susano Tayo to perform his official duty. such, of all the
petitioners, only Exequiel Golez is entitled receive moral damages in the sum of
P100.00.

IN VIEW OF THE FOREGOING, the petition for a writ of mandamus is hereby granted,
and the respondent is here ordered to give due course to the resolutions and ordinance
passed by the petitioners in the regular sessions during the absence of the respondent,
to give due course and sign the payrolls covering the periods of June 1, June 15, July 6,
July 20, August 3, August 17, September 7, and September 21, 196 for the payment of
per diems of the petitioners as Municipal Councilors; to pay to said Exequiel Golez, the
sum of P100.00 as moral damage, to pay the sum of P100.00 as attorney's fee and to
pay the costs of the proceeding.
 SO ORDERED.

Respondent-appellant claims, in this appeal, that the trial court erred in holding that the
sessions held by petitioners-appellees during his absence and during the absence of his Vice-
Mayor and the No. 1 and No. 2 Councilors the Municipal Council of Buenavista, Iloilo were valid
an legal.

The claim is untenable. In the first place, there is no question that the sessions at issue were
held on the days set for regular sessions of the council, as authorized an approved in a previous
resolution. Secondly, it is not disputed that a majority of the members of the council (six out of
ten) were present in these sessions. Consequently, pursuant to Section 2221 of the Revised
Administrative Code which provides:

SEC. 2221. Quorum of council — Enforcing Attendance of absent members. — The

majority of the council elected shall constitute a quorum to do business; ....

there was a quorum to do business in all the sessions in question. The term "quorum"
has been defined as that number of members of the body which, when legally as
assembled in their proper places, will enable the body to transact its proper business, or,
in other words, that number that makes a lawful body and gives it power to pass a law or
ordinance or do any other valid corporate act. (4 McQuillin, Municipal Corporation [3rd
Ed 478]; see also State vs. Wilkesville Tp., 20 Ohio St. 288).

Appellant, however asserts that while under Section 2221 of the Revised Administrative Code,
the majority of the members of the council constitutes a quorum to do business, the council
"shall be presided by the Mayor and no one else", inasmuch as it is one of the duties imposed
upon him under Section 2194(d) of the Revised Administrative Code. 1 The argument would be
correct if the mayor (herein appellant) were present at the sessions in question and was
prevented from presiding therein, but not where, as in the instant case, he absented himself
therefrom.

Appellant likewise invokes Section 7 (third paragraph) of Republic Act No. 9264, 2 in support of
his view that the sessions in question were null and void, as they were not presided by him or by
his Vice-Mayor, or by the councilor who obtained the largest number of votes.lawphil.net

It is true that this section mentions only the vice-mayor, or in his place, the councilor who
obtained the largest number of votes who could perform the duties of the mayor, in the event of
the latter's temporary incapacity to do so, except the power to appoint, suspend, or dismiss
employees. Ordinarily, this enumeration would be in interpreted as exclusive, following the
general principle of inclusio unius, est exclusio alterius, but there are cogent reasons to
disregard this rule in this case, since to adopt it would cause inconvenience, hardship, and
injury to public interest, as it would place in the hands of mayor, vice-mayor, and the councilor
receiving the highest number of votes an instrument to defeat the law investing the legislative
power in the municipal council, by simply boycotting, as they continuously did for 4 months,
regular sessions of the council. It is to be noted that same section 7 of Republic Act No. 2264
invoked by appellant provides, in case of permanent incapacity of mayor, vice-mayor, and the
councilor obtaining the largest number of votes, to assume and perform the duties of mayor, the
councilor receiving the next largest number of votes, and so on, can assume and perform such
duties. We see no strong reason why the same procedure should not be followed in case of
temporary incapacity, there being no express prohibition against its observance. The legal
provision being therefore susceptible of two in interpretations, we adopt the one in consonance
with the resumed intention of the legislature to give its enactmentthe most reasonable and
beneficial construction, the that will render them operative and effective and harmonious with
other provisions of law. This is imperative because, as already pointed out heretofore, under the
law "the majority of the council elected shall constitute a quorum to do business", and this would
be defeated if adopt the literal interpretation of appellant that only mayor, vice-mayor, or the
councilor receiving the largest number of votes could preside the council's meeting, to legal,
irrespective of the presence of a quorum or majority of the councilors elected. Such an
interpretation would, indeed, be fraught with dangerous consequences. For it would, in effect,
deprive the municipal council its function, namely, the enactment of ordinances design for the
general welfare of its inhabitants. As the trial court aptly observed, "To declare that the
proceedings of thepetitioners (herein appellees) were null and void, is to encourage recalcitrant
public officials who would frustrate valid sessions for political end or consideration. Public
interest will immensely suffer, if a mayor who belong to one political group refused to call or
attend a session because the council is controlled by another political group."

Lastly, appellant contests the award of moral damage to appellee councilor Exequiel Golez. We
find said award proper under Article 27 of the new Civil Code, 3 considering that according to
the trial court, he (Golez) was able to prove that he suffered the same, as a consequence of
appellant's refusal to perform his official duty, not withstanding the action taken by the Provincial
Fiscal an the Provincial Board upholding the validity of the session in question.

WHEREFORE, the decision appealed from is hereby affirmed with costs against respondent-
appellant. So ordered.
G.R. No. L-30745 January 18, 1978

PHILIPPINE MATCH CO., LTD., plaintiff-appellant,

vs.
THE CITY OF CEBU and JESUS E. ZABATE, Acting City Treasurer, defendants-appellees.

Pelaez, Pelaez & Pelaez for appellant.

Nazario Pacquiao, Metudio P. Belarmino & Ceferino Jomuad for appellees.

AQUINO, J.:

This case is about the legality of the tax collected by the City of Cebu on sales of matches
stored by the Philippine Match Co., Ltd. in Cebu City but delivered to customers outside of the
City.

Ordinance No. 279 of Cebu City (approved by the mayor on March 10, 1960 and also approved
by the provincial board) is "an ordinance imposing a quarterly tax on gross sales or receipts of
merchants, dealers, importers and manufacturers of any commodity doing business" in Cebu
City. It imposes a sales tax of one percent (1%) on the gross sales, receipts or value of
commodities sold, bartered, exchanged or manufactured in the city in excess of P2,000 a
quarter.

Section 9 of the ordinance provides that, for purposes of the tax, "all deliveries of goods or
commodities stored in the City of Cebu, or if not stored are sold" in that city, "shall be
considered as sales" in the city and shall be taxable.

Thus, it would seem that under the tax ordinance sales of matches consummated outside of the
city are taxable as long as the matches sold are taken from the company's stock stored in Cebu
City.

The Philippine Match Co., Ltd., whose principal office is in Manila, is engaged in the
manufacture of matches. Its factory is located at Punta, Sta. Ana, Manila. It ships cases or
cartons of matches from Manila to its branch office in Cebu City for storage, sale and
distribution within the territories and districts under its Cebu branch or the whole Visayas-
Mindanao region. Cebu City itself is just one of the eleven districts under the company's Cebu
City branch office.
The company does not question the tax on the matches of matches consummated in Cebu City,
meaning matches sold and delivered within the city.

It assails the legality of the tax which the city treasurer collected on out-of- town deliveries of
matches, to wit: (1) sales of matches booked and paid for in Cebu City but shipped directly to
customers outside of the city; (2) transfers of matches to newsmen assigned to different
agencies outside of the city and (3) shipments of matches to provincial customers pursuant to
salesmen's instructions.

The company paid under protest to the city t the sum of P12,844.61 as one percent sales tax on
those three classes of out-of-town deliveries of matches for the second quarter of 1961 to the
second quarter of 1963.

In paying the tax the company accomplished the verified forms furnished by the city treasurers
office. It submitted a statement indicating the four kinds of transactions enumerated above, the
total sales, and a summary of the deliveries to the different agencies, as well as the invoice
numbers, names of customers, the value of the sales, the transfers of matches to salesmen
outside of Cebu City, and the computation of taxes.

Sales of matches booked and paid for in Cebu City but shipped directly to customers outside of
the city refer to orders for matches made in the city by the company's customers, by means of
personal or phone calls, for which sales invoices are issued, and then the matches are shipped
from the bodega in the city, where the matches had been stored, to the place of business or
residences of the customers outside of the city, duly covered by bills of lading The matches are
used and consumed outside of the city.

Transfers of matches to salesmen assigned to different agencies outside of the city embrace
equipments of matches from the branch office in the city to the salesmen (provided with panel
cars) assigned within the province of Cebu and in the different districts in the Visayas and
Mindanao under the jurisdiction or supervision of the Cebu City branch office. The shipments
are covered by bills of lading. No sales invoices whatever are issued. The matches received by
the salesmen constitute their direct cash accountability to the company. The salesmen sell the
matches within their respective territories. They issue cash sales invoices and remit the
proceeds of the sales to the company's Cebu branch office. The value of the unsold matches
constitutes their stock liability. The matches are used and consumed outside of the city.

Shipments of matches to provincial customers pursuant to newsmens instructions embrace

orders, by letter or telegram sent to the branch office by the company's salesmen assigned
outside of the city. The matches are shipped from the company's bodega in the city to the
customers residing outside of the city. The salesmen issue the sales invoices. The proceeds of
the sale, for which the salesmen are accountable are remitted to the branch office. As in the first
and seconds of transactions above-mentioned, the matches are consumed and used outside of
the city.

The company in its letter of April 15, 1961 to the city treasurer sought the refund of the sales tax
paid for out-of-town deliveries of matches. It invoked Shell Company of the Philippines, Ltd. vs.
Municipality of Sipocot, Camarines Sur, 105 Phil. 1263. In that case sales of oil and petroleum
products effected outside the territorial limits of Sipocot, were held not to be subject to the tax
imposed by an ordinance of that municipality.
The city treasurer denied the request. His stand is that under section 9 of the ordinance all out-
of-town deliveries of latches stored in the city are subject to the sales tax imposed by the
ordinance.

On August 12, 1963 the company filed the complaint herein, praying that the ordinance be d
void insofar as it taxed the deliveries of matches outside of Cebu City, that the city be ordered to
refund to the company the said sum of P12,844.61 as excess sales tax paid, and that the city
treasurer be ordered to pay damages.

After hearing, the trial court sustained the tax on the sales of matches booked and paid for in
Cebu City although the matches were shipped directly to customers outside of the city. The
lower court held that the said sales were consummated in Cebu City because delivery to the
carrier in the city is deemed to be a delivery to the customers outside of the city.

But the trial court invalidated the tax on transfers of matches to salesmen assigned to different
agencies outside of the city and on shipments of matches to provincial customers pursuant to
the instructions of the newsmen It ordered the defendants to refund to the plaintiff the sum of
P8,923.55 as taxes paid out the said out-of-town deliveries with legal rate of interest from the
respective dates of payment.

The trial court characterized the tax on the other two transactions as a "storage tax" and not a
sales tax. It assumed that the sales were consummated outside of the city and, hence, beyond
the city's taxing power.

The city did not appeal from that decision. The company appealed from that portion of the
decision upholding the tax on sales of matches to customers outside of the city but which sales
were booked and paid for in Cebu City, and also from the dismissal of its claim for damages
against the city treasurer.

The issue is whether the City of Cebu can tax sales of matches which were perfected and paid
for in Cebu City but the matches were delivered to customers outside of the City.

We hold that the appeal is devoid of merit bemuse the city can validly tax the sales of matches
to customers outside of the city as long as the orders were booked and paid for in the
company's branch office in the city. Those matches can be regarded as sold in the city, as
contemplated in the ordinance, because the matches were delivered to the carrier in Cebu City.
Generally, delivery to the carrier is delivery to the buyer (Art. 1523, Civil Code; Behn, Meyer &
Co. vs. Yangco, 38 Phil. 602).

A different interpretation would defeat the tax ordinance in question or encourage tax evasion
through the simple expedient of arranging for the delivery of the matches at the out. skirts of the
city through the purchase were effected and paid for in the company's branch office in the city.

The municipal board of Cebu City is empowered "to provide for the levy and collection of taxes
for general and purposes in accordance with law" (Sec. 17[a], Commonwealth Act No. 58; Sec.
31[l], Rep. Act No. 3857, Revised Charter of Cebu city).

The taxing power validly delegated to cities and municipalities is defined in the Local Autonomy
Act, Republic Act No. 2264 (Pepsi-Cola Bottling Co. of the Philippines, Inc. vs. Municipality of
Tanauan, Leyte, L-31156, February 27, 1976, 69 SCRA 460), which took effect on June 19,
1959 and which provides:

SEC. 2. Taxation. — Any provision of law to the contrary notwithstanding, all

chartered cities, municipalities and municipal districts shall have authority to
impose municipal license taxes or fees upon persons engaged in any occupation
or business, or exercising privileges in chartered cities,. municipalities or
municipal districts by requiring them to secure licenses at rates fixed by the
municipal board or city council of the city, the municipal council of the
municipality, or the municipal district council of the municipal district; to collect
fees and charges for services rendered by the city, municipality or municipal
district; to regulate and impose reasonable fees for services rendered in
connection with any business, profession or occupation being conducted within
the city, municipality or municipal district and otherwise to levy for public
purposes, just and uniform taxes, licenses or fees;

Provided, That municipalities and municipal districts shall, in no case, impose

any percentage tax on sales or other taxes in any form based thereon nor
impose taxes on articles subject to specific tax, except gasoline, under the
provisions of the National International Revenue Code;

Provided, however, That no city, municipality or municipal districts may levy or

impose any of the following: (here follows an enumeration of internal revenue
taxes)

xxx xxx xxx *

Note that the prohibition against the imposition of percentage taxes (formerly provided for in
section 1 of Commonwealth Act No. 472) refers to municipalities and municipal districts but not
to chartered cities. (See Local Tax Code, P.D. No. 231. Marinduque Iron Mines Agents, Inc. vs.
Municipal Council of Hinabangan Samar, 120 Phil. 413; Ormoc Sugar Co., Inc. vs. Treasurer of
Ormoc City, L-23794, February 17, 1968, 22 SCRA 603).

Note further that the taxing power of cities, municipalities and municipal districts may be used
(1) "upon any person engaged in any occupation or business, or exercising any privilege"
therein; (2) for services rendered by those political subdivisions or rendered in connection with
any business, profession or occupation being conducted therein, and (3) to levy, for public
purposes, just and uniform taxes, licenses or fees (C. N. Hodges vs. Municipal Board of the City
of Iloilo, 117 Phil. 164, 167. See sec. 31[251, Revised Charter of Cebu City).

Applying that jurisdictional test to the instant case, it is at once obvious that sales of matches to
customers outside oil Cebu City, which sales were booked and paid for in the company's branch
office in the city, are subject to the city's taxing power. The instant case is easily distinguishable
from the Shell Company case where the price of the oil sold was paid outside of the municipality
of Sipocot, the entity imposing the tax.

On the other hand, the ruling in Municipality of Jose Panganiban, Province of Camarines Norte
vs. Shell Company of the Philippines, Ltd., L-18349, July 30, 1966, 17 SCRA 778 that the place
of delivery determines the taxable situs of the property to be taxed cannot properly be invoked
in this case. Republic Act No. 1435, the law which enabled the Municipality of Jose Panganiban
to levy the sales tax involved in that case, specifies that the tax may be levied upon oils
"distributed within the limits of the city or municipality", meaning the place where the oils were
delivered. That feature of the Jose Panganiban case distinguished it from this case.

The sales in the instant case were in the city and the matches sold were stored in the city. The
fact that the matches were delivered to customers, whose places of business were outside of
the city, would not place those sales beyond the city's taxing power. Those sales formed part of
the merchandising business being assigned on by the company in the city. In essence, they are
the same as sales of matches fully consummated in the city.

Furthermore, because the sellers place of business is in Cebu City, it cannot be sensibly argued
that such sales should be considered as transactions subject to the taxing power of the political
subdivisions where the customers resided and accepted delivery of the matches sold.

The company in its second assignment of error contends that the trial court erred in not ordering
defendant acting city treasurer to pay exemplary damages of P20,000 and attorney's fees.

The claim for damages is predicated on articles 19, 20, 21, 27 and 2229 of the Civil Code. It is
argued that the city treasurer refused and neglected without just cause to perform his duty and
to act with justice and good faith. The company faults the city treasurer for not following the
opinion of the city fiscals, as legal adviser of the city, that all out-of-town deliveries of matches
are not subject to sales tax because such transactions were effected outside of the city's
territorial limits.

In reply, it is argued for defendant city treasurer that in enforcing the tax ordinance in question
he was simply complying with his duty as collector of taxes (Sec. 50, Revised Charter of Cebu
City). Moreover, he had no choice but to enforce the ordinance because according to section
357 of the Revised Manual of Instruction to Treasurer's "a tax ordinance win be enforced in
accordance with its provisions" until d illegal or void by a competent court, or otherwise revoked
by the council or board from which it originated.

Furthermore, the Secretary of Finance had reminded the city treasurer that a tax ordinance
approved by the provincial board is operative and must be enforced without prejudice to the
right of any affected taxpayer to assail its legality in the judicial forum. The fiscals opinion on the
legality of an ordinance is merely advisory and has no binding effect.

Article 27 of the Civil Code provides that "any person suffering material or moral lose because a
public servant or employee refuses or neglects, without just cause, to perform his official duty
may file an action for damages and other relief against the latter, without prejudice to any
disciplinary administrative action that may be taken."

Article 27 presupposes that the refuse or omission of a public official is attributable to malice or
inexcusable negligence. In this case, it cannot be said that the city treasurer acted wilfully or
was grossly t in not refunding to the plaintiff the taxes which it paid under protest on out-of-town
sales of matches.

The record clearly reveals that the city treasurer honestly believed that he was justified under
section 9 of the tax ordinance in collecting the sales tax on out-of-town deliveries, considering
that the company's branch office was located in Cebu City and that all out-of-town purchase
order for matches were filled up by the branch office and the sales were duly reported to it.
The city treasurer acted within the scope of his authority and in consonance with his bona fide
interpretation of the tax ordinance. The fact that his action was not completely sustained by the
courts would not him liable for We have upheld his act of taxing sales of matches booked and
paid for in the city.

"As a rule, a public officer, whether judicial ,quasi-judicial or executive, is not y liable to one
injured in consequence of an act performed within the scope of his official authority, and in the
line of his official duty." "Where an officer is invested with discretion and is empowered to
exercise his judgment in matters brought before him. he is sometimes called a quasi-judicial
officer, and when so acting he is usually given immunity from liability to persons who may be
injured as the result or an erroneous or mistaken decision, however erroneous his judgment
may be. provided the acts complained of are done within the scope of the officer's authority and
without malice, or corruption." (63 Am Jur 2nd 798, 799 cited in Philippine Racing Club, Inc. vs.
Bonifacio, 109 Phil. 233, 240-241).

It has been held that an erroneous interpretation of an ordinance does not constitute nor does it
amount to bad faith that would entitle an aggrieved party to an award for damages (Cabungcal
vs. Cordovan 120 Phil. 667, 572-3). That salutary in addition to moral temperate, liquidated or
compensatory damages (Art. 2229, Civil Code). Attorney's fees are being claimed herein as
actual damages. We find that it would not be just and equitable to award attorney's fees in this
case against the City of Cebu and its (See Art. 2208, Civil Code).

WHEREFORE, the trial court's judgment is affirmed. No costs.

SO ORDERED.
UNFAIR COMPETITION

G.R. No. 131522 July 19, 1999

PACITA I. HABANA, ALICIA L. CINCO and JOVITA N. FERNANDO, petitioners,

vs.
FELICIDAD C. ROBLES and GOODWILL TRADING CO., INC., respondents.

PARDO, J.:

The case before us is a petition for review on certiorari1 to set aside the (a) decision or the Court
of Appeals2, and (b) the resolution denying petitioners' motion for reconsideration, 3 in which the
appellate court affirmed the trial court's dismissal of the complaint for infringement and/or unfair
competition and damages but deleted the award for attorney's fees.1âwphi1.nêt

The facts are as follows:

Petitioners are authors and copyright owners of duly issued certificates of copyright registration
covering their published works, produced through their combined resources and efforts, entitled
COLLEGE ENGLISH FOR TODAY (CET for brevity), Books 1 and 2, and WORKBOOK FOR
COLLEGE FRESHMAN ENGLISH, Series 1.

Respondent Felicidad Robles and Goodwill Trading Co., Inc. are the author/publisher and
distributor/seller of another published work entitled "DEVELOPING ENGLISH PROFICIENCY"
(DEP for brevity), Books 1 and 2 (1985 edition) which book was covered by copyrights issued to
them.

In the course of revising their published works, petitioners scouted and looked around various
bookstores to check on other textbooks dealing with the same subject matter. By chance they
came upon the book of respondent Robles and upon perusal of said book they were surprised
to see that the book was strikingly similar to the contents, scheme of presentation, illustrations
and illustrative examples in their own book, CET.

After an itemized examination and comparison of the two books (CET and DEP), petitioners
found that several pages of the respondent's book are similar, if not all together a copy of
petitioners' book, which is a case of plagiarism and copyright infringement.

Petitioners then made demands for damages against respondents and also demanded that they
cease and desist from further selling and distributing to the general public the infringed copies of
respondent Robles' works.

However, respondents ignored the demands, hence, on July 7, 1988; petitioners filed with the
Regional Trial Court, Makati, a complaint for "Infringement and/or unfair competition with
damages" 4 against private respondents.5

In the complaint, petitioners alleged that in 1985, respondent Felicidad C. Robles being
substantially familiar with the contents of petitioners' works, and without securing their
permission, lifted, copied, plagiarized and/or transposed certain portions of their book CET. The
textual contents and illustrations of CET were literally reproduced in the book DEP. The
plagiarism, incorporation and reproduction of particular portions of the book CET in the book
DEP, without the authority or consent of petitioners, and the misrepresentations of respondent
Robles that the same was her original work and concept adversely affected and substantially
diminished the sale of the petitioners' book and caused them actual damages by way of
unrealized income.

Despite the demands of the petitioners for respondents to desist from committing further acts of
infringement and for respondent to recall DEP from the market, respondents refused. Petitioners
asked the court to order the submission of all copies of the book DEP, together with the molds,
plates and films and other materials used in its printing destroyed, and for respondents to render
an accounting of the proceeds of all sales and profits since the time of its publication and sale.

Respondent Robles was impleaded in the suit because she authored and directly committed the
acts of infringement complained of, while respondent Goodwill Trading Co., Inc. was impleaded
as the publisher and joint co-owner of the copyright certificates of registration covering the two
books authored and caused to be published by respondent Robles with obvious connivance
with one another.

On July 27, 1988, respondent Robles filed a motion for a bill of particulars 6 which the trial court
approved on August 17, 1988. Petitioners complied with the desired particularization, and
furnished respondent Robles the specific portions, inclusive of pages and lines, of the published
and copyrighted books of the petitioners which were transposed, lifted, copied and plagiarized
and/or otherwise found their way into respondent's book.

On August 1, 1988, respondent Goodwill Trading Co., Inc. filed its answer to the complaint 7 and
alleged that petitioners had no cause of action against Goodwill Trading Co., Inc. since it was
not privy to the misrepresentation, plagiarism, incorporation and reproduction of the portions of
the book of petitioners; that there was an agreement between Goodwill and the respondent
Robles that Robles guaranteed Goodwill that the materials utilized in the manuscript were her
own or that she had secured the necessary permission from contributors and sources; that the
author assumed sole responsibility and held the publisher without any liability.
On November 28, 1988, respondent Robles filed her answer8, and denied the allegations of
plagiarism and copying that petitioners claimed. Respondent stressed that (1) the book DEP is
the product of her independent researches, studies and experiences, and was not a copy of any
existing valid copyrighted book; (2) DEP followed the scope and sequence or syllabus which are
common to all English grammar writers as recommended by the Association of Philippine
Colleges of Arts and Sciences (APCAS), so any similarity between the respondents book and
that of the petitioners was due to the orientation of the authors to both works and standards and
syllabus; and (3) the similarities may be due to the authors' exercise of the "right to fair use of
copyrigthed materials, as guides."

Respondent interposed a counterclaim for damages on the ground that bad faith and malice
attended the filing of the complaint, because petitioner Habana was professionally jealous and
the book DEP replaced CET as the official textbook of the graduate studies department of the
Far Eastern University.9

During the pre-trial conference, the parties agreed to a stipulation of

facts 10 and for the trial court to first resolve the issue of infringement before disposing of the
claim for damages.

After the trial on the merits, on April 23, 1993, the trial court rendered its judgment finding thus:

WHEREFORE, premises considered, the court hereby orders that the complaint
filed against defendants Felicidad Robles and Goodwill Trading Co., Inc. shall be
DISMISSED; that said plaintiffs solidarily reimburse defendant Robles for
P20,000.00 attorney's fees and defendant Goodwill for P5,000.00 attorney's fees.
Plaintiffs are liable for cost of suit.

IT IS SO ORDERED.

Done in the City of Manila this 23rd day of April, 1993.

(s/t) MARVIE R. ABRAHAM SINGSON

Assisting Judge

S. C. Adm. Order No. 124-92 11

On May 14, 1993, petitioners filed their notice of appeal with the trial court 12, and on July 19,
1993, the court directed its branch clerk of court to forward all the records of the case to the
Court of Appeals. 13

In the appeal, petitioners argued that the trial court completely disregarded their evidence and
fully subscribed to the arguments of respondent Robles that the books in issue were purely the
product of her researches and studies and that the copied portions were inspired by foreign
authors and as such not subject to copyright. Petitioners also assailed the findings of the trial
court that they were animated by bad faith in instituting the complaint. 14

On June 27, 1997, the Court of Appeals rendered judgment in favor of respondents Robles and
Goodwill Trading Co., Inc. The relevant portions of the decision state:
 It must be noted, however, that similarity of the allegedly infringed work to the
author's or proprietor's copyrighted work does not of itself establish copyright
infringement, especially if the similarity results from the fact that both works deal
with the same subject or have the same common source, as in this case.

Appellee Robles has fully explained that the portion or material of the book
claimed by appellants to have been copied or lifted from foreign books. She has
duly proven that most of the topics or materials contained in her book, with
particular reference to those matters claimed by appellants to have been
plagiarized were topics or matters appearing not only in appellants and her books
but also in earlier books on College English, including foreign books, e.i. Edmund
Burke's "Speech on Conciliation", Boerigs' "Competence in English" and
Broughton's, "Edmund Burke's Collection."

xxx xxx xxx

Appellant's reliance on the last paragraph on Section II is misplaced. It must be

emphasized that they failed to prove that their books were made sources by
appellee. 15

The Court of Appeals was of the view that the award of attorneys' fees was not proper, since
there was no bad faith on the part of petitioners Habana et al. in instituting the action against
respondents.

On July 12, 1997, petitioners filed a motion for reconsideration, 16 however, the Court of Appeals
denied the same in a Resolution 17 dated November 25, 1997.

Hence, this petition.

In this appeal, petitioners submit that the appellate court erred in affirming the trial court's
decision.

Petitioners raised the following issues: (1) whether or not, despite the apparent textual, thematic
and sequential similarity between DEP and CET, respondents committed no copyright
infringement; (2) whether or not there was animus furandi on the part of respondent when they
refused to withdraw the copies of CET from the market despite notice to withdraw the same;
and (3) whether or not respondent Robles abused a writer's right to fair use, in violation of
Section 11 of Presidential Decree No. 49. 18

We find the petition impressed with merit.

The complaint for copyright infringement was filed at the time that Presidential Decree No. 49
was in force. At present, all laws dealing with the protection of intellectual property rights have
been consolidated and as the law now stands, the protection of copyrights is governed by
Republic Act No. 8293. Notwithstanding the change in the law, the same principles are
reiterated in the new law under Section 177. It provides for the copy or economic rights of an
owner of a copyright as follows:
 Sec. 177. Copy or Economic rights. — Subject to the provisions of chapter VIII,
copyright or economic rights shall consist of the exclusive right to carry out,
authorize or prevent the following acts:

177.1 Reproduction of the work or substanlial portion of the work;

177.2 Dramatization, translation, adaptation, abridgement, arrangement or other

transformation of the work;

177.3 The first public distribution of the original and each copy of the work by
sale or other forms of transfer of ownership;

177.4 Rental of the original or a copy of an audiovisual or cinematographic work,

a work embodied in a sound recording, a computer program, a compilation of
data and other materials or a musical work in graphic form, irrespective of the
ownership of the original or the copy which is the subject of the rental; (n)

177.5 Public display of the original or copy of the work;

177.6 Public performance of the work; and

177.7 Other communication to the public of the work 19

The law also provided for the limitations on copyright, thus:

Sec. 184.1 Limitations on copyright. — Notwithstanding the provisions of Chapter

V, the following acts shall not constitute infringement of copyright:

(a) the recitation or performance of a work, once it has been

lawfully made accessible to the public, if done privately and free of
charge or if made strictly for a charitable or religious institution or
society; [Sec. 10(1), P.D. No. 49]

(b) The making of quotations from a published work if they are

compatible with fair use and only to the extent justified for the
purpose, including quotations from newspaper articles and
periodicals in the form of press summaries; Provided, that the
source and the name of the author, if appearing on the work are
mentioned; (Sec. 11 third par. P.D. 49)

xxx xxx xxx

(e) The inclusion of a work in a publication, broadcast, or other communication to

the public, sound recording of film, if such inclusion is made by way of illustration
for teaching purposes and is compatible with fair use: Provided, That the source
and the name of the author, if appearing in the work is mentioned; 20

In the above quoted provisions, "work" has reference to literary and artistic creations and this
includes books and other literary, scholarly and scientific works. 21
A perusal of the records yields several pages of the book DEP that are similar if not identical
with the text of CET.

On page 404 of petitioners' Book 1 of College English for Today, the authors wrote:

Items in dates and addresses:

He died on Monday, April 15, 1975.

Miss Reyes lives in 214 Taft Avenue,

Manila 22

On page 73 of respondents Book 1 Developing English Today, they wrote:

He died on Monday, April 25, 1975.

Miss Reyes address is 214 Taft Avenue Manila 23

On Page 250 of CET, there is this example on parallelism or repetition of sentence structures,
thus:

The proposition is peace. Not peace through the medium of war; not peace to be
hunted through the labyrinth of intricate and endless negotiations; not peace to
arise out of universal discord, fomented from principle, in all parts of the empire;
not peace to depend on the juridical determination of perplexing questions, or the
precise marking of the boundary of a complex government. It is simple peace;
sought in its natural course, and in its ordinary haunts. It is peace sought in the
spirit of peace, and laid in principles purely pacific.

— Edmund Burke, "Speech on Criticism." 24

On page 100 of the book DEP 25, also in the topic of parallel structure and repetition, the same
example is found in toto. The only difference is that petitioners acknowledged the author
Edmund Burke, and respondents did not.

In several other pages 26 the treatment and manner of presentation of the topics of DEP are
similar if not a rehash of that contained in CET.

We believe that respondent Robles' act of lifting from the book of petitioners substantial portions
of discussions and examples, and her failure to acknowledge the same in her book is an
infringement of petitioners' copyrights.

When is there a substantial reproduction of a book? It does not necessarily require that the
entire copyrighted work, or even a large portion of it, be copied. If so much is taken that the
value of the original work is substantially diminished, there is an infringement of copyright and to
an injurious extent, the work is appropriated. 27
In determining the question of infringement, the amount of matter copied from the copyrighted
work is an important consideration. To constitute infringement, it is not necessary that the whole
or even a large portion of the work shall have been copied. If so much is taken that the value of
the original is sensibly diminished, or the labors of the original author are substantially and to an
injurious extent appropriated by another, that is sufficient in point of law to constitute piracy. 28

The essence of intellectual piracy should be essayed in conceptual terms in order to underscore
its gravity by an appropriate understanding thereof. Infringement of a copyright is a trespass on
a private domain owned and occupied by the owner of the copyright, and, therefore, protected
by law, and infringement of copyright, or piracy, which is a synonymous term in this connection,
consists in the doing by any person, without the consent of the owner of the copyright, of
anything the sole right to do which is conferred by statute on the owner of the copyright. 29

The respondents' claim that the copied portions of the book CET are also found in foreign books
and other grammar books, and that the similarity between her style and that of petitioners can
not be avoided since they come from the same background and orientation may be true.
However, in this jurisdiction under Sec 184 of Republic Act 8293 it is provided that:

Limitations on Copyright. Notwithstanding the provisions of Chapter V, the

following shall not constitute infringement of copyright:

x x x           x x x          x x x

(c) The making of quotations from a published work if they are

compatible with fair use and only to the extent justified for the
purpose, including quotations from newspaper articles and
periodicals in the form of press summaries: Provided, That the
source and the name of the author, if appearing on the work, are
mentioned.

A copy of a piracy is an infringement of the original, and it is no defense that the pirate, in such
cases, did not know whether or not he was infringing any copyright; he at least knew that what
he was copying was not his, and he copied at his peril. 30

The next question to resolve is to what extent can copying be injurious to the author of the book
being copied. Is it enough that there are similarities in some sections of the books or large
segments of the books are the same?

In the case at bar, there is no question that petitioners presented several pages of the books
CET and DEP that more or less had the same contents. It may be correct that the books being
grammar books may contain materials similar as to some technical contents with other grammar
books, such as the segment about the "Author Card". However, the numerous pages that the
petitioners presented showing similarity in the style and the manner the books were presented
and the identical examples can not pass as similarities merely because of technical
consideration.

The respondents claim that their similarity in style can be attributed to the fact that both of them
were exposed to the APCAS syllabus and their respective academic experience, teaching
approach and methodology are almost identical because they were of the same background.
However, we believe that even if petitioners and respondent Robles were of the same
background in terms of teaching experience and orientation, it is not an excuse for them to be
identical even in examples contained in their books. The similarities in examples and material
contents are so obviously present in this case. How can similar/identical examples not be
considered as a mark of copying?

We consider as an indicia of guilt or wrongdoing the act of respondent Robles of pulling out from
Goodwill bookstores the book DEP upon learning of petitioners' complaint while pharisaically
denying petitioners' demand. It was further noted that when the book DEP was re-issued as a
revised version, all the pages cited by petitioners to contain portion of their book College English
for Today were eliminated.

In cases of infringement, copying alone is not what is prohibited. The copying must produce an
"injurious effect". Here, the injury consists in that respondent Robles lifted from petitioners' book
materials that were the result of the latter's research work and compilation and misrepresented
them as her own. She circulated the book DEP for commercial use did not acknowledged
petitioners as her source.

Hence, there is a clear case of appropriation of copyrighted work for her benefit that respondent
Robles committed. Petitioners' work as authors is the product of their long and assiduous
research and for another to represent it as her own is injury enough. In copyrighting books the
purpose is to give protection to the intellectual product of an author. This is precisely what the
law on copyright protected, under Section 184.1 (b). Quotations from a published work if they
are compatible with fair use and only to the extent justified by the purpose, including quotations
from newspaper articles and periodicals in the form of press summaries are allowed provided
that the source and the name of the author, if appearing on the work, are mentioned.

In the case at bar, the least that respondent Robles could have done was to acknowledge
petitioners Habana et. al. as the source of the portions of DEP. The final product of an author's
toil is her book. To allow another to copy the book without appropriate acknowledgment is injury
enough.

WHEREFORE, the petition is hereby GRANTED. The decision and resolution of the Court of
Appeals in CA-G. R. CV No. 44053 are SET ASIDE. The case is ordered remanded to the trial
court for further proceedings to receive evidence of the parties to ascertain the damages caused
and sustained by petitioners and to render decision in accordance with the evidence submitted
to it.

SO ORDERED.
VIOLATION OF CIVIL AND POLITICAL RIGHTS

G.R. No. 86720 September 2, 1994

MHP GARMENTS, INC., and LARRY C. DE GUZMAN, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, AGNES VILLA CRUZ, MIRASOL LUGATIMAN,
and GERTRUDES GONZALES, respondents.

Benjamin M. Dacanay for petitioners.

Emmanuel O. Tansingco for private respondents.

PUNO, J.:

The constitutional protection of our people against unreasonable search and seizure is not
merely a pleasing platitude. It vouchsafes our right to privacy and dignity against undesirable
intrusions committed by any public officer or private individual. An infringement of this right
justifies an award for damages.

On February 22, 1983, petitioner MHP Garments, Inc., was awarded by the Boy Scouts of the
Philippines, the exclusive franchise to sell and distribute official Boy Scouts uniforms, supplies,
badges, and insignias. In their Memorandum Agreement, petitioner corporation was given the
authority to "undertake or cause to be undertaken the prosecution in court of all illegal sources
of scout uniforms and other scouting supplies." 1

Sometime in October 1983, petitioner corporation received information that private respondents
Agnes Villa Cruz, Mirasol Lugatiman, and Gertrudes Gonzales were selling Boy Scouts items
and paraphernalia without any authority. Petitioner de Guzman, an employee of petitioner
corporation, was tasked to undertake the necessary surveillance and to make a report to the
Philippine Constabulary (PC).

On October 25, 1983, at about 10:30 A.M., petitioner de Guzman, Captain Renato M. Peñafiel,
and two (2) other constabulary men of the Reaction Force Battalion, Sikatuna Village, Diliman,
Quezon City went to the stores of respondents at the Marikina Public Market. Without any
warrant, they seized the boy and girl scouts pants, dresses, and suits on display at respondents'
stalls. The seizure caused a commotion and embarrassed private respondents. Receipts were
issued for the seized items. The items were then turned over by Captain Peñafiel to petitioner
corporation for safekeeping.

A criminal complaint for unfair competition was then filed against private respondents. 2 During
its pendency, petitioner de Guzman exacted from private respondent Lugatiman the sum of
THREE THOUSAND ONE HUNDRED PESOS (P3,100.00) in order to be dropped from the
complaint. On December 6, 1983, after a preliminary investigation, the Provincial Fiscal of Rizal
dismissed the complaint against all the private respondents. On February 6, 1984, he also
ordered the return of the seized items. The seized items were not immediately returned despite
demands. 3 Private respondents had to go personally to petitioners' place of business to recover
their goods. Even then, not all the seized items were returned. The other items returned were of
inferior quality.

Private respondents then filed Civil Case No. 51144 against the petitioners for sums of money
and damages. 4 In its Decision dated January 9, 1987, the trial court ruled for the private
respondents, thus:

WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendants, ordering the latter jointly and severally:

1. To return the amount of P3,100.00 to plaintiff Mirasol Lugatiman with interest

at 12% per annum from January 12, 1984, the date of the last receipt issued,
until fully paid;

2. To pay plaintiff Agnes Villa Cruz the sum of P2,000.00 for the 26 pieces of girl
scout items not returned;

3. To pay plaintiffs the amount of P50,000.00 for and as moral damages and
P15,000.00 for and as exemplary damages; and

4. P5,000.00 for and as attorney's fees and litigation expenses.

Costs against the defendants.

SO ORDERED.

The decision was appealed to the respondent court. On January 18, 1989, its Fifth
Division, 5 affirmed the Decision with modification, thus:

WHEREFORE, the decision appealed from is AFFIRMED with MODIFICATION;

and, as modified, the dispositive portion thereof now reads as follows:
 Judgment is hereby rendered in favor of plaintiffs (private respondents) and
against defendants (petitioners), ordering the latter jointly and severally;

1. To return the amount of P3,100.00 to plaintiff (respondent) Mirasol Lugatiman

and cancel her application for distributor's license;

2. To pay plaintiff (respondent) Agnes Villa Cruz the sum of P2,000.00 for the
unreturned 26 pieces of girl scouts items with interest at 12% per annum from
June 4, 1984 (date the complaint was filed) until it is fully paid;

3. To pay plaintiffs (respondents) the amount of P10,000.00 each, or a total of

P30,000.00, for and as moral damages; and P5,000.00 each, or a total of
P15,000.00, for and as exemplary damages; and

4. To pay plaintiffs (respondents) P5,000.00 for and as attorney's fees and

litigation expenses.

Costs of the case a quo and the instant appeal are assessed jointly and severally
against defendants-appellants (petitioners) MHP Garments, Inc. and Larry de
Guzman.

SO ORDERED.

In this petition for certiorari, petitioners contend:

FIRST ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED IN IMPUTING LIABILITY FOR DAMAGES

TO THE PETITIONERS WHO DID NOT EFFECT THE SEIZURE OF THE
SUBJECT MERCHANDISE.

SECOND ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED WHEN IT MADE A FINDING THAT THE

MANNER WITH WHICH THE CONFISCATION OF PRIVATE RESPONDENTS
WAS TORTIOUS BUT PENALIZED INSTEAD THE PETITIONERS WHO DID
NOT COMMIT THE ACT OF CONFISCATION.

THIRD ASSIGNMENT OF ERROR

THE COURT OF APPEALS ERRED WHEN IT FOUND FOR THE PRIVATE

RESPONDENTS AND AGAINST THE PETITIONERS.

We affirm.

Article III, section 2, of the Constitution protects our people from unreasonable search and
seizure. It provides:
 The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures of whatever nature for any purpose
shall be inviolable, and no search warrant or warrant of arrest shall issue except
upon probable cause to be determined personally by the judge after examination
under oath or affirmation of the complainant and the witnesses he may produce,
and particularly describing the place to be searched and the persons or things to
be seized.

This provision protects not only those who appear to be innocent but also those who appear to
be guilty but are nevertheless to be presumed innocent until the contrary is proved. 6 In the case
at bench, the seizure was made without any warrant. Under the Rules of Court, 7 a warrantless
search can only be undertaken under the following circumstance:

Sec. 12. Search incident to a lawful arrest. - A person lawfully arrested may be
searched for dangerous weapons or anything which may be used as proof of the
commission of an offense, without a search warrant.

We hold that the evidence did not justify the warrantless search and seizure of private
respondents' goods. Petitioner corporation received information that private respondents were
illegally selling Boy Scouts items and paraphernalia in October 1983. The specific date and time
are not established in the evidence adduced by the parties. Petitioner de Guzman then made a
surveillance of the stores of private respondents. They reported to the Philippine Constabulary
and on October 25, 1983, the raid was made on the stores of private respondents and the
supposed illicit goods were seized. The progression of time between the receipt of the
information and the raid of the stores of private respondents shows there was sufficient time for
petitioners and the PC raiding party to apply for a judicial warrant. Despite the sufficiency of
time, they did not apply for a warrant and seized the goods of private respondents. In doing so,
they took the risk of a suit for damages in case the seizure would be proved to violate the right
of private respondents against unreasonable search and seizure. In the case at bench, the
search and seizure were clearly illegal. There was no probable cause for the seizure. Probable
cause for a search has been defined as "such facts and circumstances which would lead a
reasonably discreet and prudent man to believe that an offense has been committed and that
the objects sought in connection with the offense are in the place sought to be
searched." 8 These facts and circumstances were not in any way shown by the petitioners to
justify their warrantless search and seizure. Indeed, after a preliminary investigation, the
Provincial Fiscal of Rizal dismissed their complaint for unfair competition and later ordered the
return of the seized goods.

Petitioners would deflect their liability with the argument that it was the Philippine Constabulary
that conducted the raid and their participation was only to report the alleged illegal activity of
private respondents.

While undoubtedly, the members of the PC raiding team should have been included in the
complaint for violation of the private respondents' constitutional rights, still, the omission will not
exculpate petitioners.

In the case of Lim vs. Ponce de Leon, 9 we ruled for the recovery of damages for violation of
constitutional rights and liberties from public officer or private individual, thus:
 Art. 32. Any public officer or employee, or any private individual, who directly or
indirectly obstructs, defeats, violates or in any manner impedes or impairs any of
the following rights and liberties of another person shall be liable to the latter for
damages.

xxx xxx xxx

(9) The rights to be secure in one's person, house, papers, and effects against
unreasonable searches and seizures.

xxx xxx xxx

The indemnity shall include moral damages. Exemplary damages may also be
adjudged.

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

xxx xxx xxx

(6) Illegal search;

(1) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

Pursuant to the foregoing provisions, a person whose constitutional rights have

been violated or impaired is entitled to actual and moral damages from the public
officer or employee responsible therefor. In addition, exemplary damages may
also be awarded.

xxx xxx xxx

The very nature of Article 32 is that the wrong may be civil or criminal. It is not
necessary therefore that there should be malice or bad faith. To make such a
requisite would defeat the main purpose of Article 32 which is the effective
protection of individual rights. Public officials in the past have abused their
powers on the pretext of justifiable motives or good faith in the performance of
their duties. Precisely, the object of the Article is to put an end to official abuse by
plea of the good faith. In the United States this remedy is in the nature of a tort.
(emphasis supplied)

In the subsequent case of Aberca vs. Ver, 10 the Court En Banc explained the liability of persons
indirectly responsible, viz:

[T]he decisive factor in this case, in our view, is the language of Article 32. The
law speaks of an officer or employee or person "directly or indirectly" responsible
for the violation of the constitutional rights and liberties of another. Thus, it is not
the actor alone (i.e., the one directly responsible) who must answer for damages
under Article 32; the person indirectly responsible has also to answer for the
damages or injury caused to the aggrieved party.
 xxx xxx xxx

While it would certainly be too naive to expect that violators of human rights
would easily be deterred by the prospect of facing damages suits, it should
nonetheless be made clear in no uncertain terms that Article 32 of the Civil Code
makes the persons who are directly, as well as indirectly, responsible for the
transgression joint tortfeasors.

xxx xxx xxx

[N]either can it be said that only those shown to have participated "directly"
should be held liable. Article 32 of the Civil Code encompasses within the ambit
of its provisions those directly, as well as indirectly, responsible for its violations.
(emphasis supplied)

Applying the aforecited provisions and leading cases, the respondent court correctly granted
damages to private respondents. Petitioners were indirectly involved in transgressing the right
of private respondents against unreasonable search and seizure. Firstly, they instigated the raid
pursuant to their covenant in the Memorandum Agreement to undertake the prosecution in court
of all illegal sources of scouting supplies. 11 As correctly observed by respondent court:

Indeed, the acts committed by the PC soldiers of unlawfully seizing appellees'

(respondents') merchandise and of filing the criminal complaint for unfair
competition against appellees (respondents) were for the protection and benefit
of appellant (petitioner) corporation. Such being the case, it is, thus, reasonably
fair to infer from those acts that it was upon appellant (petitioner) corporation's
instance that the PC soldiers conducted the raid and effected the illegal seizure.
These circumstances should answer the trial court's query — posed in its
decision now under consideration — as to why the PC soldiers immediately
turned over the seized merchandise to appellant (petitioner) corporation. 12

The raid was conducted with the active participation of their employee. Larry de Guzman did not
lift a finger to stop the seizure of the boy and girl scouts items. By standing by and apparently
assenting thereto, he was liable to the same extent as the officers themselves. 13 So with the
petitioner corporation which even received for safekeeping the goods unreasonably seized by
the PC raiding team and de Guzman, and refused to surrender them for quite a time despite the
dismissal of its complaint for unfair competition.

Secondly, Letter of Instruction No. 1299 was precisely crafted on March 9, 1983 to safeguard
not only the privilege of franchise holder of scouting items but also the citizen's constitutional
rights, to wit:

TITLE: APPREHENSION OF UNAUTHORIZED

MANUFACTURERS AND DISTRIBUTORS OF SCOUT
PARAPHERNALIA AND IMPOUNDING OF SAID
PARAPHERNALIA.

ABSTRACT:
 Directs all law enforcement agencies of the Republic of the Philippines, to
apprehend immediately unauthorized manufacturers and distributors of Scout
paraphernalia, upon proper application by the Boy Scouts of the Philippines
and/or Girl Scouts of the Philippines for warrant of arrest and/or search warrant
with a judge, or such other responsible officer as may be authorized by law; and
to impound the said paraphernalia to be used as evidence in court or other
appropriate administrative body. Orders the immediate and strict compliance
with the Instructions. 14

Under the above provision and as aforediscussed, petitioners miserably failed to report the
unlawful peddling of scouting goods to the Boy Scouts of the Philippines for the proper
application of a warrant. Private respondents' rights are immutable and cannot be sacrificed to
transient needs. 15 Petitioners did not have the unbridled license to cause the seizure of
respondents' goods without any warrant.

And thirdly, if petitioners did not have a hand in the raid, they should have filed a third-party
complaint against the raiding team for contribution or any other relief, 16 in respect of
respondents' claim for Recovery of Sum of Money with Damages. Again, they did not.

We have consistently ruled that moral damages are not awarded to penalize the defendant but
to compensate the plaintiff for the injuries he may have suffered. 17 Conformably with our ruling
in Lim vs. Ponce de Leon, op. cit., moral damages can be awarded in the case at bench. There
can be no doubt that petitioners must have suffered sleepless nights, serious anxiety, and
wounded feelings due the tortious raid caused by petitioners. Private respondents' avowals of
embarrassment and humiliation during the seizure of their merchandise were supported by their
testimonies. Respondent Cruz declared:

I felt very nervous. I was crying to loss (sic) my goods and capital because I am
doing business with borrowed money only, there was commotion created by the
raiding team and they even stepped on some of the pants and dresses on
display for sale. All passersby stopped to watch and stared at me with accusing
expressions. I was trembling and terribly ashamed, sir. 18

Respondent Lugatiman testified:

I felt very nervous. I was crying and I was very much ashamed because many
people have been watching the PC soldiers hauling my items, and many/I (sic)
heard say "nakaw pala ang mga iyan" for which I am claiming P25,000.00 for
damages.19

While respondent Gonzalez stated thus:

I do not like the way the raid was conducted by the team sir because it looked
like that what I have been selling were stolen items that they should be
confiscated by uniformed soldiers. Many people were around and the more the
confiscation was made in a scandalous manner; every clothes, T-shirts, pants
and dresses even those not wrapped dropped to the ground. I was terribly
shamed in the presence of market goers that morning.20
Needles to state, the wantonness of the wrongful seizure justifies the award of exemplary
damages. 21 It will also serve as a stern reminder to all and sundry that the constitutional
protection against unreasonable search and seizure is a virile reality and not a mere burst of
rhetoric. The all encompassing protection extends against intrusions directly done both by
government and indirectly by private entities.

IN VIEW WHEREOF, the appealed decision is AFFIRMED WITH MODIFICATION. We impose

a SIX PERCENT (6%) interest from January 9, 1987 on the TWO THOUSAND PESOS
(P2,000.00) for the unreturned twenty-six (26) pieces of girl scouts items and a TWELVE
PERCENT (12%) interest, in lieu of SIX PERCENT (6%), on the said amount upon finality of this
Decision until the payment thereof. 22 Costs against petitioners.

SO ORDERED.

G.R. No. 120852 October 28, 1999

BENJAMIN D. OBRA and BRIG. GEN. TOMAS DUMPIT, petitioners,

vs.
COURT OF APPEALS, SPOUSES JAMES BRETT and JUNE PRILL BRETT, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision, 1 dated June 21, 1995, of the Court of
Appeals affirming an award of P100,000.00 for violation of constitutional right and P10,000.00
for attorney's fees made by the Regional Trial Court, Branch 8, of Baguio and Benguet in favor
of private respondents.

The facts are as follows:

Petitioner Benjamin D. Obra was, at the time material to this case, the Regional Director of the
Bureau of Mines and Geo-Sciences (BMGS) in Baguio City. On June 26, 1985, Jeannette M.
Grybos wrote him a letter on behalf of the Gillies heirs of Palasa-an, Mankayan, complaining
that private respondents, spouses James Brett and June Prill Brett, had been conducting illegal
mining activities in an area in Bgy. Palasa-an, Mankayan, Benguet belonging to Gillies family. It
was alleged:

A certain James Brett and June Prill Brett have since 1981 been illegally
mining the above-named Gillies property, extracting ore and mining
without permit. We would like therefore to have their operations
investigated and inspected. We request further that their operations be
stopped and their mining equipments (sic) be confiscated. For your ready
 reference we are enclosing some documents and pictures regarding the
matter.

On the same day, petitioner Obra wrote Brig. Gen. Tomas Dumpit, then the Commanding
General of the Regional Unified Command I (RUC-1) of the Philippine Constabulary (PC), with
headquarters at Camp Bado Dangwa, La Trinidad, Benguet, requesting assistance in
apprehending a truck allegedly used by private respondents in illegal mining in the area. The
pertinent portion of Obra's letter to Dumpit reads:

[In connection with the complaint of Ms. Jeannette M. Grybos,] we are

enlisting the assistance of your command by way of checking and
apprehending a truck colored blue and yellow lining which is used in
transporting illegally mined ores from Palasa-an, Mankayan, Benguet to
Baguio City. Said vehicle passes through the military outpost located at
the main entrance of Camp Dangwa.

Kindly call up the Bureau of Mines and Geo-Sciences, Baguio, when such
truck will be apprehended so that this Office could take appropriate action
therein.

The following day, June 27, 1985, petitioner Obra wrote private respondents and Ms. Grybos,
informing them that the BMGS was going to conduct an ocular inspection and field investigation
on July 2-5, 1985 at Palasa-an, Mankayan, Benguet in connection with Grybos' complaint and
requesting them and their witnesses to be present at the investigation "so that all legal and
technical matters, as well as the facts surrounding the case, shall be gathered and collated in
order for this Office to take the appropriate action thereon . . . ."

Copies of the letters were furnished petitioner Dumpit with the request that assistance be
extended by RUC-1 "to insure the success and peaceful outcome of the investigation."
Supposedly attached to the request was a certified true copy of a certification, dated June 20,
1985, made by the BMGS stating that "no Mines Temporary Permit, Small-Scale Mining Permit
or any permit was issued to James Brett within the Gillies Property in Palasa-an, Mankayan,
Benguet."

A similar letter 2 was sent by petitioner Obra on June 27, 1985, to Col. Bernardo Estepa,
Provincial Commander of Benguet, with the request that the latter "stop momentarily any mining
operation or activity, if there be any, of James and June Prill Brett in Palasa-an, Mankayan,
Benguet until the controversy or case has been resolved by [the BMGS]."

Accordingly, elements of RUC-1 under Major Guillermo Densen and led by Sgt. Josefino A.
Morales seized, on July 1, 1985, an Isuzu "ELF" truck (ABX-587) belonging to private
respondents as it was entering the "Mamakar" mining area in Palasa-an, Mankayan, Benguet.
The truck was impounded by the military and prevented from leaving the area except on mercy
missions to transport sick soldiers and workers to the hospital and when used to buy food
supplies for the men inside the camp. 3

Private respondents then filed a complaint 4 for injunction and damages, with an application for
temporary restraining order, with the Regional Trial Court, Branch 8, of Baguio and Benguet.
They alleged that the truck had been seized without prior investigation to determine the
existence of probable cause and that this was in violation of private respondents' constitutional
rights under Art. 32, in relation to Arts. 19, 20 and 21, of the Civil Code.

On July 18, 1985, the trial court issued a temporary restraining order directing petitioners to
cease and desist from preventing the subject truck from leaving the mine site. 5 On August 8,
1985, the court issued a writ of preliminary injunction.1âwphi1.nêt

After trial, the court gave judgment to private respondents. It found that no investigation had
been conducted either by petitioner Obra or his office or by petitioner Dumpit to verify the
complaint of Jeannette Grybos before the vehicle was ordered seized by them, and that, as a
result, private respondents had been deprived of the use and enjoyment of property without due
process of law. Accordingly, the trial court ruled that, under Art. 32 of the Civil Code and the
ruling in Aberca v. Ver, 6 private respondents were entitled to actual and compensatory
damages, moral damages, and exemplary damages in the total amount of P100,000.00 and
attorney's fees in the total amount of P10,000.00, plus costs of suit.

On appeal, the appellate court affirmed the decision in toto. Hence, this petition. Petitioners
contend:

1. PETTTIONERS COULD NOT BE HELD LIABLE FOR

DAMAGES IN THE PERFORMANCE OF THEIR DUTY IN GOOD
FAITH.

2. PETITIONERS ARE ENTITLED TO AN AWARD OF

DAMAGES.

The contentions are without merit. The decision of the Court of Appeals is affirmed.

Petitioners invoke P.D. No. 1281, as amended, authorizing the Regional Director of the BMGS
to "order the seizure and confiscation, in favor of the Government, of the tools and equipment
used in the commission of an offense" and "to deputize, when necessary, any member or unit of
the PC, police agency, barangay or any qualified person to police mining activities." 7 They claim
that petitioner Obra made his request to his co-petitioner in good faith and solely for the purpose
of maintaining the status quo while the investigation of Grybos' complaint was being conducted,
after finding that private respondents had no permit to conduct mining activities in the contested
area.

The provisions of P.D. No. 1281, which petitioners invoke in their defense, read:

Sec. 3. The Bureau of Mines shall have the following powers and functions, to
wit:

xxx xxx xxx

f.) To arrest or order the arrest, even without warrant, of any person who has
committed or is in the act of committing any of the offenses defined under
Presidential Decree No. 463, or any other laws being implemented by the Bureau
of Mines, and seize and confiscate or order the seizure and confiscation, in favor
of the government, of the tools and equipment used in the commission of the
 offense and the minerals extracted by the offender, and institute whatever action
that may be necessary relative thereto;

g.) To deputize, when necessary, any member or unit of the PC, police agency,
barangay or any qualified person to police all mining activities;

xxx xxx xxx

Sec. 6. The Bureau of Mines shall have jurisdictional supervision and control
over all holders of mining claims or applicants for and/or grantees of mining
licenses, permits, leases and/or operators thereof, including mining service
contracts and service contracts insofar as their mining activities are concerned;
and in the exercise of such authority, it shall have the power to enlist the aid and
support of all law enforcement agencies of the Government, civil and/or military.

Petitioners contend that these provisions of the Decree were justified under Art. IV, §3 of the
1973 Constitution which provided that —

The right of the people to be secure in their persons, houses, papers, and effects
against unreasonable searches and seizures of whatever nature and for any
purpose shall not be violated, and no search warrant or warrant of arrest shall
issue except upon probable cause to be determined by the judge, or such other
responsible officer as may be authorized by law, after examination under oath or
affirmation of the complainant and the witnesses he may produce, and
particularly describing the place to be searched, and the persons or things to be
seized. 8

The above provision of the 1973 Constitution, however, merely validated the grant by law to
nonjudicial officers of the power to issue warrants of arrest or search warrants, but did not in any
way exempt these officers from the duty of determining the existence of probable cause as
basis for the issuance of such warrants. Indeed, the issue in this case is not whether petitioner
Obra had authority to issue a search warrant and to deputize the military to assist in his
investigation. The question is whether he conducted an investigation and found probable cause
for ordering the seizure and impoundment of private respondents' vehicle. The answer is: he did
not. To the contrary, as petitioner Obra's letters to private respondents and to Grybos clearly
stated, an investigation was to be held on July 2-5, 1985 precisely to determine the veracity of
the allegations in Grybos' complaint.

Apparently, petitioner Obra's only basis for ordering the seizure of the vehicle was an alleged
certification from the BMGS that no mining permit had been issued to private respondents. The
certification, however, was not presented in evidence nor does a copy thereof appear in the
records.

On the contrary, in its resolution 9 dated May 12, 1986, the BMGS found that private respondent
June Prill Brett had a valid and subsisting mining claim within the area and that it was the Gillies
family which had no permit or lease from the government, although it was the first to work the
claim.
Nor indeed could the seizure of the vehicle be justified under the "moving vehicle"
doctrine. 10 The truck was seized while it was entering the mining area; it was not transporting
minerals outside of the area. 11 As held in People v. Bagista, 12

With regard to the search of moving vehicles, this had been justified on the
ground that the mobility of motor vehicles makes it possible for the vehicle to be
searched to move out of the locality or jurisdiction in which the warrant must be
sought.

This in no way, however, gives the police officers unlimited discretion to conduct
warrantless searches of automobiles in the absence of probable cause. When a
vehicle is stopped and subjected to an extensive search, such a warrantless
search has been held to be valid as long as the officers conducting the search
have reasonable or probable cause to believe before the search that they will find
the instrumentality or evidence pertaining to a crime in the vehicle to be
searched.

There could not have been, therefore, any finding of probable cause that the truck was being
used for any illegal mining activities.

As we said in Aberca v. Ver, 13 the military is not to be restrained from pursuing their task or
carrying out their mission with vigor. However, in doing so, care must be taken that
constitutional and legal safeguards are not disregarded. In this case, there was absolutely no
justification for the disregard of procedures for issuing search and seizure orders.

The Court of Appeals rightly concluded then that petitioners violated private respondents'
constitutional rights to due process and to security against unreasonable searches and seizure
in ordering the seizure and impoundment of private respondents' vehicle. For as the trial court
held: 14

From all the above arguments and counter-arguments, the Court finds that the
petitioners do not seriously dispute that the private respondents were, indeed,
deprived of the use of their Isuzu "ELF" Truck when the private respondents'
foreman and the driver of the truck were told by Sgt. Morales of the RUC-I that
the same could not leave the mining area in Palasa-an, Mankayan, Benguet, "per
orders", and the same was parked in front of the building where the military team
specifically assigned for that particular mission was staying. The arguments of
the petitioners that there was no distraint and/or seizure because the keys of the
truck were always in the possession of private respondents' driver Kiyabang,
that, on several occasions, the truck left the Palasa-an mining area, . . . and that
the private respondents voluntarily and maliciously refused to use or enjoy their
own truck . . . are facetious, to say the least, and deserve no serious
consideration, in the light of the undisputed fact that the military men led by Sgt.
Morales did not allow him to drive the truck out of the Palasa-an mining area, and
on those occasions when he drove the truck out of the mining area, it was on
missions of mercy and for purposes of the needs of the military personnel
assigned in the Palasa-an mining area, and these, always with a soldier on board
the truck. There was, therefore, a distraint and at least constructive seizure by
the military men led by Sgt. Morales, "as per orders," of the Isuzu Ilf truck of the
 private respondents, effectively depriving the latter of its use and enjoyment of
their property.

Likewise, it is not disputed by the petitioners that Petitioners Obra's request for
the "checking and apprehending" of private respondents' truck by Petitioner
Dumpit's RUC-I Command on June 26, 1985 (Exh. C) and the actual
apprehension of said truck by Sgt. Morales and his men on July 1, 1985, were
not preceded by and based on an investigation conducted by Petitioner Obra or
his Office, but, instead, were based on the letter-complaint of Jeannette Grybos
received by said Office also on June 26, 1985 (Exh. B). The petitioners' claim
that this did not violate the constitutional right of the private respondents to due
process because of the aforequoted reasons completely ignores the fundamental
rule that laws should not be so interpreted or implemented as to violate the
provisions of the constitution. Specifically, Petitioner Obra's interpretation of the
law that grants him "jurisdictional supervision and control" over persons and
things that have something to do with mines and mining (Sec. 6, P.D. No. 1281)
authorizes him to distrain and seize private respondents' truck, as he actually did
through Sgt. Morales and his men, "without prerequisite conditions such as a
prior preliminary investigation of the case" (taken from the above quotation from
petitioners' Memorandum), clearly violates the provision of the Bill of Rights on
due process . . .

These findings and conclusions of the trial court, as affirmed by the Court of Appeals, are
binding on this Court in the absence of any showing that they are contrary to the evidence in the
record. 15

On the other hand, petitioner Dumpit claims that unlike the superior officers in Aberca, he had
no knowledge of the acts of his subordinates since they did not file an "after-incident report"
which was the standard procedure in these cases. He claims that all he did was to endorse the
request to Major Densen, the Intelligence Officer of RUC-1, to coordinate with the BMGS and
implement the order accordingly.

These contentions have no merit. It was sufficiently proved in this case that the seizure of the
truck was effected upon the orders of petitioner Dumpit, acting on the request of petitioner Obra.
Private respondents' witnesses testified that when they asked the military men who stopped
them upon their entry to the "Mamakar" mining site, the soldiers told them that they were acting
upon the orders of "the general in Camp Dangwa." 16 Sgt. Morales even issued a certification
that the truck was seized "as per orders." 17 Petitioner Dumpit himself testified, thus:

SOL. DAVID:

Q This letter refers to a complaint by Mrs. Jeannette M. Grybos,

when you received that letter of Engr. Obra, what action, if any,
did you take?

A On the letter of Director Obra dated June 26, 1985, whereby he

was requesting assistance, the first thing I did is just to designate
an action officer and my instruction is to coordinate with Director
Obra and undertake necessary action.
 x x x           x x x          x x x

A I referred that letter when I received it from Director Obra to the

Action Officer, the late Maj. Guillermo Densen. 18

ATTY. GALACE:

Q Major Densen did not go to the mining site of [Palasa-an]?

A My instruction was very clear, coordinate with Director Obra and

take the necessary appropriate action, period. That was my only
instruction to the late Maj. Densen.

Q You did not authorize Maj. Densen to enter the mining site and
that all operations in the mining area will be stopped?

A I left it to the discretion of my subordinate, your Honor. 19

Art. 32 of the Civil Code makes liable any public officer who is directly or indirectly responsible
for violating an individual's constitutional rights. The ruling in Aberca, which has been reiterated
in subsequent cases, 20 is stated as follows:

. . . [T]he decisive factor in this case, in our view, is the language of Article 32.
The law speaks of an officer or employee or person "directly" or "indirectly"
responsible for the violation of the constitutional rights and liberties of another.
Thus, it is not the actor alone (i.e., the one directly responsible) who must answer
for damages under Article 32; the person indirectly responsible has also to
answer for the damages or injury caused to the aggrieved party.

. . . While it would certainly be too naive to expect that violators of human rights
would easily be deterred by the prospect of facing damage suits, it should
nonetheless be made clear in no uncertain terms that Article 32 of the Civil Code
makes the persons who are directly, as well as indirectly, responsible for the
transgressions joint tortfeasors. 21

It was clear from petitioner Obra's letter to petitioner Dumpit that assistance was sought for the
seizure of private respondents' truck. Thus, when petitioner Dumpit endorsed the request to his
subordinates for proper action, there could not have been any other foreseeable consequence
but the eventual seizure of the truck.

Petitioner Dumpit cannot evade responsibility for his acts by claiming that he merely performed
a ministerial duty in ordering the implementation of petitioner Obra's request. Otherwise, Art. 32
could easily be avoided by the mere plea that the officer concerned was only carrying out a
ministerial duty. Petitioner Dumpit was a ranking military official. It is unseemly for him to claim
that he was merely executing a ministerial act.

WHEREFORE, the petition is DISMISSED and the decision of the Court of Appeals is hereby
AFFIRMED.1âwphi1.nêt
SO ORDERED.

G.R. No. 138881               December 18, 2000

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
LEILA JOHNSON Y REYES, accused-appellant.

DECISION

MENDOZA, J.:

This is an appeal from the decision, 1 dated May 14, 1999, of the Regional Trial Court, Branch
110, Pasay City, finding accused-appellant Leila Johnson y Reyesguilty of violation of §16 of
R.A. No. 6425 (Dangerous Drugs Act), as amended by R.A. No. 7659, and sentencing her to
suffer the penalty of reclusion perpetua and to pay a fine of ₱500,000.00 and the costs of the
suit.

The information against accused-appellant alleged:

That on June 26, 1998 inside the Ninoy Aquino International Airport, and within the jurisdiction
of this Honorable Court, the above-named Accused did then and there willfully, unlawfully and
feloniously possess three plastic bags of methamphetamine hydrochloride, a regulated drug,
each bag weighing:

#1 ONE HUNDRED EIGHTY SEVEN POINT FIVE (187.5) grams;

#2ONE HUNDRED NINETY EIGHT POINT ZERO (198.0) grams; and

#3 ONE HUNDRED NINETY FOUR POINT SEVEN (194.7) grams, respectively,

or a total of FIVE HUNDRED EIGHTY POINT TWO (580.2) grams of methamphetamine

hydrochloride.

That the above-named accused does not have the corresponding

license or prescription to possess or use said regulated drug.

CONTRARY TO LAW.2

Upon being arraigned, accused-appellant pleaded not guilty,3 whereupon trial was held.

The prosecution presented four witnesses, namely, NBI Forensic Chemist George de Lara,
SPO4 Reynaldo Embile, duty frisker Olivia Ramirez, and SPO1 Rizalina Bernal. The defense
presented accused-appellant who testified in her own behalf.

The facts are as follows:

Accused-appellant Leila Reyes Johnson was, at the time of the incident, 58 years old, a widow,
and a resident of Ocean Side, California, U.S.A. She is a former Filipino citizen who was
naturalized as an American on June 16, 1968 and had since been working as a registered
nurse, taking care of geriatric patients and those with Alzheimer’s disease, in convalescent
homes in the United States.4

On June 16, 1998, she arrived in the Philippines to visit her son’s family in Calamba, Laguna.
She was due to fly back to the United States on July 26. On July 25, she checked in at the
Philippine Village Hotel to avoid the traffic on the way to the Ninoy Aquino International Airport
(NAIA) and checked out at 5:30 p.m. the next day, June 26, 1998.5

At around 7:30 p.m. of that day, Olivia Ramirez was on duty as a lady frisker at Gate 16 of the
NAIA departure area. Her duty was to frisk departing passengers, employees, and crew and
check for weapons, bombs, prohibited drugs, contraband goods, and explosives.6
When she frisked accused-appellant Leila Johnson, a departing passenger bound for the United
States via Continental Airlines CS-912, she felt something hard on the latter’s abdominal area.
Upon inquiry, Mrs. Johnson explained she needed to wear two panty girdles as she had just
undergone an operation as a result of an ectopic pregnancy.7

Not satisfied with the explanation, Ramirez reported the matter to her superior, SPO4 Reynaldo
Embile, saying "Sir, hindi po ako naniniwalang panty lang po iyon." ("Sir, I do not believe that it
is just a panty.") She was directed to take accused-appellant to the nearest women’s room for
inspection. Ramirez took accused-appellant to the rest room, accompanied by SPO1 Rizalina
Bernal. Embile stayed outside.8

Inside the women’s room, accused-appellant was asked again by Ramirez what the hard object
on her stomach was and accused-appellant gave the same answer she had previously given.
Ramirez then asked her "to bring out the thing under her girdle." Accused-appellant brought out
three plastic packs, which Ramirez then turned over to Embile, outside the women’s room.9

The confiscated packs, marked as Exhibits C-1, C-2 and C-3, contained a total of 580.2 grams
of a substance which was found by NBI Chemist George de Lara to be methamphetamine
hydrochloride or "shabu."10

Embile took accused-appellant and the plastic packs to the 1st Regional Aviation and Security
Office (1st RASO) at the arrival area of the NAIA, where accused-appellant’s passport and ticket
were taken and her luggage opened. Pictures were taken and her personal belongings were
itemized.11

In her defense, accused-appellant alleged that she was standing in line at the last boarding gate
when she was approached by Embile and two female officers. She claimed she was handcuffed
and taken to the women’s room. There, she was asked to undress and was then subjected to a
body search. She insisted that nothing was found on her person. She was later taken to a room
filled with boxes, garbage, and a chair. Her passport and her purse containing $850.00 and
some change were taken from her, for which no receipt was issued to her. After two hours, she
said, she was transferred to the office of a certain Col. Castillo.12

After another two hours, Col. Castillo and about eight security guards came in and threw two
white packages on the table. They told her to admit that the packages were hers. But she
denied knowledge and ownership of the packages. She was detained at the 1st RASO office
until noon of June 28, 1999 when she was taken before a fiscal for inquest.13 She claimed that
throughout the period of her detention, from the night of June 26 until June 28, she was never
allowed to talk to counsel nor was she allowed to call the U.S. Embassy or any of her relatives
in the Philippines.14

On May 14, 1999, the trial court rendered a decision, the dispositive portion of which reads:15

WHEREFORE, judgment is hereby rendered finding the accused LEILA JOHNSON Y REYES,
GUILTY beyond reasonable doubt of the offense of Violation of Section 16 of Republic Act 6425
as amended and hereby imposes on her the penalty of RECLUSION PERPETUA and
condemns said accused to pay a fine of FIVE HUNDRED THOUSAND PESOS (₱500,000.00)
without subsidiary imprisonment in case of insolvency and to pay the costs of suit.
The Methamphetamine Hydrochloride (shabu) having a total net weight of 580.2 grams (Exhibits
"G", "C-2" and "C-3") are hereby confiscated in favor of the government and the Branch Clerk of
Court is hereby ordered to cause the transportation thereof to the Dangerous Drugs Board for
disposition in accordance with law.

The accused shall be credited in full for the period of her detention at the City Jail of Pasay City
during the pendency of this case provided that she agreed in writing to abide by and comply
strictly with the rules and regulations of the City Jail.

SO ORDERED.

Accused-appellant contends that the trial court convicted her: (1) "despite failure of the
prosecution in proving the negative allegation in the information;" (2) "despite failure of the
prosecution in proving the quantity of methamphetamine hydrochloride;" (3) "despite violation of
her constitutional rights;" and (4) "when guilt was not proven beyond reasonable doubt."16

First. Accused-appellant claims that she was arrested and detained in gross violation of her
constitutional rights. She argues that the "shabu" confiscated from her is inadmissible against
her because she was forced to affix her signature on the plastic bags while she was detained at
the 1st RASO office, without the assistance of counsel and without having been informed of her
constitutional rights. Hence, she argues, the methamphetamine hydrochloride, or "shabu,"
should have been excluded from the evidence.17

The contention has no merit. No statement, if any, was taken from accused-appellant during her
detention and used in evidence against her. There is, therefore, no basis for accused-
appellant’s invocation of Art. III, §12(1) and (3). On the other hand, what is involved in this case
is an arrest in flagrante delicto pursuant to a valid search made on her person.

The trial court held:

The constitutional right of the accused was not violated as she was never placed under
custodial investigation but was validly arrested without warrant pursuant to the provisions of
Section 5, Rule 113 of the 1985 Rules of Criminal Procedure which provides:

Sec. 5. Arrest without warrant; when lawful. A peace officer or a private person may, without a
warrant, arrest a person:

(a) when in his presence, the person to be arrested has committed, is actually committing, or is
attempting to commit an offense;

(b) when an offense has in fact just been committed, and he has personal knowledge of facts
indicating that the person to be arrested has committed it; and

(Underscoring supplied)

xxxx

A custodial investigation has been defined in People. v. Ayson 175 SCRA 230 as "the
questioning initiated by law enforcement officers after a person has been taken [in] custody or
otherwise deprived of his freedom in any significant way. This presupposes that he is suspected
of having committed an offense and that the investigator is trying to elicit information or [a]
confession from him."

The circumstances surrounding the arrest of the accused above falls in either paragraph (a) or
(b) of the Rule above cited, hence the allegation that she has been subjected to custodial
investigation is far from being accurate.18

The methamphetamine hydrochloride seized from her during the routine frisk at the airport was
acquired legitimately pursuant to airport security procedures.

Persons may lose the protection of the search and seizure clause by exposure of their persons
or property to the public in a manner reflecting a lack of subjective expectation of privacy, which
expectation society is prepared to recognize as reasonable. 19 Such recognition is implicit in
airport security procedures. With increased concern over airplane hijacking and terrorism has
come increased security at the nation’s airports. Passengers attempting to board an aircraft
routinely pass through metal detectors; their carry-on baggage as well as checked luggage are
routinely subjected to x-ray scans. Should these procedures suggest the presence of suspicious
objects, physical searches are conducted to determine what the objects are. There is little
question that such searches are reasonable, given their minimal intrusiveness, the gravity of the
safety interests involved, and the reduced privacy expectations associated with airline
travel.20 Indeed, travelers are often notified through airport public address systems, signs, and
notices in their airline tickets that they are subject to search and, if any prohibited materials or
substances are found, such would be subject to seizure. These announcements place
passengers on notice that ordinary constitutional protections against warrantless searches and
seizures do not apply to routine airport procedures.

The packs of methamphetamine hydrochloride having thus been obtained through a valid
warrantless search, they are admissible in evidence against the accused-appellant herein.
Corollarily, her subsequent arrest, although likewise without warrant, was justified since it was
effected upon the discovery and recovery of "shabu" in her person in flagrante delicto.

Anent her allegation that her signature on the said packs (Exhibits C-1, C-2 and C-3 herein) had
been obtained while she was in the custody of the airport authorities without the assistance of
counsel, the Solicitor General correctly points out that nowhere in the records is it indicated that
accused-appellant was required to affix her signature to the packs. In fact, only the signatures of
Embile and Ramirez thereon, along with their testimony to that effect, were presented by the
prosecution in proving its case.

There is, however, no justification for the confiscation of accused-appellant’s passport, airline
ticket, luggage, and other personal effects. The pictures taken during that time are also
inadmissible, as are the girdle taken from her, and her signature thereon. Rule 126, §2 of the
Revised Rules of Criminal Procedure authorizes the search and seizure only of the following:

Personal property to be seized. 3/4 A search warrant may be issued for the search and seizure
of personal property:

(a) Subject of the offense;

(b) Stolen or embezzled and other proceeds or fruits of the offense; and
 (c) Used or intended to be used as the means of committing an offense.

Accordingly, the above items seized from accused-appellant should be returned to her.

Second. Accused-appellant argues that the prosecution failed to fully ascertain the quantity of
methamphetamine hydrochloride to justify the imposition of the penalty of reclusion perpetua.

Section 20 of R.A. No. 6425, as amended by R.A. No. 7659, states:

Section 20 - Application Of Penalties, Confiscation And Forfeiture Of The Proceeds or

Instrument Of The Crime – The penalties for offenses under Section 3, 4, 7, 8 and 9 of Article II
and Sections 14, 14-A, 15 and 16 of Article III of this Act, shall be applied if the dangerous drugs
involved is in any of the following quantities:

1. 40 grams or more of opium;

2. 40 grams or more of morphine;

3. 200 grams or more of shabu, or methylamphetamine hydrochloride;

4. 40 grams or more of heroin;

5. 750 grams or more of indian hemp of marijuana;

6. 50 grams of marijuana resin or marijuana resin oil;

7. 40 grams or more of cocaine or cocaine hydrochloride; or

8. In case of other dangerous drugs, the quantity of which is far beyond therapeutic
requirements as determined and promulgated by the Dangerous Drugs Board, after
public consultation/hearings conducted for the purpose.

Otherwise, if the quantity involved is less than the foregoing quantities, the penalty shall range
from prision correccional to reclusion perpetua depending upon the quantity.

Under this provision, accused-appellant therefore stands to suffer the penalty of reclusion
perpetua to death for her possession of 580.2 grams of shabu.

Accused-appellant attempts to distinguish between a quantitative and a qualitative examination

of the substance contained in Exhibits C-1, C-2 and C-3. She argues that the examination
conducted by the NBI forensic chemist was a qualitative one which merely yielded positive
findings for shabu, but failed to establish its purity; hence, its exact quantity remains
indeterminate and unproved.

This contention is likewise without merit.

The expert witness, George De Lara, stated that the tests conducted would have indicated the
presence of impurities if there were any. He testified:
PROS. VELASCO By mixing it twice, Mr. Witness, if there are any adulterants or impurities, it
will be discovered by just mixing it?

WITNESS If some drugs or additives were present, it will appear in a thin layer chromatographic
examination.

PROS. VELASCO Did other drugs or other additives appear Mr. Witness?

WITNESS In my thin layer chromatographic plate, it only appears one spot which resembles or
the same as the Methamphetamine Hydrochloride sample

....

PROS. VELASCO So, Mr. Witness, if there are any adulterants present in the chemicals you
have examined, in chemical examination, what color it will register, if any?

WITNESS In sample, it contained a potassium aluminum sulfate, it will not react with the
reagent, therefore it will not dissolve. In my examination, all the specimens reacted on the re-
agents, sir.

PROS. VELASCO And what is potassium aluminum sulfate in layman’s term?

WITNESS It is only a tawas.

....

COURT In this particular case, did you find any aluminum sulfate or tawas in the specimen?

WITNESS None, your Honor.

....

ATTY. AGOOT I will cite an example, supposing ten grams of Methamphetamine Hydrochloride
is mixed with 200 grams of tawas, you will submit that to qualitative examination, what will be
your findings, negative or positive, Mr. Witness?

WITNESS It will give a positive result for Methamphetamine Hydrochloride.

ATTY. AGOOT That is qualitative examination.

WITNESS And also positive for aluminum sulfate.21

A qualitative determination relates to the identity of the material, whereas a quantitative analysis
requires the determination of the percentage combination of the components of a mixture.
Hence, a qualitative identification of a powder may reveal the presence of heroin and quinine,
for instance, whereas a quantitative analysis may conclude the presence of 10 percent heroin
and 90 percent quinine.22
De Lara testified that he used a chromatography test to determine the contents of Exhibits C-1,
C-2 and C-3. Chromatography is a means of separating and tentatively identifying the
components of a mixture. It is particularly useful for analyzing the multicomponent specimens
that are frequently received in a crime lab. For example, illicit drugs sold on the street may be
diluted with practically any material that is at the disposal of the drug dealer to increase the
quantity of the product that is made available to prospective customers. Hence, the task of
identifying an illicit drug preparation would be an arduous one without the aid of
chromatographic methods to first separate the mixture into its components.23

The testimony of De Lara established not only that the tests were thorough, but also that the
scientifically correct method of obtaining an accurate representative sample had been
obtained.24 At any rate, as the Solicitor-General has pointed out, if accused-appellant was not
satisfied with the results, it would have been a simple matter for her to ask for an independent
examination of the substance by another chemist. This she did not do.

Third. Accused-appellant argues that the prosecution failed to prove the negative allegation in
the information that she did not have a license to possess or use methamphetamine
hydrochloride or "shabu."

Art. III of Republic Act No. 6425, as amended by Republic Act No. 7659 provides:

SEC. 16. Possession or Use of Regulated Drugs. - The penalty of reclusion perpetua to death
and a fine ranging from five hundred thousand pesos to ten million pesos shall be imposed upon
any person who shall possess or use any regulated drug without the corresponding license or
prescription, subject to the provisions of Section 20 hereof.1âwphi1

Accused-appellant claims that possession or use of methamphetamine hydrochloride or

"shabu,"a regulated drug, is not unlawful unless the possessor or user does not have the
required license or prescription. She points out that since the prosecution failed to present any
certification that she is not authorized to possess or use regulated drugs, it therefore falls short
of the quantum of proof needed to sustain a conviction.

The contention has no merit.

The question raised in this case is similar to that raised in United States v. Chan Toco.25 The
accused in that case was charged with smoking opium without being duly registered. He
demurred to the information on the ground that it failed to allege that the use of opium had not
been prescribed as a medicine by a duly licensed and practicing physician.

This Court denied the motion and said:

The evident interest and purpose of the statute is to prohibit and to penalize generally the
smoking of opium in these Islands. But the legislator desired to withdraw from the operation of
the statute a limited class of smokers who smoked under the advice and by prescription of a
licensed and practicing physician . . . . Hence where one is charged with a violation of the
general provisions of the Opium Law, it is more logical as well as more practical and convenient,
if he did in fact smoke opium under the advice of a physician, that he should set up this fact by
way of defense, than that the prosecution should be called upon to prove that every smoker,
charged with a violation of the law, does so without such advice or prescription. Indeed, when it
is considered that under the law any person may, in case of need and at any time, procure the
advice of a physician to use opium or some of its derivatives, and that in the nature of things no
public record of prescriptions of this kind is or can be required to be kept, it is manifest that it
would be wholly impracticable and absurd to impose on the prosecution the burden of alleging
and proving the fact that one using opium does so without the advice of a physician. To prove
beyond a reasonable doubt, in a particular case, that one using opium does so without the
advice or prescription of a physician would be in most cases a practical impossibility without the
aid of the defendant himself, while a defendant charged with the illegal use of opium should find
little difficulty in establishing the fact that he used it under the advice and on the prescription of a
physician, if in fact he did so.26

An accused person sometimes owes a duty to himself if not to the State. If he does not perform
that duty he may not always expect the State to perform it for him. If he fails to meet the
obligation which he owes to himself, when to meet it is an easy thing for him to do, he has no
one but himself to blame.

Moreover, as correctly pointed out by the Solicitor General, there is nothing in R.A. No. 6425 or
the Dangerous Drugs Act, as amended, which requires the prosecution to present a certification
that accused-appellant has no license or permit to possess shabu. Mere possession of the
prohibited substance is a crime per se and the burden of proof is upon accused-appellant to
show that she has a license or permit under the law to possess the prohibited drug.

Fourth. Lastly, accused-appellant contends that the evidence presented by the prosecution is
not sufficient to support a finding that she is guilty of the crime charged.

This contention must likewise be rejected.

Credence was properly accorded to the testimonies of the prosecution witnesses, who are law
enforcers.1âwphi1 When police officers have no motive to testify falsely against the accused,
courts are inclined to uphold this presumption. In this case, no evidence has been presented to
suggest any improper motive on the part of the police enforcers in arresting accused-appellant.
This Court accords great respect to the findings of the trial court on the matter of credibility of
the witnesses in the absence of any palpable error or arbitrariness in its findings.27

It is noteworthy that, aside from the denial of accused-appellant, no other witness was
presented in her behalf. Her denial cannot prevail over the positive testimonies of the
prosecution witnesses.28 As has been held, denial as a rule is a weak form of defense,
particularly when it is not substantiated by clear and convincing evidence. The defense of denial
or frame-up, like alibi, has been invariably viewed by the courts with disfavor for it can just as
easily be concocted and is a common and standard defense ploy in most prosecutions for
violation of the Dangerous Drugs Act.29

The Court is convinced that the requirements of the law in order that a person may be validly
charged with and convicted of illegal possession of a dangerous drug in violation of R.A. No.
6425, as amended, have been complied with by the prosecution in this case. The decision of
the trial court must accordingly be upheld.

As regards the fine imposed by the trial court, it has been held that courts may fix any amount
within the limits established by law.30 Considering that five hundred eighty point two (580.2)
grams of shabu were confiscated from accused-appellant, the fine imposed by the trial court
may properly be reduced to ₱50,000.00.
WHEREFORE, the decision of the Regional Trial Court of Pasay City, Branch 110, finding
accused-appellant guilty of violation of §16 of R.A. No. 6425, as amended, and imposing upon
her the penalty of reclusion perpetua is hereby AFFIRMED with the MODIFICATION that the
fine imposed on accused-appellant is reduced to ₱50,000.00. Costs against appellant.

The passport, airline ticket, luggage, girdle and other personal effects not yet returned to the
accused-appellant are hereby ordered returned to her.

SO ORDERED.

G.R. No. 121877            September 12, 2001

PEOPLE OF THE PHILIPPINES, plaintiff-appellee,

vs.
ERLINDA GONZALES Y EVANGELISTA, accused-appellant.

QUISUMBING, J.:
On appeal is the decision1 dated March 8, 1995, of the Regional Trial Court of Iloilo City, Branch
39, in Criminal Case No. 42441, which convicted appellant Erlinda Gonzales y Evangelista of
violating Section 4, Article II2 of the Dangerous Drugs Act (R.A. No. 6425) and sentenced her to
life imprisonment.

In an information dated December 23, 1993, the Provincial Prosecutor of Iloilo charged
appellant with illegal transport of marijuana leaves and fruiting tops, allegedly committed as
follows:

That on or about August 30, 1993, in the Municipality of Dueñas, Province of Iloilo,
Philippines, and within the jurisdiction of this Court, the above-named accused, without
any lawful purpose or justifiable motive, did then and there willfully, unlawfully and
feloniously transport, deliver and/or distribute ten (10) kilos of marijuana leaves and
fruiting tops (compressed in bricks) without being authorized by law to transport, deliver
and/or distribute the same.

CONTRARY TO LAW.3

On January 31, 1994, appellant was arraigned and with assistance of counsel pleaded not guilty
to the charge. Trial on the merits ensued.

The prosecution presented two witnesses, namely, PO1 Reggie Pedroso and Angela
Baldevieso, forensic chemist of the PNP. In addition, the prosecution presented the following
object and documentary evidence: (1) ten bundles of dried marijuana leaves or fruiting tops,
weighing 9.560 kilograms;4 (2) Physical Sciences Report No. D-087-93 issued by Angela
Baldevieso, PNP forensic chemist;5 and (3) black traveling bag.6 On the other hand, the defense
presented appellant herself and Isaac Lamera, the trisikad driver.

PO1 Reggie Pedroso narrated that in the evening of August 29, 1993, the Chief of Police of
Dueñas, Iloilo and other policemen on duty including himself, received information that a woman
with long hair, wearing maong pants and jacket, and Ray Ban sunglasses would be transporting
marijuana along the national highway. According to the tipped information, the woman would
bring a black traveling bag and would ride a trisikad. Based on this information, the Chief of
Police, that same evening, instructed his men to conduct mobile patrol at 5:00 A.M. in the
morning of August 30, 1993, in the poblacion of Dueñas and along the national highway. Three
teams were formed. One was assigned to cover the public market. Another was dispatched to
Barangay Tinocuan. The third team, composed of PO1 Pedroso, PO3 Queque, and SPO2
Baculina, was assigned to the national highway in Barangay Poblacion A.

According to PO1 Pedroso, his team of policemen started patrolling at around 5:00 A.M. of
August 30, 1993. They made the rounds on board a mobile car. At about 6:45 A.M., they
passed by a woman who fitted the informer’s description. She was standing along the national
highway holding a black traveling bag in a trisikad. The law enforcers were one meter away
from her when they spotted her. They alighted from their car and asked her who owns the
traveling bag. The woman denied ownership of the bag. When PO1 Pedroso inquired from
the trisikad driver, later identified as Isaac Lamera, about the ownership of the bag, the latter
pointed to the woman as the owner of the said bag. The policemen then requested the woman
to open the bag but she refused. When asked regarding the contents of the bag, Lamera
answered he does not know. Believing that the bag contained marijuana per tipped information,
the policemen brought appellant, Lamera and the bag to the police station. There, the Chief of
Police forcibly opened the locked black bag as the woman alleged that the key to the lock was
with her three companions who were at the public market. Inside the bag, they found wrapped in
newspaper ten (10) bricks of dried marijuana leaves. Later on, the woman was asked about her
personal circumstances. She identified herself as Erlinda Gonzales, herein appellant.
Afterwards, she was detained.7

On August 31, 1993, the bricks were brought to the Police Crime Laboratory in Camp Delgado,
Iloilo City for chemistry analysis. Angela Baldevieso, a forensic chemist of the PNP, who later
testified for the prosecution, confirmed in her physical evidence report (Exh. D) that the bricks of
dried leaves (Exh. B to C-7, inclusive) were marijuana, weighing 9.560
kilograms.8 Subsequently, a complaint for violation of Section 4 of R.A. 6425 was filed against
appellant.

Appellant denied her involvement in the drug transport. She claimed that at about 6:30 A.M. on
August 30, 1993, she was standing along the national highway, having just come from a friend’s
house in Tacas, Dueñas. Just then, three policemen stepped out of a patrol car and asked her if
she had a key to a black traveling bag they spotted in a trisikad which is about three arms length
away from her. When she said "No", PO1 Pedroso invited her to the municipal hall where she
was questioned. She said she never boarded the trisikad. Although she confirmed that there
was a black bag in the trisikad, she denied ownership of said bag. She stated that the bag was
closed and padlocked. She insisted that the black bag presented in court (Exh. E) was not the
same black traveling bag taken from the trisikad.9

Lamera, the trisikad driver, testified that at about 6:30 A.M. on August 30, 1993, he was driving
his vehicle with a male passenger when the latter suddenly told him to stop, saying he had
forgotten something. His passenger told him to wait for him at the national highway, leaving a
bag on top of his trisikad. When he arrived at the highway, he saw appellant and parked some
three arms length away from her. He then left his trisikad to answer a call of nature. As he did, a
police car stopped and three PNP members got off. They accosted him and asked who owned
the bag. He replied that it belonged to his male passenger. When asked if appellant owned the
bag, he answered "No." Lamera averred that appellant was not holding the handle of the bag
when the policemen arrived. Nor was she wearing Ray Ban sunglasses. He claimed that he only
learned about the contents of the bag when they were inside the police station. When a black
traveling bag was shown him during the trial, Lamera stated that it was not the black traveling
bag that was left in his trisikad. According to him, the bag presented in court was taller than the
bag his male passenger left in his trisikad. He said the bag seized by the police was made of
sackcloth, it had a zipper and wheels at the bottom.10

The court found for the prosecution, disbelieved the defense, and convicted appellant, thus:

WHEREFORE, premises considered, the accused Erlinda Gonzales y Evangelista alias

Linda Gonzales, is hereby found guilty beyond reasonable doubt of Violation of Sec. 4,
Art. II of R.A. 6425 as amended, and is hereby sentenced to suffer the penalty of life
imprisonment and to pay a fine of P20,000.00 and the costs.

The nine kilos and 560 grams of compressed bricks of dried marijuana leaves and
fruiting tops are ordered confiscated and forfeited in favor of the government and must
be turned over to the Board through the National Bureau of Investigation, for proper
disposition, pursuant to Sec. 20 of R.A. 6425, as amended.
 The accused, who is detained, is credited with the number of days she spent under
detention if she is qualified, otherwise, she shall be credited only with four-fifths (4/5) of
her preventive imprisonment.

SO ORDERED.11

Hence, this appeal, imputing the following errors to the trial court:

THAT THE HONORABLE LOWER COURT ERRED IN HOLDING THAT THE ACCUSED-
APPELLANT WAS CAUGHT IN THE ACT OF TRANSPORTING NINE (9) KILOS AND 560
GRAMS OF DRIED MARIJUANA LEAVES AND FRUITING TOPS (COMPRESSED IN
BRICKS) WHICH WERE PLACED IN A BLACK TRAVELLING BAG.

II

THE HONORABLE COURT ERRED IN NOT HOLDING THAT THE ARREST OF THE
ACCUSED-APPELLANT WAS ILLEGAL AND THEREFORE THE MARIJUANA BRICKS
ALLEGEDLY TAKEN FROM THE TRISIKAD IS INADMISSIBLE IN EVIDENCE AS AGAINST
HER.

III

THE HONORABLE LOWER COURT ERRED IN HOLDING THAT THE POLICE OFFICER
WHEN THEY ARRESTED THE ACCUSED-APPELLANT WERE REGULARLY PERFORMING
THEIR DUTIES.

IV

THE HONORABLE LOWER COURT ERRED IN NOT RECEIVING THE TESTIMONY OF THE
ACCUSED-APPELLANT AND HER WITNESSES.

THE HONORABLE LOWER COURT ERRED IN NOT ACQUITTING THE ACCUSED. 12

In sum, the pertinent issues for our resolution are: (1) Were the testimonies of prosecution
witnesses credible and sufficient to prove appellant’s guilt beyond reasonable doubt? (2) Was
appellant’s warrantless arrest legal, thereby making the bricks of marijuana leaves allegedly
seized from her admissible in evidence?

On the first issue, appellant states that she was not transporting marijuana in a black traveling
bag aboard the trisikad. She denies being a passenger of the trisikad, or owning the black
traveling bag containing marijuana. She claims she was not holding the bag’s handle when the
police accosted her. She asserts that it is unusual for her to hold on to something containing
contraband in the presence of police officers. She argues that the prosecution simply alleged
that she was holding the handle of the bag in order to justify an illegal arrest and to escape a
charge of arbitrary detention. Next, appellant assails the credibility of PO1 Pedroso. She argues
that the trial court erred in giving credence to his testimony on mere presumption that PO1
Pedroso had regularly performed his duty. Finally, appellant faults the lower court for not
believing the testimony of Lamera, the trisikad driver. She insists that Lamera had no reason to
lie as they do not know each other.

At the outset we note that, contrary to appellant’s fourth assignment of error, she and her
witness, Lamera, were heard and their testimonies recorded by the trial court. Unfortunately for
appellant, their version was not believed by said court.

In essence, appellant now challenges the trial court’s assessment of the testimonies of
prosecution and defense witnesses. When credibility is in issue, this Court generally defers to
the findings of the trial court considering that it is in a better position to decide the question,
having heard the witnesses themselves and observed their manner and deportment during the
trial.13 Its findings on the credibility of witnesses will be sustained by appellate courts unless the
trial court overlooked, misunderstood, or misapplied some facts or circumstances of weight and
substance which will alter the assailed decision or affect the result of the case.14 In this case, it
appears plain to us that appellant failed to point to any fact or circumstance overlooked or
ignored by the trial court to cast doubt on the credibility of the prosecution witnesses sufficiently.

Appellant’s defense is bare denial. As held time and again, mere denial unsupported and
unsubstantiated by clear and convincing evidence becomes negative and self-serving, deserves
no weight in law and cannot be given greater evidentiary value over convincing, straightforward
and probable testimonies on affirmative matters.15 Mere denial and allegations of frame-up have
been invariably viewed by the courts with disfavor for these defenses are easily concocted.
They are common and standard defenses in prosecutions involving violation of the dangerous
drugs law.16

Moreover, it appears far-fetched that the police and the prosecution would claim that appellant
was holding the handle of the bag merely to justify her arrest and avoid a charge of arbitrary
detention. PO1 Pedroso categorically declared that appellant was holding the black traveling
bag in the trisikad. He was just one meter from appellant when he alighted from the patrol car
and accosted the appellant who had in her possession, according to the eyewitness, the black
traveling bag.

As pointed out by the Solicitor General, the positive testimony of the apprehending policeman
outweighs appellant’s negative testimony. Additionally, appellant presented no evidence to rebut
the presumption that PO1 Pedroso had performed his task in a regular manner. We are thus
constrained to agree with the trial court’s finding that the police testimony here is worthy of
credence.

In contrast, it plainly appears that defense witness Lamera flip-flopped in his testimony. On
record, Lamera has two sworn statements. In the first affidavit dated August 30, 1993 executed
before PO3 Gildo Pelopero, Lamera claimed that he was hired by four persons to deliver a black
bag at the national highway, one of whom rode his trisikad while the other three followed. Upon
reaching the national highway, policemen intercepted them and brought them to the municipal
building.17

In his affidavit dated September 1, 1993, executed before Judge Inocentes de Ocampo, Lamera
stated that on the day of the incident, four persons flagged down his trisikad. However, only one
of them, a woman, who turned out to be appellant, got in his trisikad and rode to the national
highway where she was apprehended by the PNP.18

But during the trial Lamera testified differently, varying his testimony from his earlier sworn
statements. This time, he declared that the black bag in question belongs to a male passenger.
His testimony on the witness stand on September 27, 1994, reads:

Q         About what time was that?

A         6:30.

Q         And you said that man whom you claim, you did not know loaded a black
travelling bag on your trisikad?

A         Yes, sir.

xxx

Q         Now, when the man that man whom you said you did not know hailed you and
loaded to the trisikad a black bag, did you not ask the man what is inside the black
travelling bag?

A         No, sir.

Q         Neither that man tell you what is inside or what is the contents of that black
travelling bag?

A         No, sir.

Q         What was when that man put the travelling bag on your trisikad did not that man
say anything to you?

A         He asked me if I am going to the highway and I answered yes.

Q         And when you said yes, what else did that man say if he said anything else?

A         He said wait a minute I will alight here in the intersection because I forgot
something.

xxx

Q         Now, when he said or after he said wait a minute I will alight here, what did the
man do?

A         He went back and then he told me to go first to the highway and wait for him.

Q         Went back to where?

A         From the place where he rode.

 xxx

Q         Did that man tell you a particular or given place to the highway where you will
wait for him?

A         Yes, sir.

Q         The man told you that you have to bring that travelling bag at that place where
there was a woman waiting?

A         No, sir.

Q         Did not the man tell you to bring the travelling bag to that particular part of the
highway where the accused was waiting?

A         No, sir.

Q         And you brought the black travelling bag at the very place where the accused
was there also?

A         It was only a coincidence that the accused was there.

Q         And that woman or the accused was at that time wearing a maong jacket?

A         No, sir. She was wearing a black jacket.

Q         It is not a dark maong?

A         No, sir.

Q         She had a rayban or goggles at that time?

A         None, sir.

Q         She had a long hair at the time?

A         Yes, sir.

Q         She was also wearing maong pants?

A         Yes, sir.

Q         Now, while driving your trisikad with that black travelling bag did you not try to
feel it just for curiosity sake to know what is inside?

A         None, sir.
 Q         Because that man whom you said you did not know return for no reason at all,
did you not suspect that the travelling bag is containing a marijuana or any contrabands
goods?

A         None, sir.

Q         And according to you, it was there at the highway that policemen arrived and
confronted the accused about the travelling bag?

A         Yes, sir.

Q         You were also confronted by the police officer about the travelling bag?

A         Yes, sir.

Q         And the two of you were brought to the municipal hall of Dueñas, Iloilo?

A         Yes, sir.19 [Emphasis ours.]

The foregoing testimony of Lamera on the witness stand materially contradicts his sworn
statements dated August 30, 1993 and September 1, 1993. A witness who makes two sworn
statements which are contradictory to his testimony in court impeaches his own
credibility.20 Hence, in our view, the trial court committed no error in discounting Lamera’s
statements by giving them no evidentiary value. Moreover, appellant failed to present other and
more credible witnesses to support or corroborate her own as well as Lamera’s testimony.

On the second issue, appellant contends that her arrest was illegal, hence, the marijuana bricks
are inadmissible in evidence. But after a careful consideration of the testimony of witnesses and
the arguments adduced by the parties, we find that appellant’s contention is bereft of merit.

Basic is the rule that no arrest, search or seizure can be made without a valid warrant issued by
a competent judicial authority. The Constitution guarantees the right of the people to be secure
in their persons, houses, papers and effects against unreasonable searches and seizures.21 Any
evidence obtained in violation of said right shall be inadmissible for any purpose in any
proceeding.22

Nevertheless, the constitutional proscription against warrantless searches and seizures admits
of certain legal and judicial exceptions, as follows: (1) warrantless search incidental to a lawful
arrest recognized under Section 12, Rule 126 of the Rules of Court and by prevailing
jurisprudence; (2) seizure of evidence in plain view; (3) search of a moving vehicle; (4)
consented warrantless search; (5) customs search; (6) stop and frisk; and (7) exigent and
emergency circumstances.23

Moreover, a lawful arrest without a warrant may be made by a peace officer or a private person
under the following circumstances:

(a) When, in his presence, the person to be arrested has committed, is actually
committing, or is attempting to commit an offense;
 (b) When an offense has just been committed, and he has probable cause to believe
based on personal knowledge of facts and circumstances that the person to be arrested
has committed it; and

(c) When the person to be arrested is a prisoner who has escaped from a penal
establishment or place where he is serving final judgment or is temporarily confined
while his case is pending, or has escaped while being transferred from one confinement
to another.

In cases falling under paragraphs (a) and (b) above, the person arrested without a
warrant shall be forthwith delivered to the nearest police station or jail and shall be
proceeded against in accordance with Section 7 of Rule 112.24

In this case, the trial court found and held that appellant was caught in flagrante carrying
marijuana leaves and fruiting tops at the time of her arrest. A crime was actually being
committed by the appellant; thus, her arrest and the search of her black traveling bag fall
squarely under paragraph (a) of the aforecited provisions of the Rules allowing a warrantless
search incident to lawful arrest. On this score, we are in agreement with the trial court. While it
is true that the apprehending officers were not armed with a search warrant when the search
was conducted over the personal effects of appellant, nevertheless under the circumstances of
the case, there was sufficient probable cause for said police officers to believe that appellant
was then and there committing a crime.

Probable cause signifies a reasonable ground of suspicion supported by circumstances

sufficiently strong in themselves to warrant a cautious man’s belief that the person accused is
guilty of the offense with which he is charged; or the existence of such facts and circumstances
which could lead a reasonably discreet and prudent man to believe that an offense has been
committed and that the items, articles or objects sought in connection with said offense or
subject to seizure and destruction by law is in the place to be searched. 25 The required probable
cause that will justify a warrantless search and seizure is not determined by a fixed formula but
is resolved according to the facts of each case.26

In People vs. Valdez,27 we had occasion to recall several instances where tipped information, as
in this case, has become a sufficient probable cause to effect a warrantless search and seizure.
There, a policeman was tipped off by a civilian "asset" that a thin Ilocano person with a green
bag was about to transport marijuana from Banaue, Ifugao. Said information was received by
the policeman the very same morning he was waiting for a ride in Banaue to report for work in
Lagawe, the capital town of Ifugao province. Thus, faced with such on-the-spot information, the
law enforcer had to respond quickly to the call of duty. Obviously, there was not enough time to
secure a search warrant considering the time involved in the process. In fact, in view of the
urgency of the case, the policeman together with the civilian "asset" proceeded immediately to
Hingyon, Ifugao, to pursue the drug trafficker. In Hingyon, he flagged down buses bound for
Baguio City and Manila, and looked for the person described by the informer. The target of the
pursuit was just the "thin Ilocano person with a green bag" and no other. And so, when the
policeman inspected the bus bound for Manila, he just singled out the passenger with the green
bag. Evidently, there was definite information of the identity of the person engaged in
transporting prohibited drugs at a particular time and place. The law enforcer already had an
inkling of the identity of the person he was looking for. As a matter of fact, no search at all was
conducted on the baggage of other passengers.
In the case at bar, the police officers were tipped off only on the evening of August 29, 1993.
The contraband was to be transported early in the morning of the following day. Certainly, the
law enforcers had no time to secure the needed warrants. The only recourse left to the police
was to arrest the courier in flagrante. Note that the law enforcers had a definite target for their
arrest, that is, a woman with long hair, wearing maong pants and jacket and Ray Ban
sunglasses, carrying a black traveling bag. There was a description about the identity of the
person engaged in transporting prohibited drugs at a particular time and place. The law
enforcers already had an inkling of the personal circumstances of the person they were looking
for. Accordingly, when the police officers saw the woman who fitted the tipped description given
earlier and who was later identified as the appellant, standing near a trisikad, along the national
highway holding the handle of a black traveling bag on a trisikad, they had probable cause to
apprehend appellant. In our view, appellant’s arrest was legal and the search of her bag
conducted by the police was not illegal. Consequently, the marijuana bricks seized from
appellant during the search is admissible in evidence against her since they were taken
incidental to a lawful arrest.

A final word on the penalty. With the passage of R.A. No. 7659, the penalty for violation of
Section 4 of the Dangerous Drugs Law is reclusion perpetua to death and a fine ranging from
P500,000.00 to P10,000,000.00 if the marijuana involved weighs 750 grams or more. Here, the
marijuana involved weighs more than 9 kilograms. However, R.A. No. 7659 took effect only on
December 31, 1993, while the offense herein was committed earlier on August 30, 1993. Thus,
the law at the time of the commission of the offense, R.A. 6425, applies. R.A. No. 7659 cannot
be made to apply retroactively, for it obviously is not favorable to the accused-appellant.

However, we find that the trial court sentenced appellant to "life imprisonment." This is error, for
here the applicable penalty is reclusion perpetua. Life imprisonment and reclusion perpetua are
distinct penalties.28 The penalty of reclusion perpetua entails an imprisonment of at least 30
years, after which the convict becomes eligible for pardon. It carries with it accessory penalties.
Life imprisonment does not have a fixed duration and does not carry with it accessory
penalties.29 Under Section 4, Article II of R.A. 6425, the applicable statute, the prescribed
penalty for the transport of prohibited drugs is reclusion perpetua to death, not life
imprisonment. Absent qualifying circumstances, the penalty imposable in the present case is
only reclusion perpetua.

WHEREFORE, the decision of the Regional Trial Court of Iloilo City, Branch 39, in Criminal
Case No. 42441, finding appellant ERLINDA GONZALES Y EVANGELISTA, guilty beyond
reasonable doubt of illegal transport of marijuana is AFFIRMED, with the MODIFICATION that
appellant is hereby sentenced to suffer the penalty of reclusion perpetua and to pay the fine of
Twenty Thousand Pesos (P20,000.00) and the costs.

SO ORDERED.
INTERFERENCE IN CONTRACTUAL RELATION

G.R. No. L-9356             February 18, 1915

C. S. GILCHRIST, plaintiff-appellee,
vs.
E. A. CUDDY, ET AL., defendants.
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants.

C. Lozano for appellants.

Bruce, Lawrence, Ross and Block for appellee.

TRENT, J.:

An appeal by the defendants, Jose Fernandez Espejo and Mariano Zaldarriaga, from a
judgment of the Court of First Instance of Iloilo, dismissing their cross-complaint upon the merits
for damages against the plaintiff for the alleged wrongful issuance of a mandatory and a
preliminary injunction.

Upon the application of the appellee an ex parte mandatory injunction was issued on the 22d of
May, 1913, directing the defendant, E. A. Cuddy, to send to the appellee a certain
cinematograph film called "Zigomar" in compliance with an alleged contract which had been
entered into between these two parties, and at the time an ex parte preliminary injunction was
issued restraining the appellants from receiving and exhibiting in their theater the Zigomar until
further orders of the court. On the 26th of that month the appellants appeared and moved the
court to dissolve the preliminary injunction. When the case was called for trial on August 6, the
appellee moved for the dismissal of the complaint "for the reason that there is no further
necessity for the maintenance of the injunction." The motion was granted without objection as to
Cuddy and denied as to the appellants in order to give them an opportunity to prove that the
injunction were wrongfully issued and the amount of damages suffered by reason thereof.

The pertinent part of the trial court's findings of fact in this case is as follows:

It appears in this case that Cuddy was the owner of the film Zigomar and that on the
24th of April he rented it to C. S. Gilchrist for a week for P125, and it was to be delivered
on the 26th of May, the week beginning that day. A few days prior to this Cuddy sent the
money back to Gilchrist, which he had forwarded to him in Manila, saying that he had
made other arrangements with his film. The other arrangements was the rental to these
defendants Espejo and his partner for P350 for the week and the injunction was asked
by Gilchrist against these parties from showing it for the week beginning the 26th of May.

It appears from the testimony in this case, conclusively, that Cuddy willfully violated his
contract, he being the owner of the picture, with Gilchrist because the defendants had
offered him more for the same period. Mr. Espejo at the trial on the permanent injunction
on the 26th of May admitted that he knew that Cuddy was the owner of the film. He was
trying to get it through his agents Pathe Brothers in Manila. He is the agent of the same
concern in Iloilo. There is in evidence in this case on the trial today as well as on the
26th of May, letters showing that the Pathe Brothers in Manila advised this man on two
 different occasions not to contend for this film Zigomar because the rental price was
prohibitive and assured him also that he could not get the film for about six weeks. The
last of these letters was written on the 26th of April, which showed conclusively that he
knew they had to get this film from Cuddy and from this letter that the agent in Manila
could not get it, but he made Cuddy an offer himself and Cuddy accepted it because he
was paying about three times as much as he had contracted with Gilchrist for. Therefore,
in the opinion of this court, the defendants failed signally to show the injunction against
the defendant was wrongfully procured.

The appellants duly excepted to the order of the court denying their motion for new trial on the
ground that the evidence was insufficient to justify the decision rendered. There is lacking from
the record before us the deposition of the defendant Cuddy, which apparently throws light upon
a contract entered into between him and the plaintiff Gilchrist. The contents of this deposition
are discussed at length in the brief of the appellants and an endeavor is made to show that no
such contract was entered into. The trial court, which had this deposition before it, found that
there was a contract between Cuddy and Gilchrist. Not having the deposition in question before
us, it is impossible to say how strongly it militates against this findings of fact. By a series of
decisions we have construed section 143 and 497 (2) of the Code of Civil Procedure to require
the production of all the evidence in this court. This is the duty of the appellant and, upon his
failure to perform it, we decline to proceed with a review of the evidence. In such cases we rely
entirely upon the pleadings and the findings of fact of the trial court and examine only such
assigned errors as raise questions of law. (Ferrer vs. Neri Abejuela, 9 Phil. Rep., 324;
Valle vs. Galera, 10 Phil. Rep., 619; Salvacion vs. Salvacion, 13 Phil. Rep., 366;
Breta vs. Smith, Bell & Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen &
Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs. Barretto, 19 Phil. Rep., 161;
Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mans vs. Garry,
20 Phil. Rep., 134.) It is true that some of the more recent of these cases make exceptions to
the general rule. Thus, in Olsen & Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that
portion of the evidence before us tended to show that grave injustice might result from a strict
reliance upon the findings of fact contained in the judgment appealed from. We, therefore, gave
the appellant an opportunity to explain the omission. But we required that such explanation must
show a satisfactory reason for the omission, and that the missing portion of the evidence must
be submitted within sixty days or cause shown for failing to do so. The other cases making
exceptions to the rule are based upon peculiar circumstances which will seldom arise in practice
and need not here be set forth, for the reason that they are wholly inapplicable to the present
case. The appellants would be entitled to indulgence only under the doctrine of the Olsen case.
But from that portion of the record before us, we are not inclined to believe that the missing
deposition would be sufficient to justify us in reversing the findings of fact of the trial court that
the contract in question had been made. There is in the record not only the positive and detailed
testimony of Gilchrist to this effect, but there is also a letter of apology from Cuddy to Gilchrist in
which the former enters into a lengthy explanation of his reasons for leasing the film to another
party. The latter could only have been called forth by a broken contract with Gilchrist to lease
the film to him. We, therefore, fail to find any reason for overlooking the omission of the
defendants to bring up the missing portion of the evidence and, adhering to the general rule
above referred to, proceed to examine the questions of law raised by the appellants.

From the above-quoted findings of fact it is clear that Cuddy, a resident of Manila, was the
owner of the "Zigomar;" that Gilchrist was the owner of a cinematograph theater in Iloilo; that in
accordance with the terms of the contract entered into between Cuddy and Gilchrist the former
leased to the latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week beginning
May 26, 1913; and that Cuddy willfully violate his contract in order that he might accept the
appellant's offer of P350 for the film for the same period. Did the appellants know that they were
inducing Cuddy to violate his contract with a third party when they induced him to accept the
P350? Espejo admitted that he knew that Cuddy was the owner of the film. He received a letter
from his agents in Manila dated April 26, assuring him that he could not get the film for about six
weeks. The arrangement between Cuddy and the appellants for the exhibition of the film by the
latter on the 26th of May were perfected after April 26, so that the six weeks would include and
extend beyond May 26. The appellants must necessarily have known at the time they made
their offer to Cuddy that the latter had booked or contracted the film for six weeks from April 26.
Therefore, the inevitable conclusion is that the appellants knowingly induced Cuddy to violate
his contract with another person. But there is no specific finding that the appellants knew the
identity of the other party. So we must assume that they did not know that Gilchrist was the
person who had contracted for the film.

The appellants take the position that if the preliminary injunction had not been issued against
them they could have exhibited the film in their theater for a number of days beginning May 26,
and could have also subleased it to other theater owners in the nearby towns and, by so doing,
could have cleared, during the life of their contract with Cuddy, the amount claimed as
damages. Taking this view of the case, it will be unnecessary for us to inquire whether the
mandatory injunction against Cuddy was properly issued or not. No question is raised with
reference to the issuance of that injunction.

The right on the part of Gilchrist to enter into a contract with Cuddy for the lease of the film must
be fully recognized and admitted by all. That Cuddy was liable in an action for damages for the
breach of that contract, there can be no doubt. Were the appellants likewise liable for interfering
with the contract between Gilchrist and Cuddy, they not knowing at the time the identity of one
of the contracting parties? The appellants claim that they had a right to do what they did. The
ground upon which the appellants base this contention is, that there was no valid and binding
contract between Cuddy and Gilchrist and that, therefore, they had a right to compete with
Gilchrist for the lease of the film, the right to compete being a justification for their acts. If there
had been no contract between Cuddy and Gilchrist this defense would be tenable, but the mere
right to compete could not justify the appellants in intentionally inducing Cuddy to take away the
appellee's contractual rights.

Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a right to enjoy
the fruits and advantages of his own enterprise, industry, skill and credit. He has no right to be
free from malicious and wanton interference, disturbance or annoyance. If disturbance or loss
come as a result of competition, or the exercise of like rights by others, it is damnum absque
injuria, unless some superior right by contract or otherwise is interfered with."

In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), Darling, J., said: "I
think the plaintiff has a cause of action against the defendants, unless the court is satisfied that,
when they interfered with the contractual rights of plaintiff, the defendants had a sufficient
justification for their interference; . . . for it is not a justification that `they acted bona fide in the
best interests of the society of masons,' i. e., in their own interests. Nor is it enough that `they
were not actuated by improper motives.' I think their sufficient justification for interference with
plaintiff's right must be an equal or superior right in themselves, and that no one can legally
excuse himself to a man, of whose contract he has procured the breach, on the ground that he
acted on a wrong understanding of his own rights, or without malice, or bona fide, or in the best
interests of himself, or even that he acted as an altruist, seeking only good of another and
careless of his own advantage." (Quoted with approval in Beekman vs. Marsters, 195 Mass.,
205.)

It is said that the ground on which the liability of a third party for interfering with a contract
between others rests, is that the interference was malicious. The contrary view, however, is
taken by the Supreme Court of the United States in the case of Angle vs. Railway Co. (151 U.
S., 1). The only motive for interference by the third party in that case was the desire to make a
profit to the injury of one of the parties of the contract. There was no malice in the case beyond
the desire to make an unlawful gain to the detriment of one of the contracting parties.

In the case at bar the only motive for the interference with the Gilchrist — Cuddy contract on the
part of the appellants was a desire to make a profit by exhibiting the film in their theater. There
was no malice beyond this desire; but this fact does not relieve them of the legal liability for
interfering with that contract and causing its breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for the damages caused by their acts, unless they
are relieved from such liability by reason of the fact that they did not know at the time the
identity of the original lessee (Gilchrist) of the film.

The liability of the appellants arises from unlawful acts and not from contractual obligations, as
they were under no such obligations to induce Cuddy to violate his contract with Gilchrist. So
that if the action of Gilchrist had been one for damages, it would be governed by chapter 2, title
16, book 4 of the Civil Code. Article 1902 of that code provides that a person who, by act or
omission, causes damages to another when there is fault or negligence, shall be obliged to
repair the damage do done. There is nothing in this article which requires as a condition
precedent to the liability of a tort-feasor that he must know the identity of a person to whom he
causes damages. In fact, the chapter wherein this article is found clearly shows that no such
knowledge is required in order that the injured party may recover for the damage suffered.

But the fact that the appellants' interference with the Gilchrist contract was actionable did not of
itself entitle Gilchrist to sue out an injunction against them. The allowance of this remedy must
be justified under section 164 of the Code of Civil Procedure, which specifies the circumstance
under which an injunction may issue. Upon the general doctrine of injunction we said in
Devesa vs. Arbes (13 Phil. Rep., 273):

An injunction is a "special remedy" adopted in that code (Act No. 190) from American
practice, and originally borrowed from English legal procedure, which was there issued
by the authority and under the seal of a court of equity, and limited, as in order cases
where equitable relief is sought, to cases where there is no "plain, adequate, and
complete remedy at law," which "will not be granted while the rights between the parties
are undetermined, except in extraordinary cases where material and irreparable injury
will be done," which cannot be compensated in damages, and where there will be no
adequate remedy, and which will not, as a rule, be granted, to take property out of the
possession of one party and put it into that of another whose title has not been
established by law.

We subsequently affirmed the doctrine of the Devesa case in Palafox vs. Madamba (19 Phil.,
Rep., 444), and we take this occasion of again affirming it, believing, as we do, that the
indiscriminate use of injunctions should be discouraged.
Does the fact that the appellants did not know at the time the identity of the original lessee of the
film militate against Gilchrist's right to a preliminary injunction, although the appellant's incurred
civil liability for damages for such interference? In the examination of the adjudicated cases,
where in injunctions have been issued to restrain wrongful interference with contracts by
strangers to such contracts, we have been unable to find any case where this precise question
was involved, as in all of those cases which we have examined, the identity of both of the
contracting parties was known to the tort-feasors. We might say, however, that this fact does not
seem to have a controlling feature in those cases. There is nothing in section 164 of the Code of
Civil Procedure which indicates, even remotely, that before an injunction may issue restraining
the wrongful interference with contrast by strangers, the strangers must know the identity of
both parties. It would seem that this is not essential, as injunctions frequently issue against
municipal corporations, public service corporations, public officers, and others to restrain the
commission of acts which would tend to injuriously affect the rights of person whose identity the
respondents could not possibly have known beforehand. This court has held that in a proper
case injunction will issue at the instance of a private citizen to restrain ultra vires acts of public
officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed to the
determination of the main question of whether or not the preliminary injunction ought to have
been issued in this case.

As a rule, injunctions are denied to those who have an adequate remedy at law. Where the
choice is between the ordinary and the extraordinary processes of law, and the former are
sufficient, the rule will not permit the use of the latter. (In re Debs, 158 U. S., 564.) If the injury is
irreparable, the ordinary process is inadequate. In Wahle vs. Reinbach (76 Ill., 322), the
supreme court of Illinois approved a definition of the term "irreparable injury" in the following
language: "By `irreparable injury' is not meant such injury as is beyond the possibility of repair,
or beyond possible compensation in damages, nor necessarily great injury or great damage, but
that species of injury, whether great or small, that ought not to be submitted to on the one hand
or inflicted on the other; and, because it is so large on the one hand, or so small on the other, is
of such constant and frequent recurrence that no fair or reasonable redress can be had therefor
in a court of law." (Quoted with approval in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)

The case at bar is somewhat novel, as the only contract which was broken was that between
Cuddy and Gilchrist, and the profits of the appellee depended upon the patronage of the public,
for which it is conceded the appellants were at liberty to complete by all fair does not deter the
application of remarked in the case of the "ticket scalpers" (82 Fed., 65), the novelty of the facts
does not deter the application of equitable principles. This court takes judicial notice of the
general character of a cinematograph or motion-picture theater. It is a quite modern form of the
play house, wherein, by means of an apparatus known as a cinematograph or cinematograph, a
series of views representing closely successive phases of a moving object, are exhibited in
rapid sequence, giving a picture which, owing to the persistence of vision, appears to the
observer to be in continuous motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects
which have lent themselves to the art of the photographer in this manner have increased
enormously in recent years, as well as have the places where such exhibition are given. The
attendance, and, consequently, the receipts, at one of these cinematograph or motion-picture
theaters depends in no small degree upon the excellence of the photographs, and it is quite
common for the proprietor of the theater to secure an especially attractive exhibit as his "feature
film" and advertise it as such in order to attract the public. This feature film is depended upon to
secure a larger attendance that if its place on the program were filled by other films of mediocre
quality. It is evident that the failure to exhibit the feature film will reduce the receipts of the
theater.
Hence, Gilchrist was facing the immediate prospect of diminished profits by reason of the fact
that the appellants had induced Cuddy to rent to them the film Gilchrist had counted upon as his
feature film. It is quite apparent that to estimate with any decree of accuracy the damages which
Gilchrist would likely suffer from such an event would be quite difficult if not impossible. If he
allowed the appellants to exhibit the film in Iloilo, it would be useless for him to exhibit it again,
as the desire of the public to witness the production would have been already satisfied. In this
extremity, the appellee applied for and was granted, as we have indicated, a mandatory
injunction against Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary
injunction against the appellants restraining them from exhibiting that film in their theater during
the weeks he (Gilchrist) had a right to exhibit it. These injunction saved the plaintiff harmless
from damages due to the unwarranted interference of the defendants, as well as the difficult
task which would have been set for the court of estimating them in case the appellants had
been allowed to carry out their illegal plans. As to whether or not the mandatory injunction
should have been issued, we are not, as we have said, called upon to determine. So far as the
preliminary injunction issued against the appellants is concerned, which prohibited them from
exhibiting the Zigomar during the week which Gilchrist desired to exhibit it, we are of the opinion
that the circumstances justified the issuance of that injunction in the discretion of the court.

We are not lacking in authority to support our conclusion that the court was justified in issuing
the preliminary injunction against the appellants. Upon the precise question as to whether
injunction will issue to restrain wrongful interference with contracts by strangers to such
contracts, it may be said that courts in the United States have usually granted such relief where
the profits of the injured person are derived from his contractual relations with a large and
indefinite number of individuals, thus reducing him to the necessity of proving in an action
against the tort-feasor that the latter was responsible in each case for the broken contract, or
else obliging him to institute individual suits against each contracting party and so exposing him
to a multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing Co. (128 Fed., 800);
Sperry & Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & Hutchinson
Co. vs. Pommer (199 Fed., 309); were all cases wherein the respondents were inducing retail
merchants to break their contracts with the company for the sale of the latters' trading stamps.
Injunction issued in each case restraining the respondents from interfering with such contracts.

In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court, among other
things, said: "One who wrongfully interferes in a contract between others, and, for the purpose
of gain to himself induces one of the parties to break it, is liable to the party injured thereby; and
his continued interference may be ground for an injunction where the injuries resulting will be
irreparable."

In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears that the respondents
were interfering in a contract for prison labor, and the result would be, if they were successful,
the shutting down of the petitioner's plant for an indefinite time. The court held that although
there was no contention that the respondents were insolvent, the trial court did not abuse its
discretion in granting a preliminary injunction against the respondents.

In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the Jamestown Hotel
Corporation, conducting a hotel within the grounds of the Jamestown Exposition, a contract
whereby he was made their exclusive agent for the New England States to solicit patronage for
the hotel. The defendant induced the hotel corporation to break their contract with the plaintiff in
order to allow him to act also as their agent in the New England States. The court held that an
action for damages would not have afforded the plaintiff adequate relief, and that an injunction
was proper compelling the defendant to desist from further interference with the plaintiff's
exclusive contract with the hotel company.

In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. (171 Fed., 553),
the court, while admitting that there are some authorities to the contrary, held that the current
authority in the United States and England is that:

The violation of a legal right committed knowingly is a cause of action, and that it is a
violation of a legal right to interfere with contractual relations recognized by law, if there
be no sufficient justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55;
Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs. Manley, 66 N. Y., 82; 23 Am.
Rep., 30; Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed., 171;
Beekman vs. Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.] 201; 122 Am.
St. Rep., 232; South Wales Miners' Fed. vs. Glamorgan Coal Co., Appeal Cases, 1905,
p. 239.)

See also Nims on Unfair Business Competition, pp. 351- 371.

In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper remedy to prevent a
wrongful interference with contract by strangers to such contracts where the legal remedy is
insufficient and the resulting injury is irreparable. And where there is a malicious interference
with lawful and valid contracts a permanent injunction will ordinarily issue without proof of
express malice. So, an injunction may be issued where the complainant to break their contracts
with him by agreeing to indemnify who breaks his contracts of employment may be adjoined
from including other employees to break their contracts and enter into new contracts with a new
employer of the servant who first broke his contract. But the remedy by injunction cannot be
used to restrain a legitimate competition, though such competition would involve the violation of
a contract. Nor will equity ordinarily enjoin employees who have quit the service of their
employer from attempting by proper argument to persuade others from taking their places so
long as they do not resort to force or intimidations on obstruct the public thoroughfares."

Beekman vs. Marster, supra, is practically on all fours with the case at bar in that there was only
one contract in question and the profits of the injured person depended upon the patronage of
the public. Hamby & Toomer vs. Georgia Iron & Coal Co., supra, is also similar to the case at
bar in that there was only one contract, the interference of which was stopped by injunction.

For the foregoing reasons the judgment is affirmed, with costs, against the appellants.
G.R. No. L-13505            February 4, 1919

GEO. W. DAYWALT, plaintiff-appellant,
vs.
LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-
appellees.

C. C. Cohn and Thos. D. Aitken for appellant.

Crossfield & O'Brien for appellee.

STREET, J.:

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of
Mindoro, executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a
tract of land situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said
province. It was agreed that a deed should be executed as soon as the title to the land should
be perfected by proceedings in the Court of Land Registration and a Torrens certificate should
be produced therefore in the name of Teodorica Endencia. A decree recognizing the right of
Teodorica as owner was entered in said court in August 1906, but the Torrens certificate was
not issued until later. The parties, however, met immediately upon the entering of this decree
and made a new contract with a view to carrying their original agreement into effect. This new
contract was executed in the form of a deed of conveyance and bears date of August 16, 1906.
The stipulated price was fixed at P4,000, and the area of the land enclosed in the boundaries
defined in the contract was stated to be 452 hectares and a fraction.

The second contract was not immediately carried into effect for the reason that the Torrens
certificate was not yet obtainable and in fact said certificate was not issued until the period of
performance contemplated in the contract had expired. Accordingly, upon October 3, 1908, the
parties entered into still another agreement, superseding the old, by which Teodorica Endencia
agreed upon receiving the Torrens title to the land in question, to deliver the same to the
Hongkong and Shanghai Bank in Manila, to be forwarded to the Crocker National Bank in San
Francisco, where it was to be delivered to the plaintiff upon payment of a balance of P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the
proceedings relative to the registration of the land, it was found by official survey that the area of
the tract inclosed in the boundaries stated in the contract was about 1.248 hectares of 452
hectares as stated in the contract. In view of this development Teodorica Endencia became
reluctant to transfer the whole tract to the purchaser, asserting that she never intended to sell so
large an amount of land and that she had been misinformed as to its area.

This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the
Supreme Court, in obtaining a decree for specific performance; and Teodorica Endencia was
ordered to convey the entire tract of land to Daywalt pursuant to the contract of October 3, 1908,
which contract was declared to be in full force and effect. This decree appears to have become
finally effective in the early part of the year 1914.1

The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its
domicile in the city of Manila. Said corporation was formerly the owner of a large tract of land,
known as the San Jose Estate, on the island of Mindoro, which was sold to the Government of
the Philippine Islands in the year 1909. The same corporation was at this time also the owner of
another estate on the same island immediately adjacent to the land which Teodorica Endencia
had sold to Geo. W. Daywalt; and for many years the Recoletos Fathers had maintained large
herds of cattle on the farms referred to. Their representative, charged with management of
these farms, was father Isidoro Sanz, himself a members of the order. Father Sanz had long
been well acquainted with Teodorica Endencia and exerted over her an influence and
ascendency due to his religious character as well as to the personal friendship which existed
between them. Teodorica appears to be a woman of little personal force, easily subject to
influence, and upon all the important matters of business was accustomed to seek, and was
given, the advice of father Sanz and other members of his order with whom she came in
contact.

Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica
Endencia agreed to sell her land to the plaintiff as well as of the later important developments
connected with the history of that contract and the contract substituted successively for it; and in
particular Father Sanz, as well as other members of the defendant corporation, knew of the
existence of the contract of October 3, 1908, which, as we have already seen finally fixed the
rights of the parties to the property in question. When the Torrens certificate was finally issued
in 1909 in favor of Teodorica Endencia, she delivered it for safekeeping to the defendant
corporation, and it was then taken to Manila where it remained in the custody and under the
control of P. Juan Labarga the procurador and chief official of the defendant corporation, until
the deliver thereof to the plaintiff was made compulsory by reason of the decree of the Supreme
Court in 1914.

When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle
off of that property; and, in the first half of 1909, some 2,368 head were removed to the estate of
the corporation immediately adjacent to the property which the plaintiff had purchased from
Teodorica Endencia. As Teodorica still retained possession of said property Father Sanz
entered into an arrangement with her whereby large numbers of cattle belonging to the
defendant corporation were pastured upon said land during a period extending from June 1,
1909, to May 1, 1914.

Under the first cause stated in the complaint in the present action the plaintiff seeks to recover
from the defendant corporation the sum of P24,000, as damages for the use and occupation of
the land in question by reason of the pasturing of cattle thereon during the period stated. The
trial court came to the conclusion that the defendant corporation was liable for damages by
reason of the use and occupation of the premises in the manner stated; and fixed the amount to
be recovered at P2,497. The plaintiff appealed and has assigned error to this part of the
judgment of the court below, insisting that damages should have been awarded in a much larger
sum and at least to the full extent of P24,000, the amount claimed in the complaint.

As the defendant did not appeal, the property of allowing damages for the use and occupation
of the land to the extent o P2,497, the amount awarded, is not now in question an the only thing
here to be considered, in connection with this branch of the case, is whether the damages
allowed under this head should be increased. The trial court rightly ignored the fact that the
defendant corporation had paid Teodorica Endencia of ruse and occupation of the same land
during the period in question at the rate of P425 per annum, inasmuch as the final decree of this
court in the action for specific performance is conclusive against her right, and as the defendant
corporation had notice of the rights of the plaintiff under this contract of purchase, it can not be
permitted that the corporation should escape liability in this action by proving payment of rent to
a person other than the true owner.

With reference to the rate of which compensation should be estimated the trial court came to the
following conclusion:

As to the rate of the compensation, the plaintiff contends that the defendant corporation
maintained at leas one thousand head of cattle on the land and that the pasturage was
of the value of forty centavos per head monthly, or P4,800 annually, for the whole tract.
The court can not accept this view. It is rather improbable that 1,248 hectares of wild
Mindoro land would furnish sufficient pasturage for one thousand head of cattle during
the entire year, and, considering the locality, the rate of forty centavos per head monthly
seems too high. The evidence shows that after having recovered possession of the land
the plaintiff rented it to the defendant corporation for fifty centavos per hectares annually,
the tenant to pay the taxes on the land, and this appears to be a reasonable rent. There
is no reason to suppose that the land was worth more for grazing purposes during the
period from 1909 to 1913, than it was at the later period. Upon this basis the plaintiff is
entitled to damages in the sum of p2,497, and is under no obligation to reimburse the
defendants for the land taxes paid by either of them during the period the land was
occupied by the defendant corporation. It may be mentioned in this connection that the
Lontok tract adjoining the land in question and containing over three thousand hectares
appears to have been leased for only P1,000 a year, plus the taxes.

From this it will be seen that the trial court estimated the rental value of the land for grazing
purposes at 50 centavos per hectare per annum, and roughly adopted the period of four years
as the time for which compensation at that rate should be made. As the court had already found
that the defendant was liable for these damages from June, 1, 1909, to May 1, 1914, or a period
of four years and eleven months, there seems some ground for the contention made in the
appellant's first assignment of error that the court's computation was erroneous, even accepting
the rule upon which the damages were assessed, as it is manifest that at the rate of 50
centavos per hectare per annum, the damages for four years and eleven months would be
P3,090.

Notwithstanding this circumstance, we are of the opinion that the damages assessed are
sufficient to compensate the plaintiff for the use and occupation of the land during the whole
time it was used. There is evidence in the record strongly tending to show that the wrongful use
of the land by the defendant was not continuous throughout the year but was confined mostly to
the reason when the forage obtainable on the land of the defendant corporation was not
sufficient to maintain its cattle, for which reason it became necessary to allow them to go over to
pasture on the land in question; and it is not clear that the whole of the land was used for
pasturage at any time. Considerations of this character probably led the trial court to adopt four
years as roughly being the period during which compensation should be allowed. But whether
this was advertently done or not, we see no sufficient reason, in the uncertainty of the record
with reference to the number of the cattle grazed and the period when the land was used, for
substituting our guess for the estimate made by the trial court.
In the second cause of action stated in the complaint the plaintiff seeks to recover from the
defendant corporation the sum of P500,000, as damages, on the ground that said corporation,
for its own selfish purposes, unlawfully induced Teodorica Endencia to refrain from the
performance of her contract for the sale of the land in question and to withhold delivery to the
plaintiff of the Torrens title, and further, maliciously and without reasonable cause, maintained
her in her defense to the action of specific performance which was finally decided in favor of the
plaintiff in this court. The cause of action here stated is based on liability derived from the
wrongful interference of the defendant in the performance of the contract between the plaintiff
and Teodorica Endencia; and the large damages laid in the complaint were, according to the
proof submitted by the plaintiff, incurred as a result of a combination of circumstances of the
following nature: In 1911, it appears, the plaintiff, as the owner of the land which he had bought
from Teodorica Endencia entered into a contract (Exhibit C) with S. B. Wakefield, of San
Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the
successful launching of which depended on the ability of Daywalt to get possession of the land
and the Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the
Philippine Islands, communicated his arrangement to the defendant,, and made repeated efforts
to secure the registered title for delivery in compliance with said agreement with Wakefield.
Teodorica Endencia seems to have yielded her consent to the consummation of her contract,
but the Torrens title was then in the possession of Padre Juan Labarga in Manila, who refused
to deliver the document. Teodorica also was in the end contract with the plaintiff, with the result
that the plaintiff was kept out of possession until the Wakefield project for the establishment of a
large sugar growing and milling enterprise fell through. In the light of what has happened in
recent years in the sugar industry, we feel justified in saying that the project above referred to, if
carried into effect, must inevitably have proved a great success.

The determination of the issue presented in this second cause of action requires a consideration
of two points. The first is whether a person who is not a party to a contract for the sale of land
makes himself liable for damages to the vendee, beyond the value of the use and occupation,
by colluding with the vendor and maintaining him in the effort to resist an action for specific
performance. The second is whether the damages which the plaintiff seeks to recover under this
head are too remote and speculative to be the subject of recovery.

As preliminary to a consideration of the first of these questions, we deem it well it dispose of the
contention that the members of the defendants corporation, in advising and prompting
Teodorica Endencia not to comply with the contract of sale, were actuated by improper and
malicious motives. The trial court found that this contention was not sustained, observing that
while it was true that the circumstances pointed to an entire sympathy on the part of the
defendant corporation with the efforts of Teodorica Endencia to defeat the plaintiff's claim to the
land, the fact that its officials may have advised her not to carry the contract into effect would
not constitute actionable interference with such contract. It may be added that when one
considers the hardship that the ultimate performance of that contract entailed on the vendor,
and the doubt in which the issue was involved — to the extent that the decision of the Court of
the First Instance was unfavorable to the plaintiff and the Supreme Court itself was divided —
the attitude of the defendant corporation, as exhibited in the conduct of its procurador, Juan
Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand.
To our mind a fair conclusion on this feature of the case is that father Juan Labarga and his
associates believed in good faith that the contract cold not be enforced and that Teodorica
would be wronged if it should be carried into effect. Any advice or assistance which they may
have given was, therefore, prompted by no mean or improper motive. It is not, in our opinion, to
be denied that Teodorica would have surrendered the documents of title and given possession
of the land but for the influence and promptings of members of the defendants corporation. But
we do not credit the idea that they were in any degree influenced to the giving of such advice by
the desire to secure to themselves the paltry privilege of grazing their cattle upon the land in
question to the prejudice of the just rights of the plaintiff.

The attorney for the plaintiff maintains that, by interfering in the performance of the contract in
question and obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the
defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said
contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention
between the contracting parties, was fully aware of the existence of the contract (Exhibit C)
which the plaintiff had made with S. B. Wakefield, of San Francisco, it is insisted that the
defendant corporation is liable for the loss consequent upon the failure of the project outlined in
said contract.

In this connection reliance is placed by the plaintiff upon certain American and English decisions
in which it is held that a person who is a stranger to contract may, by an unjustifiable
interference in the performance thereof, render himself liable for the damages consequent upon
non-performance. It is said that the doctrine of these cases was recognized by this court in
Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to extend the rule
there enunciated to the situation here presente.

Somewhat more than half a century ago the English Court of the Queen's Bench saw its way
clear to permit an action for damages to be maintained against a stranger to a contract
wrongfully interfering in its performance. The leading case on this subject is Lumley vs. Gye
([1853], 2 El. & Bl., 216). It there appeared that the plaintiff, as manager of a theatre, had
entered into a contract with Miss Johanna Wagner, an opera singer,, whereby she bound
herself for a period to sing in the plaintiff's theatre and nowhere else. The defendant, knowing of
the existence of this contract, and, as the declaration alleged, "maliciously intending to injure the
plaintiff," enticed and produced Miss Wagner to leave the plaintiff's employment. It was held that
the plaintiff was entitled to recover damages. The right which was here recognized had its origin
in a rule, long familiar to the courts of the common law, to the effect that any person who entices
a servant from his employment is liable in damages to the master. The master's interest in the
service rendered by his employee is here considered as a distinct subject of juridical right. It
being thus accepted that it is a legal wrong to break up a relation of personal service, the
question now arose whether it is illegal for one person to interfere with any contract relation
subsisting between others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed
that the liability here under consideration was limited to the cases of the enticement of menial
servants, apprentices, and others to whom the English Statutes of Laborers were applicable.
But in the case cited the majority of the judges concurred in the opinion that the principle
extended to all cases of hiring. This doctrine was followed by the Court of Appeal in
Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs. Russell ([1893], Q. B., 715), it
was held that the right of action for maliciously procuring a breach of contract is not confined to
contracts for personal services, but extends to contracts in general. In that case the contract
which the defendant had procured to be breached was a contract for the supply of building
material.

Malice in some form is generally supposed to be an essential ingredient in cases of interference

with contract relations. But upon the authorities it is enough if the wrong-doer, having knowledge
of the existence of the contract relations, in bad faith sets about to break it up. Whether his
motive is to benefit himself or gratify his spite by working mischief to the employer is immaterial.
Malice in the sense of ill-will or spite is not essential.
Upon the question as to what constitutes legal justification, a good illustration was put in the
leading case. If a party enters into contract to go for another upon a journey to a remote and
unhealthful climate, and a third person, with a bona fide purpose of benefiting the one who is
under contract to go, dissuades him from the step, no action will lie. But if the advice is not
disinterested and the persuasion is used for "the indirect purpose of benefiting the defendant at
the expense of the plaintiff," the intermedler is liable if his advice is taken and the contract
broken.

The doctrine embodied in the cases just cited has sometimes been found useful, in the
complicated relations of modern industry, as a means of restraining the activities of labor unions
and industrial societies when improperly engaged in the promotion of strikes. An illustration of
the application of the doctrine in question in a case of this kind is found in South Wales Miners
Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there appeared that certain miners
employed in the plaintiff's collieries, acting under the order of the executive council of the
defendant federation, violated their contract with the plaintiff by abstaining from work on certain
days. The federation and council acted without any actual malice or ill-will towards the plaintiff,
and the only object of the order in question was that the price of coal might thereby be kept up,
a factor which affected the miner's wage scale. It was held that no sufficient justification was
shown and that the federation was liable.

In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent
cases is commonly accepted, though in a few of the States the broad idea that a stranger to a
contract can be held liable upon its is rejected, and in these jurisdictions the doctrine, if
accepted at all, is limited to the situation where the contract is strictly for personal service.
(Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121;
Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson Bros. Com. Co.,
138 Mo., 439.)

It should be observed in this connection that, according to the English and American authorities,
no question can be made as to the liability to one who interferes with a contract existing
between others by means which, under known legal cannons, can be denominated an unlawful
means. Thus, if performance is prevented by force, intimidation, coercion, or threats, or by false
or defamatory statements, or by nuisance or riot, the person using such unlawful means is,
under all the authorities, liable for the damage which ensues. And in jurisdictions where the
doctrine of Lumley vs. Gye [supra] is rejected, no liability can arise from a meddlesome and
malicious interference with a contract relation unless some such unlawful means as those just
indicated are used. (See cases last above cited.)

This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It
there appeared that one Cuddy, the owner of a cinematographic film, let it under a rental
contract to the plaintiff Gilchrist for a specified period of time. In violation of the terms of this
agreement, Cuddy proceeded to turn over the film also under a rental contract, to the
defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court of First Instance
and produced an injunction restraining the defendants from exhibiting the film in question in their
theater during the period specified in the contract of Cuddy with Gilchrist. Upon appeal to this
court it was in effect held that the injunction was not improperly granted, although the
defendants did not, at the time their contract was made, know the identity of the plaintiff as the
person holding the prior contract but did know of the existence of a contract in favor of
someone. It was also said arguendo, that the defendants would have been liable in damages
under article 1902 of the Civil Code, if the action had been brought by the plaintiff to recover
damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in
the concurring opinion, where it is said that the question of breach of contract by inducement
was not really involved in the case. Taking the decision upon the point which was rally decided,
it is authority for the proposition that one who buys something which he knows has been sold to
some other person can be restrained from using that thing to the prejudice of the person having
the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil.
Rep., 542), indicates that the defendant corporation, having notice of the sale of the land in
question to Daywalt, might have been enjoined by the latter from using the property for grazing
its cattle thereon. That the defendant corporation is also liable in this action for the damage
resulting to the plaintiff from the wrongful use and occupation of the property has also been
already determined. But it will be observed that in order to sustain this liability it is not necessary
to resort to any subtle exegesis relative to the liability of a stranger to a contract for unlawful
interference in the performance thereof. It is enough that defendant use the property with notice
that the plaintiff had a prior and better right.

Article 1902 of the Civil Code declares that any person who by an act or omission, characterized
by fault or negligence, causes damage to another shall be liable for the damage so done.
Ignoring so much of this article as relates to liability for negligence, we take the rule to be that a
person is liable for damage done to another by any culpable act; and by "culpable act" we mean
any act which is blameworthy when judged by accepted legal standards. The idea thus
expressed is undoubtedly broad enough to include any rational conception of liability for the
tortious acts likely to be developed in any society. Thus considered, it cannot be said that the
doctrine of Lumley vs. Gye [supra] and related cases is repugnant to the principles of the civil
law.

Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a
somewhat uncongenial field in which to propagate the idea that a stranger to a contract may
sued for the breach thereof. Article 1257 of the Civil Code declares that contracts are binding
only between the parties and their privies. In conformity with this it has been held that a stranger
to a contract has no right of action for the nonfulfillment of the contract except in the case
especially contemplated in the second paragraph of the same article. (Uy Tam and Uy
Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila Railroad
Co. vs. Compañia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract, when
effectually entered into between certain parties, determines not only the character and extent of
the liability of the contracting parties but also the person or entity by whom the obligation is
exigible. The same idea should apparently be applicable with respect to the person against
whom the obligation of the contract may be enforced; for it is evident that there must be a
certain mutuality in the obligation, and if the stranger to a contract is not permitted to sue to
enforce it, he cannot consistently be held liable upon it.

If the two antagonistic ideas which we have just brought into juxtaposition are capable of
reconciliation, the process must be accomplished by distinguishing clearly between the right of
action arising from the improper interference with the contract by a stranger thereto, considered
as an independent act generate of civil liability, and the right of action ex contractu against a
party to the contract resulting from the breach thereof. However, we do not propose here to
pursue the matter further, inasmuch as, for reasons presently to be stated, we are of the opinion
that neither the doctrine of Lumley vs. Gye [supra] nor the application made of it by this court in
Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of the damages
which the plaintiff is supposed to have suffered by reason of his inability to comply with the
terms of the Wakefield contract.

Whatever may be the character of the liability which a stranger to a contract may incur by
advising or assisting one of the parties to evade performance, there is one proposition upon
which all must agree. This is, that the stranger cannot become more extensively liable in
damages for the nonperformance of the contract than the party in whose behalf he
intermeddles. To hold the stranger liable for damages in excess of those that could be
recovered against the immediate party to the contract would lead to results at once grotesque
and unjust. In the case at bar, as Teodorica Endencia was the party directly bound by the
contract, it is obvious that the liability of the defendant corporation, even admitting that it has
made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads
us to consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by
reason of her failure to surrender the certificate of title and to place the plaintiff in possession.

It should in the first place be noted that the liability of Teodorica Endencia for damages resulting
from the breach of her contract with Daywalt was a proper subject for adjudication in the action
for specific performance which Daywalt instituted against her in 1909 and which was litigated by
him to a successful conclusion in this court, but without obtaining any special adjudication with
reference to damages. Indemnification for damages resulting from the breach of a contract is a
right inseparably annexed to every action for the fulfillment of the obligation (art. 1124, Civil
Code); and its is clear that if damages are not sought or recovered in the action to enforce
performance they cannot be recovered in an independent action. As to Teodorica Endencia,
therefore, it should be considered that the right of action to recover damages for the breach of
the contract in question was exhausted in the prior suit. However, her attorneys have not seen
fit to interpose the defense of res judicata in her behalf; and as the defendant corporation was
not a party to that action, and such defense could not in any event be of any avail to it, we
proceed to consider the question of the liability of Teodorica Endencia for damages without
refernce to this point.

The most that can be said with refernce to the conduct of Teodorica Endencia is that she
refused to carry out a contract for the sale of certain land and resisted to the last an action for
specific performance in court. The result was that the plaintiff was prevented during a period of
several years from exerting that control over the property which he was entitled to exert and was
meanwhile unable to dispose of the property advantageously. Now, what is the measure of
damages for the wrongful detention of real property by the vender after the time has come for
him to place the purchaser in possession?

The damages ordinarily and normally recoverable against a vendor for failure to deliver land
which he has contracted to deliver is the value of the use and occupation of the land for the time
during which it is wrongfully withheld. And of course where the purchaser has not paid the
purchaser money, a deduction may be made in respect to the interest on the money which
constitutes the purchase price. Substantially the same rule holds with respect to the liability of a
landlord who fails to put his tenant in possession pursuant to contract of lease. The measure of
damages is the value of the leasehold interest, or use and occupation, less the stipulated rent,
where this has not been paid. The rule that the measure of damages for the wrongful detention
of land is normally to be found in the value of use and occupation is, we believe, one of the
things that may be considered certain in the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on
Damages, Ninth ed., sec. 185.) — almost as wellsettled, indeed, as the rule that the measure of
damages for the wrongful detention of money is to be found in the interest.
We recognize the possibility that more extensive damages may be recovered where, at the time
of the creation of the contractual obligation, the vendor, or lessor, is aware of the use to which
the purchaser or lessee desires to put the property which is the subject of the contract, and the
contract is made with the eyes of the vendor or lessor open to the possibility of the damage
which may result to the other party from his own failure to give possession. The case before us
is not this character, inasmuch as at the time when the rights of the parties under the contract
were determined, nothing was known to any to them about the San Francisco capitalist who
would be willing to back the project portrayed in Exhibit C.

The extent of the liability for the breach of a contract must be determined in the light of the
situation in existence at the time the contract is made; and the damages ordinarily recoverable
are in all events limited to such as might be reasonable are in all events limited to such as might
be reasonably foreseen in the light of the facts then known to the contracting parties. Where the
purchaser desires to protect himself, in the contingency of the failure of the vendor promptly to
give possession, from the possibility of incurring other damages than such as the incident to the
normal value of the use and occupation, he should cause to be inserted in the contract a clause
providing for stipulated amount to the paid upon failure of the vendor to give possession; and
not case has been called to our attention where, in the absence of such a stipulation, damages
have been held to be recoverable by the purchaser in excess of the normal value of use and
occupation. On the contrary, the most fundamental conceptions of the law relative to the
assessment of damages are inconsistent with such idea.

The principles governing this branch of the law were profoundly considered in the case
Hadley vs. Baxendale (9 Exch., 341), decided in the English Court of Exchequer in 1854; and a
few words relative to the principles governing will here be found instructive. The decision in that
case is considered a leading authority in the jurisprudence of the common law. The plaintiffs in
that case were proprietors of a mill in Gloucester, which was propelled by steam, and which was
engaged in grinding and supplying meal and flour to customers. The shaft of the engine got
broken, and it became necessarily that the broken shaft be sent to an engineer or foundry man
at Greenwich, to serve as a model for casting or manufacturing another that would fit into the
machinery. The broken shaft could be delivered at Greenwich on the second day after its
receipts by the carrier it. It was delivered to the defendants, who were common carriers
engaged in that business between these points, and who had told plaintiffs it would be delivered
at Greenwich on the second day after its delivery to them, if delivered at a given hour. The
carriers were informed that the mill was stopped, but were not informed of the special purpose
for which the broken shaft was desired to forwarded, They were not told the mill would remain
idle until the new shaft would be returned, or that the new shaft could not be manufactured at
Greenwich until the broken one arrived to serve as a model. There was delay beyond the two
days in delivering the broken shaft at Greenwich, and a corresponding delay in starting the mill.
No explanation of the delay was offered by the carriers. The suit was brought to recover
damages for the lost profits of the mill, cause by the delay in delivering the broken shaft. It was
held that the plaintiff could not recover.

The discussion contained in the opinion of the court in that case leads to the conclusion that the
damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary,
natural, and in a sense necessary damage; and (2) special damages.

Ordinary damages is found in all breaches of contract where the are no special circumstances
to distinguish the case specially from other contracts. The consideration paid for an
unperformed promise is an instance of this sort of damage. In all such cases the damages
recoverable are such as naturally and generally would result from such a breach, "according to
the usual course of things." In case involving only ordinary damage no discussion is ever
indulged as to whether that damage was contemplated or not. This is conclusively presumed
from the immediateness and inevitableness of the damage, and the recovery of such damage
follows as a necessary legal consequence of the breach. Ordinary damage is assumed as a
matter of law to be within the contemplation of the parties.

Special damage, on the other hand, is such as follows less directly from the breach than
ordinary damage. It is only found in case where some external condition, apart from the actual
terms to the contract exists or intervenes, as it were, to give a turn to affairs and to increase
damage in a way that the promisor, without actual notice of that external condition, could not
reasonably be expected to foresee. Concerning this sort of damage, Hadley vs. Baxendale
(1854) [supra] lays down the definite and just rule that before such damage can be recovered
the plaintiff must show that the particular condition which made the damage a possible and
likely consequence of the breach was known to the defendant at the time the contract was
made.

The statement that special damages may be recovered where the likelihood of such damages
flowing from the breach of the contract is contemplated and foreseen by the parties needs to be
supplemented by a proposition which, though not enunciated in Hadley vs. Baxendale, is yet
clearly to be drawn from subsequent cases. This is that where the damage which a plaintiff
seeks to recover as special damage is so far speculative as to be in contemplation of law
remote, notification of the special conditions which make that damage possible cannot render
the defendant liable therefor. To bring damages which would ordinarily be treated as remote
within the category of recoverable special damages, it is necessary that the condition should be
made the subject of contract in such sense as to become an express or implied term of the
engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131) is a case where the damage which
was sought to be recovered as special damage was really remote, and some of the judges
rightly places the disallowance of the damage on the ground that to make such damage
recoverable, it must so far have been within the contemplation of the parties as to form at least
an implied term of the contract. But others proceeded on the idea that the notice given to the
defendant was not sufficiently full and definite. The result was the same in either view. The facts
in that case were as follows: The plaintiffs, shoe manufacturers at K, were under contract to
supply by a certain day shoes to a firm in London for the French government. They delivered
the shoes to a carrier in sufficient time for the goods to reach London at the time stipulated in
the contract and informed the railroad agent that the shoes would be thrown back upon their
hands if they did not reach the destination in time. The defendants negligently failed to forward
the good in due season. The sale was therefore lost, and the market having fallen, the plaintiffs
had to sell at a loss.

In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica
Endencia; and what has been said suffices in our opinion to demonstrate that the damages laid
under the second cause of action in the complaint could not be recovered from her, first,
because the damages laid under the second cause of action in the complaint could not be
recovered from her, first, because the damages in question are special damages which were
not within contemplation of the parties when the contract was made, and secondly, because
said damages are too remote to be the subject of recovery. This conclusion is also necessarily
fatal to the right of the plaintiff to recover such damages from the defendant corporation, for, as
already suggested, by advising Teodorica not to perform the contract, said corporation could in
no event render itself more extensively liable than the principle in the contract.
Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered,
with costs against the appellant.

G.R. No. L-50911 March 12, 1986

MIGUEL PEREZ RUBIO, petitioner,

vs.
COURT OF APPEALS, ROBERT O. PHILLIPS & SONS, INC., MAGDALENA YSMAEL
PHILLIPS, MANUFACTURERS BANK & TRUST COMPANY, INC., HACIENDA BENITO,
INC., VICTORIA VALLEY DEVELOPMENT CORPORATION and ROBERT O.
PHILLIPS, respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision of the Court of Appeals, now the Intermediate Appellate
Court, in CA-G.R. No. 60896-R, which affirmed the trial court's decision ordering Robert O.
Phillips & Sons, Inc., and the plaintiff-spouses to pay Miguel Perez Rubio the sum of
P4,250,000.00 but ordered Perez Rubio to pay Robert O. Phillips & Sons, Inc. and the other
plaintiffs damages in the amount of P4,404,510.76. The appellate court, however, modified the
lower court's order to pay P4,250,000.00 by removing the eight (8%) percent per annum
interests on that amount, dispensing with the ten (10%) percent attomey's fees and limiting the
liability to Robert O. Phillips and Sons, Inc., only. Also affirmed was the order directing Perez
Rubio, as third party plaintiff, to pay Hacienda Benito, Inc. the sum of P7,051,496.23 as actual
damages and P150,000.00 attorney's fees and to pay Manufacturer's Bank and Trust Co.
P895,085.16 actual damages, plus ten (10%) percent of that amount as attorney's fees.

The decision of the trial court in Civil Case No. 8632 has actually been the subject matter of two
earlier petitions for certiorari filed by the petitioner against the same respondents. These are
G.R. No. L-24581 entitled Miguel Perez Rubio v. The Honorable Samuel Reyes Roberto O.
Phillips and Magdalena Ysmael Phillips, Manufacturer's Bank and Trust Company, Victoria
Valley Development Corporation and Hacienda Benito, Inc. and G.R. No. L-30404 entitled
Miguel Perez Rubio v. Honorable Judge Herminio Mariano in his capacity as Presiding Judge of
Branch X of the Court of First Instance of Rizal Robert O. Phillips and Sons, Inc. Robert O.
Phillips, Magdalena Ysmael Phillips, Victoria Valley Development Corporation Manufacturers
Bank and Trust Company and Hacienda Benito, Inc.

This petition arose from the same facts and events which triggered off the filing of the earlier
petitions. These facts and events are cited in our Resolution dated January 31, 1966 issued in
G.R. No, L-24581, as follows:

Upon the facts alleged in the complaint filed in Civil Case No, 8632 of the Court
of First Instance of Rizal by Robert O. Phillips and Sons, Inc., et al. v. Miguel
Perez Rubio, said plaintiffs prayed for judgment as follows:

1. That a Temporary restraining order and/or exparte writ of

preliminary injunction be issued against the defendant to prevent
and restrain them from further unlawfull and willful interference
with the transaction between the plaintiff corporation with Alfonso
T. Yuchengco on the sale of the shares of stock of Hacienda
Benito, Inc., and from enforcing whatever amount he may claim to
be due to them from the plaintiffs under the Agreements (Annexes
"A", "A-1" and "A- 2"), after the approval of the injunction bond;

2. That, after the hearing, judgment be rendered in favor of the

plaintiffs against the defendant:

a) Restraining him from willfully and unlawfully

interfering with the transaction of the plaintiffs with
Alfonso T. Yuchengco on the sale of the shares of
stock of Hacienda Benito, Inc.;

b) Declaring that the defendant has no right to

rescind the Agreements as referred to in Annexes
"A", "A.1" and "A.2";

c) Declaring that the defendant has no vendors' lien

over the shares of stock of Hacienda Benito, Inc.,
sold by them to the plaintiff corporation;

d) Restraining the defendant from enforcing any

collection action against the plaintiff until the
obligation, if any, mature;

e) Making the writ of preliminary injunction

permanent;

f) Sentencing the defendant to pay the plaintiffs;

(1) P 2,500,000.00, more or less, as

actual damages;
 (2) Moral damages which this
Honorable Court may deem just and
reasonable;

(3) Exemplary damages, which this

Honorable Court may deem just and
reasonable;

(4) P50,000.00, as attorney's fees;

and

(5) Costs of suit; and

3. That the plaintiffs be granted such further and other reliefs to which they may
be entitled in law and in equity'

Upon an ex-parte petition filed by the plaintiffs, the respondent judge issued on

April 1, 1965 a writ of preliminary injunction to be mentioned again later.
Subsequently, the respondent judge also denied Perez Rubio's motion to
dissolve the preliminary injunction.

It appears that the Perez Rubio spouses owned shares of stock in Hacienda
Benito, Inc. registered in their names and in the names of Joaquin Ramirez and
Joaquin Ramirez, Jr. On August 13, 1963 the Perez Rubios, with the conformity
of the Ramirezes, sold said shares to Robert O. Phillips and Sons, Inc. for
P5,500,000.00 payable in installments and other conditions agreed upon as
follows:

xxx xxx xxx

3. That for and in consideration of the mutual agreements and promises,

MIGUEL and MARIA LUISA hereby sell to PHILLIPS all the shares of stock of
Hacienda Benito, Inc. registered in their names and in the names of Joaquin
Ramirez and Joaquin, Jr. for the total price of FIVE MILLION FIVE HUNDRED
THOUSAND PESOS (P5,500,000.00), Philippine Currency, payable as follows:

a FIFTY THOUSAND PESOS (P50,000.00) upon execution of this

agreement,

b. ONE MILLION TWO HUNDRED THOUSAND PESOS (P

l,200,000.00) within sixty (60) days from this date.

c ONE MILLION TWO HUNDRED AND FIFTY THOUSAND

PESOS (P1,250,000.00) on April 30, 1964 less than the amount of
P 96,830.56 due the Hacienda Benito, Inc. from MARIA LUISA
and the amount of P127,096.09 from MIGUEL; hereby authorized
PHILLIPS to deduct said amounts and to pay the same to
Hacienda Benito, Inc.
 d ONE MILLION TWO HUNDRED AND FIFTY THOUSAND
PESOS (P1,250,000.00) on or before April 30, 1965.

e ONE MILLION TWO HUNDRED AND FIFTY THOUSAND

PESOS (P1,250,000.00) on or before April 30, 1965.

f FIVE HUNDRED THOUSAND PESOS (P500,000.00) on or

before April 30, 1967.

4. That should PHILLIPS fail to pay the amount of ONE MILLION TWO
HUNDRED THOUSAND PESOS (P1,200,000.00) due sixty days from this date
and to execute the letter of credit and/or bond or both to secure the payment of
the remaining installments, as agreed upon, then the Seller shall have the right,
at their own discretion, either to rescind this agreement or to enforce the same,
provided that any number of days used by the Sellers to consider the
acceptability of the bank or bonding company proposed by PHILLIPS shall be
added to the period of sixty (60) days herein mentioned;

5. That in case of default, PHILLIPS shall pay interest at the rate of eight percent
(8%) per annum on all amounts in arrears until paid in full either by the
guaranteeing bank, bonding company or PHILLIPS;

6. That all the installments due during the years 1964, 1965, 1966, and 1967 with
all the conditions above mentioned, shall be jointly and severally guaranteed by
means of Irrevocable Standby letter of Credit from a bank in favor of MIGUEL
and MARIA LUISA, in the proportion they may agree, which shall be
communicated to the bank and to PHILLIPS before final contract is entered into
with the bank, or by a bond from a bonding company duly approved by MIGUEL
and MARIA LUISA;

7. That the stock certificates corresponding to the shares sold, including those in
the names of Joaquin Ramirez and Joaquin Ramirez, Jr. shall not be transferred
to PHILLIPS until the installments due within sixty (60) days from this date is paid
in full.'

On June 23, 1964 Robert O. Phillips and Sons, Inc., and Robert O. Phillips
himself and his wife, entered into an agreement with the Perez Rubios deferring
payment of the April 31, 1964 under the following conditions;

(a) The deferred installment would bear an interest of eight (8%) percent per
annum from April 30, 1964 although partial payment, on the principal and on the
interest due may be paid during the period granted, in such amounts and at such
times as funds are available to Robert O. Phillips & Sons, Inc.;

(b) Should Robert O. Phillips & Sons, lnc. fail to pay the particular installment
now due on August 31, 1964 or any of the subsequent installments on the exact
date due, the whole obligation would become immediately demandable without
notice;
 (c) In consideration of this extension granted to Robert O. Phillips & Sons, Inc.,
Robert O. Phillips himself and his wife, Magdalena Ysmael Phillips, jointly and
severally guaranteed all the installments and other obligations of Robert O.
Phillips & Sons, Inc. under the original contract of sale dated April 13, 1963.'

In the meantime, Robert O. Phillips, in his behalf and in that of his wife and
Robert O. Phillips and Sons, Inc., entered into negotiations for the sale of their
shares of stock in Hacienda Benito, Inc. to Alfonso Yuchengco. Upon being
informed of this, the Perez Rubios, through their attorney-in-fact, Joaquin
Ramirez, reminded the Phillips spouses and the Phillips corporation in writing of
their obligations under the contract of sale of April 13, 1963 and reminded them
in particular that the shares subject matter thereof were still subject to the
payment of the unpaid balance of the sale price. They gave a similar notice to
Alfonso Yuchengco, but expressed no objection to the sale provided the
obligations in their favor were satisfied.

On March 26, 1965, the Phillips (individuals and corporation), through their
attorney, Juan T. David, sent a letter to the Perez Rubios telling them, in
substance, that the only obstacle to the consummation of the Phillips-Yuchengco
sale of the shares of stock of Hacienda Benito, Inc. was their letter of November
24, 1964 and warned that unless the same was withdrawn by March 29, they
would seek redress elsewhere. On March 27, 1965, the Perez Rubios, for their
part, wrote the Phillips that due to the latter's inability to comply with the former's
conditions, the negotiations going on between them were cancelled, and should
the full amount due to them remained unpaid by noon of March 31, 1965, they
would file action in court in the afternoon thereof. However, on March 30, 1965,
stealing a march on the Perez Rubios, the Phillips individuals and corporations
filed Civil Case No. 8632 mentioned heretofore where they obtained, ex-parte, a
preliminary injunction to this effect:

IT IS HEREBY ORDERED by the undersigned Judge of the Court of First

Instance that, until further orders, you, all your attorneys, representatives, agents,
and any other person assisting you, REFRAIN from interfering with the
transaction between the plaintiff-corporation with Alfonso T. Yuchengco on the
sale of the shares of stock of Hacienda Benito, Inc., and from enforcing whatever
amount he may claim to be due to them from the plaintiffs under the Agreements
(Annexes 'A', 'A-l', and 'A.2') mentioned in the complaint.'

On April 8, 1965 the Perez Rubios filed a motion to dissolve the above
reproduced writ of preliminary injunction, which the respondent judge denied on
May 6, 1964. But even before the motion aforesaid could be acted upon, they
also filed their answer to the combatting plaint with a counterclaim of
P4,500,000.00 representing the unpaid balance of the sale price of their shares.
Because of this the Perez Rubios were charged with contempt. " (16 SCRA 168,
172).

xxx xxx xxx

Because of the above incidents and orders, Perez Rubio filed a petition for certiorari against
Robert O. Phillips in G.R. No. L- 24581 alleging that in taking cognizance of Civil Case No. 8632
and in issuing the writ of preliminary injunction ex parte, the respondent court committed a grave
abuse of discretion The petitioner prayed that the respondent court be restrained from in any
way proceeding with the case, and that, respondent Phillips be enjoined from proceeding with
the sale of the shares of stock of Hacienda Benito, Inc. or any of its assets to Alfonso
Yuchengco or to any other person, or from performing any act which would diminish the value of
said shares of stock or deplete the assets of the company.

Upon the filing of the original Perez Rubio petition, we issued on July 26, 1965 a writ of
preliminary injunction restraining all the respondents named in the original petition (l) from taking
further proceedings in Civil Case No. 8632; (2) from proceeding with the sale of shares of stock
of Hacienda Benito, Inc. or any of its assets to Alfonso T. Yuchengco or to any other person,
and (3) from performing any act which would either diminish the value of said shares of stock or
deplete the assets of the Hacienda subject matter of Civil Case No. 8632.

On June 10, 1965, the Manufacturers Bank and Trust Company filed a complaint against
Phillips and Sons and Hacienda Benito, Inc. as well as the other corporations controlled by
Robert O. Phillips for the foreclosure of a real estate mortgage constituted on the properties of
the Hacienda. The case was filed in another branch of the Court of First Instance of Rizal and
was docketed as Civil Case No. 8766. On the premise that the foreclosure by the bank of the
mortgage constituted on the properties of Hacienda Benito, Inc., was intended simply to remove
properties and the assets of the Hacienda pertaining to the Phillips spouses beyond Perez
Rubios' reach and thus make it impossible for him to collect the sum of P4,250,000.00, Perez
Rubio filed a motion for the admission of a supplemental petition, to include Manufacturer's
Bank and Victoria Valley Development Corporation as additional respondents. Victoria Valley
was a newly formed corporation which Perez Rubio alleged had been hurriedly organized and to
which Manufacturer's Bank would transfer all the foreclosed properties thus making it difficult for
him to enforce his vendor's lien. Before the first amended supplemental petition could be acted
upon, Perez Rubio filed a second amended supplemental petition to implead Hacienda Benito,
Inc. as additional party respondent with a specific plea that pending the issuance of a writ of
preliminary injunction, Hacienda Benito be restrained from disposing of its properties or assets
in any way save in the ordinary course of its business of selling lots of the subdivision. Both
supplemental amended petitions were admitted.

After all the respondents had filed their answers to the amended petition and after the petitioner
filed an answer to the counterclaim interposed by respondents Phillips and Sons, Inc. and the
Hacienda, this Court promulgated a decision dated May 27, 1968 wherein, among others, we
ruled:

(1) In connection with the writ of preliminary injunction issued by the respondent
judge in Civil Case 8632 on April 1, 1965 mentioned heretofore, the same is
hereby declared null and void and is, consequently, set aside with the result that
the writ of preliminary injunction issued by Us in this case enjoining its
enforcement is hereby made final. The order of the respondent judge of May 6,
1965 denying petitioner's motion to set aside the aforesaid writ of preliminary
injunction of April 1 of the same year is hereby reversed;

(2) The writ of certiorari prayed for by petitioner is hereby denied insofar as it
seeks to annul the judicial proceedings had in Civil Case 8766 of the Court of
First Instance of Rizal, instituted by the Bank against Hacienda and other parties
for the foreclosure of the mortgage constituted in its favor upon the properties of
 Hacienda; without prejudice, however, to the right of petitioner to seek such relief
and any other relief that he might be lawfully entitled to against the herein
respondents, singly or collectively, in the aforesaid Civil Case 8766 of the Court
of First Instance of Rizal or in a separate action. In this connection, it is our
judgment that the writ of preliminary injunction issued in this case shall remain
subsisting and binding for a period of thirty days from the date of finality of this
decision, upon the expiration of which period the same shall be deemed
automatically lifted or dissolved, irrespective of whether petitioner had or had not
taken steps required for the enforcement and protection of his rights as already
indicated; (23 SCRA 773, 789 & 790)

In the belief that the forum for the "separate action" referred to in our decision meant Civil Case
No. 8632, petitioner Perez Rubio filed in the said case on July 9, 1968 an "Urgent Motion to
Admit Amended and Supplemental Answer and Third-Party complaint," the third-party complaint
being directed against Manufacturer's Bank, Victoria Valley and hacienda Benito.

The motion was denied by the lower court. Hence, the petitioner filed another petition for
certiorari to review and set aside the lower court's order dated September 13, 1968 with the
additional prayer that pending determination of the issues raised in the petition, the respondent
court be restrained from proceeding with the hearing of the case below and the other
respondents from transferring or proceeding with the agreement to transfer any of the assets of
Hacienda Benito, Inc. to any third person except in the ordinary course of selling subdivision
lots. The case was docketed as G.R. No. 30904. On April 16, 1969, we issued a prayed for
temporary restraining order. The petition was later granted. In our decision dated January 31,
1973, we ruled:

WHEREFORE, the orders complained of are set aside and respondent Judge or
whosoever is assigned to try the case below is instructed to admit the amended
and supplemental answer and third-party complaint filed by Miguel Perez Rubio.
Thereafter, these cases shall proceed accordingly. The restraining order
hereinbefore issued by this Court is hereby lifted insofar as it restrains
respondent Judge from proceeding with the hearing of Civil Case No. 8632 of the
Court of First Instance of Rizal Branch X (Pasig, Rizal), and maintained insofar
as it restrains (the other respondents) 'from proceeding with the transfer of the
shares and/or of the assets of Hacienda Benito, Inc. to each other or to any other
person, except in the ordinary course of selling subdivision lots without prejudice
to the judgment that may be rendered by the court a quo in the case. Costs
against the respondents. (49 SCRA 319, 337).

The third-party complaint sought to secure the return by Manufacturer's Bank and/or Victoria
Valley of the properties it and/or they bought as a consequence of the judicial foreclosure of
mortgage case, Civil Case No. 8766, with a further plea that in the event the Phillips spouses
are ordered to pay Miguel Perez Rubio the judgment on his counterclaim said properties and
funds foreclosed by the defendant Bank be held to answer for such judgment or any part thereof
unpaid by the Phillips spouses together with damages.

The third-party defendants, respondents herein, filed their separate answers. In addition to their
answer, Manufacturer's Bank and Hacienda Benito filed separate counterclaims for actual
damages for malicious prosecution plus attorney's fees.
After trial on the merits, the lower court rendered a decision the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered:

(1) Sentencing the plaintiffs to pay jointly and severally the amount of P4,250,000
to defendant Miguel Perez-Rubio, with interest of 8% per annum from April 30,
1964 and attorney's fees equivalent to 10% of the said amount. The plaintiffs
however, may offset the foregoing amount by the damages which Perez-Rubio
should pay to them for having unlawfully interferred in the transaction with
Alfonso Yuchengco which is merely assess at P4,404,510.76.

(2) Sentencing the defendant Perez-Rubio to pay to HBI the sum of P

7,051,496.23; attorney's fees of P150,000.00, and to MBTC the sum of P
895,085.16 as actual damages and the sum of 10% thereof as attorney's fees.

(3) Dismissing all other causes of action of the parties in this case without
pronouncement as to costs.

Plaintiffs Phillips and Sons and the Phillips spouses as well as defendant and third-party plaintiff
Perez Rubio appealed the decision to the Court of Appeals.

As earlier stated, the appealed decision was amended by the appellate court in so far as it
related ' to the liability of the plaintiffs on their P4,250,000.00 debt. The appellate court ruled that
only plaintiff Phillips and Sons was liable to pay the amount of P4,250,000.00 to defendant
Perez Rubio without interest and without attorney's fees. The rest of the trial court's decision
was affirmed in full.

A motion for reconsideration filed by Perez Rubio was denied by the appellate court. Hence the
instant petition was filed.

Petitioner Perez Rubio raises the following assignments of errors:

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR

PETITIONER UNLAWFULLY AND INOFFICIOUSLY INTERFERRED IN THE
TRANSACTION BETWEEN RESPONDENTS ROBERT O. PHILLIPS & SONS,
INC., ROBERT O. PHILLIPS & SONS AND HIS WIFE MAGDALENA WHEN
THE SUPREME COURT ITSELF DESCRIBED THE ACTS TAKEN BY YOUR
PETITIONER AS A VALID ENFORCEMENT OF ONE'S RIGHT AS A
CREDITOR.

II

THE COURT OF APPEALS GRAVELY ERRED IN AWARDING DAMAGES TO

RESPONDENTS ROBERT 0. PHILLIPS, HIS WIFE, AND ROBERT O. PHILLIPS
& SONS, INC., ON THE ALLEGED GROUND OF UNLAWFUL INTERFERENCE
WITHOUT BASIS IN FACT AS TO WHAT THE DAMAGE CONSISTED OF NOR
OF THE MEASURE FOR SAID DAMAGES.

III

THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT YOUR

PETITIONER WAS LIABLE FOR DAMAGES TO THE MANUFACTURERS
BANK AND TRUST COMPANY, INC. BY REASON OF THE TWO
INJUNCTIONS ISSUED BY THIS HONORABLE COURT IN L-24581 (MIGUEL
PEREZ RUBIO, ET AL.) AND L-30404 (MIGUEL PEREZ RUBIO VERSUS THE
HON. HERMINIO MARIANO, ET AL.), DESPITE THE FACT THAT THERE WAS
ACTUALLY ONE RESTRAINING ORDER ISSUED BY THIS HONORABLE
COURT INSOFAR AS RESPONDENT MBTC IS CONCERNED AND DESPITE
THE FACT THAT NO VALID PROOF OF DAMAGES WAS PRESENTED.

IV

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THAT YOUR

PETITIONER PEREZ RUBIO WAS LIABLE TO HACIENDA BENITO, INC.,
WITHOUT MAKING SO MUCH AS A COMMENT OF FINDING THEREOF, BUT
BY THE MERE EXPEDIENT OF AFFIRMING THE DECISION OF THE TRIAL
COURT.

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE DECISION

OF THE TRIAL COURT IN FINDING YOUR PETITIONER LIABLE TO
RESPONDENT HACIENDA BENITO, INC. FOR THE ALLEGED DAMAGES IT
SUFFERED BY REASON OF THE INJUNCTION ALLEGEDLY ISSUED BY THE
SUPREME COURT AGAINST HACIENDA BENITO, DESPITE THE FACT THAT
THE SUPREME COURT AFFIRMED THE PROPRIETY OF THE INJUNCTION
ISSUED BY IT.

VI

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE AWARD

OF DAMAGES IN FAVOR OF RESPONDENT HACIENDA BENITO, INC.
DESPITE THE FACT THAT THERE WAS NO BASIS IN THE EVIDENCE FOR
THE AWARD.

VII

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DISCHARGING THE RESPONDENT SPOUSES PHILLIPS FROM THEIR JOINT
AND SEVERAL GUARANTEE OF YOUR PETITIONERS' CREDIT AND IN
DISALLOWING INTEREST TO RUN THEREON WITHOUT ANY BASIS OR
REASON DESPITE THE FACT THEY WERE EXPRESSLY PROVIDED IN THE
AGREEMENTS ENTERED INTO BETWEEN YOUR PETITIONER, THE
RESPONDENTS ROBERT O. PHILLIPS HIS WIFE MAGDALENA AND
ROBERT . PHILLIPS & SONS, INC.
 VIII

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

DISALLOWING ATTORNEY'S FEES AND MORAL AS WELL AS EXEMPLARY
DAMAGES IN FAVOR OF YOUR PETITIONER PEREZ RUBIO DESPITE THE
FACT THAT THIS HONORABLE COURT HAD CLEARLY SHOWN THAT YOUR
PETITIONER HAD BEEN IMPROPERLY SUED AND DESPITE THE FACT
THAT THIS HONORABLE COURT HAD ALREADY RULED THAT THE
IMPLEADING OF OTHER PARTIES WAS PROPER AND NECESSARY FOR
THE PROTECTION OF HIS RIGHTS.

IX

THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN

DISCHARGING RESPONDENTS MANUFACTURERS BANK AND TRUST CO.,
INC., (MBTC) AND VICTORIA VALLEY DEVELOPMENT CORPORATION
FROM ANY LIABILITY TO YOUR PETITIONER DESPITE THEIR VERY ACTIVE
PARTICIPATION IN ATTEMPTING TO AND IN ACTUALLY COMMENCING TO
REMOVE ALL OF THE ASSETS OF HACIENDA BENITO, INC., AND
TRANSFERRING THEM TO RESPONDENT VVDC.

The first two assigned errors are in relation to the original complaint in Civil Case No. 8632 filed
by Phillips and Sons, Inc., and the Phillips spouses against petitioner Perez Rubio for alleged
unlawful interference in the transaction between the respondents on one hand and Alfonso
Yuchengco on the other hand.

As earlier stated, because of the issuance of a preliminary injunction ex parte which restrained
petitioner Perez Rubio from interfering with the Yuchengco transaction and the denial of a
motion to dissolve the injunction in Civil Case No. 8632, petitioner Perez Rubio was constrained
to file a petition for certiorari with this Court in G.R. No. 24581 alleging that the lower court
committed a grave abuse of discretion in issuing the preliminary injunction.

Resolving the matter on the propriety of the preliminary injunction, we ruled:

It is obvious that what the plaintiffs in Civil Case No. 8632 considered as
interference, on the part of the therein defendant (petitioner herein) with the
negotiations or transaction at that time being carried on between said plaintiffs,
on one hand, and Alfonso T. Yuchengco, on the other, regarding the sale of the
shares of stock of Hacienda was said defendant's intention to enforce his right to
collect from Robert O. Phillips and Sons, Inc. and its guarantors, the Phillips
spouses, the unpaid balance- P4,250,000.00-due to him from the latter of the
purchase price of their shares in Hacienda mentioned at the beginning hereof. As
a matter of fact, when said defendant filed his answer in Civil Case No. 8632
interposing therein a counterclaim for the collection of said unpaid balance, the
plaintiffs therein charged him with having violated the terms of the writ of
preliminary injunction issued by the respondent judge. Proceedings in connection
with this charge, however, were held in abeyance by reason of the writ of
preliminary injunction ion We issued in the present case.
 After a careful consideration of the material facts and the law applicable to them,
We are of the opinion and so hold, that the writ of preliminary injunction issued ex
parte by the respondent judge was unjust and improvident. Without hearing the
party concerned, and without any legal justification, it restrained a creditor (Perez
Rubio) from enforcing his undenied right to collect from his debtor and the latter's
guarantors the sum of P4,250,000.00 representing the unpaid balance of the
purchase price of his shares in Hacienda. It is a fact that the debtor Corporation
(Robert O. Phillips and Sons, Inc.) and its guarantors, the Phillips spouses, do
not deny the indebtedness, and yet, notwithstanding its extraordinary amount,
they attempted to sell all the shares of stock of Hacienda without making any
reasonable provision for the payment thereof. For them to prevent their creditor
from enforcing his right to collect, and for the Court to enjoin said creditor from
enforcing that right in any lawful manner is, in any language, rank injustice. (23
SCRA 773, 780).

The petitioner assumes that the foregoing pronouncement categorically ruled that he did not
unlawfully and inofficiously interfere in the transaction between respondents Phillips and Sons
and the Phillips spouses on one hand and Alfonso Yuchengco on the other hand and that his
acts were a valid enforcement of his rights as a creditor.

This assumption is incorrect. It is very clear from the decision that we ruled on the impropriety of
the manner in which the preliminary injunction was issued. We stated that without hearing the
party concerned and without any legal justification, the trial court restrained creditor Perez Rubio
from enforcing his undenied right. We could not have possibly ruled as suggested because the
case before us was a petition for certiorari alleging that the trial court committed a grave abuse
of discretion in issuing the preliminary injunction ex parte. The issue to be resolved was a pure
question of law based on the circumstances surrounding the issuance of the questioned
preliminary injunction ex parte. Whether or not the petitioner unlawfully and inofficiously
interfered with the aforementioned transaction was a question of fact and any grave abuse of
discretion could not, at that time, be resolved by this Court. A trial on the merits was necessary,
Our decision in the second petition for certiorari, filed by the petitioner in connection with Civil
Case No. 8632 lifted the temporary restraining order in so far as it restrained the trial court from
proceeding with the hearing and ordered the cases including the third party complaint to
proceed accordingly.

Trial on the merits accordingly proceeded after which the trial court concluded that the petitioner
unlawfully and inofficiously interfered with the subject transaction as a result of which Phillips
and Sons and the Phillips spouses suffered damages. This conclusion was upheld by the Court
of Appeals. The appellate court justified its ruling as follows:

It is a fact, which defendant Perez Rubio does not and can not deny. that he had
informed Alfonso Yuchengco of his vendor's lien over the unpaid shares of stock
in the Hacienda Benito, Inc., and that he still had the right to rescind the sale of
his stocks to ROPSI (t.s.n., August 7, 1974, pp. 31-35; Exhibit D-1-A-Plaintiffs, I
Folder of Exhibits, p. 2). As stated before, Alfonso Yuchengco cooled off, as it
were, and withdrew from the transaction (t.s.n., October 30, 1974, pp. 94-95) to
which he had previously given his conformity (Exhibits 18-, 21 -Rubio-II Folder of
Exhibits, pp. 37, 43) because of Perez Rubio's refusal to withdraw his letter to
Yuchengco containing his threat to rescind the sale of his stocks to ROPSI. If this
Court has said it before it is repeated here for emphasis that Alfonso Yuchengco
 had no intention to holding an empty bag, and for defendant Perez Rubio to block
the plaintiffs from consummating a transaction the terms of which have already
been approved in principle providing for the payment of Perez Rubio's credit is
unlawful and inofficious interference.

It should be noted that defendant Perez Rubio had already delivered completely
the shares of stock of hacienda Benito, Inc. which he had sold to plaintiff ROPSI
and that these shares were transferred in the books of the Hacienda in the name
of ROPSI (t.s.n., August 5, 1974, pp. 129-130, 131-132, 133-134; August 7,
1974, p. 62; May 14, 1975, p. 32). The plaintiffs therefore had all the right to
dispose of the shares of stock. Defendant Perez Rubio also admitted that there
was no agreement or document prohibiting plaintiff ROPSI from selling the said
shares of stock to any person (t.s.n., August 3, 1974, pp. 12-13) nor any
agreement or document requiring his prior permission before ROPSI could sell or
otherwise dispose of the said shares of stock (lbid., p. 14). There was also no
vendor's lien annotated in the books of Hacienda Benito, Inc. over the said
shares of stock (t.s.n., August 7, 1974, pp. 14-16, 63, 66-67), What is more, the
plaintiffs have made reasonable provisions for the payment of the unpaid balance
due the defendant in their transaction with Alfonso Yuchengco (Exhibit 18-Rubio,
paragraph 19, II Folder of Exhibits, pp. 36-37, Exhibit 20-Rubio, paragraphs 8
and 12, lbid., pp. 41-42, Exhibit 22-Rubio, paragraph 5, lbid., p. 46; t.s.n., May
14, 1975, pp. 46, 119-120). Clearly, there appears no valid reason why
defendant Perez Rubio had to block the plaintiffs' transaction with Alfonso
Yuchengco, except 'to destroy' and 'ruin' the plaintiffs (t.s.n., May 14, 1975, pp.
129- 130), which defendant Perez Rubio himself vowed he would do (t.s.n., May
14, 1975, p. 136).

A thorough examination of the record reveals that the factual findings of the appellate court are
incomplete and do not reflect the actual events that transpired concerning the sale of shares of
stock of Hacienda Benito to Alfonso Yuchengco. The important point left out by the appellate
court refers to the controversial November 24, 1964 letter of the petitioner to Phillips and Sons
and to the Phillips spouses wherein the petition stated that he has a vendor's lien over the
shares of stock of Hacienda Benito and that he still has the option to rescind the contract as
regards his sale of stock of the Hacienda. A copy of the letter was sent to Alfonso Yuchengeo,
the prospective buyer of the shares of stock of Hacienda Benito, but even after receipt of the
letter, the negotiations on the sale of the shares of stock of Hacienda Benito to Alfonso
Yuchengco continued. This is shown by the following events:

1. In a letter dated December 17, 1964, Hacienda Benito through Robert O. Phillips as
president, Phillips and Sons, through Robert Phillips as president and Robert Phillips in his own
behalf offered to Alfonso Yuchengco an option to buy 100% of the shares of stock of Hacienda
Benito. It is to be noted that the first option contained in the letter of November 17, 1964 offered
to Alfonso Yuchengco was the sale of 80% of the shares of stock of Hacienda Benito. In reply
Alfonso Yuchengco in his letter to the Phillips spouses and Phillips and Sons dated January 6,
1965 accepted the option but with modifications as to the terms of the sale, Included in the
terms of the sale were provisions for the payment of the seller's debts.

2. In a letter dated February 12, 1965 from the law firm of Ramirez and Ortigas, counsel of the
petitioner to Phillips and Sons and the Phillips spouses in relation to the ongoing negotiations
for the settlement of the P3,800,000.00, it was stated that the petitioner was not willing to extend
the manner of payment of the credit further than April 30, 1967. Contained in the same letter of
the law firm was an offer of a compromise as to the manner of payment.

3. In reply to the aforementioned letter, Phillips and Sons and the Phillips spouses wrote a letter
dated February 16, 1965 stating their final proposal as to the manner of payment. ln accordance
with the final proposal, the last payment of the debt would be on April 30, 1968. On the basis of
the terms and conditions of the final proposal, Phillips and Sons and the Phillips spouses
requested a "waiver for the consummation of the proposed sale to Mr. Alfonso Yuchengco"
(Exhibit 22-Perez Rubio, Exhibits 11, p. 46).

4. In a letter dated February, 22, 1965, the law firm of Ramirez and Ortigas informed Phillips
and Sons that their client, the petitioner, rejected the plan to modify in any way the original
agreements for payment and that the letter was a formal notice that the complaint for the
enforcement of the original contracts would be filed on March 8, 1965 unless the case is settled
in a satisfactory manner. (Exhibit 23-Perez Rubio, Exhibit 11, p. 80).

As a consequence of the February 22, 1965 letter of the petitioner, Juan T. David, counsel for
Phillips and Sons wrote the petitioner himself. In this letter dated March 12, 1965, Atty. David
requested that the petitioner withdraw his controversial November 24, 1964 letter. According to
David the said letter was the "only obstacle to the conclusion of the transaction between my
client, Robert O. Phillips and Sons, Inc. and Mr. Yuchengco involving the shares of stock of
Hacienda Benito, Inc." A copy of the letter was attached to a letter sent to Yuchengco also
dated March 12, 1965 informing him about the failure to obtain the desired waiver and
expressing the view that "waiver is unnecessary."

In another letter dated March 26, 1965 addressed to the petitioner, Atty. David gave the
petitioner until March 29, 1965 to withdraw unconditionally the controversial letter. The petitioner
was informed that Yuchengco had given an ultimatum that if waiver was not obtained by March
31, 1965, the transaction would have to be cancelled.

In reply to the March 26, 1965 letter, the petitioner sent a letter addressed to Phillips and Sons
and the Phillips spouses informing them that the letter served as notice that all negotiations had
been cancelled. Perez Rubio gave them until March 31, 1965 to pay the balance of the payment
for his shares of stock plus interests and attorney's fees.

The letter served as the last communications between the petitioner and Phillips and Sons and
the Phillips spouses before March 31, 1965 when Civil Case No. 8632 was filed.

Taking into consideration, all the details of the negotiations in the sale of the shares of stock of
Hacienda Benito, Inc. from Phillips and Sons to Mr. Yuchengco, there is no factual or legal basis
for the appellate court's conclusion that the petitioner unlawfully and inofficiously interfered with
the negotiations.

We fail to see any reason why the petitioner should be accused of unlawful interference in
maintaining his stand regarding the sale of shares of stock of Hacienda Benito, Inc. that he still
had the option to rescind the contract between him and Phillips and Sons and stating the
existence of his vendor's hen over said shares of stock.

The petitioner never pretended that he still had full control of the shares of stock which he sold
to Phillips and Sons. He in fact admitted that the shares of stock were already transferred to the
corporation and that he did not have a recorded lien therein. He merely made of record his right
to rescind under the original contract of sale. The details pertaining to the earlier transaction
governing the sale of the shares of stock between the petitioner and Phillips and Sons were in
fact, all known to Yuchengco. And, more important, it is obvious from the records that the
petitioner's interest was only in the payment of the P4,250,000.00 balance due him from Phillips
and Sons. Thus, in a meeting called by Yuchengco where the negotiations for the sale of the
shares of stock of Hacienda Benito were discussed, the petitioner made it clear that he was
amenable to his waiving or withdrawing the controversial November 24, 1964 letter provided his
interests would be taken care of and protected. (Testimony of Perez Rubio, TSN., August 5,
1970, pp. 44-50). Obviously, the petitioner felt that the payment of his P4,250,000.00 was not
secured under the terms of payment proposed by Yuchengco. He had the right to refuse to
withdraw the November 24, 1964 letter. We see nothing illegal or inofficious about the letter or
the refusal to withdraw it.

Whether or not Yuchengco, the prospective buyer, believed that Perez Rubio had a good
ground to rescind and whether or not the buyer's interest would be prejudiced were matters of
decision-making dependent solely on hint In fact the March 12, 1965 letter of Atty. Juan T.
David to the petitioner is quite revealing. Phillips and Sons admitted that under the
circumstances, the petitioner's waiver of the controversial November 24, 1964 letter was
unnecessary. The letter disclosed the fact that the waiver issue was extensively discussed by
the parties including their counsel's maintaining the view that waiver was unnecessary. Thus:

March
12,
1965

MR. MIGUEL PEREZ RUBIO

c/o Ramirez and Ortigas Law Office

1515 Roxas Boulevard

Manila

Sir:

xxx xxx xxx

Taking advantage of the permission given to us by Mr. Yuchengco, to take up the

aforementioned legal aspect of the 'waiver', with his counsel, Atty. Alberto M.
Meer, we conferred with the latter and expressed our understanding of a 'waiver',
and the conclusion that it has no place in the present case, considering the fact
that a 'waiver' is only appropriate where the person from whom it is sought has a
direct recorded lien on the subject thereof, particularly when the subject is a
negotiable instrument; that, at best, a withdrawal of your aforementioned letter
should be sufficient to allay the fear of Mr. Yuchengco on the possibility of a suit
which might involve him after the sale, if the 'waiver' is not obtained from you.

We also called the attention of Mr. Yuchengco that the shares of stock subject of
the transaction are clean and un-encumbered, therefore, there is nothing to
 waive on the part of any person; that the negotiability of the said shares of stock
is not impaired by the fact that the owner thereof is indebted to another,
especially considering the fact that, instead of securing your credit against my
client with the encumbrance of its shares of stock, you preferred the personal
guaranty of Mr. and Mrs. Robert O. Phillips, as recorded in the corresponding
instruments.

Atty. Meer told us that, if we could obtain from you the letter of withdrawal and
the phraseology thereof is adequate, the only obstacle to the consummation of
the transaction will have been removed and he is disposed to advise his client,
Mr. Yuchengco, to go through with the purchase of the shares of stocks of the
Hacienda Benito, Inc., therefore, we reiterate our request for the withdrawal of
your aforementioned letter.

xxx xxx xxx

Very truly yours,

(SGD.)

JUAN
T.
DAVID

Couns
el

for ROBERTO.
PHILLIPS

& SONS, INC.

A carbon copy of a March 12, 1965 letter from Atty. David to Mr. Alfonso Yuchengco was
attached to the letter addressed to Mr. Perez Rubio. In the letter to Mr. Yuchengco, the counsel
for Phillips and Sons stressed the View that the waiver or withdrawal of the Perez Rubio letter
was unnecessary.

The conclusion to be drawn from these facts is that the petitioner is not liable for any form of
damages in favor of Phillips and Sons and the Phillips spouses. Consequently, we come to the
issue of whether or not the Phillips spouses are solidarily liable for the debt of Phillips and Sons.
This is the issue raised in the seventh assignment of error.

It should be remembered that on June 23, 1964, Philipps and Sons and the Phillips spouses
entered into an agreement wherein, in consideration of the extension granted to Phillips and
Sons in the payment of the latter's outstanding debt to the petitioner, the Phillips spouses ". . .
jointly and severally guaranteed all the installments and other obligations of Robert O. Phillips &
Sons, Inc. under the signed contract of sale dated April 13, 1963. " Phillips and Sons was not
able to pay the petitioner as covenanted in the agreement.
The agreement was not assailed in any of the cases involving the petitioner Phillips and Sons
and the Phillips spouses. Both parties admit the veracity of the agreement. The agreement
serves as the law between the parties. The full enforcement of the agreement's provisions
necessarily is in order. We rule that per agreement, the Phillips spouses are jointly and severally
liable to the petitioner for the outstanding debt of Phillips and Sons with interest therein from
April 30, 1964 until fully paid.

The third, fourth, fifth and sixth assignments of errors refer to the actual damages awarded to
Manufacturers Bank and Hacienda Benito by the appellate court.

Both awards were premised on the appellate court's finding that Manufacturers Bank and
Hacienda Benito were wrongfully impleaded as parties by the petitioner in his two petitions
earlier filed wherein two injunctions were issued by this Court. As a result, the parties allegedly
suffered damages. The appellate court premises its findings on the following justifications:

(a) Even before the aborted transaction between ROPSI and Alfonso Yuchengco,
Hacienda Benito, Inc. was already indebted to the Manufacturers Bank the year
before. Appellant ROPSI had also executed real estate mortgages on 78
hectares out of the 135-hectare holding of Hacienda Benito, Inc. in favor of the
Manufacturers Bank. Subsequently, the Hacienda executed a Memorandum
Agreement on June 5, 1965 with Victoria Valley Development Corporation, with
the conformity of the Manufacturers Bank as mortgage creditor, where the
financial obligations of the Hacienda and its other affiliate corporations were
restructured thus freeing them from their financial obligations to the
Manufacturers Bank in exchange for 78 hectares of land which were then
mortgaged with the Manufacturers Bank, let alone the payment of a huge amount
of interest on the principal. As of May 21, 1965, the Hacienda and its affiliates
have not paid the Manufacturers Bank P 7,459,042.98 which was already due
and demandable forcing the Manufacturers Bank to file Civil Case No. 8766
against the Hacienda for the foreclosure of the mortgages which resulted in a
compromise agreement between the parties, which the court below approved.
(Defendant's Record on Appeal, pp. 498-499).

(b) As early as October 8, 1965, Miguel Perez Rubio knew that no assets have
been transferred under the Memorandum Agreement of June 5, 1965 and that
Victoria Valley Development Corporation has considered said Agreement without
force and effect making it moot and academic for purposes of rescission (Ibid, p.
501),

(c) There is nothing in the promissory notes and the real estate mortgages
forming part of the records of Civil Case No. 8766 to show that they have been
executed in bad faith or to defeat the credit of Miguel Perez Rubio against ROPSI
since they were executed in 1963 over 78 hectares out of the 135- hectare
holding of Hacienda Benito, Inc. in the Victoria Valley Subdivision so that prior to
the default of ROPSI in the payment of the third installment on August 31, 1964
in favor of Perez Rubio, there were already prior and existing mortgages over the
78 hectares owned by the Hacienda in favor of the Manufacturers Bank (Ibid., pp.
501- 502).
 (d) The existence of sufficient assets for the payment of the credit of Perez Rubio
failed to contradict the evidence showing the existence of unencumbered
properties of Hacienda Benito, Inc. which were more than sufficient to meet his
credit against ROPSI in the amount of P4,250,000.00 as well as the evidence
showing the good financial position of the Hacienda as shown by Exhibit II -
Benito, also marked as Exhibit 9-MBTC, III Folder of Exhibits, p. 129 (Ibid., pp.
502- 503).

(e) The admission of Perez Rubio that he did not investigate with the
corresponding registers of deeds and other entities the status of the
unencumbered properties of Hacienda Benito, Inc., ROPSI, Robert O. Phillips
and his wife, and the other corporations owned by the Phillips spouses before
filing the third-party complaints against the Manufacturers Bank & Trust
Company, Hacienda Benito, Inc. and Victoria Valley Development Corporation
(t.s.n., August 21, 1974, pp. 133- 138). . . .

xxx xxx xxx

These findings do not justify the appellate court's conclusion that Manufacturers Bank and
Hacienda Benito were wrongfully impleaded and that Perez Rubio owes them millions of pesos
in damages as a result.

In the welter of cases filed by the contending parties over the same properties and the confusion
spawned by the many incidents which gave rise to separate petitions, one basic fact tends to be
forgotten. It is this. The Perez Rubio spouses sold Hacienda Benito, Inc. to Phillips and Sons for
P5,500,000.00 in 1963 or more than 22 years ago. P50,000.00 was paid immediately;
P1,2000,000.00 was due in 60 days; in another 6 months, a third payment of P1,250,000.00
was to be paid. The full amount should have been paid by April 30, 1967. Up to now, P4.25
million of the basic indebtedness has not been paid.

The Perez Rubio spouses were not paid as agreed in the contract. When the buyers could not
comply with their commitments, the Perez Rubios graciously acceded to a deferment of overdue
accounts under a new agreement. Still the payments could not be effected under the extension.

All the transactions which led to the litigations by, against, or among Manufacturers Bank,
Hacienda Benito, Phillips and Sons, and the Phillips spouses were entered into at the time when
payments on the petitioner's shares of stock were overdue, A person who has not been paid a
balance of P4,250,000.00 on a sale of P5,500,000.00 will naturally be extremely disturbed to
see the buyers and other parties dealing with the properties in a manner which could be
reasonably construed as calculated to bring them beyond his reach and making full payment of
the debt extremely difficult, if not impossible. It was a normal reaction and to be expected for the
original owner to inform third persons trying to buy the still unpaid properties about that fact of
non- payment and to emphasize to them his right and options under the original contract of sale.
It was also normal to include the third party would-be-buyers who had taken sides with the
defaulting original buyer in the litigations brought against Perez Rubio, the man seeking to
protect his endangered interests.

The inclusion of Manufacturers Bank and Hacienda Benito was part and parcel of the efforts to
protect Perez Rubio's interests. It should be noted that petitions wherein they were impleaded
had for their subject matter the same unpaid obligation of P4,250,000.00 from Phillips and Sons.
The properties to be foreclosed by the Bank represented properties of Perez Rubio for which he
had not yet been paid.

There is nothing in the records to show that, far from protecting his P4.25 million, Perez Rubio
filed the third party complaint to vex and humiliate Manufacturers Bank and Hacienda Benito. As
we ruled in the case of R & B Surety and Insurance Company Inc, v. Intermediate Appellate
Court (129 SCRA 736):

xxx xxx xxx

While petitioner might have been negligent in not verifying the authenticity of the
signatures in the indemnity agreement, still the same does not amount to bad
faith as to justify the award of damages and the conclusion that the act of filing
the complaint against respondent Uson amounts to malicious prosecution. In
filing the action, the petitioner was only protecting its business interests by trying
to recover the amount it had already paid to the Philippine National Bank.

In a long line of cases, we have consistently ruled that in the absence of a

wrongful act or ommission or of fraud or bad faith, moral damages cannot be
awarded and that the adverse result of an action does not per se make the action
wrongful and subject the actor to the payment of damages, for the law could not
have meant to impose a penalty on the right to litigate. . . .

The actual damages awarded to both the Manufacturers Bank and Hacienda Benito apart from
having no legal basis were also not duly proven. In fact, the appellate court made no findings of
fact on how it arrived at the total amount of P895,085.14 awarded to Manufacturers Bank much
less did the court discuss the damages awarded to Hacienda Benito. The damages awarded to
Hacienda Benito were only impliedly affirmed by the dispositive portion of the decision wherein
it declared that the decision of the lower court was affirmed in toto.

This can not be done. As we ruled in Perfecto v. Gonzales (128 SCRA 635):

xxx xxx xxx

. . . [A]ctual or compensatory damages are those recoverable because of

pecuniary loss in business, trade, property, profession, job, or occupation, and
the same must be proved; otherwise, if the proof is flimsy and non- substantial,
no damages will be given. In the case of Malonzo v. Galang, log Phil. 16, the
Court, speaking through Justice J.B.L. Reyes, held that with respect to
compensatory damages assuming that they are recoverable under the theory
that petitioner had filed a clearly unfounded suit against respondent, the same
constitutes a tort against the latter that makes the former liable for all damages
which are the natural and probable consequences of the act or omissions
complained of. These damages, cannot, however, be presumed and must be
duly proved (Article 2199, New Civil Code). Well settled is the rule that even if the
complaint filed by one against the other is clearly unfounded this does not
necessarily mean, in the absence of specific facts proving damages, that said
defendant reany suffered actual damage over and above attorney's fees and
costs. The Court cannot rely on its relations as to the fact and amount of
 damages. It must depend on actual proof of the damages alleged to have been
suffered.

Considering these conclusions, the final question to be resolved is whether or not the petitioner
is entitled to moral and exemplary damages? This is the subject matter of the eighth and ninth
assigned errors.

We have stated that the petitioner had valid reasons to implead Manufacturers Bank and
Hacienda Benito in his cases against Phillips and Sons and the Phillips spouses. An
assessment of the evidence in record shows that the filing of the complaint may likewise be
characterized as a sincere attempt on the part of Phillips and Sons and the Phillips spouses to
find means or to buy time to pay their debt to the petitioner. In the case of Manufacturers Bank,
the record shows that its active participation in the transaction involving the properties of
Hacienda was legitimate. While no damages are due the Bank, neither is it liable for damages.
As far as Victoria Valley is concerned, we find no reason to conclude that it was really organized
or actively participated to prejudice the interests of the petitioner. The record shows that Victoria
Valley withdrew from the transaction involving the properties of Hacienda Benito even before
the filing of the third party complaint. The eighth and ninth assignments of errors under
consideration are, therefore, without merit.

WHEREFORE, the petition is GRANTED. The decision of the former Court of Appeals is hereby
REVERSED and SET ASIDE. The respondents Robert O. Phillips and Sons and the Phillips
spouses are declared to be jointly and severally liable to the petitioner for the outstanding debt
of Phillips and Sons in the amount of FOUR MILLION, TWO HUNDRED FIFTY THOUSAND
PESOS (P4,250,000.00) with interest at the rate of eight (8%) percent per annum from April 30,
1964 until fully paid as provided for in the parties' agreement dated August 13, 1963. Costs
against the respondents.

SO ORDERED.
G.R. No. 120554 September 21, 1999

SO PING BUN, petitioner,
vs.
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
TIONG, respondents.

QUISUMBING, J.:

This petition for certiorari challenges the Decision 1 of the Court of Appeals dated October 10,
1994, and the Resolution 2 dated June 5, 1995, in CA-G.R. CV No. 38784. The appellate court
affirmed the decision of the Regional Trial Court of Manila, Branch 35, except for the award of
attorney's fees, as follows:

WHEREFORE, foregoing considered, the appeal of respondent-appellant So

Ping Bun for lack of merit is DISMISSED. The appealed decision dated April 20,
1992 of the court a quo is modified by reducing the attorney's fees awarded to
plaintiff Tek Hua Enterprising Corporation from P500,000.00 to P200,000.00. 3

The facts are as follows:

In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease
agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts
were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila.
Tek Hua used the areas to store its textiles. The contracts each had a one-year term. They
provided that should the lessee continue to occupy the premises after the term, the lease shall
be on a month-to-month basis.

When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to
occupy the premises. In 1976, Tek Hua Trading Co. was dissolved. Later, the original members
of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein
respondent corporation.

So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok's grandson,
petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter
Marketing.

On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the
latter of the 25% increase in rent effective September 1, 1989. The rent increase was later on
reduced to 20% effective January 1, 1990, upon other lessees' demand. Again on December 1,
1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease
contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall
be deemed as lack of interest on the lessee's part, and agreement to the termination of the
lease. Private respondents did not answer any of these letters. Still, the lease contracts were
not rescinded.

On March 1, 1991, private respondent Tiong sent a letter to petitioner which reads as follows:

March 1, 1991

Mr. So Ping Bun

930 Soler Street

Binondo, Manila

Dear Mr. So,

Due to my closed (sic) business associate (sic) for three decades with your late
grandfather Mr. So Pek Giok and late father, Mr. So Chong Bon, I allowed you
temporarily to use the warehouse of Tek Hua Enterprising Corp. for several years
to generate your personal business.

Since I decided to go back into textile business, I need a warehouse immediately

for my stocks. Therefore, please be advised to vacate all your stocks in Tek Hua
Enterprising Corp. Warehouse. You are hereby given 14 days to vacate the
premises unless you have good reasons that you have the right to stay.
Otherwise, I will be constrained to take measure to protect my interest.
 Please give this urgent matter your preferential attention to avoid inconvenience
on your part.

Very truly yours,

(Sgd) Manuel C. Tiong

MANUEL C. TIONG

President 4

Petitioner refused to vacate. On March 4, 1992, petitioner requested formal contracts of lease
with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his
grandfather, So Pek Giok, he had been occupying the premises for his textile business and
religiously paid rent. DCCSI acceded to petitioner's request. The lease contracts in favor of
Trendsetter were executed.

In the suit for injunction, private respondents pressed for the nullification of the lease contracts
between DCCSI and petitioner. They also claimed damages.

After trial, the trial court ruled:

WHEREFORE, judgment is rendered:

1. Annulling the four Contracts of Lease (Exhibits A,

A-1 to A-3, inclusive) all dated March 11, 1991,
between defendant So Ping Bun, doing business
under the name and style of "Trendsetter
Marketing", and defendant Dee C. Chuan & Sons,
Inc. over the premises located at Nos. 924-B, 924-
C, 930 and 930, Int., respectively, Soler Street,
Binondo Manila;

2. Making permanent the writ of preliminary

injunction issued by this Court on June 21, 1991;

3. Ordering defendant So Ping Bun to pay the

aggrieved party, plaintiff Tek Hua Enterprising
Corporation, the sum of P500,000.00, for attorney's
fees;

4. Dismissing the complaint, insofar as plaintiff

Manuel C. Tiong is concerned, and the respective
counterclaims of the defendant;

5. Ordering defendant So Ping Bun to pay the costs

of this lawsuit;
 This judgment is without prejudice to the rights of plaintiff Tek Hua Enterprising
Corporation and defendant Dee C. Chuan & Sons, Inc. to negotiate for the
renewal of their lease contracts over the premises located at Nos. 930, 930-Int.,
924-B and 924-C Soler Street, Binondo, Manila, under such terms and conditions
as they agree upon, provided they are not contrary to law, public policy, public
order, and morals.

SO ORDERED. 5

Petitioner's motion for reconsideration of the above decision was denied.

On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On motion for
reconsideration, the appellate court modified the decision by reducing the award of attorney's
fees from five hundred thousand (P500,000.00) pesos to two hundred thousand (P200,000.00)
pesos.

Petitioner is now before the Court raising the following issues:

I. WHETHER THE APPELLATE COURT ERRED IN

AFFIRMING THE TRIAL COURT'S DECISION FINDING
SO PING BUN GUILTY OF TORTUOUS INTERFERENCE
OF CONTRACT?

II. WHETHER THE APPELLATE COURT ERRED IN

AWARDING ATTORNEY'S FEES OF P200,000.00 IN
FAVOR OF PRIVATE RESPONDENTS.

The foregoing issues involve, essentially, the correct interpretation of the applicable law on
tortuous conduct, particularly unlawful interference with contract. We have to begin, obviously,
with certain fundamental principles on torts and damages.

Damage is the loss, hurt, or harm which results from injury, and damages are the recompense
or compensation awarded for the damage suffered. 6 One becomes liable in an action for
damages for a nontrespassory invasion of another's interest in the private use and enjoyment of
asset if (a) the other has property rights and privileges with respect to the use or enjoyment
interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a legal cause of the
invasion, and (d) the invasion is either intentional and unreasonable or unintentional and
actionable under general negligence rules. 7

The elements of tort interference are: (1) existence of a valid contract; (2) knowledge on the part
of the third person of the existence of contract; and (3) interference of the third person is without
legal justification or excuse. 8

A duty which the law of torts is concerned with is respect for the property of others, and a cause
of action ex delicto may be predicated upon an unlawful interference by one person of the
enjoyment by the other of his private
property.9 This may pertain to a situation where a third person induces a party to renege on or
violate his undertaking under a contract. In the case before us, petitioner's Trendsetter
Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner
deprived respondent corporation of the latter's property right. Clearly, and as correctly viewed
by the appellate court, the three elements of tort interference above-mentioned are present in
the instant case.

Authorities debate on whether interference may be justified where the defendant acts for the
sole purpose of furthering his own financial or economic interest. 10 One view is that, as a
general rule, justification for interfering with the business relations of another exists where the
actor's motive is to benefit himself. Such justification does not exist where his sole motive is to
cause harm to the other. Added to this, some authorities believe that it is not necessary that the
interferer's interest outweigh that of the party whose rights are invaded, and that an individual
acts under an economic interest that is substantial, not merely de minimis, such that wrongful
and malicious motives are negatived, for he acts in self-protection. 11 Moreover justification for
protecting one's financial position should not be made to depend on a comparison of his
economic interest in the subject matter with that of others. 12 It is sufficient if the impetus of his
conduct lies in a proper business interest rather than in wrongful motives. 13

As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in the interference of
a contract, and the impulse behind one's conduct lies in a proper business interest rather than in
wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is
financially interested, and such interest motivates his conduct, it cannot be said that he is an
officious or malicious intermeddler. 15

In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the
warehouse to his enterprise at the expense of respondent corporation. Though petitioner took
interest in the property of respondent corporation and benefited from it, nothing on record
imputes deliberate wrongful motives or malice on him.

Sec. 1314 of the Civil Code categorically provides also that, "Any third person who induces
another to violate his contract shall be liable for damages to the other contracting party."
Petitioner argues that damage is an essential element of tort interference, and since the trial
court and the appellate court ruled that private respondents were not entitled to actual, moral or
exemplary damages, it follows that he ought to be absolved of any liability, including attorney's
fees.

It is true that the lower courts did not award damages, but this was only because the extent of
damages was not quantifiable. We had a similar situation in Gilchrist, where it was difficult or
impossible to determine the extent of damage and there was nothing on record to serve as
basis thereof. In that case we refrained from awarding damages. We believe the same
conclusion applies in this case.

While we do not encourage tort interferers seeking their economic interest to intrude into
existing contracts at the expense of others, however, we find that the conduct herein
complained of did not transcend the limits forbidding an obligatory award for damages in the
absence of any malice. The business desire is there to make some gain to the detriment of the
contracting parties. Lack of malice, however, precludes damages. But it does not relieve
petitioner of the legal liability for entering into contracts and causing breach of existing ones.
The respondent appellate court correctly confirmed the permanent injunction and nullification of
the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages.
The injunction saved the respondents from further damage or injury caused by petitioner's
interference.
Lastly, the recovery of attorney's fees in the concept of actual or compensatory damages, is
allowed under the circumstances provided for in Article 2208 of the Civil Code. 16 One such
occasion is when the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest. 17 But we have consistently held that the
award of considerable damages should have clear factual and legal bases. 18 In connection with
attorney's fees, the award should be commensurate to the benefits that would have been
derived from a favorable judgment. Settled is the rule that fairness of the award of damages by
the trial court calls for appellate review such that the award if far too excessive can be
reduced. 19 This ruling applies with equal force on the award of attorney's fees. In a long line of
cases we said, "It is not sound policy to place in penalty on the right to litigate. To compel the
defeated party to pay the fees of counsel for his successful opponent would throw wide open
the door of temptation to the opposing party and his counsel to swell the fees to undue
proportions."20

Considering that the respondent corporation's lease contract, at the time when the cause of
action accrued, ran only on a month-to-month basis whence before it was on a yearly basis, we
find even the reduced amount of attorney's fees ordered by the Court of Appeals still exorbitant
in the light of prevailing jurisprudence. 21 Consequently, the amount of two hundred thousand
(P200,000.00) awarded by respondent appellate court should be reduced to one hundred
thousand (P100,000.00) pesos as the reasonable award or attorney's fees in favor of private
respondent corporation.

WHEREFORE, the petition is hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 38784 are hereby AFFIRMED, with MODIFICATION that
the award of attorney's fees is reduced from two hundred thousand (P200,000.00) to one
hundred thousand (P100,000.00) pesos. No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.